Central America, Panama and the Dominican Republic are Recovering, but Face Challenges

• According to the latest IDB Group report, Costa Rica, El Salvador, Guatemala, Nicaragua, and the Dominican Republic have already recovered pre-pandemic economic activity levels.
• During 2021 the IDB Group approved $3.38 billion in financing to support the productive sector, inclusive recovery from the COVID-19 crisis, employment, value chains, and digitalization.

Although the region experienced an across-the-board economic recovery in 2021, different countries moved at different pace, according to the latest IDB Group Activity Report titled “On the path to an inclusive and sustainable economic recovery.” This recovery, however, has not yet been sufficient to offset the social losses caused by the pandemic.

Costa Rica, El Salvador, Guatemala, Nicaragua, and the Dominican Republic have already recovered their 2019 economic activity levels. But Panama, although expected to post the biggest growth in the continent in 2021, is unlikely to return to its pre-pandemic levels before late 2022 or 2023 due to the severe economic impact of the 2020 confinement. Belize has also experienced solid growth, but because of its strong dependence on tourism, it will only return to its pre-pandemic production level either in 2022 or 2023. The same is the case with Honduras, which was the country hardest hit by hurricanes.

Employment recovering slowly

While 2021 was a year of recovery for the region, employment reactivation has advanced at a slower pace than the rest of the economic activity. The reason for this is that the sectors with the greatest employment-generation potential, such as construction, the hotel industry, and trade have lagged behind other less labor-intensive areas like manufacturing, telecommunications, energy, and agriculture. This situation has affected mostly informal and low-qualified workers, including women and youth.

To generate quality employment, the IDB Group has focused on supporting the productive development of MSMEs, which account for 99% of the region’s companies and provide between 65% and 70% of the jobs to the economically active population by promoting exports, access to markets, and financing for the production sector, with a special emphasis on the incorporation of small rural producers into major value chains.

In the period 2020-2021, the IDB Group leveraged $5.63 billion to support the region’s efforts to tackle the pandemic challenges, not only helping to provide immediate healthcare and assistance response to vulnerable populations, but also to support the productive fabric and employment, and to promote actions to help with economic recovery from the pandemic.          

In 2021 alone, the IDB Group approved $3.38 billion for Central America and the Dominican Republic. This level of financing was 20%-plus higher than the annual average approved for the 2016-1019 period, mostly due to a greater participation of the private sector, which in 2021 accounted for 35% of the total approved volume.

The IDB also provided continued support to the fight against the COVID-19 crisis, while fostering recovery initiatives for the region on areas such as competitiveness, digital agenda, MSMEs financing, fiscal management, social investment, and agricultural innovation and food security. IDB Invest, the IDB Group’s private-sector arm, focused on supporting the productive fabric and employment, particularly of SMEs and their value chains, as well as on facilitating foreign trade. IDB Lab, the innovation laboratory of the IDB Group, concentrated its efforts on supporting the use of sustainable agricultural technologies and practices, ecotourism, financial inclusion, training, and employment.

The 2021 Activity Report is available here: "On the path to an inclusive and sustainable economic recovery.”