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Reducing brakes on regional trade, key to recovery in Central America, according to the World Bank

Central American countries must increase productivity and reduce costs and barriers to trade to recover from the worst recession in their history, caused by the pandemic and exacerbated by the passage of hurricanes Eta and Iota, the World Bank estimated in a study. posted this monday.

“It is estimated that the full implementation of the trade facilitation agreements of the World Trade Organization (WTO) would reduce trade costs by 15.5%, increasing intra-regional trade by 61% and the region’s GDP by 4.3 % by 2030, “said the multilateral entity based in Washington.

The Bank estimated that if this cost reduction is extended to trade with Mexico, trade between Central America and Mexico would grow 130% and Central America’s GDP would increase 6.7% by 2030.

According to the Bank, “these countries have the opportunity to boost their economies through a series of reforms in key areas” including a reduction in costs and barriers to trade, investments in human capital, innovation and more infrastructure.

“The poverty rate in Central America has increased from 35% to more than 40% between 2019 and 2020, due to the pandemic and also due to the blow caused by hurricanes ETA and Iota,” said in a virtual presentation of the study the Vice President for Latin America of the World Bank, Carlos Felipe Jaramillo.

“To reverse this increase in poverty, it is essential to increase the level of growth in economic activity,” added the Bank manager.

According to the study, in Central America the costs for trade are high, equivalent to tariffs of up to 74%, and transportation costs are also high, 0.17 dollars per ton-kilometer. As a benchmark, in sub-Saharan Africa the cost is between $ 0.06 and 0.11 and in advanced economies between $ 0.02 and 0.05.

The Bank indicated that on average “transportation costs represent about 2.6% of non-value-added expenses in the countries” and that in Guatemala and Honduras this disbursement is even higher.

“In sectors more dependent on transportation such as agriculture and grocery products, the proportion of spending on transportation is 4.5%,” indicated the Bank’s economists.

The experts from the multilateral entity also warned that the low rate of public investment in transport infrastructure has not helped and that given the impact of covid-19 this should become a priority.

“As the recovery from the current economic downturn gains momentum, countries should accelerate the opening of their trade regimes,” the experts concluded.

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