Toward More Efficient and Effective Public Social Spending in Central America


While sharing many differences, including the history of violent civil conflicts, the Central American countries also share many similarities including their relatively small size and a common history and culture. A pressing issue for the set of the six Central American countries - Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama - is how can they improve public budget allocation, and, in particular, the efficiency of spending in the social sectors. These are essential ingredients towards promoting a better standard of living for current and future citizens, especially those who are poor and vulnerable.

This WBG report analyzes recent trends and composition of public spending in the social sectors - Education, Health, and Social Protection & Labor -  between 2007 and 2014. It also reviews the quality of selected institutions and sector governance arrangements that influence public social spending. The report addresses three crucial policy issues: (a) how to improve coverage and within country incidence of public social spending, (b) how to enhance the effectiveness and efficiency of public social spending, and (c) how to strengthen the institutions governing public spending in the social sector. 

For this report, new spending data were collected, harmonized, and analyzed, focusing not only on overall social spending but also going into more detail on the education, health, and SPL sectors. The aggregate social spending data used correspond to the budget executed by centralized and decentralized government entities and follow the International Monetary Fund (IMF) classification.  Spending data were harmonized to capture the same items in a consistent and systematic manner across countries.

The conclusions are rich in concrete policy recommendations for education, health, and social protection and labor across the different countries. However, the Central America region also shares important common areas for improvement. First, strengthen the monitoring and evaluation systems within and across the social sectors would promote more cost-effective human development spending. Only with more and better data to track performance in social outputs and outcomes, as well as financial resources, at the country and subnational levels can the sub-region plan, monitor and evaluate programs and the effectiveness of public social spending. Second, using reforms to foster increased accountability in service delivery for public service providers, both at the national and subnational levels, for achieving human development outputs and outcomes. Finally, improving coordination in the design, implementation, and delivery across “social” interventions is critical for achieving more effective human development results, as well as to supporting the availability of more qualified human resources in the social sectors.