Oil Imports Impact Trade Balances in Central America and the Dominican Republic

In the first half of 2024, Central America and the Dominican Republic saw their trade deficits increase due to higher oil imports, a report from the Central American Monetary Council (CMCA) reveals.

The need for more oil, used primarily in thermal power plants, was exacerbated by lower reservoir levels from the El Niño event.

The region experienced a broader trade deficit, propelled by heightened consumer goods purchases and rising oil expenses across most countries.

Specifically, the Dominican Republic’s trade deficit slightly rose by 1.0% to $7.605 billion. Yet, there was a rebound in total exports, increasing by 2.3% to $6.833 billion, with free zone exports leading the growth at 6.6%.

In addition, Costa Rica reported a 3.1% increase in its trade deficit, reaching $2.090 billion. This was due to both a 6.8% increase in exports and a 6.1% rise in imports.

Notably, exports from free zones jumped by 9.2%, and those under the permanent regime by 2.6%. The oil bill alone climbed to $1.338 billion, up 13.2% from the previous year.

Trade Deficits in Central America

El Salvador’s trade gap widened by 5.4% to $4.580 billion. Export volume rose by 1.8%, but the export value fell by 6.78% to $3.209 billion. Textiles and apparel, excluding maquila, suffered a 12.3% decrease.

Guatemala’s trade deficit increased by 13.0%, influenced by a modest 0.9% decrease in exports and a 6.0% surge in imports, totaling $15.836 billion. Significant increases occurred in non-durable consumer goods and industrial raw materials.

In Honduras, the trade deficit expanded by 16.1% to $3.910 billion. This was marked by a 5.3% decrease in exports and a 2.4% increase in imports, predominantly influenced by lower exports of coffee, crude palm oil, and bananas.

Meanwhile, Nicaragua’s trade deficit surged by 60.1% to $1.244 billion. Despite this, exports from the mining sector grew by 22.2%, counterbalanced by an 18.5% drop in agricultural exports.

This data highlights the significant impact of oil imports on the financial stability of Central America and the Dominican Republic, pointing to the broader economic challenges related to energy dependency and market volatility.

The findings underscore the importance of diversifying exports and enhancing domestic production to stabilize and grow the region’s economies.