LAC Countries Largely Recovered to Pre-Pandemic Levels

The World Bank is reporting that Latin American and Caribbean (LAC) economies have largely recovered to pre-COVID-19 pandemic levels, and the region “has regained some sense of normalcy”.

“Employment levels have almost fully recovered… schools have reopened and, with exceptions in the Caribbean, the high rate of vaccination against COVID-19 allowed for a return to normalcy,” the Bank indicated in its latest report, ‘New Approaches to Closing the Fiscal Gap’.

An October 4 communiqué posted on the Bank’s website indicates that the region is projected to grow by an estimated three per cent in 2022, with the report noting that this is “a higher than previously expected rate”, albeit due to rising commodity prices.

However, the multilateral institution cautions that the economies of LAC countries “need to be reignited to avoid a new low growth cycle”, while maintaining that social and infrastructure investments can be “key drivers of growth and shared prosperity”.

Vice President for the LAC, Carlos Felipe Jaramillo, while acknowledging that “most economies have returned to pre-pandemic levels”, emphasised that this “is not enough”.

“Countries in the region have the opportunity to rebuild better after the crisis and achieve more just and inclusive societies. In addition to undertaking the reforms and investments critical to lifting growth, governments need to address the structural costs – the lost years of education, missed vaccines, and the delayed impacts of food insecurity that the recovery of [gross domestic product] GDP obscures,” he maintained.

The report also pointed out that the region is well placed to rethink its development path, based on the extent of the recovery recorded.

The document further cited the “strong global uncertainty” as a result of the Russia-Ukraine conflict, higher interest rates in developed countries, and “persistent inflationary pressures” as factors that will potentially impact regional economies.

It pointed out that low growth rates of 1.6 per cent and 2.3 per cent are expected in 2023 and 2024 respectively, noting that these outturns are comparative to the “lackluster” levels recorded in the decade of 2010, “and insufficient to achieve significant progress in reducing poverty.”

“Inflation, while for most countries is at [Organization for Economic Co-operation and Development] OECD levels, will require continued efforts to reduce to previous target levels. However, scars from the [pandemic] crisis remain and need to be addressed… both to revive growth and mitigate increases in inequality,” the report added.

The document further called on countries to carefully examine public spending and tax policy options in order to promote equity and avoid possible “adverse effects”.

The Bank’s Chief Economist for the LAC, William Maloney, maintains that “managing higher debt burdens arising from the crisis while generating enough fiscal space for growth-promoting investments requires carefully considered new sources of revenue, but also better use of existing spending”.

“On average, 17 per cent of government spending could be saved and in two-thirds of countries, these savings could erase current budget deficits. Rationalising state spending is a step toward building more efficient, responsive and trusted governments,” Mr. Maloney said.