Economies in Latin America and the Caribbean will remain weak in the years after the coronavirus pandemic and must implement urgent fiscal reforms to confront social challenges, the Inter-American Development Bank (IDB) said on Saturday.
The organization expects the region to see average economic expansion of 4.1% this year, following a contraction of 7.4% in 2020, representing the worst registered economic crash since 1821.
However, economic growth could slow to 2.5% in 2022 and 2023, the IDB said in a statement during its annual assembly, held in the Colombian city Barranquilla.
Worse still, the region runs the risk of seeing timid growth of 0.8% this year, before contracting 1.1% in 2022 and growing 1.8% in 2023, the IDB added, urging countries to lay the foundations for a more solid recovery.
If the region is to achieve stronger rates of growth, it must implement reforms to improve productivity, help connect companies to global value chain and promote digital economies and job creation in an inclusive, sustainable fashion, the IDB said.
“Given the fiscal challenges and high levels of indebtedness, improving fiscal institutions should be a high priority issue,” Andrew Powell, a senior advisor to the IDB and one of the report’s coordinators, said.
Countries with low tax revenue should try to increase their income without sacrificing economic growth, the bank said. Increased earnings should be allocated to projects which can have a strong social impact, such as infrastructure works needed to build a digital economy and generate employment.
While a few countries implemented large fiscal packages during the pandemic, more than two-thirds of the region’s governments gave more modest assistance of around 3% of gross domestic product or less, the IDB said.