Latin America must maintain expansionary fiscal policy, says ECLAC

The UN agency pointed out that the fiscal efforts announced in 2020 represented 4.6% of GDP on average for the countries of the region

Event promoted by ECLAC
Event promoted by ECLAC. Photo: Reuters/Alexandre Meneghini
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Latin America and the Caribbean should maintain expansionary fiscal and monetary policies to cope with the impact caused by COVID-19, amid the fragility shown by the economic recovery, an ECLAC report said on Wednesday.

In the document, the Economic Commission for Latin America and the Caribbean, an agency of the United Nations (UN), highlighted that the fiscal efforts announced in 2020 represented 4.6% of GDP on average for the countries of the region.

Efforts were directed at strengthening public health systems, supporting families and protecting the productive structure.

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“Meanwhile, the persistence of the pandemic, the asymmetries in the availability of vaccines and uncertainty about their effectiveness, along with the uneven and divergent paces of economic reactivation, cast doubt on the speed and sustainability of the economic recovery,” said ECLAC.

The agency estimated that the recovery of GDP to levels prior to the start of the pandemic will not be achieved before 2023 in most countries in the region.

ECLAC also considered that fiscal spending should serve not only to support domestic demand, but also to promote intensive investment in jobs, productive transformation, as well as strengthening and universalizing social protection systems.

Expansion of public spending and declining tax revenues have produced significant increases in fiscal deficits and debt levels in the region, the report said.

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“The region is one of the most heavily indebted in the world and has the highest ratio of external debt service to exports of goods and services (59%)” it said.

ECLAC even raised the need to expand and redistribute liquidity from developed to developing countries.

The report also explains the experiences of several countries that have imposed wealth taxes, many of which have been lifted mainly because of their efficiency costs and the risk of capital flight.

Translated by LABS

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