MercoPress. South Atlantic News Agency

Latin American economies at pre-pandemic levels but GDPs hide much poverty and inequality

The World Bank paper, on closing the fiscal gap, estimates Latin America and Caribbean growth 3% this year, but only 1,6% and 2,3% in the next two years

“Latin American and Caribbean economies have recovered their pre-pandemic levels and the region recovered certain feeling of normality, although the overall economy must rebuild to avoid a new cycle of low growth,” points out the latest from the World Bank under the heading of “New approaches to closing the Fiscal Gap.”

The report points out to an overall regional growth of 3% for 2022, higher than the previous estimate, mostly because of improved prices for commodities. Nevertheless the strong uncertainty shadowing the world because of the Ukraine war, the increase in interest rates in developed countries and persistent inflationary pressures will have an impact on the economies of the region“.

In this context ”lower growth rates, 1,6% and 2,3% are forecasted for 2023 and 2024, similar to the low levels of the 2010 decade and insufficient to achieve significant advances when it comes to reducing poverty.“

”Most economies have recovered their pre-pandemic levels, but it is not sufficient. Countries in the region have the opportunity to rebuild better conditions following the crisis and achieving societies that are fairer and inclusive,“ according to Carlos Felipe Jaramillo, World Bank vice-president for Latin America and the Caribbean.

Besides implementing the necessary reforms and investments to accelerate growth, governments must address structural costs, the lost years of schooling, vaccines non delivered and the impact of the food insufficiency which the recovery of GDPs conceals”

The report goes on to argue that the region is well positioned to outline its development projection. Employment has virtually recovered its pre-pandemic level, schools have reopened and with exceptions in the Caribbean, the high rate of vaccination against Covid19 has helped a return to normality.

Nevertheless some consequences of the pandemic situation remain and must be addressed. Although poverty was down to 28,5% in 2022 from 30% in 2021, it still is high. Likewise the long term costs of the health and education situations must be urgently overcome, both to help reactivate growth and to mitigate the increase of inequality in the region.

“Managing the increase load of debts from the difficult pandemic years, while generating a sufficient fiscal margin so as to address the investments that promote growth require of new sources of income that must be carefully analyzed, as well as a better use of current expenditure.”

“On average 17% of government expenditure could be saved, and in two thirds of countries in the region, these savings would mean a great help to eliminate current fiscal deficits,” according to William F. Maloney, the World Bank chief economist for Latin America and the Caribbean

The report insists countries must carefully analyze its public expenditure options and the taxing policy so as to favor equity and avoid potential adverse effects. This means improving the efficiency of outlays, “on average 4,4% of GDP or 17% of government expenditure is misspent through wrongly addressed transfers, deficiencies in contracting and inefficient human resources policies.”

When analyzing the fiscal situation in the region, --the gap--, the WB report points out that “when it comes to VAT in some countries, such as Bolivia, Ecuador, Mexico, Paraguay and most nations in Central America, there is ”fiscal space“ for an additional VAT increase, relatively exempt of costs, while in Argentina and Uruguay, and to a lesser extent, Brazil and Colombia, the increase would have a decisively negative impact on growth.”

The report also indicates that in Argentina, and other countries such as Brazil and Ecuador, the fiscal burden varies between 30/35% of GDP, almost at OECD level. But in other countries, Costa Rica and Dominican Republic, such load is 15% of GDP.

Finally a chart from the report indicates the WB growth estimates for some selected countries, Mercosur, Chile and Mexico in the years 2022, 2023 and 2024 respectively.

• Argentina, 4,2%; 2% and 2%
• Brazil, 2,5%; 0,8% and 1,8%
• Paraguay, -0,3%; 5,2% and 4,2%
• Uruguay, 4,8%; 2,7% and 2,5%
• Chile, 1,8%; -0,5% and 2,2%
• Mexico, 1,8%; 1,5% and 2,1%