translated from Spanish: IDB warns Latin American countries urge fiscal reforms to recover after Covid-19 “or they will remain weak”

Countries in Latin America and the Caribbean will remain weak in macroeconomic matters over the coming years due to the impact of the coronavirus pandemic, so fiscal reforms to address social challenges are urgently urgent, the Inter-American Development Bank said.
The multilateral agency projected an average economic expansion for the region of 4.1% this year following the contraction of 7.4% in 2020, when it recorded its worst annual collapse since registrations, starting in 1821.
But the pace of growth would slow to an average of 2.5% in 2022 and 2023, the bank’s macroeconomic report, published during its annual meeting in the Colombian city of Barranquilla, stated.
However, in a negative scenario the region risks expanding by a timid 0.8% this year, contracting 1.1% next year and growing by 1.8% in 2023, the IDB warned that it is necessary to pave the way for a stronger recovery.
The IDB emphasized that in order to achieve a higher pace of growth, the region needs to implement a series of productivity-boosting reforms, help connect businesses to global value chains, and promote the digital economy and job creation inclusively, sustainably and resiliently.
“Given fiscal challenges and high levels of borrowing, improving tax institutions should be a high-priority issue,” said Andrew Powell, senior IDB advisor and one of the report’s coordinators.
“Stronger institutions would give a greater degree of credibility and allow for a more gradual adjustment with lower interest rates to ensure debt sustainability,” he added.
For the IDB, low-tax countries should seek to raise their incomes without sacrificing economic growth, which should be earmarked for projects that can have a strong social impact, and in particular infrastructure works needed to build a digital economy that generates more job opportunities.
According to IDB estimates, Latin American governments irrigated some $485 billion in fiscal support during the pandemic, with packages representing on average 8.5% of GDP.
However, while a few countries implemented large aid packages, more than two-thirds of the region’s nations gave much more modest support, of about 3% of GDP or less, in contrast to the average of 19% of GDP reached by tax packages in advanced economies, according to the entity.
“Healthy tax systems can help us unlock our potential by leveraging resource reallocation across all sectors, boosting productivity growth, promoting formal employment, and achieving a greener future,” IDB Chief Economist Eric Parrado opined.
The region’s overall fiscal deficit soared to 8.3% of GDP last year, from 3% in 2019, with public debt growth to 72% of GDP, from 58% in the same years.
The IDB report projected that Latin America’s public debt will reach 76% of GDP by 2023.

Original source in Spanish