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Economic briefing on Latin America: perspectives for post-pandemic recovery

Author: Juan Martin González Cabañas – 02/06/2021

The ECLAC (UN-Economic Commission for Latin America and Caribbean) Annual Fiscal Overview Report indicates the following trends:

Public Debt:

The average external debt of Latin America reached 56% of GDP, to which the United Nations agency largely attributes the Covid-19 pandemic:

  • “In Latin America and the Caribbean, the external debt increased considerably throughout 2020, dragged by the historical fiscal deficits that occurred after the implementation of aid packages aimed at the population and businesses.”

Meanwhile the EAE Business School in Latin America argues that Latin America’s public debt reached 79% of the region’s GDP last year.

Fiscal Deficits

The region registered significant deficits that varied between 3% and 13.8% of the respective national GDP compared with the period 2019-2020. The Dominican Republic registered a cash deficit of 7.7% of GDP, which is practically the midpoint of the region. Brazil´s deficit climbed up to 13.9%. The expansion of public spending to address the pandemic crisis and the decrease in tax revenue led to significant increases in fiscal deficits and debt levels in the region, reaching an average level of government gross public debt of 56.3% of the nationals GDPs.

Economic recovery

  • The expectation of economic recovery rose to 4.1%

Latin America and the Caribbean region will have positive growth in 2021, but it won’t´ n be able to recover its economic activity levels prior to those of the pandemic until the years 2023-2024.

Economic Policy

At the end of the report, ECLAC recommends that the governments of the region must “maintain an expansive fiscal policy and social coverage to contain the impact of the pandemic“.

The report proposes the necessity to prioritize the public expenditure for the economic and social reactivation and transformation through the promotion of the intensive investment in employment and environmentally sustainable in strategic sectors:
1) extent basic income to people living in poverty
2) provide financing to micro, small and medium-sized enterprises (MSMEs)
3) provide incentives for productive development in the digitalization and sustainability, clean technologies
4) universalize social protection systems.

The ECLAC report argues that beyond national efforts, the reactivation and economic transformation of the region will require financing and international cooperation.

In this area, ECLAC emphasizes the need to use instruments such as the issuance and reallocation of the Special Drawing Rights (SDRs) of the International Monetary Fund to strengthen the reserves of the countries of the region and regional agreements; The inclusion of vulnerable middle-income countries in the G-20 debt moratorium initiative (DMI) and in addition the implementation of the debt-for-climate-change swap in the case of the Caribbean together with the creation of a resilience fund, capitalizing on multilateral, regional and national credit institutions.

Sources:

  • CEPAL (United Nations Economic Commission for Latin America):

https://www.cepal.org/sites/default/files/publication/files/46808/S2100170_es.pdf Interview to Juan Carlos Higueras, Economic Analyst for Latin America and Professor at the EAE Business School:
https://nteve.com/deuda-publica-el-panorama-sobre-latinoamerica/

Other articles by Juan Martin González Cabañas published in Vision & Global Trends. International Institute for Global Analyses’ website: