Latin America spent 4.6% of GDP in 2020 on aid to tackle the crisis – report

RIO DE JANEIRO, BRAZIL – Latin America, the region most affected in the world by the pandemic, allocated in 2020 on average 4.6% of its gross domestic product (GDP) in social aid to combat the economic crisis caused by covid-19, a fiscal effort that should be maintained this year, ECLAC said Wednesday.

In the report “Fiscal Panorama of Latin America and the Caribbean” by the Economic Commission for Latin America and the Caribbean (ECLAC), the organization warned that the growth expected for this year (about 3.7%) would not be able to compensate for the fall in 2020, nor reverse the increases in poverty and inequality, hence the need for fiscal expansion, especially through subsidies and current transfers.

“The persistence of the pandemic and asymmetries in vaccination, together with asynchronous and divergent recovery rates, cast a pall of uncertainty over the speed and sustainability of the recovery,” said the executive secretary of the Santiago, Chile-based organization, Alicia Bárcena.

Latin America’s economy contracted by 7.7% in 2020 – the biggest recession in 120 years – and poverty and extreme poverty rates soared to 33.7% (209 million people) and 12.5% (78 million), levels not seen in the last 12 and 20 years, respectively.

Massive company closures brought the unemployment rate last year to 10.7%. Simultaneously, the level of regional GDP per capita ended last year at the same level as in 2010, which means that the region is facing a new lost decade, like the one experienced in the 1980s.

With 27.4 million cases and more than 870,000 deaths since the first case was detected in Brazil in February last year, the health crisis is far from over in Latin America, where several countries are facing a second wave of infections, and the pace of vaccination is slow, except Chile, one of the world leaders in inoculation.

TOTAL SPENDING AT AN ALL-TIME HIGH

According to the report, the expansion of public spending to deal with the crisis and the fall in tax collection led to increases in debt levels. According to the report, the gross public debt of the central governments of Latin America reached 56.3% of GDP.

Fiscal efforts were mainly aimed at strengthening public health systems, supporting families, and protecting the productive structure.

Simultaneously, the region is one of the most indebted in the world and has the highest external debt service in relation to exports of goods and services (59%).

Total government spending reached its highest level (24.7% of GDP) since fiscal data began to be published in 1950, and the last time it was at a similar level was in the midst of the debt crisis of the 1980s, when it peaked at 23.3% of GDP in 1983.

To maintain fiscal policies, Bárcena indicated that “changes to the tax structure” must be undertaken with the aim of increasing the tax burden, progressivity and having a greater impact on improving income distribution.

“The scope of property and wealth taxes must be assessed in a context of low tax revenues,” said the secretary, who also appealed to international cooperation and financing for development.

In this regard, the organization even suggested expanding and redistributing liquidity from developed countries to developing countries.

The pandemic added Bárcena, “has aggravated” the structural problems that historically dragged a region that was already very weak economically, with the growth of barely 0.1% in 2019.