December 9, 2024 – A new report from the OECD, ECLAC, CAF, and the European Commission highlights the urgent need for stronger fiscal policies in Latin America and the Caribbean (LAC) to address a significant annual financing gap of $99 billion. To achieve sustainable development, the region must enhance tax collection, optimize public spending, encourage private sector investment, and bolster international cooperation.
The 2024 Latin American Economic Outlook (LEO) underscores that the region’s economic development is hampered by weak productivity and persistent poverty. In 2023, labor productivity in LAC was just 33% of OECD levels, while poverty affected nearly 27.3% of the population. Extreme poverty remains a pressing issue, with 10.6% of Latin Americans and Caribbeans living in dire conditions. The report warns that, without bold reforms, many countries will struggle to finance their development agendas amid a tightening fiscal environment, exacerbated by the aftermath of the COVID-19 pandemic.
Key recommendations to bridge the financing gap include:
Tax Reform: The report highlights the need for more effective tax collection. In 2022, LAC countries’ tax revenues averaged only 21.5% of GDP, far below the OECD’s 34%. Reworking tax structures could reduce inequality, fund health and green initiatives, and stimulate entrepreneurship.
Budget Optimization: LAC governments must improve the allocation of public resources. With 82% of public spending in 2023 directed towards wages and transfers, the region’s budgets remain inefficient and short-term focused.
Debt Management: Enhanced fiscal frameworks are critical to managing rising debt levels. Debt service in LAC countries increased significantly between 2012 and 2022, diverting funds from crucial sectors like education, healthcare, and infrastructure.
Private Sector Mobilization: Strengthening financial markets to channel private resources into development projects is essential. LAC financial systems remain underdeveloped, with limited access to credit, especially for vulnerable groups such as women. Encouraging private investment and innovation can help transform the region’s economic landscape.
Regional Cooperation and Development Finance: International collaboration remains vital, with the EU-LAC Global Gateway Investment Agenda cited as a successful example of mobilizing public-private partnerships for infrastructure and social cohesion. The report also highlights the growing role of sustainable financial instruments, such as green bonds and debt-for-nature swaps, which have seen significant growth in recent years.
To achieve these goals, the report urges the region to prepare a unified approach for the upcoming UN Fourth International Conference on Financing for Development in 2025. The LEO stresses that a concerted effort, combining domestic reforms with international support, will be necessary to address the region’s significant sustainable development challenges.
The Latin American Economic Outlook is jointly produced by the OECD, ECLAC, CAF, and the European Commission, providing a comprehensive analysis of the region’s financial and economic prospects.
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