In the midst of Latin America and the Caribbean's recovery from the COVID-19 pandemic, the need for continued dynamic, inclusive and sustainable growth remains paramount, and increasingly urgent. After a 6.9 percent rebound in 2021, regional Gross Domestic Product (GDP) is expected to grow by 3 percent in 2022, a higher rate than expected due to higher commodity prices.
However, global uncertainty stemming from the war in Ukraine, rising interest rates in developed countries and persistent inflationary pressures will affect the region's economies. Low growth rates of 1.6 percent and 2.3 percent are expected in 2023 and 2024.
To consolidate recovery, promote growth and reduce poverty and inequality, countries must continue to invest in social programs and infrastructure. That said, they can improve the efficiency of public spending and thus realize gains of 4.4 percent of GDP on average.
The aftermath of the COVID-19 crisis will take years to fade if Latin American and Caribbean countries do not take immediate action to jumpstart a recovery process. With poverty at its highest level in decades, long-standing challenges in infrastructure, education, innovation, and spending efficiency must be met with policy reforms that also address the effects of climate change and take advantage of the enormous opportunities for growth toward more sustainable economies.
While monetary poverty declined from 30 percent in 2021 to 28.5 percent in 2022, it remains at a high level; while the long-term costs of the crisis in health and education must be urgently addressed, both to revive growth and to mitigate the rise in inequality.
As for employment, after a 20 percent drop, it increased to almost regain pre-pandemic levels by the end of 2021. But the share of formal employment has fallen by almost 5 percentage points. In fact, many of the new jobs, especially for women, are in small businesses that are often informal.
Opportunities can emerge in the industries sector following crises that trigger large-scale economic restructuring. For example, while the services sector has been hard hit, accelerating digitalization could help boost sectors such as IT, finance, and logistics, which in turn can improve market competitiveness and increase economic efficiency. However, if structural factors are not addressed, weak and sluggish growth is likely to continue and be insufficient to make progress in the fight against poverty, and social tensions.
In education, since the beginning of the pandemic, students have lost an average of two-thirds of their face-to-face school days, either partially or completely. This equates to an estimated loss of 1.5 years of learning and most affects the youngest and most vulnerable, who are at risk of losing 12 percent of their total lifetime earnings. In the medium term, it will be necessary to recover primary education to counteract the lost years of learning with policies for re-enrollment and retention of students; leveling of learning; prioritization of fundamental competencies to close knowledge gaps; implementation of programs to meet learning goals; and development of the health, psychosocial and emotional well-being of teachers and students.
Green growth is an opportunity for the region as Latin America and the Caribbean contributes only 8 percent of global GHG emissions and has enormous green comparative advantages, which can be leveraged for new industries and exports. In addition, the region has enormous potential in renewable electricity - solar, wind and geothermal - and vast natural capital - water, trees, biodiversity - that offers the potential for new industries.
The region is suffering the increasingly severe effects of climate change, which has already caused significant economic and social losses. Hurricanes, floods and droughts are becoming more frequent, and it is estimated that 17 million people could be forced to leave their homes and nearly 6 million people could fall into extreme poverty by 2030, mainly due to a lack of safe drinking water, as well as increased exposure to excessive heat and flooding.
In this context, the World Bank has doubled its climate finance. In addition to publishing an ambitious Roadmap for Climate Action in Latin America and the Caribbean, it has initiated country-level diagnostics to support countries' climate and development goals. Supported examples already being implemented include the Pacific Alliance's catastrophic earthquake bonds, as well as risk sharing between countries through instruments such as the Caribbean Catastrophic Risk Insurance Facility (CCRIF), which can provide easily accessible funds for recovery after a member country is affected by a disaster.
Last Updated: Oct 07, 2022