WASIC Goal: Latin America and the Caribbean
Social turmoil affected growth in parts of the region in 2019. This year, the entire region is suffering from low oil prices and the impact of the deadly novel coronavirus. Although most countries in the region have enforced measures to avoid contagion, the outbreaks have recently spread rapidly, and the economic impacts of nationwide business closures and mobility restrictions have been sudden and severe.
Added to this are external shocks, which vary in impact from country to country. Demand from China and developed countries, curtailed by the pandemic, will fall dramatically, affecting commodities exporters in South America as well as exporters of manufactured goods and services in Central America and the Caribbean. Flight restrictions are already hitting the Caribbean’s tourism sector, a main source of income for many small island states…
There are other challenges. The region’s countries do not have the fiscal space of developed countries. Indeed, some were facing financial crises before the COVID-19 outbreak. What’s more, high levels of informality make it hard to provide relief through tax deferrals and wage subsidies to many firms and households. This informality combined with the low levels of funds makes designing an adequate policy response all that much more crucial.
The hardship from the crisis will be enormous for large segments of the population. Many households live hand to mouth. They do not have the resources to cope with the economic lockdowns and quarantines needed to contain the spread of the virus. Many workers are self-employed, and a raft of wage earners are paid under the table. Reaching these workers through financial transfers is more challenging than in formalized economies. Many households also depend on remittances, which are collapsing as shutdowns in host countries affect the incomes of migrants.
(source: The World Bank in Latin America and the Caribbean)
(Photo courtesy of Dorothea Oldani on Unsplash)
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