By Carlos Felipe Jaramillo
Two years after the onset of the pandemic, 2022 began with some hopeful signs of economic recovery after the worst downturn in more than a century. But the scars of the crisis are still visible in Latin America and the Caribbean. Eliminating them will take time and effort.
Poverty and inequality rose. Employment only partially recovered. Owing to the enormous efforts made to mitigate the impacts of the pandemic on the most vulnerable sectors, governments exhausted their fiscal reserves, and debt and macroeconomic imbalances grew.
The recovery is indeed advancing. The latest estimates indicate that regional GDP rose by 6.7 percent in 2021, exceeding previous forecasts. Nevertheless, the road ahead presents significant obstacles. The biggest challenge will be to strengthen the recovery and ensure that growth benefits those who need it most.
To achieve this goal, countries must continue COVID-19 vaccination campaigns. The region has an average vaccination rate of over 70 percent of the population with at least one dose and 60 percent with two, although rates vary considerably across countries: 95 percent of the population in Chile and 85 percent in Argentina received two doses while less than 1 percent of Haiti’s population is fully vaccinated. It is crucial to guarantee the distribution of vaccines to the entire population and eliminate doubts about their effectiveness. The figures for Omicron are clear: between 60 and 80 percent of hospitalized Covid-19 patients were unvaccinated.
Four Key Areas
Four areas will require significant effort. With the right policies, they can decisively contribute to the region’s sustainable growth.
First, the region must urgently create the conditions for firms to improve their productivity and stimulate job creation. A vibrant, globally integrated private sector operating in an investment-friendly business environment can create opportunities for many. To this end, it is vital to promote innovation and competition, as well as to eliminate barriers that prevent firms from developing.
For this, digitization plays a crucial role. The World Bank promotes its transformative potential with connectivity projects in the Caribbean and Central America, as well as in countries such as Argentina, Colombia, Bolivia and Peru, where, in addition to promoting technological innovation, it is essential to foster digital inclusion. In Guatemala, for example, we support the development of useful digital technology to improve market access for women smallholder farmers.
Second, the region must address the increasingly worrisome level of indebtedness. It grew more than 10 percentage points during the pandemic, to 75.4 percent of regional GDP. In 2022, efforts should begin to reduce that extremely high figure. We should think about how to narrow the gap between public revenue and spending by using resources more efficiently, eliminating unnecessary spending and increasing revenue with a progressive impact.
Third, the region must immediately reverse the disastrous educational losses caused by the pandemic. In the most optimistic simulations, these losses could reduce the future annual income of today’s students by at least 10 percent. Additionally, almost half the students in the region still do not attend face-to-face classes due to school closures. It is essential to recover lost ground. In Mexico, Brazil, Colombia, Ecuador, Uruguay, Haiti and El Salvador, among other countries, we support programs aimed at reversing educational losses and building institutional capacity.
Finally, climate change will lead to an unmitigated catastrophe if we do not act now. The region has the opportunity to align its economy with the protection and sustainable management of the environment. A greener recovery can create jobs and contribute to a more prosperous, resilient and inclusive future. Young people are calling for greener policies, renewable energy, low-carbon transport systems, control of deforestation and better management of biodiversity.
It is a broad, ambitious agenda but a necessary one, which we at the World Bank are supporting. In the Amazon region, we are integrating economic development with conservation. We support the decarbonization of transport and energy in Costa Rica, Colombia and the Dominican Republic; the development of green hydrogen in Chile; resilient urban development in Central American countries; and climate-smart agriculture in Uruguay. In the Caribbean, we work with governments to minimize the fiscal impacts of disasters caused by climate change.
The great challenge of 2022 will be to consolidate the economic recovery of the region and lay the foundations for more inclusive, greener growth. The crisis has left consequences, but it has also created opportunities. The important thing is to take advantage of them.
Carlos Felipe Jaramillo is the World Bank Vice President for the Latin America and the Caribbean Region.