(CMC) – The World Bank says the economies of Latin America and the Caribbean (LAC) have “turned the corner” after a year of tepid growth, providing an opportunity for countries to solidify their fiscal positions and lay the foundation for long-term inclusive growth.
In its latest semi-annual report titled, “Fiscal Adjustment in Latin America and the Caribbean: Short-Run Pain, Long-Run Gain?”, the World Bank examines the quickening of growth in the region “due in large part to a positive external environment, including rising commodity prices, growth in the US and China, and high international liquidity.”
But the Washington-based financial institution warned that many countries are “in a fragile fiscal situation after several years of weak growth.”
According to the report, LAC overall grew by 1.1 per cent in 2017 and is expected to grow by 1.8 per cent in 2018 and 2.3 per cent in 2019.
It said that the Caribbean by itself will likely grow 3.5 per cent in 2018 and 3.4 percent in 2019.
But, despite these positive signs, the report notes that 31 out of the 32 LAC countries ran an overall fiscal deficit in 2017, adding that public debt for the whole region stands at 57.6 per cent of gross domestic product (GDP).
“Persistent deficits and high levels of debt can jeopardize the hard-won gains made over the last decades in lowering inflation, reducing poverty and inequality, and fuelling inclusive growth,” said Carlos Vegh, World Bank Chief Economist for Latin America and the Caribbean.
“In the long run, lower fiscal deficits – and lower public debt burdens – would help consolidate those gains and increase growth,” he added.
The report finds that fiscal adjustments during good times are important to build fiscal space.