News Americas, New York, NY, December 11, 2024: Leaders across Latin America and the Caribbean (LAC) are being urged to adopt key strategies to close a $99 billion annual financial gap and move towards sustainable development, according to a new report. 2024 Latin American Economic Outlook (LEO): Financing sustainable development report. The comprehensive report outlines a roadmap to strengthen tax collection, improve the efficiency of public spending, manage public debt more effectively and attract private sector investment to support ambitious development agendas.
The report, produced in collaboration by the OECD, UN-ECLAC, CAF-Development Bank of Latin America and the Caribbean, and the European Commission, highlights the socio-economic challenges facing the region. While poverty levels in 2023 reached the lowest in two decades at 27.3%, extreme poverty still affects over 10% of the population. Furthermore, labor productivity in LAC remains at only 33% of OECD levels.
With limited fiscal space due to the COVID-19 pandemic and tight monetary policies to manage inflation, the report highlights the need for targeted reforms to achieve sustainable development goals.
Key recommendations:
- Tax reforms and revenue growth:
LAC countries collect an average of 21.5% of GDP in taxes, significantly lower than the OECD average of 34%. Adjusting tax structures can reduce inequalities, support green initiatives and boost entrepreneurship. - Optimizing public spending:
With 82% of public spending focused on wages and short-term transfers in 2023, reallocation and efficient use of budgets can free up resources for critical investments in health, education and infrastructure. - Improved debt management:
Strong fiscal frameworks are essential as debt service has risen from 9.8% of tax revenue in 2012 to 12.2% in 2022. Some countries spend more on interest payments than on education or health care, underscoring the need for fiscal sustainability. - Mobilization of the Private Sector:
Deepening financial markets and expanding credit to the private sector, which currently accounts for only 50% of GDP, could unlock significant resources. Special attention is needed for the inclusion of vulnerable groups, such as women and informal families, in financial systems. - Transformation of production and markets:
Expanding private sector participation in debt markets, which are currently dominated by public sector issuance (81% between 2015-2023), will require updated regulations, financial literacy programs and enhanced regional integration. - Promotion of Development Financial Institutions (DFIs):
DFIs play a crucial role in supporting micro, small and medium-sized enterprises, but only 19% of their instruments currently address green transition, gender equality or digital transformation. - Promotion of innovative financing:
Mechanisms such as green, social and sustainability-related bonds have grown to represent 35% of LAC bond issuance in international markets by 2023. The report recommends expanding these instruments and introducing catastrophe bonds, debt swaps for nature and disaster clauses effectively target areas of high need. - International Cooperation:
Initiatives such as the EU-LAC Gateway Global Investment Agenda are highlighted as critical for mobilizing resources through public-private partnerships, particularly in infrastructure, job creation and social cohesion.
Regional Coordination for Global Impact
The LEO report highlights the importance of presenting a unified regional perspective at the UN’s Fourth International Conference on Financing for Development, scheduled for mid-2025 in Sevilla. Harmonized frameworks and transparent monitoring mechanisms are essential to prevent greenwashing and ensure sustainable funding outcomes.
