World Bank says social, infrastructure investments key to Latin America growth

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World Bank says social, infrastructure investments key to Latin America growth

Employees work at the construction site of a residential building, amid the coronaviruses outbreak COVID 19 in Sao Paulo.

NEW YORK - Social and infrastructure investments can be key drivers of growth for Latin America and the Caribbean as countries face the longer-term effects of the pandemic on education and health, according to the World Bank in a report on Tuesday.

Cutting energy subsidies and increasing transfers to poorest families can free cash for some of these projects, while a simpler and broader tax code can be more progressive and generate more revenue, according to the World Bank.

Economic output is expected to grow 3% this year, but it is seen to be decelerating to 1.6% in 2023, as economies digest the strong rebound last year, according to the report.

Even though output has bounced back to levels seen in 2019, the war in Ukraine, stubborn inflationary pressures and high interest rates in developed economies have been cited as a major factor in the growth of the region.

Most economies have returned to pre-pandemic levels, but that is not enough. Carlos Felipe Jaramillo, World Bank vice president for Latin America and the Caribbean, said that the countries in the region have the opportunity to rebuild better after the crisis and to achieve more just and inclusive societies.

In addition to implementing the reforms and investments critical to lifting growth, governments need to address the structural costs - lost years of education, missed vaccines, and the delayed impacts of food insecurity that the recovery of GDP obscures. Since the outbreak, public debt to GDP ratios have gone above 75% on average in the region from about 60% and have only dropped to 70%.

Revenues are in focus in that scenario. The World Bank sees lowering rates and increasing enforcement as a way to increase revenue, and the region ranks low in corporate tax compliance.

Eliminating badly designed transfers, including energy, could save about 17% of government spending, according to William Maloney, chief economist for Latin America and the Caribbean at the World Bank.

That means that for two out of three countries in the region you can basically balance the budgets, or more than balance the budgets, with savings.