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Friday 20 July 2018
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IDB: Caribbean requires ambitious growth agenda

Cover of the IDB's 2018 Latin America and Caribbean Macroeconomic Report

The Inter-American Development Bank (IDB) says an “ambitious growth agenda” is required by Caribbean and Latin American countries, if they are to catch up with investment and productivity levels in faster-growing regions such as Asia.

This was the assessment coming out of part one of the IDB’s 2018 Macroeconomic Report, A Mandate to Grow, released during the Annual Meeting of the IDB Group’s Board of Governors in Argentina on March 23.

“While the global economy faces potential risks from higher interest rates and a correction to global asset prices, the region’s overall outlook is positive, with a 1.9 per cent growth rate expected this year.”

The IDB noted however, this is “well below the growth rate expected for the world of 3.9 per cent and (the region) will continue to lag unless substantial policy changes are enacted on the economic front.”

The report also found that past drivers of growth, such as positive demographic trends, increasing commodity prices and available fiscal stimulus space have either been “reversed or restricted.”

IDB Vice-President for Sectors, Santiago Levy said, “For many decades now, Latin America has been accumulating a growth deficit.”

“Macroeconomic stability is a good starting point to get an economy moving forward,” Levy added, “but to grow more vigorously, we need to invest more and more productively.

And we need to tackle the bottlenecks that limit growth, which include the design of tax systems, low savings, credit constraints and the lack of competitive markets that reward high productivity.”

Arguing that the Caribbean and Latin America “need more investments, particularly in infrastructure”, the report pointed out that investment rates for the 1990-2017 period averaged 17 per cent of gross domestic product (GDP) – well behind the 26 per cent rate for Emerging Asia. In addition, the report said the region is “40 per cent less effective than Emerging Asia in generating GDP growth for every additional invested dollar. Latin America’s economy would be three times larger today, if it had managed to match Emerging Asia’s investment rates and efficiency since 1990.”

Challenges for the region include a low savings rates, small and inefficient financial systems, pension systems that have low coverage and on the fiscal front, low revenues and a bias against public investment relative to consumption, the IDB report stated.

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