52
ECLAC
Development in transition: concept and measurement proposal for renewed cooperation...
In addition to facilitating the mobilization of private resources for development, cooperation will have to design new tools. The challenge of raising adequate volumes of blended public and private funds is made more demanding by the significant changes in the development finance map over recent decades, including the emergence of new actors, mechanisms and sources, such as new donors that are not Development Assistance Committee (DAC) member countries, innovative financing mechanisms and climate funds. These are all playing a more important and visible role in the financing of development. These changes in the financial landscape have expanded the range of development finance options and increased the complexity involved in coordinating and combining the whole array of actors, funds, mechanisms and instruments into a consistent financing architecture. This complexity is particularly in evidence in the case of innovative financing mechanisms and climate funds, which need greater clarity with regard to development objectives, sources of finance and conditions of use and access. At the same time, achieving effective and efficient financing that accelerates progress towards sustainable development in countries at different income levels should not distract attention from the need to ensure that certain countries, such as Caribbean small island developing States (SIDS), are not excluded from official assistance flows because of criteria based on per capita income. Lastly, to induce countries to adopt a strategic approach to development finance, it is not enough to map their architecture; the current multiplicity of financing options does not equate to effective access. The ability to effectively access private finance varies widely in the different countries of Latin America and the Caribbean. Such funding is subject to multiple access requirements and conditionalities, making it difficult for countries to adopt a strategic approach to financing their development priorities and assessing the impact and effectiveness of funding sources. Moreover, private funders do not demand the same conditions or impose the same access criteria as public funding sources.
C. The pandemic crisis and development financing The economic and social effects of COVID-19, as well as the policy measures taken to address them, have significantly increased the region’s financing needs. On the one hand, total fiscal expenditure increased from 21.4% to 24.7% of GDP between 2019 and 2020, a dynamic that is explained by the strong expansion of subsidies and current transfers to households and the productive sector to address immediate liquidity needs and alleviate the emergency. On the other hand, fiscal revenues fell from 18.4% to 17.9% of GDP as a result of the sharp economic contraction in the region, amounting to 7.7% of GDP (ECLAC, 2021a). The resulting increase in the overall fiscal deficit, from -3.0% of GDP in 2019 to -6.9% of GDP in 2020, pushed up public debt by more than 10 percentage points, from 45.6% of GDP in 2019 to 56.3% of GDP in 2020. Taking a simple average, Latin America and the Caribbean is not only more indebted than low-income regions, but is the most heavily indebted developing region in the world. In Barbados, Belize, Jamaica and Suriname, debt levels approach or exceed 100% of GDP. Latin America and the Caribbean is also the region that devotes the largest share of its goods and services exports to external debt servicing; in 2020, this figure was 59% (ECLAC, 2021c) (see figure III.7). This situation exacerbates the budgetary constraint and limits the capacity of fiscal policy to continue to respond to the economic and social demands arising from the pandemic and to address the structural gaps being widened by it in the medium and longer term. Countries in the region will be able to maintain expansionary fiscal policies if they manage to stabilize borrowing levels, and this requires a large increase in fiscal revenues through higher economic growth. Otherwise, they may be forced to reduce their primary deficits, which is not a viable option in the current circumstances.
