Foreword

In 2021, Latin America and the Caribbean faces an economic context that remains complex and uncertain. The coronavirus disease (COVID-19) pandemic continues to impact the region, with a fresh wave of cases that has led to the implementation of new public health measures to curb the spread of the virus. Vaccination campaigns, which are a priority, have been hampered by unequal access to vaccines globally and challenges in vaccine production and distribution.

Economic growth prospects are cast into even greater uncertainty by the persistence of the pandemic, the slow roll-out of vaccination campaigns and questions over the capacity to sustain expansionary fiscal and monetary policies.The Economic Commission for Latin America and the Caribbean (ECLAC) has estimated that most countries of the region will not regain pre-pandemic GDP levels before 2023.

Sustainable recovery with equality requires equitable access to vaccines, increased availability of financing to expand fiscal space and reform of the international financial architecture to ensure access to financing for all developing countries, regardless of their income level.

In 2020, Latin America and the Caribbean was the developing region most affected by the pandemic, whose impacts deepened the region’s structural development gaps in terms of inequality, limited fiscal space, low productivity, informality and fragmentation of social protection and health systems. Countries in the region adopted expansionary fiscal policies to address the social and economic effects of the pandemic, with the fiscal efforts announced in 2020 —aimed at strengthening public health systems, supporting families and protecting the productive structure— representing 4.6% of GDP on average in Latin America.

The expansion of public spending to cope with the crisis, together with the fall in tax revenues, significantly pushed up fiscal deficits and debt levels in the region. Latin America and the Caribbean is one of the world’s most indebted regions and has the highest ratio of external debt service to exports of goods and services, at 59%.

In a complex macroeconomic context, aggravated by the persistence of the COVID-19 pandemic, Fiscal Panorama of Latin America and the Caribbean, 2021 analyses the challenges for fiscal policy in the region in a transformative postpandemic recovery. Given the evident fragility of the economic recovery process, an expansionary fiscal policy must be maintained in order to promote a transformative economic revival while continuing to mitigate the negative effects of the pandemic. On the public spending side, this requires not only a fiscal impulse to support domestic demand, but also a strategic perspective that supports progress in sustainable and employment-intensive investment, productive transformation and the strengthening and universalization of social protection systems.

On the revenue side, it will be necessary to strengthen the fiscal capacity of the State through a progressive tax policy that not only increases tax collection to expand fiscal space, but also has a positive impact on income distribution. This is essential in order to be able to maintain public spending trajectories in a context of fiscal sustainability. In this regard, chapter II of this edition of Fiscal Panorama of Latin America and the Caribbean analyses the challenges of implementing a wealth tax and its potential for strengthening tax collection and making tax policy more progressive amid greater heightened needs in the countries of the region.

The widespread rise in indebtedness levels has greatly increased the need for other sources of financing in the region. It is therefore essential that international cooperation, through development financing, support the expansion of countries’ fiscal space in the short and medium terms. With that in mind, ECLAC has pointed to the need to expand and redistribute liquidity from developed to developing countries; analyse the increased debt levels in greater depth, in order to address them through relief and revisions of repayment terms and rates; improve the lending and response capacity of multilateral, regional and national development banks; promote institutional reform the multilateral debt architecture; and expand the toolbox of innovative instruments to improve debt repayment capacity and link it to growth, sustainability and social inclusion.

Lastly, this edition of Fiscal Panorama of Latin America and the Caribbean examines the importance of mainstreaming a gender perspective in the design of fiscal policies. As discussed in chapter III, there is growing recognition of the gender-differentiated impacts of fiscal policy. The countries of the region have made progress in this area through the adoption of legal mandates for gender-sensitive budgeting, as well as the creation of various instruments —programmatic budget structures, budget classifiers and accountability reports, among others— with a gender perspective. However, much remains to be done to fully mainstream a gender perspective into fiscal policy in the region. Moving in this direction will be key to ensuring an equitable and sustainable post-crisis recovery.

Alicia Bárcena Executive Secretary Economic Commission for Latin America and the Caribbean (ECLAC)