The Economic Commission for Latin America and the Caribbean (ECLAC) predicts minimal economic growth in the region for 2024, except for Guyana where it projects more than 25%, fuelled mostly by revenue from the oil and gas sector.
The ‘Preliminary Overview of the Economies of Latin America and the Caribbean 2023’ indicates that the region will stay on a path of low growth, which means job creation will decelerate and informality and gender gaps will persist, among other effects. However, Guyana is likely to be spared.
“Latin America and the Caribbean remains on a low-growth path, with an estimated year-on-year variation in GDP of 2.2% in 2023. All the sub regions will post lower growth in 2023 than in 2022: South America is set to grow by 1.5% (3.8% in 2022); the group comprising Central America and Mexico by 3.5% (4.1% in 2022); and the Caribbean (excluding Guyana) by 3.4% (6.4% in 2022),” according to the report released on December 14.
“In 2024, GDP is projected to grow by an average of 1.9% for Latin America and the Caribbean, maintaining the trend of low growth. All the sub regions are expected to see lower growth than in 2023: projections are 1.4% for South America; 2.7% for the group comprising Central America and Mexico; and 2.6% for the Caribbean (excluding Guyana).
“In Guyana, the GDP growth rate is expected to be in double digits in 2023, close to 40% in real terms, as a result of the start-up of offshore oil production.”
According to the report, the projections are made at a time when countries of the region have limited fiscal and monetary policy space and little impetus from international conditions.
Highlighted also was that low growth projected for the region’s economies in 2023 and 2024 was not just a short-term issue, but reflected the fall in the trend growth rate of regional GDP. While the average trend GDP growth for the period 1951–1979 was above 5% per year, it averaged less than 3% per year for the period 1980–2009, and has averaged 1.6% per year for the period 2010-2024.
The report noted that with low economic growth, limited macroeconomic policy space and a sluggish external sector, the economies of Latin America and the Caribbean are also experiencing a slowdown in their capacity to create jobs. It is estimated that by the end of 2023, the number of employed persons will have grown by 1.4%, which is 4 percentage points lower than the 5.4% recorded in 2022.
“This trend is expected to continue in 2024, when the number of employed persons is projected to grow by 1.0%. In 2023, weak job creation was accompanied by an increase in the number of inactive persons (1.8%) compared to the levels seen in 2022, which contrasts with the reduction in this variable in 2021 and 2022, when the number of inactive persons declined by 5.9% and 1.5%, respectively. This trend in the number of people who are neither working nor actively looking for work is reflected in a drop in the regional participation rate, which is estimated to fall from 62.7% in 2022 to 62.5% in 2023 and 62.6% in 2024,” the document said.
“The above-mentioned trends in employment and labour inactivity are expected to result in a further reduction in the regional unemployment rate, which is estimated at 6.5% for 2023 and 6.9% for 2024. Informal employment levels in the region have remained close to 48% in 2023, and no significant changes are expected in this variable in 2024, especially if labour inactivity increases again. Bearing in mind labour market trends in the first half of 2023, along with the estimates for the rest of 2023 and for 2024, wide gender gaps will persist in indicators such as unemployment and participation rates, although they have been narrowing.”
Thus, while the unemployment rate among men is estimated at 5.5% for 2023, the unemployment rate among women is estimated at 8.0%, the report highlighted while also pointing out that the labour participation rate is estimated at 74.1% among men and 51.9% among women for 2023, a difference of 22.2 percentage points and at 74.2% among men and 52.3% among women for 2024.
As regards fiscal policy, the report said that government revenues are set to decline in the wake of sluggish growth and lower international commodity prices across countries. But because of earnings in taxes from companies, especially operating in the petroleum sector, Guyana is excluded.
Money earned from this country’s sale of carbon credits has also helped to positively influence its rankings in the region and its show of fiscal growth.
In the Caribbean, the report said, updated official projections point to “total revenue edging down slightly in 2023, to 27.0% of GDP compared to 27.4% in 2022.
“This is explained by a reduction in tax revenues, as reflected in the figures for tax collection in several countries during the first half of the year. Receipts from corporate income tax levied on firms in the extractive sector fell sharply in Suriname and Trinidad and Tobago, in line with the drop in commodity prices. In Suriname, a value-added tax replaced the sales tax in January and generated limited revenue in the first three months of the year, but began to strengthen in the second quarter. In contrast to the other Caribbean countries that produce non-renewable natural resources…,” it stated.
“In Guyana the expansion of oil production generated a significant increase in income tax payments by firms in the extractive sector. The stability of revenues from other sources projected for 2023 in the Caribbean is explained by growth in countries such as Guyana, Saint Kitts and Nevis, and Saint Vincent and the Grenadines,” it added.
In the case of Guyana, the report noted that the central government made withdrawals from the Natural Resource Fund but pointed also to the earnings from carbon credits.
“Although of a lesser magnitude, it is important to note that Guyana received revenues from carbon credits for the first time during the first half of the year, having agreed the first commercial sale of carbon credits in December 2022, under the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD). The credits in question were sold to the Hess Corporation to finance projects aimed at protecting the country’s forests,” the report noted.
Guyana’s public debt percentage was also positively low compared to many countries in the Caribbean. “In the Caribbean, central government gross public debt was equivalent to 69.7% of GDP in September 2023, 6.7 percentage points lower than at the end of 2022 .Two Caribbean countries had public debt close to or above 100% of GDP in September 2023: Suriname (95.7%) and Barbados (115.1%).
“In Guyana, the GDP growth rate is expected to be in double digits in 2023, close to 40% in real terms, as a result of the start-up of offshore oil production,” the report noted.
Guyana’s External Public and Publicly Guaranteed (PPG) debt grew by 3.8 percent, from US$1,571.9 million at the end of 2022 to US$1,631.1 million at end of June 2023, according to a mid-year report published by the Ministry of Finance released in September.
This debt increase, according to the report, was mainly due to positive net flows (disbursements less principal repayments) from bilateral creditors such as Exim Bank of China, China CAMC Engineering Co Ltd, and UK Export Finance. At the end of June, multilateral creditors held 67.8 percent of the external PPG debt portfolio, with bilateral creditors holding 30.3 percent. The remaining 1.9 percent was held by private creditors.
The External PPG debt is anticipated to increase by a whopping 31.6 percent from its mid-year position to US$2,146.0 million at the end of 2023, on account of expected positive net flows from both multilateral and bilateral creditors, according to the mid-year report.
Meanwhile, despite the relative fall in the sub regional average, debt levels among Caribbean countries remain very high compared to other regions with similar incomes.
“Although central government public debt-to-GDP ratios have fallen in the region, they remain elevated and are a source of vulnerability. The risks associated with the accumulation of public debt also undermine the medium-term sustainability of the public finances, owing mainly to the increased cost of debt service, which erodes the fiscal balances. In this regard, various domestic and external factors, such as the primary fiscal deficit, the GDP growth rate, the implicit interest rate and the exchange rate, have a considerable impact on the accumulation of public factor that is highly relevant for the region is the deterioration of domestic and international financial market conditions, which has led to a progressive rise in interest rates,” the report stated.
This has been compounded by the depreciation of the local currency and potential downgrades in credit ratings, which has made it difficult to manage the region’s public liabilities. These factors, it said, will also affect interest payments related to the existing stock of debt.
Low public and private investment, weak productivity, the predominance of the informal economy and insufficient human capital development can also affect holistic development across the region and these issues are compounded by the challenge of climate change, to which the region is highly vulnerable.
It is why recommendations were made which include the transition to low-carbon economies and adaptation to climate change but the report noted it required “massive boost in investment”.
“Changes in the energy mix and the adoption of new technologies must be leveraged to foster economic growth and formalisation of the economy. Public investment in resilient infrastructure should translate into a public capital stock that can provide the economic services needed to foster dynamic and competitive economies. However, investment needs are immense and exceed current macro fiscal capacities to meet them. Bearing this in mind, the economies of the region must lay the foundations for a sustainable public finance framework centred on increasing permanent fiscal revenues to meet the need for well-being, investment and environmental sustainability through more efficient and effective public spending,” the report asserted.
“This will require an increase not only in the level of tax collection, but also in its progressiveness and capacity to reduce income and wealth inequalities. Likewise, a strategy to strengthen fiscal institutions will be needed to improve the management of the economic cycle and strategically allocate public resources to boost economic growth in a sustained and sustainable manner. This fiscal sustainability framework should leverage opportunities to strengthen revenues.”
One example cited was the need for measures to reduce the high level of tax evasion.
The revision of tax expenditures would also offer opportunities to bolster public revenues, the report points out. “In addition, agreements must be forged to strengthen the design and collection of personal income tax, which represents the main tax gap between the countries of the region and those of the Organisation for Economic Co-operation and Development (OECD). It will also be crucial to expand the scope of estate and property taxes, and to consider the implementation of environmental taxes and taxes related to public health issues. In countries that produce non-renewable natural resources, the fiscal frameworks applied to the extractive sector could also be reviewed and updated to ensure they are more progressive,” the report stated.
“Public spending policy should also be strategically geared towards more effectively narrowing social divides and boosting economic growth potential, prioritising measures that yield high economic, social and environmental returns. Hence, it should be focused on meeting short-term needs and on driving productive, sustainable and inclusive development in the medium and long run.”
