Can Latin America Afford to Fight COVID-19?
Owing to the missed opportunities of the post-2008 period, most Latin American and Caribbean governments have very limited fiscal space with which to manage the COVID-19 pandemic. Nonetheless, if their limited ammunition is well-aimed, it could go a long way toward mitigating the crisis.
WASHINGTON, DC – Confronting a pandemic is a grueling trial even for the most advanced economies. For indebted governments in Latin America and the Caribbean, it is harder still. Many countries’ fiscal positions are worse now than they were when the 2008 global financial crisis erupted. Worse, stimulus policies that work in normal times will not work against the fallout from COVID-19, and financing is becoming increasingly scarce as investors flee to safer assets and markets.
Between 2008 and 2019, Latin America and the Caribbean’s average overall fiscal balance slid from -0.4% of GDP to -3%, and average public debt grew from 40% of GDP to 62%. These numbers are a consequence of missed opportunities, particularly during and after the “Great Recession” in the United States.
In 2008-09, most governments in the region increased expenditures to sustain aggregate demand. Fiscal packages averaged 3% of GDP, but differed across countries. Those with low debt levels were able to implement substantial stimulus measures, whereas those with high debt had to undergo an economic contraction.