Latin America Faces Economic Development Crisis Amid Rising Challenges

Latin America and the Caribbean (LAC) are currently confronting significant economic development challenges, as highlighted in the 2024 Latin American Economic Outlook (LEO) report released by the OECD, ECLAC, and CAF. The report reveals that LAC's sustainable financing gap is estimated at USD 99 billion annually, which poses a substantial barrier to achieving necessary economic growth and development. Alarmingly, average labor productivity in the region stands at only 33% of OECD levels, and poverty affects 27.3% of the population, with urban poverty on the rise. Approximately 82% of the population now resides in urban areas, increasing vulnerability in cities, as noted by Almudena Fernández from UNDP. [b0b4f022].

Fiscal reforms are urgently needed to address these economic challenges. Currently, tax revenues in LAC are only 21.5% of GDP, significantly lower than the OECD average of 34%. This shortfall is compounded by the fact that public sector debt consumes 12.2% of tax revenues, limiting the funds available for development initiatives. Moreover, only 50% of GDP is represented as domestic credit to the private sector, indicating a lack of access to financing for businesses. Development Finance Institutions are increasingly focusing on micro, small, and medium-sized enterprises to stimulate economic activity. [b0b4f022].

In response to these pressing issues, the EU-LAC Global Gateway Investment Agenda aims to mobilize resources effectively, while the UN's Fourth International Conference on Financing for Development is scheduled for 2025 to discuss innovative solutions. Notably, the use of innovative financial instruments, such as green and social bonds, has increased from 9.3% to 35%, reflecting a growing trend towards sustainable financing. However, specific policies are urgently needed to tackle urban poverty and implement the necessary reforms to address the economic challenges facing the region. [b0b4f022].