By: Staff Writer
September 3, 2021
A new United Nations Economic Commission for Latin America and the Caribbean (ECLAC) survey says that government revenues will improve this year in addition to government primary balances across the Caribbean and parts of Latin America.
ECLAC put out its Economic Survey of Latin America and the Caribbean report earlier this week, where the agency pointed out that in the Caribbean government revenues are set to improve in addition to the primary balances of all of the countries.
The survey said: “There have been signs of improvement in the region’s fiscal situation in 2021. The revival of economic activity and higher prices for non-renewable natural resources are driving a recovery in public revenues in Latin America, which is reflected in an increase in receipts for the main taxes, such as value added tax and income tax, in the first half of 2021. In some countries, particularly where mining is a major industry, tax revenues from non-renewable natural resources have boosted total revenues considerably. In the Caribbean, government revenues are also projected to improve in 2021.”
This is fantastic news for all Caribbean countries that were hit hard by the loss of tourism dollars as a result of the COVID-19 industrywide shutdown. Tourism in the Caribbean accounts for over 50 percent of the GDP of over half of the countries in the region, so as the pandemic weakens in strength the anticipation is that tourism will be revived and thus government revenues can increase.
The survey also said: “Official country projections indicate weaker growth in public spending as a percentage of GDP for Latin America. In the first half of 2021, spending on current transfers and subsidies declined. At the same time, the countries of the region have announced their intention to boost public investment in order to revive economic activity and create jobs, which has translated into higher capital spending in several countries. Although interest payments are expected to remain stable on average, pressure is growing for some countries.
“Meanwhile, in the Caribbean, official estimates point to continued growth in public spending during the year, particularly in public investment. However, this capital spending will depend, in part, on the resources available to the countries of this subregion, particularly grants.”
Based on official projections of revenue and public spending trends, fiscal balances in Latin America are expected to improve. At the end of 2021, the overall central government balance is expected to be equivalent to -5.5 percent of GDP, on average, compared to -6.9 percent of GDP in 2020. The primary balance is forecast to come to -2.9 percent of GDP this year, compared with -4.2 percent of GDP in 2020.
“In the Caribbean, balances are projected to improve, with an overall balance of -6.2 percent of GDP, compared with -7.3 percent of GDP in 2020, and a primary balance of -3.1 percent of GDP, compared with -4.6 percent of GDP in 2020. Although smaller than in the previous year, these deficits in the region are likely to put pressure on financing and on public debt service coverage. Thus, central government debt levels will remain high.”
The primary balance is the difference between Government’s revenue (what it is earning) and its non-interest expenditure (what it is spending, not including debt payments), which is equivalent to a basic profit/loss statement in any small or medium sized business. The impact of COVID-19 has caused many countries in the region to borrow extensively, though while not shown now, as those bills become due, it is expected that the primary balance will be affected as data collected takes into account new interest payments and the impact it would be having on future revenue.
The survey additionally noted the obvious impact the COVID-19 pandemic is having with effects that are not symmetrical in its appearance as the wealth gap widened in the pandemic as the rich got richer and there were more poor people. “While more than 140m jobs were lost globally in 2020, global wealth grew by 7.4 percent owing to burgeoning stock markets, rising real estate values, low interest rates and unplanned savings resulting from the lockdown periods. However, the increase was not uniform: while wealth grew by 12.4 percent in Canada and the United States, 9.2 percent in Europe and 4.4 percent in China, it fell by 4.4 percent in India and by 11.4 percent in Latin America and the Caribbean.
“There are also marked differences between countries in access to vaccines, with vaccine procurement highly concentrated in the more developed countries, as reflected in 53.0 pecent of the population in the United States and Canada and 55.6 percent in the European Union having completed their vaccination schedule as of 22 August 2021, compared to a global figure of just 24.5 percent. In the case of Latin America and the Caribbean, the figure was 24.8 percent (26.8 percent in South America, 22.4 percent in Central America and Mexico and just 5.8 percent in the Caribbean).
Vaccine politics has been a disgraceful hallmark of this COVID-19 pandemic as vaccine roll out has not been equitable in the onset. It is only until now in 2021 have vaccines become more readily available to developing countries, however in no way does lack of access to vaccine have any correlation to the widening wealth gap. What is does however is accentuate that it actually still exists, prominently.
The survey added: “The new SDR issue was distributed to IMF members according to their quota shares, meaning that developed countries received 58 percent (US$ 375bn), with the remainder going to developing and emerging economies. In this regard, the new SDR issue will strengthen the external position of developing countries and, in the case of Latin America and the Caribbean, the smaller and more debt-burdened economies, including some Caribbean countries. In order to balance the quota-based distribution, it has been proposed to reallocate SDRs from developed to developing economies.
“As a result of commodity price trends, the terms of trade are also expected to increase in 2021 for commodity exporters. In the South American subregion, which is a net exporter, these are projected to grow by almost 12 percent, while the opposite is true for Central America, a net importer of fuels and also —in some countries— of food, where the terms of trade are expected to worsen by 1 percent this year. In the Caribbean (excluding Trinidad and Tobago), a decrease of 4 percent is expected, since this subregion is also a net importer of energy and food.