WASHINGTON, CMC – The World Bank Tuesday said that Latin America and the Caribbean (LAC) continues its efforts to reignite growth and create more and better jobs, but progress remains constrained.
The Washington-based financial institution said that the regional growth rate is expected to edge up slightly, from 2.2 percent in 2024 to 2.3 percent this year, even as many individual economies face downward revisions in their projections.
It said that these adjustments reflect, in part, an external environment that offers limited support, shaped by a cooling global economy, falling commodity prices, and greater uncertainty.
According to the World Bank, monetary authorities in the region continue to manage inflation competently, but the “last mile” is proving longer and rockier than expected.
It said interest rates in advanced economies have slowed their decline, constraining interest rate reductions across the region and delaying the needed relief for households, banks, and governments’ fiscal accounts. Investment, both public and private, remains depressed, and any momentum for “nearshoring”— the practice of bringing offshore operations to close or friendly countries—is stalled, both because of the rise in global uncertainty and because of a lack of preparedness in the region’s enabling environment to attract and host it.
The bank stated that the persistent lack of fiscal space highlights the ongoing need to improve the efficiency of government spending and rethink how governments raise revenue to generate resources for development investments.
According to the World Bank, Caribbean economies outpaced Latin American ones in 2024, though performance varied between tourism-dependent countries and commodity exporters.
Tourism-dependent economies have largely regained pre-COVID pandemic gross domestic product (GDP) levels, supported by a strong recovery in tourist arrivals. However, growth in the services sector is expected to moderate.
Among commodity exporters, Trinidad and Tobago and Suriname experienced sharp declines in output during the pandemic due to falling commodity prices, but growth has rebounded as prices have recovered.
Guyana has seen sustained, rapid GDP expansion since 2020, driven by new oil production. But the World Bank said that beyond short-term macroeconomic dynamics, longer-term development challenges persist, particularly around productivity and labor mobility.
Public debt trajectories differ across the Caribbean and Central America, with several countries having reduced debt-to-GDP ratios through growth and fiscal discipline.
The World Bank said Jamaica’s Economic Program Oversight Committee (EPOC) offers a model for transparent fiscal oversight.
As of January 1, 2025, Jamaica’s fiscal oversight transitioned to the newly established Independent Fiscal Commission and Advisory Committee, marking a significant institutional upgrade that enhances transparency and credibility.
Barbados and Belize have also made notable progress through consolidation efforts. However, some highly indebted Caribbean countries still face challenges in achieving debt sustainability. Inflation surged across the Caribbean in 2022 due to increases in global food and fuel prices. However, countries with currency pegs cushioned these impacts compared to those that have inflation-targeting regimes.
Since 2023, price normalization has helped ease inflationary pressures across the region. Regarding skilled migration and local economic development, the World Bank notes that Central America and the Caribbean face persistent productivity challenges alongside high outmigration rates.
It said that, although the high number of workers seeking jobs abroad is often viewed simply as brain drain, it should probably be seen as a “feature” rather than a “bug” of small economies, which can be harnessed for faster local growth.
That said, the World Bank said there has been little careful work on how migration patterns influence local productivity and economic growth.
“Specifically, how might development impacts differ between Central America and the Caribbean, where skill levels of migrants differ greatly? How can policymakers use this loop to generate local growth?”
The financial institution commented on a framework for skilled migration and local growth, noting that a 2023 World Bank report outlined a framework linking skilled migration and development in the Caribbean.
It said economic shocks in destination countries influence the growth of origin countries through two main channels: local skills and local demand.
“The skills channel captures how opportunities abroad affect the return to education and the local skill distribution. For example, skilled migration can increase the returns to schooling, generating spillovers to the local skill distribution.
“The demand channel captures how income earned abroad can influence demand and investment. For instance, investment of remittances can multiply the effects of migrant income on local demand.”
The World Bank said, however, that evidence from the Caribbean suggests a weak skills channel driven by a low domestic skill premium, rather than barriers to schooling.
It said that the quality of education is high enough that Caribbean nurses receive job offers in the United States, where they earn more than four times as much.
“As a result, more than 70 per cent of nurses educated in the Caribbean moved abroad. At the same time, public health care systems prevent wages from rising to compensate for the shortage in nurses.”
Some countries have tried to strengthen the skills channel through “bonding policies,” which subsidize the cost of education in exchange for local service.
But the World Bank said that these policies have had limited success, suggesting that the bonds are mispriced.
“Moreover, since 1997, members of the Caribbean Community (CARICOM) have established a Skills Certificate, which allows free movement of skilled workers and effectively increases the size of the local market.
“Studies also suggest a weak demand channel driven by low levels of investment in remittances and migrant entrepreneurship, rather than low levels of return migration. Many skilled migrants return to the Caribbean, but they typically exit the labor force or start businesses in the tourism sector, with limited impact on local productivity.”
It said remittances are typically spent on necessities, which limits the investment potential and lowers the aggregate demand multiplier. Attempts to funnel remittances into local investment through migrant savings accounts and remittance taxes have failed.
Recent efforts to engage directly with migrant families by providing access to investment opportunities or business loans collateralized by remittances appear more promising, according to the report.
Regarding the global poverty lines, the World Bank examines the implications for Latin America and the Caribbean of the 2021 Purchasing Power Parity Update. Between 2017 and 2021, it revised its international poverty lines to reflect updated purchasing power parity (PPP) rates and improved national poverty data.
The new poverty thresholds of three US dollars a day for low-income countries, US$4.20 for lower-middle-income countries, and US$8.30 for upper-middle-income countries, replace the previous daily lines of $2.15, $3.65, and $6.85, respectively.
It said that these adjustments stem from the 2021 International Comparison Program (ICP) data, which captured price levels following the COVID-19 pandemic, and from enhanced household survey methodologies that better reflect actual consumption patterns.
“For the Latin America and Caribbean (LAC) region, these adjustments resulted in a slightly bleaker picture. Extreme poverty, defined by the new three-dollar threshold, rose from 3.8 percent to 5.3 percent of the population in 2023.
“Poverty at the upper-middle-income line increased from 25 percent to 27.9 percent. However, it is critical to remember that 97 per cent of the change in LAC’s poverty rates is attributed to the revised international poverty lines rather than deteriorating economic conditions.
“The underlying poverty trends remain consistent, but the updated benchmarks offer a more accurate and comprehensive measure of deprivation across the region,” the World Bank added.
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