WASHINGTON, CMC – The World Bank Wednesday said Latin America and the Caribbean (LAC) countries have made progress in macroeconomic resiliency over previous decades and navigated the multiple post-pandemic crises with relative success.
But the Washington-based financial institution, in a new report, said growth needs to be improved to reduce poverty and create jobs, while fiscal constraints limit necessary investments.
The” Wired: Digital Connectivity for Inclusion and Growth” report noted that expanding digital connectivity, combined with complementary policies, allows for creating more dynamic and inclusive societies.
The report estimates that gross domestic product (GDP) will grow by two percent this year, slightly up from 1.4 percent in previous projections but still below all other regions worldwide.
It said 2.3 and 2.6 percent rates are expected for 2024 and 2025. Similar to the 2010s, more than these rates are needed to make much-needed progress in inclusion and poverty reduction.
“The region has proven mostly resilient to the several post-pandemic external shocks, but unfortunately, growth remains anemic,” said Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean.
“Countries must urgently find ways to boost inclusion and growth, improve governance, and build social consensus. Digital solutions can be part of the answer as they help complement structural reforms to increase productivity, improve population service delivery, and support government efficiency. We see major opportunities for the region here,” he added.
According to the report, LAC carried out well-grounded macroeconomic reforms over the past three decades, leading to increased resilience to shocks, such as the multiple post-pandemic inflation crises, uncertainty from the Ukraine war, soft commodity prices, and growing debt. Poverty and employment have generally returned to their pre-pandemic levels, and inflation, excluding Argentina and Venezuela, has fallen to a regional average of 4.4 percent, below that of the Organisation for Economic Co-operation and Development (OECD countries.
The World Bank said though it improved from six months ago, the global context remains adverse, marked by high-interest rates, low growth in advanced economies, and China’s uncertain prospects.
It said governments will also continue to struggle with fiscal space. While the debt-to-GDP ratio is estimated at 64 percent, down from 67 percent a year ago, it is still above the 2019 level of 57 percent, and high-interest rates have increased the debt service burden.
“Private and public investment in digital connectivity can stimulate new sectors and jobs, offer new areas of trade, and increase the efficiency, quality, and inclusiveness of government programs ranging from education to agricultural extension in remote rural areas.”
“However, digital connectivity is not a silver bullet for growth and can exacerbate existing social inequalities without complementary investments in skills, finance, and regulatory systems to realize the promise of digital technologies for all.”
The new World Bank report states that to help Latin America and the Caribbean seize the advantages of the digital economy while including the poorest and promoting better governance. It has outlined existing gaps and opportunities in digitalization.
It said these include infrastructure where mobile internet access is widespread but presents a coverage gap of seven percent of the population.
Fixed internet exists in 74 percent of urban households but only 42 percent.
In rural areas. Quality is also an issue, with at least 55 percent of households with internet connectivity noting low quality of services. The bank said addressing these disparities requires a mix of technological and institutional innovations to facilitate internet access.
The report also notes that 38 percent of the population lives in areas with internet coverage but chooses not to connect.
“Reasons for this include the high cost of internet services, lack of awareness about the potential advantages of connectivity, and unfamiliarity with digital platforms. To address these gaps, tackling affordability issues and expanding digital skills are critical. “
The report also notes that investing in complementary areas is essential to ensure inclusivity. More than access to broadband alone is required. People need the tools and capabilities to seize the digital economy’s opportunities.
“Critical areas for action include strengthening digital and traditional human capital skills and managerial competencies; ensuring the availability of financing; facilitating efficient government protocols and a supportive regulatory structure.”
The World Bank said digital tools can make governments more responsive by easing transactions with citizens, improving service provision efficiency and quality, and promoting inclusivity.
It said reducing transaction costs mainly benefits more remote and disadvantaged segments of society. Employing digital networks and tools can help reduce the large share of GDP, as much as four percent, lost in inefficiencies in public expenditures and spending leakages.
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