Progress and Challenges in the Region
As Latin America and the Caribbean (LAC) look back on decades of progress in macroeconomic resiliency and successful navigation through multiple post-pandemic crises, a new report from the World Bank sheds light on a persistent issue: the region’s growth, while commendable, is still insufficient to tackle poverty and unemployment effectively.
Fiscal constraints further hinder the necessary investments. However, the report titled “Wired: Digital Connectivity for Inclusion and Growth” suggests that embracing digital connectivity, alongside complementary policies, could usher in dynamic and inclusive societies.
Slow Growth and Ambitious Goals
The report predicts that the regional GDP will grow by 2.0% in 2023, a slight improvement from the previous projection of 1.4%. Nonetheless, this growth still lags behind other global regions. Projections for 2024 and 2025 are slightly higher at 2.3% and 2.6%, respectively.
However, these figures, reminiscent of the 2010s, may not suffice to make substantial progress in reducing poverty and fostering inclusion.
Calls for Urgent Action
Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean, acknowledges the region’s resilience in the face of post-pandemic shocks but underscores the persistently lackluster growth.
He emphasizes the urgent need for countries to prioritize inclusion and growth, enhance governance, and build social consensus. Jaramillo sees digital solutions as integral to the equation, as they complement structural reforms, boost productivity, enhance service delivery, and improve government efficiency.
Economic Reforms and Global Challenges
Over the past three decades, Latin America and the Caribbean have implemented substantial macroeconomic reforms that have bolstered their resilience to external shocks. This resilience was evident during the multiple post-pandemic crises, including challenges arising from inflation, Ukraine war-related uncertainty, soft commodity prices, and escalating debt.
While some hurdles persist, poverty and employment levels have generally returned to pre-pandemic norms. Inflation, excluding Argentina and Venezuela, stands at a regional average of 4.4%, lower than that of OECD countries.
Navigating a Complex Global Landscape
Despite some improvements, the global context remains challenging, marked by high-interest rates, sluggish growth in advanced economies, and uncertainty regarding China’s prospects. Governments in the region continue to grapple with fiscal constraints.
The debt-to-GDP ratio, though lower at 64% compared to 67% a year ago, still exceeds the 2019 level of 57%. Additionally, high-interest rates have increased the burden of debt service.
The Role of Digital Connectivity
William Maloney, Chief Economist for Latin America and the Caribbean at the World Bank, highlights the potential of private and public investment in digital connectivity to stimulate new sectors, jobs, and trade.
He emphasizes that it can also enhance government programs, from education to agricultural extension. However, Maloney cautions that digital connectivity alone is not a panacea for growth and could exacerbate existing inequalities if not coupled with investments in skills, finance, and regulatory systems.
Bridging the Digital Divide
To harness the advantages of the digital economy and promote better governance, the report identifies gaps and opportunities in digitalization:
Addressing Infrastructure Gaps
The report highlights that while mobile internet access is widespread, there remains a coverage gap, with 7% of the population (45 million people) lacking access to mobile broadband networks. Fixed internet is present in 74% of urban households but only 42% of rural households.
Quality issues persist, with 55% of connected households reporting low-quality services. Addressing these disparities requires both technological and institutional innovations to facilitate widespread internet access.
Overcoming Usage Barriers
Approximately 38% of the population (240 million people) lives in areas with internet coverage but choose not to connect. High costs, lack of awareness about the advantages of connectivity, and unfamiliarity with digital platforms contribute to this choice. To close these gaps, it’s imperative to tackle affordability issues and expand digital skills.
Beyond Access: Complementary Investments
Access to broadband alone is insufficient; people need the tools and capabilities to seize digital opportunities. Critical areas for action include strengthening digital and traditional human capital skills, ensuring financing availability, and establishing efficient government protocols and a supportive regulatory framework.
Governance for Efficiency
Digital tools can make governments more responsive, efficient, and inclusive. Reducing transaction costs particularly benefits remote and disadvantaged segments of society. Leveraging digital networks and tools can help recover as much as 4% of GDP currently lost to inefficiencies in public expenditures and spending leakages.