The impact of COVID-19 on the countries of the region has been likened by the International Monetary Fund (IMF) to a heart attack.
In an article written by IMF economists Samuel Pienknagura, Jorge Roldós, and Alejandro Werner titled ‘Pandemic Persistence Clouds Latin America and Caribbean Recovery’ the authors contended: “Despite being relatively successful at containing the virus spread, the sudden stop in tourist arrivals and local lockdowns was equivalent to a cardiac arrest to their economies.”
The authors argued that since the Caribbean countries are dependent on tourism for anywhere between 20 to 90 per cent of GDP and employment, they were the hardest hit.
They admitted that “COVID-19 has hit Latin America and the Caribbean harder than other parts of the world, both in human and economic terms. Pienknagura et al revealed that the relatively large human toll on the region is evident: with only 8.2 per cent of the world population, the region had 28 per cent of cases and 34 per cent of deaths, by the end of September 2020.
The IMF projects a real GDP contraction of 8.1 per cent in 2020. Unlike in previous recessions, the IMF added that employment contracted more strongly than GDP in the second quarter of 2020.
The authors noted that although many jobs would be recovered as activity resumes, current estimates point to lasting income losses, potentially reversing some of the social progress achieved until 2015.
They added that Poverty is projected to increase significantly, exacerbating income inequality, already among the highest in the world before the pandemic.
The IMF writers argued: “The recovery is expected to be protracted. Our forecast is for growth of 3.6 percent in 2021. Most countries will not go back to pre-pandemic GDP until 2023, and real income per capita until 2025, later than any other region.”
Pienknagura et al highlighted that the outlook would be shaped by how the pandemic impacts external and domestic demand, and how “the scars left by the crisis” affect the region’s production capacity.
The authors penned that the global economy’s long and uncertain recovery means a dim outlook for exports. Additionally, they argued that domestically, consumption of contact-intensive goods and services will likely be depressed until the pandemic is controlled, and income levels might stay subdued even afterwards.
According to the IMF, the resulting weak demand and uncertainty will hold investment back over the medium term, while some job losses might become permanent, reducing potential growth, especially where fiscal support has been timid.
Bold policy actions by many governments were critical in mitigating the pandemic’s economic and social impact but Pienknagura et al said that these polices would leave a legacy of higher public and private debt.
Amidst a weaker-than-expected recovery, the IMF noted that a more persistent pandemic would impose more difficult choices for governments.
The authors indicated that “scarring and lower potential GDP growth” add to the short run policy challenges. They mentioned that some structural reforms may support confidence and the recovery, especially if they manage to lay the foundations for more sustainable and inclusive growth going forward.