BARBADOS AND OTHER regional countries “will enjoy only a moderate recovery in growth this year”, and they need to fix fiscal problems.
That advice came in the 2015 Latin American And Caribbean Macroeconomic Report, which was prepared by a team of Inter-American Development Bank economists.
The report said while the global economy, boosted by recent stronger growth in the United States (US), was expected to recover this year, this was unlikely to be sufficient to influence higher growth rates, which were expected to be “well below those for 2003-08”.
“The recent fall in oil prices may help but is not expected to boost growth enough to fundamentally change this outlook. Moreover, there are risks of further delays in recovery particularly in Europe and in Japan, while growth in China may be slower than expected,” the 107-page report said.
A labyrinth
It used the analogy of “a labyrinth complicated by a set of global economic obstacles that the region must successfully navigate to find an appropriate exit and realise stronger economic prospects”.
The first obstacle was the anticipated rise in US interest rates, and the fact that this “will be accompanied by expansionary conventional and unconventional monetary policy in Europe”. There were also hurdles related to firms’ balance sheets and the financial sector.
The report’s authors said the region’s fiscal position was another major obstacle to economic growth, since “actual and structural fiscal balances have weakened”.
“For the majority of countries in the region, fiscal adjustment is required. The precise composition of such an adjustment will depend on a set of country characteristics. For many countries with high tax revenues, raising taxes that tend to distort economic incentives may be counter-productive and only lowering expenditures may be successful in reducing debt,” it concluded.
“In some countries, however, where public spending is low, widening the tax base or improving the efficiency of tax administration may be the first appropriate policies to consider. In many countries, there is room to improve the efficiency of public spending, including through better targeting.” (SC)
