Latin America and the Caribbean Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Spring Meetings 2022 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Latin America and the Caribbean Argentina Dominican Republic Nicaragua The Bahamas Ecuador Panama Barbados El Salvador Paraguay Belize Grenada Peru Bolivia Guatemala Saint Lucia Brazil Guyana Saint Vincent and the Grenadines Chile Haiti Suriname Colombia Honduras Uruguay Costa Rica Jamaica Dominica Mexico MPO 1 Apr 22 macro-stabilization, by restoring fiscal sus- tainability, halting deficit monetization, re- ARGENTINA Key conditions and ducing inflation, rebuilding the Central Bank foreign reserves, and helping regain challenges access to capital markets. Beyond the ur- gent need to stabilize the economy, Ar- Table 1 2021 Argentina’s economy has recovered faster gentina would benefit from a shift to a Population, million 45.8 than previously expected. Following a medium-to-long term perspective in order GDP, current US$ billion 480.6 3-year recession and almost a decade of to reverse the downward tendency of its GDP per capita, current US$ 10496.1 stagnation, GDP was already above pre- potential output and adopt reforms that a 1.6 International poverty rate ($1.9) covid levels by end-2021, although still 4 could deliver more sustainable and equi- a 5.8 percent below its previous cyclical peak at- table growth. Reforms to boost export per- Lower middle-income poverty rate ($3.2) a 18.2 tained in the last quarter of 2017. Higher formance, raise skills and compensate for Upper middle-income poverty rate ($5.5) Gini index a 42.3 commodity prices and trading partners’ lack of progress in education outcomes School enrollment, primary (% gross) b 109.5 growth, notably Brazil, combined with owing to COVID, as well as improving la- b 76.7 public investment and acquisition of good bor market matching should be prioritized Life expectancy at birth, years and services, are behind the robust recov- along with macro-stabilization to ensure Total GHG Emissions (mtCO2e) 435.0 ery in growth. strong and sustained growth beyond a Source: WDI, Macro Poverty Outlook, and official data. Macroeconomic imbalances have widened. cyclical recovery. a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). The fiscal deficit remains sizeable and has been completely monetized by the Central Bank, in the absence of access to interna- Bolstered by favorable external condi- tional markets and a shallow domestic Recent developments market. This has pushed up inflation, tions, Argentina’s economy recovered which combined with tight currency con- Economic activity gained pace rapidly and from the COVID-19 crisis at a fast pace, trols, has added pressure to the gap be- reached pre-pandemic levels by Q3-2021. reaching pre-pandemic activity levels by tween the official and parallel exchange Investment and exports have been the end-2021. Growth is poised to continue, rates and dragged down reserves. The main drivers of the recovery. Investment Central Bank net reserve assets are at his- was propelled by agricultural machinery driven by private consumption and in- torically low levels (less than a third of and equipment, as well as residential con- vestment. High inflation, tight FX con- monthly merchandise imports), while in- struction, a means to store value given trols will inhibit strong growth in the flation is running at more than 50 percent high inflation and low levels of activity medium term. Implementing a sound annual rate (with core inflation even high- during 2020. Industrial exports benefited macro-stabilization plan to restore fiscal er), eroding purchasing power and hurting from strong growth in Brazil and high those with low incomes disproportionally. commodity prices also supported a small sustainability, reduce inflation and sup- High inflation acts as a counteracting force current account surplus. port FX reserves accumulation will set to improvements in the labor market, lim- Labor markets indicators remain weak. Al- the basis for broad-based growth, robust iting poverty reduction. though the employment rate reached its job creation and poverty alleviation. The IMF program provides Argentina a pre-pandemic level in 2021, job creation time-window of 3 to 4 years to achieve has mainly occurred among informal FIGURE 1 Argentina / Net international reserves and FIGURE 2 Argentina / Actual and projected poverty rates exchange rate premium and real private consumption per capita US$bn Percent Poverty rate (%) Real private consumption per capita (constant LCU) 50 130 30 14000 45 110 12000 40 25 35 90 10000 20 30 8000 70 25 15 50 6000 20 10 15 30 4000 10 5 2000 10 5 0 0 0 -10 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2011 2013 2015 2017 2019 2021 International poverty rate Lower middle-income pov. rate Net reserves (lhs) Alternative FX Premium (rhs) Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 2 Apr 22 salaried, self-employed job segments and extremely low levels by early-2022, on the medium-term, strong investment will re- public sector employees. Underemploy- eve of an agreement with the IMF. main inhibited by a still high inflationary ment remains high, at 12.2 percent in environment, controls to imports, prices 2021Q3, contrasting with 10.8 percent in and capital movements, as well as limited the previous cyclical peak. fiscal space. The economic recovery had a differentiat- Outlook The recent surge in commodity prices can ed regional impact on household incomes dampen growth and deteriorate the trade and poverty incidence under the national GDP is projected to grow by 3.6 percent and fiscal balances, hindering also foreign poverty line. In Greater Buenos Aires, the in 2022, given the strong 2021-Q4 carry reserve accumulation. The increase in the nation’s most populous region, and in over effect. The implementation of the value of agricultural exports can be com- Patagonia, poverty declined in the first se- Extended Fund Facility, agreed with the pletely offset by higher oil and gas im- mester of 2021, although it increased in all IMF, is expected to contribute to a more ports, or even exceed it, as Argentina re- other regions. The northeast and north- stable environment for growth by avoid- mains a net importer of energy. The hike west regions continue to register the high- ing a default, setting a path for fiscal in energy prices can put pressure on fiscal est levels of poverty. consolidation and eliminating deficit accounts via higher energy subsidies and The withdrawal of the emergency support monetization. However, beyond the car- maintaining the EFF fiscal targets may lead spending has been the largest contributor ry over effect, growth is expected to to a reallocation of spending. to the reduction of the fiscal deficit in 2021, be modest in 2022, as a more con- Downside risks remain high. A prolonged supported in part by extraordinary rev- tractionary fiscal and monetary policy war in Ukraine could lead to a deteriora- enues from a one-time wealth tax and the takes hold and growth in trade partners tion in the terms of trade for a net energy windfall revenue from the increase in com- slows. In 2022, the poverty rate is pro- importer such as Argentina, and lower ex- modities prices. As the economy recov- jected at 16.3 percent of the population ports as trade partners are also hit, ham- ered, the government was able to remove under the international poverty line of pering progress in fiscal consolidation. As most of this spending, but despite price $5.5 per day. The possibilities for faster with most nations, an intensification of the controls, tariff freezes, and a real appreci- poverty reduction in the medium term Covid-19 pandemic cannot be ruled out, ation of the Peso, its entire monetization will depend on the dynamism of job and more adverse climatic conditions, par- fueled inflation. The debt-to-GDP ratio de- creation, especially private formal jobs, ticularly extended drought impacting agri- clined in 2021 as a consequence of a large and the evolution of inflation. culture productivity and hydrology in real appreciation. Growth is expected to moderate over the both the Upper Parana River basin and via Despite the boom in commodity prices and forecast horizon. Substantial increases in the glacial melt that feeds hydroelectric SDR allocation, Central Bank net reserves the investment rate over several years are output is expected to limit the substitution are on a declining trend, as a result of high- needed to boost productivity and real in- of imports of energy and will continue to er debt repayments (to IMF and other IFIs) comes and promote the transition towards tilt the risks of sustainable economic and interventions on FX markets, reaching a low carbon economy. In the short- and growth to the downside. TABLE 2 Argentina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -2.0 -9.9 10.3 3.6 2.5 2.5 Private Consumption -7.3 -13.8 10.2 3.4 2.6 2.5 Government Consumption -1.2 -3.3 7.0 2.4 1.4 1.1 Gross Fixed Capital Investment -16.1 -12.7 32.5 5.9 4.7 5.0 Exports, Goods and Services 9.1 -17.3 9.0 5.2 5.0 4.9 Imports, Goods and Services -19.0 -17.9 21.5 5.3 4.9 4.8 Real GDP growth, at constant factor prices -1.7 -9.9 10.3 3.6 2.5 2.5 Agriculture 21.3 -7.1 0.0 1.9 2.2 2.1 Industry -4.8 -9.4 14.5 3.0 2.5 2.3 Services -3.1 -10.6 10.1 4.1 2.6 2.7 Current Account Balance (% of GDP) -0.8 0.8 1.2 0.7 0.6 -0.1 Net Foreign Direct Investment (% of GDP) 1.1 0.7 0.9 1.0 1.1 1.2 a Fiscal Balance (% of GDP) -4.7 -8.1 -4.9 -4.6 -4.0 -3.2 a Debt (% of GDP) 98.5 106.4 89.1 84.6 82.8 80.1 a Primary Balance (% of GDP) -0.5 -5.6 -3.0 -2.5 -1.8 -0.9 b,c International poverty rate ($1.9 in 2011 PPP) 1.3 1.6 1.3 1.3 1.3 1.2 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.8 5.8 5.2 4.8 4.6 4.4 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 14.5 18.2 16.3 16.0 15.5 15.0 GHG emissions growth (mtCO2e) 6.3 -3.4 7.1 2.8 2.4 2.5 Energy related GHG emissions (% of total) 41.3 40.8 42.2 42.4 42.5 42.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal data refer to the general government. b/ Calculations based on SEDLAC harmonization, using 2020-EPHC-S2.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2020) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 3 Apr 22 families (27.9 percent) had at least one member who had lost their job between BARBADOS Key conditions and March and June 2020; the less well-off were hit particularly hard, as 39 per- challenges cent of households classified as poor in the baseline survey of 2016/17 re- Table 1 2021 Barbados is a high-income service econo- ported a family member becoming un- Population, million 0.3 my, built on tourism and financial sector employed in the period. Notably, the GDP, current US$ billion 4.8 services. However, the country’s economic share of middle-income households un- GDP per capita, current US$ 16665.8 achievements remain vulnerable due to its able to meet their financial commitments a 99.7 School enrollment, primary (% gross) small size, its dependence on tourism at (60 percent) was greater than the share a 79.2 17 percent of GDP, and considerable ex- of low-income households (43 percent) Life expectancy at birth, years Total GHG Emissions (mtCO2e) 3.5 posure to climate change risks. Besides the as of April 2020. Source: WDI, Macro Poverty Outlook, and official data. COVID-19 pandemic, natural disasters Poverty levels were likely still elevated a/ Most recent WDI value (2019). such as Hurricane Elsa and the eruption in 2021. There are no official poverty es- of the volcano La Soufriere disrupted eco- timates since 2017 when 17.2 percent of nomic activity in 2021. The additional vul- households and 25.7 percent of con- Barbados’s economy rebounded in 2021 nerability stems from the high level of sumers were under the basic needs line. public debt, which is currently over 135 Nevertheless, GDP was lower in 2021 in line with international travel and eas- percent of GDP, an increase compared to than in 2017, with greater impacts to the ing containment measures but was nega- 124.8 percent in 2019 when a successful bottom of the income distribution. Non- tively affected by natural disasters such debt restructuring was completed. monetary poverty dimensions, such as as the eruption of the volcano La The BERT plan, which included the debt food security, indicate persistent depriva- Soufriere and Hurricane Elsa. Its current restructuring and is supported through a tion during the pandemic. Hunger rates four-year IMF Extended Fund Facility, is in Barbados rose from 5.8 percent in Jan- account deficit is estimated at 11.4 per- aimed at restoring macroeconomic stabili- uary 2020 to 6.9 percent in October 2020. cent of GDP. Unemployment decreased to ty while safeguarding the financial and so- Households categorized as extremely 12.4 percent in 2021. The pandemic cial sectors. The government has made sig- poor in 2016/17 still experience the great- curbed the reform efforts made in the con- nificant fiscal efforts to gradually reduce est shares of food insecurity, but the in- the debt burden; and under the macroeco- crease was larger among those who were text of the Barbados Economic Recovery nomic framework of the IMF program, identified as vulnerable to poverty. and Transformation (BERT) plan to sus- debt is expected to reach 60 percent of tain primary surpluses and reduce exter- GDP by FY 2035/36. nal vulnerabilities. The Barbados COVID-19 Survey under- taken by the Inter-American Develop- Recent developments ment Bank revealed severe consequences to welfare from the pandemic; average GDP growth for 2021 is estimated at 1.4 household total income and spending percent, a mild recovery after the 13.7 per- dropped by 20 percent and 29 percent cent contraction in 2020. Economic activity respectively. More than one quarter of rebounded after the second quarter of 2021 FIGURE 1 Barbados / Real GDP growth and contributions to FIGURE 2 Barbados / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 15 160 8 124.9 146.7 135.8 10 140 6 121.1 113.9 5 120 4 107.8 0 100 2 -5 80 0 -10 60 -2 -15 40 -4 -20 20 -6 2019 2020 2021e 2022f 2023f 2024f 0 -8 Agriculture Industry 2019 2020 e 2021 f 2022 f 2023 f 2024 f Services Net taxes on production Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of Barbados; IMF and World Bank staff estimates. Sources: Government of Barbados; IMF and World Bank staff estimates. MPO 4 Apr 22 as lockdown measures eased, although account deficit is estimated to have overall fiscal deficit is projected to remain GDP remained well below pre-pandemic widened to 11.4 percent of GDP, pushed at 3.4 percent of GDP. Fiscal accounts levels. Moderate growth was driven main- by expanding imports and reduced re- are expected to improve in FY 2023/24, ly by private sector consumption. Tourism ceipts. Increasing fuel prices explain half achieving a robust 3.6 percent of GDP exhibited a lackluster performance during the difference in the value of imports. primary surplus and an overall deficit 2021, with arrivals at only 20 percent of Gross international reserves stood at of 1.0 percent of GDP. The authorities 2019 levels. Tourism flows to the country US$3.1 billion, equivalent to an import are expected to resume fiscal consolida- were affected by travel restrictions in the cover of 40 weeks by end-December 2021, tion efforts after the pandemic that will main tourism markets of the US, UK, and these reserves increased during 2021 include state-owned enterprise (SOE) re- Canada which make up 75-80 percent of thanks to borrowing from IFIs and the al- forms and a reform of the civil service arrivals. Total arrivals stood at 143,500 in location of new SDR by the IMF. pension system. The fiscal balance is ex- 2021 compared to 714,650 in 2019. Two After recording a 0.8 percent of GDP pri- pected to turn positive in FY 2024/25. waves of COVID-19 cases hit Barbados in mary deficit and a 4.8 percent of GDP fiscal The inflation rate is projected to reach 5.9 2021, at end-August and end-December. deficit in FY 2020/21, the government is ex- percent in 2022 and then average around By February 2022, 50 percent of the popu- pecting a 1 percent primary deficit and 4.9 2.5 percent in the medium-term. The in- lation was fully vaccinated. percent overall deficit in FY 2021/22. Con- crease in energy and oil prices may pose The lower demand for agricultural prod- tinuing contingent health and disaster re- significant challenges for the external ac- ucts from subdued tourism combined with lief related expenditures, combined with counts, although this will be compensated the impact of the eruption of La Soufriere subdued revenues from tourism explain for by a recovery in tourism receipts. The volcano and the global supply chain dis- these results. current account deficit for 2022 is projected ruptions of key agricultural inputs result- to reach to 12.1 percent of GDP and then ed in a 4 percent contraction of agricultural narrow to 8.8 percent of GDP in 2023. production in 2021. Meanwhile, the man- Robust growth in 2022 will likely be ac- ufacturing sector expanded by over 4 per- Outlook companied by an improvement in the liv- cent driven by production in the food and ing standards, although this is subject to beverages sector. GDP growth is expected to reach 11.2 per- significant uncertainty related to the possi- Employment and earnings were negative- cent in 2022 when the tourism sector is ex- bility of new travel restrictions worldwide, ly affected by the pandemic. The unem- pected to largely recover, and 4.9 percent in and the risk of natural disasters. Higher ployment rate stood at 12.4 percent in 2023. However, the outlook is still uncer- oil prices and imported inflation due to the third quarter of 2021, compared to tain, and it will depend to a great extent on global geopolitical risks may trigger higher 17.6 in 2020. However, employment is progress with respect to vaccination in Bar- consumer prices with implications for the still below its 2019 level and gender dis- bados, the number of COVID-19 cases in the poorest. Returning to pre-pandemic levels parities persist. country, and international travel restric- of employment and income will take The 12-month inflation stood at 5 percent tions. Lagging construction activity and re- longer and will heavily depend on the re- in December 2021, while average inflation newed fiscal consolidation efforts are ex- covery of the tourism sector. Additional during the year was 3 percent, with the pected to moderate growth prospects. The support for the most vulnerable will be highest increases registered in transporta- primary balance is expected to reach 1 per- necessary to attain the welfare levels ob- tion, and food and beverages. The current cent of GDP surplus in FY 2022/23 while the served over last decade. TABLE 2 Barbados / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -1.3 -13.7 1.4 11.2 4.9 3.0 Real GDP growth, at constant factor prices -1.2 -13.7 1.3 11.3 5.0 3.1 Agriculture -4.5 -4.8 -4.0 1.1 0.5 0.5 Industry -1.9 -3.9 4.0 4.2 3.5 3.0 Services -1.0 -15.7 0.9 13.0 5.4 3.2 Inflation (Consumer Price Index) 4.1 2.9 3.0 5.9 2.7 2.5 Current Account Balance (% of GDP) -3.1 -7.0 -11.4 -12.1 -8.8 -6.8 Fiscal Balance (% of GDP) 3.8 -4.8 -4.9 -3.4 -1.0 0.4 Debt (% of GDP) 124.9 146.7 135.8 121.1 113.9 107.8 Primary Balance (% of GDP) 6.2 -0.8 -1.0 1.0 3.6 5.1 GHG emissions growth (mtCO2e) 0.0 -6.0 -0.9 -10.0 -10.4 -11.1 Energy related GHG emissions (% of total) 31.0 27.3 27.4 28.1 28.3 27.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. MPO 5 Apr 22 indirect effects of containment and mitiga- tion measures on manufacturing. A World BELIZE Key conditions and Bank phone survey from mid-2021 indicat- ed that two out of three households had challenges experienced a decline in income since the start of the pandemic. School participation, Table 1 2021 Tourism is the most important source of for- already low compared to other countries Population, million 0.4 eign exchange in Belize, followed by agri- in the region, was significantly affected. GDP, current US$ billion 1.7 cultural commodities and, to a lesser extent, The EU Economic and Financial Affairs GDP per capita, current US$ 4175.4 crude oil. Remittance inflows, which ac- Council (ECOFIN) removed Belize from a 107.7 School enrollment, primary (% gross) count for about 5 percent of GDP, is another the EU grey list of non-cooperative tax ju- a 74.6 major foreign exchange source and pro- risdictions; however, gaps in financial sec- Life expectancy at birth, years Total GHG Emissions (mtCO2e) 6.7 vides substantial support for consumption. tor supervision remain. Belize is looking to Source: WDI, Macro Poverty Outlook, and official data. Real GDP growth has been sluggish over finalize its National Risk Assessment in the a/ Most recent WDI value (2019). the past decade, averaging 1.8 percent be- months ahead, and to begin the implemen- tween 2009 and 2019. Inequality increased tation of the subsequent action plan. over the same period. A combination of inadequate fiscal policies and external shocks led to three debt restructurings be- tween 2006 and 2021. Recent developments After entering the COVID-19 pandemic Belize's reliance on oil imports makes it with high public debt, increased external vulnerable to fluctuations in energy prices. Belize experienced a peak in COVID-19 vulnerabilities, and low economic growth, Weak fiscal policies, an unfriendly busi- transmission rates in January 2022. As of Belize is experiencing a tourism-led re- ness climate and an infrastructure deficit, March 23, 2022, COVID-19 had affected lead to structurally high unemployment, a 14.4 percent of Belize's population, and bound. Tourism-related construction led wide trade deficit, and a significant foreign there were 165 deaths per 100,000 inhabi- to an increase in investments and tourist debt burden. With a reserve cover under 5 tants. While over 50 percent of the popula- arrivals, reversing some of the increase in months of imports, Belize is vulnerable to tion has been fully vaccinated, hesitancy to poverty and unemployment. Continued external shocks. get vaccinated is high. The latest official consumption poverty esti- Belize's economy is estimated to have ex- reforms to meet debt targets, improve- mates (2018) classified over half (52 percent) panded by 9.8 percent in 2021 fueled by ments to the business climate and infra- of Belize’s population as poor, 10 percent as a moderate resumption in tourism and structure, and protection of the vulnera- extreme poor, and 10 percent as vulnerable. tourism-related investments, with ble remain policy priorities. Growth is ex- There is a structural difference in employ- overnight arrivals increasing 51.9 percent ment and poverty outcomes by gender and over 2020. pected to be moderate, with significant ethnicity, with women and Mayans more Cruise ship passenger arrivals fell by 38.7 downside risks. likely to be self-employed and poor. percent in 2021 compared to 2020. The The social impact of the COVID-19 pan- government is making sure that cruise demic has been severe as a result of a re- tourism rules are consistent with the mar- duction in tourism activity as well as the itime conservation pledges made in the FIGURE 1 Belize / Real GDP growth and contributions to FIGURE 2 Belize / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 15 140 133.1 4 110.4 10 2 120 104.9 101.7 5 100.1 96.3 0 0 100 -5 -2 80 -10 -4 -15 60 -6 -20 40 -8 -25 -30 20 -10 2019 2020 2021 e 2022 f 2023 f 2024 f 0 -12 Private Consumption Government Consumption 2019 2020 2021 e 2022 f 2023 f 2024 f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Statistical Institute of Belize and World Bank staff calculations. Sources: Ministry of Finance and World Bank staff calculations. MPO 6 Apr 22 context of debt restructuring. With rising deficit from 10.9 percent of GDP to 0.7 between 2022 and 2024. Over the medium oil prices and global supply chain con- percent of GDP. These measures reduced term, inflation will average 3.6 percent due straints, inflation averaged 3.3 percent in debt from 133.1 percent of GDP in 2020 to stronger domestic demand combined 2021, rising to 5 percent by the end of to 110.4 percent of GDP in 2021. They with upward pressure from commodity the year. are complemented by reforms aiming to import prices, with implications for the The current account deficit (CAD) strengthen public expenditure manage- poorest. The rebound in economic activity widened to 8.9 percent of GDP in 2021, ment and to enhance procurement. and employment are expected to lead to a due to a slowdown in remittances and in- After a year-on-year decline of about 4.5 decrease in poverty in 2022. creased imports for capital spending on percentage points, the unemployment rate Over the medium term, the CAD is expect- tourism projects and public construction. was 9.2 percent in the fall of 2021. The ed to average 8.9 percent of GDP as the rise Foreign direct investment increased by 1.8 post-pandemic recovery in labor market in fuel prices increases the cost of imports, percentage points to 6.3 percent of GDP. outcomes continues to be stronger for men and as remittances level off. The CAD will By the end of 2021, international reserves than for women; labor force participation be funded through private inflows, dona- were up by 21 percent to US$420.1 million rates of women remain about 10 percent- tions, and multilateral lending, as well as (4.4 months of total imports). age points below pre-pandemic levels. by a drawdown of reserves. As imports in- Belize has reduced the principal amount Much of the recovery in labor market out- crease, international reserves may fall be- of its external indebtedness by approx- comes is driven by the tourism, real estate, low three months of imports, exacerbating imately US$250 million (or 12 percent and wholesale and retail sectors. Belize's external vulnerabilities. of GDP) through an innovative financial The fiscal deficit is expected to average 2.0 transaction refinancing its Superbond percent of GDP as tax collections improve with funding provided by The Nature with increased tourism activity and the gov- Conservancy (TNC), a global environ- Outlook ernment reduces transfers and capital ex- mental nonprofit. TNC’s Blue Bonds for penditures and continues the three-year Ocean Conservation program uses private Belize remains vulnerable to the pay freeze passed in 2021. This should bring capital to refinance public debt to support COVID-19 pandemic due to the impact of the public debt down to 100.1 percent of durable marine conservation efforts and viral spreads on tourist arrivals and broad- GDP by 2024. Debt dynamics will remain sustainable marine-based economic activ- er economic activity. Labor market out- vulnerable to shocks to growth, interest ity. This debt restructuring was comple- comes, and thus poverty rates, are not ex- rates, and the fiscal position, including nat- mented by a major fiscal consolidation ef- pected to return to pre-pandemic levels ural disasters and climate change. Other fort. Capital spending decreased by 3.4 until the tourism sector fully recovers. risks include exposure to extreme climate- percentage points of GDP to 6.6 percent Currently, the tourism industry is expect- related shocks, and social tensions. Activity in 2021 while transfer payments and ed to recover further in the medium term, could be disrupted by public sector workers wages were cut, reducing the overall with GDP growth averaging 3.7 percent protesting the reduction in wages. TABLE 2 Belize / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.0 -16.7 9.8 5.7 3.4 2.0 Private Consumption -1.3 -16.4 7.4 5.9 3.7 1.9 Government Consumption 2.7 6.4 -4.1 2.6 3.6 2.0 Gross Fixed Capital Investment 8.2 -24.1 13.4 12.4 7.0 6.5 Exports, Goods and Services 7.5 -65.8 54.0 8.2 6.7 6.2 Imports, Goods and Services 3.5 -53.1 26.0 10.2 8.6 7.9 Real GDP growth, at constant factor prices 1.4 -16.5 9.8 5.7 3.4 2.0 Agriculture -4.4 2.7 9.0 5.5 1.7 1.7 Industry -4.3 -5.9 1.8 2.6 2.1 2.1 Services 3.5 -21.4 11.9 6.4 4.0 2.0 Inflation (Consumer Price Index) 0.2 0.1 3.3 4.8 3.7 2.2 Current Account Balance (% of GDP) -9.5 -8.1 -8.9 -9.3 -8.9 -8.5 Net Foreign Direct Investment (% of GDP) 4.7 4.5 6.3 5.8 5.7 5.6 a Fiscal Balance (% of GDP) -4.7 -10.9 -0.7 -2.0 -1.9 -2.0 a Debt (% of GDP) 96.3 133.1 110.4 104.9 101.7 100.1 a Primary Balance (% of GDP) -1.4 -8.9 1.7 0.8 0.7 0.7 GHG emissions growth (mtCO2e) -0.5 -1.7 0.5 -0.6 -0.6 -0.6 Energy related GHG emissions (% of total) 10.3 9.4 10.5 10.8 11.0 11.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 7 Apr 22 export restrictions, and fostering environ- mentally and socially sustainable mining, BOLIVIA Key conditions and including lithium. Besides its high exposure to climate-relat- challenges ed risk, Bolivia is also exposed to volatile commodity prices, exacerbated by the Table 1 2021 Bolivia entered the pandemic with limited Russia-Ukraine conflict. Although high Population, million 11.8 policy space and suffered a deep recession. commodity prices may reduce macroeco- GDP, current US$ billion 40.4 An underdeveloped private sector, poorly nomic imbalances, they may also increase GDP per capita, current US$ 3416.1 targeted social programs, a weak health food inflation, hitting the poor and those a 4.4 International poverty rate ($1.9) system, and political polarization have vulnerable to falling into poverty the a 9.0 worsened the crisis and slowed recovery. most. Additionally, declining gas produc- Lower middle-income poverty rate ($3.2) a 21.6 After a one-year political transition, the tion and fuel subsidies could prevent Bo- Upper middle-income poverty rate ($5.5) Gini index a 43.6 new authorities have aimed to resume a livia from fully capitalizing on the up- School enrollment, primary (% gross) b 98.5 state-led development strategy, including surge in oil prices. Finally, with half of b 71.5 expenditure stimulus and import substitu- the population fully vaccinated as of Feb- Life expectancy at birth, years tion. However, with limited access to ex- ruary 2022, Bolivia is still exposed to new Total GHG Emissions (mtCO2e) 126.1 ternal financing, the Government has had waves of infection. Source: WDI, Macro Poverty Outlook, and official data. to moderate expenditure. a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). Given high public debt and exchange rigidity, a credible plan to address the fiscal imbalances is critical. Consolidation Recent developments The economy continues to recover from could rely on improving spending effi- ciency while supporting the most vulner- After falling 8.7 percent in 2020, the econ- the pandemic-induced recession. Growth able and improving access to quality ser- omy grew by an estimated 6.1 percent in and poverty reduction are expected to vices. Public expenditure efficiency could 2021 due to improving external conditions, slow down in the medium term as in- be enhanced by rationalizing public in- eased mobility restrictions, and recovering creasing public debt and declining inter- vestment, including in public enterprises, public investment. The recovery was led improving public procurement, strength- by mining exports and non-tradable sec- national reserves may restrict expansion- ening coordination across levels of gov- tors, such as construction and transport. ary efforts. Bolivia's medium-term ernment, and improving targeting of so- Urban unemployment declined from a prospects could be strengthened by ce- cial programs. peak of 11.6 percent in July 2020 to 5.4 per- menting confidence in macroeconomic Fostering private and foreign investment cent in December 2021, back to pre-pan- management, boosting public sector effi- will be critical to stabilize gas exports demic levels. The recovery in employment and ignite new medium-term sources helped reduce poverty in 2021, mainly dri- ciency to enhance service delivery and of growth and employment. The in- ven by rural areas, despite the end of emer- protect the poor and vulnerable, and fos- vestment climate could be improved by gency transfers in early 2021. tering private investment to ignite new reducing red tape, removing tax dis- By the second quarter of 2021, informality sources of growth and employment. tortions, modernizing labor regulations, remained high, particularly among youth, improving logistics, easing agricultural and 60 percent of households reported FIGURE 1 Bolivia / Public debt FIGURE 2 Bolivia / Actual and projected poverty rates and real private consumption per capita Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 100 60 3500 50 3000 80 2500 40 60 2000 30 1500 40 20 1000 10 500 20 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real priv. cons. pc Sources: Central Bank of Bolivia and Ministry of Economy and Public Finance. Source: World Bank. Notes: See Table 2. MPO 8 Apr 22 lower income than before the pandemic. annual inflation remained under 1.0 per- capital expenditure would be constrained Moreover, 23 percent of households indi- cent, below the regional standard, as the by limited access to external funding. In cated running out of food during the pre- economy continued to underperform, and the absence of substantial fiscal reforms, vious month, affecting the rural poor and fixed exchange rate and frozen fuel prices public debt is projected to increase from 81 families with children the most. repressed imported inflation. percent in 2021 to 85 percent by 2024. The fiscal deficit fell from a peak of 12.7 The Government is expected to support percent of GDP in 2020 to 9.3 percent in the fixed exchange rate regime, limiting its 2021 due to the rebound of tax and hy- expansionary efforts. High commodity drocarbon revenues and a lower-than-ex- Outlook prices will help achieve sizable current ac- pected recovery of public investment; the count surpluses despite the stagnation of introduction of a permanent wealth tax The economy is expected to grow 3.9 per- gas exports. However, capital outflows had limited impact. However, with limit- cent in 2022 as some sectors continue to and smuggling may continue to erode in- ed external funding, the Government con- recover. Although the Government man- ternational reserves. tinued to tap into Central Bank and pen- aged to refinance the bulk of 2022 and Declining international reserves and sion funds financing. 2023 bonds, limited access to additional emerging inflationary pressures, including Despite low gas export volumes, the trade external financing is expected to limit fis- those emerging from higher international balance reached a sizable surplus in 2021 cal spending which, combined with weak food prices in 2022, are expected to curb due to recovering mining exports and private and foreign investment, is expect- expansionary monetary policies, including higher commodity prices. Notwithstand- ed to push growth to below 3.0 percent Central Bank funding to the public sector. ing the trade surplus, increasing remit- in the medium term. Additionally, with The limited fiscal space and categorical de- tances, and the SDR allocation, interna- declining international reserves and the sign of social programs may undermine ef- tional reserves declined to a low of 5.1 Government requiring funding, domestic forts to protect the poor and vulnerable months of imports by the end of 2021 ow- credit to the private sector is projected to from a surge in food prices. ing to low foreign investment, smuggling, slow down. Long-term effects of the pandemic, in- and capital outflows. The fiscal deficit is projected to remain cluding human capital losses due to After a prolonged loan deferment, do- above 7.0 percent in 2022 as the increase school closures, remote learning, and mestic credit to the private sector re- in the fuel subsidy will partially offset food insecurity, are a concern and affect mained dampened partially due to uncer- the effect of higher hydrocarbon rev- the poor and vulnerable the most, limit- tainty in the private sector after the pan- enues. However, it is expected to con- ing reductions in inequality and upward demic. Despite increasing money supply, verge to 5.3 percent of GDP by 2024 as intergenerational mobility. TABLE 2 Bolivia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -8.7 6.1 3.9 2.8 2.7 Private Consumption 3.7 -7.9 5.3 4.1 2.9 2.8 Government Consumption 3.8 -2.8 5.4 4.2 -0.6 -0.3 Gross Fixed Capital Investment -3.5 -25.9 11.9 4.4 5.3 4.8 Exports, Goods and Services -1.8 -18.8 15.4 4.1 3.1 3.1 Imports, Goods and Services 1.5 -25.0 15.7 5.1 3.3 3.3 Real GDP growth, at constant factor prices 2.4 -8.4 6.4 3.5 2.5 2.7 Agriculture 5.3 3.1 1.8 4.0 4.0 4.0 Industry 0.1 -11.8 9.6 2.9 2.5 2.5 Services 3.4 -9.3 5.8 3.8 1.9 2.4 Inflation (Consumer Price Index) 1.8 0.9 0.7 3.9 3.5 3.5 Current Account Balance (% of GDP) -3.4 -0.4 2.5 2.8 1.5 0.6 Net Foreign Direct Investment (% of GDP) -0.6 -2.8 0.7 0.9 0.9 0.9 Fiscal Balance (% of GDP) -7.2 -12.7 -9.3 -7.1 -5.9 -5.3 Debt (% of GDP) 58.6 78.1 80.8 80.3 83.4 84.6 Primary Balance (% of GDP) -5.8 -11.2 -7.7 -5.4 -4.1 -3.5 a,b International poverty rate ($1.9 in 2011 PPP) 3.2 4.4 4.0 3.7 3.6 3.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 7.8 9.0 8.3 7.8 7.6 7.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 19.9 21.6 20.2 19.3 18.8 18.4 GHG emissions growth (mtCO2e) 0.3 -1.5 1.1 0.6 0.6 0.6 Energy related GHG emissions (% of total) 17.1 15.7 16.4 16.9 17.3 17.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2008-EH and 2020-EH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using average elasticity (2008-2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 9 Apr 22 levels, but this also increased households’ dependence on public transfers. The un- BRAZIL Key conditions and even labor market impacts increased pre- existing vulnerability profiles as higher job challenges losses were concentrated in low-skilled and highly insecure jobs. As the power of Table 1 2021 Structural bottlenecks and lack of govern- supervisory bodies has recently weakened, Population, million 214.0 ment capacity to pass critical reforms led to illegal forms of forest exploitation have be- GDP, current US$ billion 1608.8 a meagre GDP average growth (0.3 percent) come more frequent. Increasing deforesta- GDP per capita, current US$ 7518.1 over the last decade. Despite favorable de- tion in the Amazon puts additional pres- a 1.7 International poverty rate ($1.9) mographic conditions, the contribution of sure on land-use emissions, the main a 4.3 labor to GDP decreased 0.1 percent on aver- source of GHG emission in Brazil. Lower middle-income poverty rate ($3.2) a 13.1 age. Productivity growth also stalled, most- Upper middle-income poverty rate ($5.5) Gini index a 48.9 ly due to a complex tax system, a cumber- School enrollment, primary (% gross) b 112.0 some business environment that discour- Life expectancy at birth, years b 75.9 aged entrepreneurship, slow human capital Recent developments accumulation, ineffective sectoral state in- Total GHG Emissions (mtCO2e) 2514.6 tervention policies, low savings, and com- GDP grew at 4.6 percent GDP in 2021, pro- Source: WDI, Macro Poverty Outlook, and official data. pression of public investment to accommo- pelled by a strong recovery of 4.7 percent a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). date higher current spending and increas- in services, and thanks to the successful ing pension obligations. vaccination campaign (84.2 percent of the Improving fiscal sustainability is a critical population with at least one dose). While GDP grew 4.6 percent in 2021, thanks economic policy priority for Brazil. The industry grew strongly (4.5 percent), the long-term steady recurrent spending recovery was dragged down by shortage to strong services growth and a success- growth over the past 20 years has presented of inputs and higher production costs. ful vaccination campaign. Significant challenges. In response, the federal govern- The significant drop in poverty and in- downside risks remain in an uncertain ment adopted a primary expenditure ceil- equality rates from 2020 were short-lived. environment. The 2022 presidential elec- ing rule in 2016. Improvement in spending In 2021, labor force participation rates, efficiency and revenue collection are need- employment levels and the share of for- tion and the war in Ukraine are push- ed to put public debt on a solid downward mal workers had fallen below 2019 levels. ing up long-term yields, and the mone- trajectory, create fiscal space for investment, Unemployment rates returned to pre-pan- tary tightening to contain inflation is and maintain investor confidence. demic level in the last quarter of 2021, likely to depress growth in 2022. Pover- The COVID-19 pandemic gave Brazil one but they remain high (11.1 percent). La- ty rates are projected to stagnate in the of the highest tolls globally in terms of bor income may not fully replace the re- lives lost, but a rapid vaccine rollout since duction in government transfers – lead- medium-term, due to a slow labor mar- mid-2021 is supporting a return to normal- ing to higher poverty rates. A slower re- ket recovery. Productivity enhancing re- ity. The sizeable response implemented via turn to the labor force coupled with fewer forms are critical to accelerate growth social protection programs in 2020, al- job opportunities, have put female work- and safeguard fiscal sustainability. lowed the income of the bottom of the dis- ers and female-led households in a more tribution to surpass their pre-pandemic vulnerable position. FIGURE 1 Brazil / Evolution of Brazil’s GDP per activity sector FIGURE 2 Brazil / Actual and projected poverty rates and real private consumption per capita 2000 = 1 Poverty rate (%) Real private consumption per capita (constant LCU) 2.2 25 4200 Agriculture 4100 2.0 Services 20 Industry 4000 1.8 15 3900 1.6 3800 10 3700 1.4 3600 1.2 5 3500 1.0 0 3400 2012 2014 2016 2018 2020 2022 2024 0.8 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real priv. cons. pc Souce: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 10 Apr 22 High commodity prices and the large de- 2024, and the public debt to GDP ratio is preciation of the Real stabilized the cur- expected to stabilize by 2025. The current rent account deficit in 2021, still financed Outlook account deficit is forecast to widen to 1.7 by net FDI inflows. Increasing food, fuel, percent of GDP in the medium-term, as and energy prices eroded households' GDP growth is expected to slow to 0.7 per- the growth in commodities prices decreas- purchasing power across the income dis- cent in 2022 and mildly accelerate until es and global demand normalizes. Robust tribution. As inflation reached 10.5 per- 2024 on the back of easing inflation and re- external inflows are expected to fully fi- cent in 12 months until February 2022, duced uncertainty with the end of the elec- nance this deficit. the Central Bank accelerated the pace of tions. Inflation is projected to fall in 2023 The scenario is subject to significant risks, monetary normalization, raising the inter- due to the dissipation of the commodities as concerns remain about anemic poten- est rate to 11.75 percent in March and sig- price shock and an aggressive monetary tial growth and slow policy reform mo- naling its willingness to continue mone- policy, reaching the central bank target of mentum. Mounting demand for public tary tightening. 3.0 percent in 2024. Poverty is expected to expenditures on the back of the upcom- Fiscal consolidation in 2021 was substan- have increased to 18.7 percent in 2021, as ing general elections in October 2022 puts tive, given the rollback of COVID-related the coverage and benefits of emergency pressure on the spending rule, and polit- expenses and a higher-than-expected tax transfers were substantially reduced and ical instability persists, further deteriorat- collection. The primary balance improved unemployment rates remained high. In ing economic outlook for 2022. The war from a deficit of 9.5 percent of GDP in 2022, about 18 million low-income house- in Ukraine is causing higher commodi- 2020 to a surplus of 0.7 percent of GDP holds will be supported by the new ties prices and supply shortages that can in 2021. Subnational governments con- Auxílio Brasil program, however, complete trigger additional exchange rate deprecia- tributed to this balance with a surplus of elimination of the emergency transfers in tions and inflation pressures in Brazil, in- 1.1 percent of GDP, while the central gov- addition to sustained inflation may lead ducing a more aggressive monetary pol- ernment had a deficit of 0.4 percent. The poverty rates to stay largely stagnant in icy, reducing growth and increasing general government's gross debt declined the coming years. A gradual fiscal consoli- poverty. However, low external debt and to 80.3 percent of GDP in 2021, a 9.0 per- dation based on the fiscal rule is expected high international reserves provide solid centage points reduction. to result in a primary balance surplus by buffers to weather shocks. TABLE 2 Brazil / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 1.2 -3.9 4.6 0.7 1.3 2.0 Private Consumption 2.6 -5.4 3.6 1.0 1.5 2.0 Government Consumption -0.5 -4.5 2.0 0.0 0.0 0.0 Gross Fixed Capital Investment 4.0 -0.5 17.2 -0.5 1.8 3.9 Exports, Goods and Services -2.6 -1.8 5.8 0.5 1.5 2.0 Imports, Goods and Services 1.3 -9.8 12.4 -0.5 2.0 3.0 Real GDP growth, at constant factor prices 1.0 -3.5 4.3 0.7 1.3 2.0 Agriculture 0.4 3.8 -0.2 2.5 2.0 2.0 Industry -0.7 -3.4 4.5 0.3 0.7 1.1 Services 1.5 -4.3 4.7 0.6 1.4 2.3 Inflation (Consumer Price Index) 3.7 3.2 8.3 8.5 4.5 3.3 Current Account Balance (% of GDP) -3.5 -1.7 -1.7 -1.3 -1.3 -1.7 Net Foreign Direct Investment (% of GDP) 2.5 2.8 1.7 2.3 2.3 2.3 Fiscal Balance (% of GDP) -6.6 -14.2 -4.3 -8.3 -7.6 -5.2 Debt (% of GDP) 74.4 88.6 80.3 82.7 84.1 84.7 Primary Balance (% of GDP) -1.0 -9.5 0.7 -0.5 0.0 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 4.9 1.7 3.7 4.4 4.4 4.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.5 4.3 8.7 8.5 8.5 8.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 13.1 18.7 18.8 18.7 18.5 GHG emissions growth (mtCO2e) 9.5 3.0 11.7 -5.6 -5.2 -3.5 Energy related GHG emissions (% of total) 18.9 17.7 16.6 17.5 18.2 18.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2017-PNADC-E1, 2019-PNADC-E1, and 2020-PNADC-E5. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2017-2019) with pass-through = 0.87 based on private consumption per capita in constant LCU. Estimates for 2021-2022 based on microsimulations to reflect changes in government transfer programs. MPO 11 Apr 22 framework to attain greater equity, inclu- sion, and environmental sustainability CHILE Key conditions and while preserving a sound macroeconomic environment, securing fiscal responsibili- challenges ty, property rights, and an open trade regime will be critical. Reducing uncertain- Table 1 2021 A new government is taking office in ty during the process will be important to Population, million 19.2 March 2022 and will face a challenging create the conditions for renewed private GDP, current US$ billion 305.5 macroeconomic backdrop, with growth sector dynamism. GDP per capita, current US$ 15903.1 decelerating significantly and high infla- In the longer term, Chile needs to tackle a 0.7 International poverty rate ($1.9) tion. The 2022 budget has set a sharp fiscal long-standing barriers to productivity a 1.4 consolidation path, removing Covid-relat- growth such as: regulatory hurdles, low Lower middle-income poverty rate ($3.2) a 4.4 ed cash transfers that helped cushion competition in some sectors, innovation, Upper middle-income poverty rate ($5.5) Gini index a 44.9 household income losses. In the absence of education quality, and female labor force School enrollment, primary (% gross) b 102.4 emergency cash transfers, poverty (US$5.5 participation. b 80.2 a day) would have increased to 6.2 percent Life expectancy at birth, years instead of 4.4 percent in 2020. The mitiga- Total GHG Emissions (mtCO2e) 47.6 tion effects are estimated to have been even Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2020), 2011 PPPs. more substantial in 2021, with the rollout Recent developments b/ Most recent WDI value (2019). of the IFE universal, Chile’s most extensive and generous cash transfer, received by 85 Fueled by a strong fiscal response, Chile’s percent of the population. GDP grew at 11.7 percent in 2021, one of Three pension fund withdrawals worth the fastest recoveries worldwide. Econom- 16 percent of GDP provided liquidity ic activity far exceeded pre-pandemic lev- Growth will decelerate sharply in 2022 during 2021 but depressed capital mar- els. All sectors surpassed February 2020 on a reversal of fiscal stimulus and politi- kets and will impact future pensions. levels by the end of 2021, with the strong cal uncertainty. High inflation is expect- Tightening public spending to stabilize rebound in services behind more than half ed to trigger additional monetary tighten- debt and inflation and facilitating access of economic growth in the second part of to economic opportunities for the poor 2021. Growth was driven by consumption, ing. Temporary gains in poverty reduc- and vulnerable will be key to a sustain- amid pension fund withdrawals and direct tion from increased transfers will fade as able and even recovery. fiscal support worth 9 percent of GDP. One emergency measures are removed. Chile’s In the medium term, Chile needs to ad- of the fastest vaccination rates globally also medium-term prospects will depend on its dress social demands raised during the contributed to the fast normalization of capacity to deliver a new constitution 2019 protests. Tax and pension reforms economic activity. will need to be discussed in a new Con- However, job market recovery has been that supports greater equity, inclusion, gress without a clear majority. The ongo- slower than expected, with only 60 per- and environmental sustainability while ing constitutional process is an opportu- cent of the jobs lost in 2020 regained preserving sound macroeconomic man- nity to reach a new social consensus that in 2021 and many previously active agement and unlocking productivity. meets the population’s expectations, but women (most of them low-skilled) still this also involves risks. Creating a legal out of the workforce. FIGURE 1 Chile / Exchange rate and copper prices FIGURE 2 Chile / Actual and projected poverty rates and real GDP per capita CLP, US$ US$ per pound Poverty rate (%) Real GDP per capita (millions constant LCU) 900 1 25 10 850 1.5 9 800 20 8 2 750 7 700 2.5 15 6 650 3 5 600 10 4 3.5 3 550 4 5 2 500 4.5 1 450 0 0 400 5 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2006M01 2009M01 2012M01 2015M01 2018M01 2021M01 International poverty rate Lower middle-income pov. rate Exchange rate Copper price (rhs, inverse scale) Upper middle-income pov. rate Real GDP pc Source: Central Bank of Chile. Source: World Bank based on CASEN data for 2006-2020. Notes: see Table 2. MPO 12 Apr 22 Inflation accelerated to 7.8 percent y/y in have temporarily lowered poverty (US$5.5 Fiscal spending is expected to decline in February, driven by strong demand pres- a day) to less than 1.0 percent. Further, 2022 as Covid-related transfers are re- sures, commodity price increases, supply the Gini coefficient is estimated to have moved, leading to a reduction in the disruptions, and the peso depreciation. dropped from 0.45 in 2020 to 0.39 in 2021. government`s deficit to 3.8 percent of Persistent high inflation is risking second- GDP. Interest payments will increase round effects and has become a paramount amid higher debt stock and rates. In the concern, leading the Central Bank to in- medium term, the fiscal deficit should crease the monetary policy rate by 5 per- Outlook gradually converge towards the structur- centage points between July 2021 and Jan- al deficit target if increased social spend- uary 2022. Real GDP growth is expected to decel- ing is accompanied by increases in rev- Despite recovering revenues, the fiscal erate to 1.9 percent in 2022 due to the enue mobilization. deficit closed at around 7.7 percent of GDP reversal of policy stimulus, while tighter The current account deficit is projected to in 2021 due to high public spending. financial conditions and persistent politi- narrow to around 3 percent of GDP, as im- Notwithstanding the heavy use of public cal uncertainty will weigh on investment. ports normalize. savings funds, public debt reached 37 per- Still-high liquidity in households and the Amid the ceasing of emergency transfers cent of GDP, the highest in three decades. enhanced Guaranteed Universal Pension and challenging macroeconomic condi- Despite the record surge in copper prices, is expected to provide some cushion to tions, poverty (US$5.5 a day) is projected the current account deficit reached 6.6 per- the slowdown in consumption. Exports to increase to 4.7 percent and the Gini coef- cent of GDP in 2021 after a sharp increase will contribute positively to GDP growth ficient to 0.46 in 2022, and they are not ex- in imports fueled by the consumption-led amid a projected increase in copper out- pected to return to the pre-pandemic level recovery. Net FDI flows turned negative in put after supply disruptions in 2021. Fur- in the medium term. the third quarter amidst policy uncertainty ther ahead, the removal of direct social Risks to the outlook are mostly on the around the ongoing constitutional process transfers, tighter financial conditions, a downside and include new Covid variants, and election outcomes. The local currency deteriorated capital market and persistent climatic events, and deterioration in exter- depreciated by 16 percent in 2021 in a devi- uncertainty would lead to weak growth nal financial conditions as central banks ation from its historically close alignment through 2024. increase policy rates. The Russia-Ukraine to the copper price. Inflation is projected to remain above 7 conflict poses an upward risk to inflation The sharp rise in the non-labor incomes of percent for most of 2022 and begin to drop given the increase in commodity prices, to- the poor and vulnerable due to the mas- gradually towards 3 percent within the gether with a downward risk to growth sive cash transfers implemented in 2021, forecast horizon, provided fiscal and mon- due to the impact on export demand, mainly the IFE universal, is estimated to etary imbalances are addressed. terms of trade and financial uncertainty. TABLE 2 Chile / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.8 -6.0 11.7 1.9 1.5 2.0 Private Consumption 0.7 -8.0 20.3 1.2 0.7 1.8 Government Consumption 0.5 -4.0 10.3 -3.7 0.8 1.7 Gross Fixed Capital Investment 4.7 -9.3 17.6 1.0 1.1 2.1 Exports, Goods and Services -2.5 -1.1 -1.5 5.6 3.7 2.9 Imports, Goods and Services -1.7 -12.7 31.3 0.2 1.0 2.4 Real GDP growth, at constant factor prices 0.9 -5.9 11.7 1.9 1.5 2.0 Agriculture -0.7 -1.6 2.4 2.2 1.5 1.5 Industry -0.5 -3.5 5.8 1.7 1.5 1.5 Services 1.7 -7.3 15.2 2.0 1.5 2.2 Inflation (Consumer Price Index) 2.3 3.0 4.5 7.7 4.5 3.0 Current Account Balance (% of GDP) -5.2 -1.7 -6.6 -3.1 -2.5 -2.1 Net Foreign Direct Investment (% of GDP) 1.2 1.0 0.3 1.1 1.0 1.1 Fiscal Balance (% of GDP) -2.7 -7.1 -7.7 -3.8 -3.3 -2.7 Debt (% of GDP) 28.3 34.1 37.1 40.5 43.3 41.1 Primary Balance (% of GDP) -1.8 -6.2 -6.4 -0.5 -0.1 0.0 a,b International poverty rate ($1.9 in 2011 PPP) 0.7 0.0 0.9 0.9 0.9 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 1.4 0.1 1.6 1.6 1.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 4.4 0.8 4.7 4.5 4.3 GHG emissions growth (mtCO2e) 3.6 -15.8 5.5 -2.8 -2.1 -1.0 Energy related GHG emissions (% of total) 168.6 182.0 179.2 182.1 184.8 186.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2020-CASEN. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using microsimulation model for 2021 and neutral distribution with pass-through = 1 based on GDP per capita in constant LCU for 2022-2024. MPO 13 Apr 22 rising, while the crisis has strained soci- ety’s acceptance for higher taxation. COLOMBIA Key conditions and challenges Table 1 2021 Recent developments Colombia’s economy bounced back robust- Population, million 51.0 ly from the COVID-19 crisis and the macro- Supported by progress on vaccinations and GDP, current US$ billion 314.1 economic framework remains strong. the reopening of the economy, GDP grew GDP per capita, current US$ 6153.1 Yet, the COVID-19 crisis reversed progress 10.6 percent in 2021, but heterogeneously a 10.3 International poverty rate ($1.9) in resolving pre-existing vulnerabilities. across sectors. While activity in manufactur- a 19.9 Productivity remains low. Poverty de- ing surpassed the pre-COVID-19 trend, ac- Lower middle-income poverty rate ($3.2) a 38.3 clined significantly between 2008 and 2018, tivity in mining and construction remained Upper middle-income poverty rate ($5.5) Gini index a 54.2 but inequality remained high. Inefficien- below 2019 levels. Consumption has been School enrollment, primary (% gross) b 114.0 cies within the fiscal system limit income the main driver of GDP growth; investment b 77.3 redistribution, and high tax rates weigh and exports contributed only marginally Life expectancy at birth, years down economic activity and the creation of and remained below 2019 levels. Total GHG Emissions (mtCO2e) 294.3 good quality jobs. Rigidities in automatic The recovery of the labor market has not Source: WDI, Macro Poverty Outlook, and official data. inclusion to social programs limit the re- kept pace with economic activity. Female a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). sponse of social assistance to aggregate in- employment remains subdued, and job come shocks. quality declined. In 2021Q4, the not-eco- The national poverty rate increased from nomically active population increased rel- Economic recovery has been solid, with 35.7 percent in 2019 to 42.5 percent in 2020, ative to 2019, and employment rates de- wiping out over a decade of progress in creased, mostly because female employ- risks stemming from the labor market lifting people out of poverty and shrinking ment has not fully recovered. About 81 and higher-than expected inflation. GDP the middle class by 5 percentage points. percent of employment created in 2021 grew 10.6 percent in 2021 and is pro- While the 2021 recovery helped reduce was informal, and urban, female, and jected to grow 4.4 percent in 2022, the poverty, abating poverty durably and in- youth unemployment remain high. Labor creasing resilience among the non-poor incomes, a substantial share of total house- poverty rate is projected to decline rela- will require expanding the coverage of the hold income, remain 12.8 percent lower tive to 2021. The recovery helped reduce social security system, making labor mar- than pre-pandemic. the fiscal deficit. A sustained reduction kets more efficient and inclusive, and im- Strong domestic demand, adverse weather of the debt-to-GDP ratio is an important proving the quality of education, health, conditions for agriculture, the depreciation policy priority along with increasing the and infrastructure. of the Colombian peso, and price pressures The opportune and timely fiscal re- from abroad pushed inflation to 6.9 per- effectiveness of the fiscal system at re- sponse to the crisis increased the al- cent, y-o-y, in January 2022. Price increases ducing poverty and inequality, and di- ready high public debt-to-GDP ratio, have eroded households’ purchasing pow- versifying exports. making reigning in debt and fiscal er and undermined poverty reduction. As deficit a medium-term priority. Spend- inflation expectations moved above the in- ing pressures due to social demand are flation targeting band, the Central Bank FIGURE 1 Colombia / GDP components, historic and FIGURE 2 Colombia / Actual and projected poverty rates baseline scenario (dashed line) and real private consumption per capita Index, 2019=100 Poverty rate (%) Real private consumption per capita (millions constant LCU) 130 50 16 Consumption Investment Exports 45 120 14 Imports GDP 40 12 110 35 30 10 100 25 8 20 6 90 15 4 80 10 5 2 70 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 60 International poverty rate Lower middle-income pov. rate 2018Q1 2019Q1 2020Q1 2021Q1 2022Q1 2023Q1 2024Q1 Upper middle-income pov. rate Real priv. cons. pc Sources: DANE and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 14 Apr 22 started to increase the monetary policy rate With the continuation of emergency in September, setting it at 4 percent in Jan- transfers, 1.2 million people are project- uary 2022. Outlook ed to exit poverty in 2022, (although The current account deficit reached 5.7 they will remain vulnerable to income percent of GDP in 2021, as exports (espe- The economy is projected to grow 4.4 per- shocks). Nonetheless, around 17.8 mil- cially tourism) remained weak while im- cent in 2022, as the bout of repressed con- lion people will remain poor, compared ports and distribution of dividends re- sumption comes to an end, monetary pol- to 17.5 million before the pandemic. In- sumed, offsetting strong inflows of remit- icy continues tightening, and external de- come inequality is also expected to fall tances. FDI and net portfolio inflows fi- mand is resuming slowly. Investment is slightly to 0.528 (Gini), yet Colombia re- nanced the current account deficit. projected to recover to pre-COVID level by mains one of the most unequal countries The central government’s deficit declined 2023, and the output gap is projected to in the world. Labor market gender gaps to 7.1 percent of GDP, as recovery buoyed close in early 2023. are expected to remain wider than be- tax revenues, offsetting the increase in The current account deficit is projected to fore the pandemic. spending. The nominal increase in GDP re- decrease in 2022 (mostly supported by The profile of medium-term risk is tilted duced the debt-to-GDP ratio. higher oil prices) and over the medium to the downside. Risks include: high do- The national poverty rate is estimated to term, as exports of services resume, im- mestic inflation inertia (with high-for- have dropped to 38.6 percent in 2021, still ports growth slows, and the flow of remit- long interest rates); higher international above pre-pandemic levels. Some 1.9 mil- tances normalize to pre-COVID levels. food and fuel inflation (disproportionate- lion people, mostly working in urban ser- The central government’s fiscal deficit is ly affecting the poor); tightening of fi- vices and commerce, are estimated to have projected to decline in compliance with nancing conditions abroad with increased exited poverty in 2021, thanks to the eco- the limits set by the fiscal rule, as the ef- capital mobility (because of the war in nomic recovery and the continuation of fects of the tax reforms approved in Sep- Ukraine); potential long-term effects of emergency transfers. The middle class has tember 2021 kick in, and COVID-19 re- the pandemic on the labor market, house- also rebounded. Nonetheless, 1.63 million lated health spending and emergency in- holds’ assets and human capital; and dis- of those who had fallen into poverty in come support come to an end. The de- appointing yields from September’s tax 2020 are estimated to have remained poor cline of the deficit at the departmental reform. The materialization of any of in 2021. Food insecurity persists, as a third and municipal level is projected to help these risks could slow down growth, or of households are not able to consume reduce the general government deficit. force an aggressive contraction of gov- three meals a day, compared to only 8 per- The debt-to-GDP ratio is projected to ernment spending, clouding prospects for cent before the pandemic. keep declining over the medium term. poverty and inequality reduction. TABLE 2 Colombia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 -7.0 10.6 4.4 3.5 3.3 Private Consumption 4.1 -5.0 14.6 4.1 3.3 3.1 Government Consumption 5.3 -0.6 12.1 2.0 0.6 0.6 Gross Fixed Capital Investment 2.2 -23.3 11.2 5.0 3.7 4.1 Exports, Goods and Services 3.1 -22.7 14.2 11.6 10.9 6.7 Imports, Goods and Services 7.3 -20.5 27.5 5.3 5.4 3.6 Real GDP growth, at constant factor prices 3.1 -7.1 10.3 4.3 3.5 3.3 Agriculture 2.7 2.0 2.4 2.9 4.9 3.5 Industry 0.2 -14.2 9.7 5.2 4.2 4.3 Services 4.4 -4.9 11.4 4.1 3.1 2.9 Inflation (Consumer Price Index) 3.5 2.5 3.5 6.6 3.9 3.1 Current Account Balance (% of GDP) -4.6 -3.4 -5.7 -4.5 -4.7 -4.6 Fiscal Balance (% of GDP) -2.6 -7.2 -7.3 -6.7 -4.3 -3.3 Debt (% of GDP) 52.3 67.2 66.3 65.4 65.3 64.2 Primary Balance (% of GDP) 0.4 -4.3 -3.9 -3.3 -0.9 0.1 a,b International poverty rate ($1.9 in 2011 PPP) 4.9 10.3 8.9 8.6 8.4 8.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 12.7 19.9 17.7 17.3 17.0 16.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 29.4 38.3 35.0 34.3 33.8 33.3 GHG emissions growth (mtCO2e) 4.4 2.5 2.6 1.2 -1.3 -2.1 Energy related GHG emissions (% of total) 30.3 28.2 28.9 29.1 29.2 29.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2009-GEIH, 2019-GEIH, and 2020-GEIH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using average elasticity (2009-2019) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 15 Apr 22 (US$5.50 poverty line) increased from 10.6 percent of the population in 2019 to 16.1 COSTA RICA Key conditions and percent in 2020. A strong economic performance in 2021 challenges and spending discipline enabled a faster than expected fiscal consolidation and Table 1 2021 Costa Rica doubled its income per capita started to improve labor market and so- Population, million 5.1 over the last two decades, due to relative- cial outcomes. The recent approval of GDP, current US$ billion 61.9 ly solid institutions, an outward-orient- the Public Employment Law and agree- GDP per capita, current US$ 12047.2 ed growth model and investments in hu- ment for the review of the IMF program a 2.1 International poverty rate ($1.9) man capital. The sophistication of exports further strengthen the fiscal prospects. a 5.7 and the overall resilience of the economy However, it is critical to continue pur- Lower middle-income poverty rate ($3.2) a 16.1 to external shocks improved significantly. suing reforms to reinforce fiscal consoli- Upper middle-income poverty rate ($5.5) Gini index a 49.3 Costa Rica is a world leader in promoting dation and create buffers against future School enrollment, primary (% gross) b 115.0 the sustainable use of natural resources, shocks, such as the elimination of tax b 80.3 which are at the core of its development exemptions and continued improvement Life expectancy at birth, years strategy. This growth model, however, of social programs. Total GHG Emissions (mtCO2e) 9.4 has not been fully successful in promot- Source: WDI, Macro Poverty Outlook, and official data. ing inclusion: the real incomes of the bot- a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). tom 40 percent remained largely stable, poverty reduction was limited, the expan- Recent developments sion of the middle class stagnated, and in- Strong growth and spending discipline equality increased during the decade pri- Growth reached 7.6 percent in 2021, sup- or to the pandemic. Fiscal vulnerabilities ported by private consumption and in- helped Costa Rica exceed fiscal targets in also built up as spending increased while vestment - particularly inventory reposi- 2021, despite harsh COVID-19 waves revenues stayed flat. tion and equipment- and by strong ex- and election-related spending pressures. The pandemic intensified these fiscal and ports. From the production side, manu- A strong rebound in manufacturing, par- social challenges. Fiscal consolidation ef- facturing was the main engine of growth, forts, launched in 2018, were interrupted followed by agriculture and selected ser- ticularly of medical equipment, and a as revenues collapsed amid increasing ex- vices such as information and communi- gradual recovery in services and agricul- penditures as the government sought to cation and financial. Tourism has not yet ture lifted GDP above pre-crisis levels. mitigate the impact of the pandemic. As recovered, despite Costa Rica’s high vac- While growth translated into job creation a result, the debt-to-GDP ratio increased cination rates (with 74.4 percent of popu- and increased household income, poverty from 56.1 percent in 2019 to 67.4 percent in lation fully inoculated). 2020. Unemployment rates nearly doubled The economic rebound supported a sharp rates remain above pre-pandemic values, -surpassing 20 percent in mid-2020- and decline in unemployment to 13.7 percent inequality is yet to recede. Continuing an family income declined despite the gov- in Q42021 (still above the 11 percent in efficiency oriented fiscal consolidation is ernment’s emergency response. Women, Q42019), a decline in the share of the poor critical for growth and social progress. youth, migrants, and less educated work- (to 11.1 percent) and vulnerable, and a con- ers were the most heavily affected. Poverty comitant recovery in the middle class. FIGURE 1 Costa Rica / Budget balance and change in debt FIGURE 2 Costa Rica / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (millions constant LCU) 15 25 9 Budget balance 8 10 20 7 Change in debt 6 15 5 5 4 10 0 3 5 2 -5 1 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -10 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real GDP pc Souce: World Bank staff projections based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 16 Apr 22 Merchandise exports experienced a no- employment efficiency with savings of 0.5 the fiscal rule and the IMF program, even table boom (27.2 percent by Q32021) percent of GDP. after a new administration takes pow- thanks to the recovery of trading part- er in May 2022. Both final presidential ners and high demand for medical candidates have signaled the importance equipment. Yet, a sharp increase in im- of maintaining the IMF program. In this ports meant that the current account Outlook context, complementary revenue mobi- deficit (CAD) remained around 3 percent lization efforts and growth enhancing of GDP and was financed mainly by FDI Growth is expected to moderate to 3.4 structural reforms are needed to build in- (3.2 percent of GDP). percent in 2022 and gradually converge vestors’ confidence and consolidate the Annual inflation stayed at 3.3 percent in to 3.2 percent over the medium term. foundations for inclusive and sustainable 2021. Seeking to contain inflation pres- Services, particularly tourism, are expect- growth. Though inflation pressures are sures, the Central Bank increased the Poli- ed to add momentum to the recovery in expected to remain elevated, inflation is cy Rate (by 50 basis points) to 1.75 percent 2022-2023 as the pandemic is brought un- expected to remain well within the Cen- in January 2022. The colon/dollar exchange der controlled and travelers regain confi- tral Bank’s target band. rate depreciated 4.4 percent annually by dence. The CAD is projected to be around Downside risks relate to the emergence the end-2021. 3.3 percent in 2022, financed through of COVID-19 variants, delays in the Na- Strong fiscal performance and marked im- multilateral disbursements and FDI. The tional Assembly’s approval of reforms provements in debt management lowered CAD is expected to decrease gradually after the 2022 elections and potential the cost of domestic borrowing. The pri- as tourism receipts reinforce total exports impacts from geopolitical tensions. De- mary deficit stayed at 0.3 percent of GDP and be fully financed by FDI as reforms layed reforms could undermine im- and the overall fiscal deficit at 5.1 percent boost investor confidence. provements in the fiscal accounts and of GDP in 2021; significantly below the 1.7 As the labor market recovers, poverty lead to mounting public debt, affecting and 6.9 percent of GDP targeted under the rates are expected to decline to 10.4 per- confidence and delaying recovery. As IMF program. This result was helped by cent in 2022 and 9.8 percent in 2023 while a small, open economy Costa Rica re- higher revenues and restricted primary the middle class continues to recover. mains vulnerable to external shocks. In- spending (beyond the mandate of the fiscal Further poverty reduction will require ef- ternational conflicts and global inflation- rule). The debt-to-GDP ratio closed at 68.8 forts to include less-educated workers in ary pressure are likely to raise food and percent in 2021. The public employment economic development. energy costs, with disproportionate im- law, approved in March 2022, strength- Fiscal consolidation is expected to contin- pact on those at the bottom of the in- ened fiscal prospects by improving public ue over the forecasting period, anchored in come distribution. TABLE 2 Costa Rica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.4 -4.1 7.6 3.4 3.2 3.2 Private Consumption 1.7 -5.0 5.8 2.9 3.0 3.2 Government Consumption 5.9 0.6 1.1 -1.5 0.1 0.1 Gross Fixed Capital Investment -8.2 -1.7 7.8 4.3 4.5 5.1 Exports, Goods and Services 4.3 -10.9 17.3 7.8 5.3 5.3 Imports, Goods and Services -2.3 -10.2 16.2 5.2 4.8 4.9 Real GDP growth, at constant factor prices 2.4 -4.1 7.6 3.4 3.2 3.2 Agriculture -1.5 0.5 3.6 2.4 2.4 1.9 Industry -0.3 1.0 10.0 3.2 2.6 2.1 Services 3.4 -5.7 7.2 3.5 3.4 3.7 Inflation (Consumer Price Index) 1.5 0.7 3.3 4.0 3.5 3.2 Current Account Balance (% of GDP) -1.2 -1.2 -3.0 -3.3 -3.1 -2.7 Net Foreign Direct Investment (% of GDP) 4.2 2.6 3.2 3.5 4.1 4.2 Fiscal Balance (% of GDP) -6.6 -8.5 -5.1 -4.6 -3.8 -2.9 Debt (% of GDP) 56.1 67.1 68.8 69.1 68.0 61.5 Primary Balance (% of GDP) -2.6 -3.9 -0.3 0.5 1.0 1.5 a,b International poverty rate ($1.9 in 2011 PPP) 1.0 2.1 1.3 1.1 0.9 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 3.3 5.7 3.6 3.3 3.1 2.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 10.6 16.1 11.1 10.4 9.8 9.2 GHG emissions growth (mtCO2e) 6.6 -3.3 6.8 4.3 3.6 3.6 Energy related GHG emissions (% of total) 95.6 94.7 93.4 91.8 90.1 88.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2015-ENAHO and 2020-ENAHO. Results for 2021 were obtained based on a preliminary harmonization of ENAHO. Fore- casts are from 2022 to 2024 b/ Projection using average elasticity (2015-2020) with pass-through = 1 based on GDP per capita in constant LCU. MPO 17 Apr 22 in-kind income from the government in response to the pandemic. As such, the DOMINICA Key conditions and active transfers programs, instituted by the Government, and continued recon- challenges struction spending are unlikely to have fully offset the impacts of the pandemic Table 1 2021 Dominica is a small island developing on poverty. Population, million 0.1 state (SIDS) with an economy reliant on Growth prospects will depend to a certain GDP, current US$ billion 0.5 tourism and agriculture. This makes the extent on vaccinations levels and the per- GDP per capita, current US$ 7566.1 country vulnerable to climate change, nat- ception of Dominica as a safe tourist desti- a 102.3 School enrollment, primary (% gross) ural disasters, and external economic nation. As of March 18, 2022, approximate- a 76.6 shocks. Dominica’s economy continues to ly 43 percent of the population has been Life expectancy at birth, years Total GHG Emissions (mtCO2e) 0.3 be affected by the COVID-19 pandemic. vaccinated once and 41.5 percent are fully Source: WDI, Macro Poverty Outlook, and official data. Tourism, which accounted for 25 percent vaccinated. According to the World Bank/ a/ Most recent WDI value (2019). of GDP pre-COVID was estimated at less UNDP survey, rates of vaccine hesitancy than 10 percent in 2021, though tourist ar- among those who have not been inoculat- rivals have increased. ed are among the highest in all of Latin Making things worse, the COVID-19 America and the Caribbean. shock occurred when Dominica was still Dominica is highly vulnerable to cat- rebuilding its economy following dam- astrophic weather events and external Dominica’s economy rebounded moder- ages caused by Hurricane Maria in 2017 shocks. Dominica’s fiscal position came ately in 2021, growing 3.7 percent, fol- (226 percent of GDP). under terrible strain after Hurricane lowing the sudden stop in tourism in The pandemic had negative impacts on Maria. Fiscal pressures were further ex- 2020 and COVID-19 containment mea- employment that were at best partially off- acerbated by the COVID-19 pandemic set by social assistance programs. A recent and debt levels have risen. While the sures. Nonetheless, poverty is expected to World Bank/UNDP phone survey (June Government has taken measures to con- remain elevated compared to pre- 2021) indicated that 17 percent of those solidate spending and reduce debt, chal- COVID-19 levels. Fiscal pressures con- working before the pandemic were no lenges remain given the pandemic and tinue to be acute, highlighting the need longer working after the pandemic with ambitions to build a fully climate-re- a notable decrease in formal employment silient economy. for strengthened fiscal management and (jobs in public and private enterprises) in increased fiscal resilience. The risk of debt favor of an increase in informal work and distress remains high. Medium-term self-employment. Job losses were marked- growth prospects appear favorable, ly more common for women (23 percent) Recent developments than for men (12 percent). Women report- though considerable uncertainty remains. ed a more pronounced increase in time COVID-19 impacted growth through spent on services at home and supporting several channels, including the near children with school during the pandemic. complete stop in tourism; COVID-19 re- Only a limited share of respondents (10 lated restrictions on domestic activity; percent) reported receiving monetary or and lower foreign direct investment. FIGURE 1 Dominica / Real GDP growth and fiscal balance FIGURE 2 Dominica / Public debt Percent, percent of GDP Percent of GDP 30 120 25 20 100 15 10 80 5 0 60 -5 -10 40 -15 Public Debt -20 20 Public External Debt 2010 2012 2014 2016 2018 2020 2022 2024 Overall Fiscal Balance (percent of GDP) 0 Real GDP growth at constant factor prices 2010 2012 2014 2016 2018 2020 2022 2024 Sources: Government of Dominica (2020), World Bank staff estimates. Source: World Bank staff estimates. MPO 18 Apr 22 Growth rebounded modestly in 2021 on Increased growth, reduced post-disaster a relaxation of domestic containment losses, and low inflation are all expected to measures, improving tourist arrivals, Outlook contribute to a reduction in poverty rates though remaining significantly below in the medium term. There remains an ur- pre-COVID levels, and a robust public Growth is forecast to accelerate to 6.8 per- gent need for updated poverty data and investment pipeline. cent in 2022 as tourism and the domestic better documentation of the extent to Household income from tourism-relat- economy further rebound from the pan- which social protection measures reach ed occupations remains depressed, demic. Short- to medium-term GDP those most in need and help households women have been hit especially hard growth remains driven largely by a re- cushion the effect of economic shocks. given their high participation in the sumption in tourist arrivals. Growth will Risks from natural disasters and the im- services and informal sectors. How- also be aided by a robust public invest- pact of climate change remain, including ever, agriculture has rebounded post- ment program, including new hotel devel- rising sea levels. Risks also arise from the Hurricane Maria and helped limit the opments and housing construction using financial sector and public debt vulnerabil- overall impact on poverty. Citizen-by-Investment revenues. Airport ities. Where transition to a fully climate-re- Dominica was effective in controlling construction (an over 60% of GDP project) silient economy requires additional efforts COVID-19 transmission and experienced is not expected to boost growth until 2023 to strengthen fiscal management, spend- relatively few cases through July 2021. Geothermal developments bode well for ing efficiency and effectiveness, these pres- However, new virus variants resulted in future growth prospects, as does Domini- sures will be more acute. peak transmission rates in August 2021 ca’s commitment to becoming a fully cli- Post-pandemic, the challenge will be to and February 2022, which have subse- mate-resilient economy, given that this shift focus from the current emphasis on quently subsided in March. could drive increases in tourism, and is al- recovery and reconstruction to building Fiscal and debt metrics remain challeng- so expected to mitigate economic impacts ex-ante resilience based on fiscal buffers, ing with an overall fiscal deficit of 7.2 arising from natural disasters. increasing climate-resilient investment, percent of GDP in FY2021 (July The transition to a more climate-resilient and expanding public and private insur- 2020-June 2021) and 9.4 percent expected economy will depend on increased spend- ance protection and social assistance. This in FY2022 as a result of decreased rev- ing efficiency, careful prioritization, and is all taking place within a context of sig- enues, increased COVID-related expendi- donor support. Inflationary pressures are nificant capacity constraints. tures, and an ambitious public invest- expected to approach 5 percent but remain Forecasts are subject to considerable ment pipeline. Public debt levels peaked relatively low and stable, the current ac- downside risk given rising food and fuel in 2019 and are expected to decline but count deficit is forecast to narrow as tourism prices, the economic impact of global remain in excess of 100 percent of GDP receipts increase. Financial sector vulnera- geopolitical developments, and the ever- in 2021 and 2022. bilities will require close monitoring. present risk of natural disasters. TABLE 2 Dominica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 5.5 -11.0 3.7 6.8 5.0 4.6 Real GDP growth, at constant factor prices 8.3 -7.1 3.7 6.8 5.0 4.6 Agriculture 21.6 3.2 -3.1 -0.5 -0.5 -0.4 Industry 0.7 -31.5 17.9 -0.8 4.9 1.4 Services 8.8 -2.2 2.1 9.4 5.7 5.8 Inflation (Consumer Price Index) 1.5 -0.7 3.0 5.0 4.5 2.0 Current Account Balance (% of GDP) -36.4 -27.5 -31.4 -28.7 -24.0 -18.3 a Fiscal Balance (% of GDP) -15.0 -8.1 -7.2 -9.4 -1.9 -2.1 a Debt (% of GDP) 78.1 109.1 100.9 100.3 97.5 94.3 a Primary Balance (% of GDP) -13.0 -5.5 -5.3 -7.4 0.3 0.2 GHG emissions growth (mtCO2e) 6.1 -8.8 13.8 8.5 1.1 1.1 Energy related GHG emissions (% of total) 78.7 78.0 81.5 83.8 84.9 85.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 19 Apr 22 Public debt continues to increase due to quasi-fiscal deficits and adverse debt dy- DOMINICAN Key conditions and namics. The interest bill already absorbed one-fifth of tax revenues in 2019, crowding challenges REPUBLIC out public investments, which declined from 3.9 to 2.3 percent of GDP between The Dominican Republic (DR) has been the 2010 and 2019. Improvements in the qual- second fastest growing economy in LAC ity of domestic resource mobilization and Table 1 2021 over the last decade, only surpassed by spending efficiency and effectiveness are Population, million 10.5 Panama, growth was supported by domes- necessary to ensure the adequate provision GDP, current US$ billion 94.3 tic demand and favorable external condi- of public services. GDP per capita, current US$ 8939.7 tions. The economy expanded by an aver- International poverty rate ($1.9) a 0.8 age of 5.3 percent in 2000–19, driven pri- a marily by capital accumulation and total Lower middle-income poverty rate ($3.2) Upper middle-income poverty rate ($5.5) a 4.0 15.2 factor productivity growth. Foreign direct Recent developments a investment (FDI) inflows, averaging about Gini index 39.6 4 percent of GDP over the last two The economy recovered strongly in 2021, b 105.7 School enrollment, primary (% gross) decades, transformed the economy, and with GDP rebounding by 12.3 percent, sup- b 74.1 Life expectancy at birth, years fueled tourism, services, manufacturing, ported by a solid policy response to Total GHG Emissions (mtCO2e) 39.9 construction, and mining. COVID-19, including fiscal, macropruden- Source: WDI, Macro Poverty Outlook, and official data. The country’s external position remains tial and supervisory policies, and monetary a/ Most recent value (2020), 2011 PPPs. strong, but the DR’s participation in global easing. A successful vaccination campaign b/ Most recent WDI value (2019). value chains is low, and has accounted for also contributed to the recovery. The gov- an average of 30 percent of value added to ernment increased the number of citizens exports since 2000; it has contributed to the covered by the public health system, result- The Dominican economy rebounded decline of total exports from 35 to 23 per- ing in 66.1 percent of the population being strongly in 2021, supported by well-im- cent of GDP in 2000–19. The removal of the fully vaccinated as of January 18, 2022. plemented fiscal and monetary policies. A Multifiber Agreement in 2005 that protect- However, income growth has been diluted ed Dominican textile exports to the US al- by price inflation, which reached 8.5 percent successful vaccination campaign also con- so contributed to the decline. Nevertheless, by December 2021, this is outside the central tributed to the rebound, by accelerating external deficits remain fully financed by bank’s target range of 4±1 percent. Price in- the tourism recovery. Although, inflation- FDI and remittances. creases are primarily explained by interna- ary pressures and lingering effects on la- Fostering long-term growth will require tional supply-chain disruptions and in- bor markets have kept poverty above pre- structural reforms in support of in- creasing commodity prices. In response, the creased productivity growth, including central bank increased its policy rate twice crisis levels. The fiscal deficit narrowed 5 through higher investment in innovation, between December 2021 and January 2022 percentage points to 2.9 percent of GDP and improved public services, in partic- to 5.0 percent (total of 150 basis points). in 2021. The medium-term outlook de- ular skills and education. A significant By 2021Q3, formal employment had not pends on productivity improvements. share of the labor force is excluded from fully recovered, remaining 3.8 percentage the formal economy. points below its pre-pandemic level. The FIGURE 1 Dominican Republic / Tourist arrivals, by FIGURE 2 Dominican Republic / Actual and projected residence poverty rates and real private consumption per capita Million of people Poverty rate (%) Real private consumption per capita (constant LCU) 8 40 250000 6.8 7.2 7.1 Non-Residents 7 6.6 35 Residents 6.2 200000 5.6 5.6 30 6 5.0 5.2 4.6 4.8 25 5 150000 20 4 15 100000 2.7 3 10 50000 2 5 1 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 20 Apr 22 lingering effects on labor markets along The fiscal deficit is projected to narrow from with inflationary pressures have reduced, 2.9 to 2.4 percent of GDP in 2021–24. A grad- on average, real family incomes by around Outlook ual phase-out of subsidies to state-owned 3 percent in 2021. enterprises in the energy and potentially For all these reasons, poverty (defined as Following rapid expansion in 2021, water sector, together with improvements living with less than US$5.5 per day) is growth is estimated to converge to the in tax administration, is estimated to create expected to remain at 2020 levels in 2021, 5 percent potential level. In the near- headroom to increase public investments above pre-pandemic levels. The vulnerable term, tourism and remittance-supported and expand targeted transfers. Adequate population is estimated to increase while private consumption will drive growth; implementation of conditional cash trans- middle-classes contract. maintaining potential growth requires fers is likely to mitigate the energy reform Remittance inflows increased by 26.6 per- steady implementation of structural re- impact on households’ income. The public- cent, year-on-year (y/y), to US$10.4 billion, forms, particularly in energy, water, and debt-to-GDP ratio is projected to stabilize alleviating the loss in family incomes, public-private partnerships, coupled with below 60 percent over the medium term. mostly in the metropolitan area where 56.8 efforts to increase the quality of human The macroeconomic scenario faces both percent of the total is received. capital and attract FDI to higher value- demand and supply risks. A normalization The number of tourists has increased but added industries. of monetary policy in the US can lead to a remains below pre-pandemic levels at 77 Government efforts are expected to tightening of financial conditions, while an percent. Merchandise exports expanded counter the mounting inflationary pres- escalation of the war in Ukraine could di- by 21.3 percent, yoy, and merchandise im- sures. The gas subsidy coverage for the rectly affect tourist arrivals, and indirectly ports increased by 45.8 percent, yoy. poorest has increased, while the import affect the prices of key goods and services. The government’s fiscal stimulus has been tariff for key staples will be reduced to ze- In addition, increasing fuel prices would phased out, contributing to fiscal consolida- ro for half year in 2022. possess a significant risk to the fiscal bal- tion efforts. The fiscal deficit narrowed from The poverty rate (US$5.5 PPP 2011 per ances and the energy reform. Likewise, cli- 7.9 percent of GDP in 2020 to 2.9 of GDP in day) is estimated to gradually decline in mate change has intensified the exposure 2021, mostly due to the recovery in revenue 2022 to 14 percent, but remain above pre- to natural disasters, which, given the coun- although partly explained by one-off tax ad- crisis levels. Meanwhile, inflation is likely try’s low degree of financial protection vances and substantial adjustments in ex- to converge toward its target bands only against these risks, could substantially in- penditures, particularly investment. by mid-2022. crease contingent fiscal liabilities. TABLE 2 Dominican Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 5.1 -6.7 12.3 5.0 5.0 5.0 Private Consumption 4.6 -3.4 6.6 5.0 5.4 5.1 Government Consumption 6.3 4.9 0.1 2.7 5.6 7.9 Gross Fixed Capital Investment 8.1 -12.1 22.1 4.5 3.2 4.0 Exports, Goods and Services 1.5 -30.3 36.2 13.5 7.8 7.0 Imports, Goods and Services 5.8 -14.6 24.7 9.5 6.0 6.1 Real GDP growth, at constant factor prices 4.8 -6.3 11.5 5.0 5.0 5.0 Agriculture 4.1 2.8 2.6 3.0 3.0 3.0 Industry 5.9 -6.7 16.5 5.0 5.0 5.0 Services 4.4 -7.1 10.0 5.2 5.2 5.2 Inflation (Consumer Price Index) 1.8 3.8 8.2 5.5 4.0 4.0 Current Account Balance (% of GDP) -1.3 -2.0 -2.5 -1.8 -1.6 -1.8 Net Foreign Direct Investment (% of GDP) -3.4 -3.2 -2.8 -3.2 -3.2 -3.2 a Fiscal Balance (% of GDP) -2.2 -7.9 -2.9 -2.8 -2.5 -2.4 b Debt (% of GDP) 50.5 69.1 62.7 60.9 60.1 59.8 a Primary Balance (% of GDP) 0.6 -4.7 0.2 0.1 0.5 0.5 c,d International poverty rate ($1.9 in 2011 PPP) 0.6 0.8 0.7 0.7 0.6 0.6 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 2.7 4.0 3.7 3.6 3.4 3.3 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 12.4 15.2 14.5 14.2 13.7 13.3 GHG emissions growth (mtCO2e) 5.7 -5.0 6.0 1.2 1.4 1.5 Energy related GHG emissions (% of total) 64.6 62.3 64.4 64.6 64.7 64.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are shown for the non-financial public sector (i.e. excluding central bank quasi-fiscal balances). b/ Consolidated public sector debt. c/ Calculations based on SEDLAC harmonization, using 2007-ENFT, 2019-ECNFT-Q03, and 2020-ECNFT-Q03. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. d/ Projection using annualized elasticity (2007-2019) with pass-through = 0.35 based on private consumption per capita in constant LCU. MPO 21 Apr 22 including in the financial sector, and fos- tering the promising agriculture sector. ECUADOR Key conditions and Private investment may also help exploit untapped mining resources in an environ- challenges mentally and socially sustainable way, en- hance non-conventional renewable energy Table 1 2021 With a fully dollarized economy and limit- supply, and improve infrastructure. Population, million 17.9 ed buffers, the pandemic led to a deep reces- Besides vulnerability to fluctuations in in- GDP, current US$ billion 105.7 sion and pushed one million people into ternational oil prices, Ecuador is significant- GDP per capita, current US$ 5911.6 poverty. The crisis deepened inequality by ly exposed to climate and other natural dis- a 6.5 International poverty rate ($1.9) curtailing access to education and job op- asters. For instance, the regressive erosion a 14.2 portunities, mainly for women, the youth, of the Coca River, worsened during the Lower middle-income poverty rate ($3.2) a 30.6 low-skilled workers, and migrants. rainy season, puts critical infrastructure in Upper middle-income poverty rate ($5.5) Gini index a 47.3 The shock was partially offset by a sov- danger, including the largest hydroelectric School enrollment, primary (% gross) b 99.0 ereign bonds' renegotiation and sizable facility and the main crude pipelines. Over b 77.0 multilateral financing. With limited room the last two years, this erosion has damaged Life expectancy at birth, years for fiscal stimulus, the new Government the main pipelines, interrupting oil produc- Total GHG Emissions (mtCO2e) 91.5 implemented an ambitious vaccination tion three times and generating environ- Source: WDI, Macro Poverty Outlook, and official data. program to enhance recovery—three- mental and social damages. a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). quarters of the population were fully vac- Addressing these challenges will require cinated by February 2022. It also em- consensus around critical reforms in a barked on a reform process to cement fragmented National Assembly and a po- After a successful vaccination campaign fiscal sustainability, propel private sector larized society. development, protect the most vulnerable and a solid economic rebound, Ecuador is people, and address climate change-relat- expected to continue its reform to secure ed challenges. fiscal sustainability and foster growth. After years of capital expenditure com- Recent developments The windfall oil revenues are likely to re- pression, fiscal sustainability will require reforms to mobilize fiscal revenues and ra- After falling by 7.8 percent in 2020, the duce short-term pressures for a budgetary tionalize current expenditure. Public ex- economy grew by an estimated 4.4 percent consolidation; however, improving the in- penditure efficiency is critical for creating in 2021 due to better external conditions, vestment climate will be crucial to boost- budgetary room to support vulnerable easing mobility restrictions, a successful ing growth and reducing poverty in the people, improve access to quality services, vaccination campaign, and expanding do- medium term. A new consensus will be and use high oil prices to build fiscal mestic credit. These factors supported the buffers. To set the ground for sustainable recovery of most sectors despite the stag- critical to cement long-term fiscal sus- growth based on a sound private sector nation in oil output. tainability while protecting the most vul- will require modernizing labor regulation, Labor participation and unemployment re- nerable and tackling long-lasting con- streamlining insolvency management, eas- turned to their pre-pandemic levels; how- straints to private sector development. ing burdensome regulations, enhancing ever, informality and underemployment competition, reducing market distortions, remained high as workers tapped into FIGURE 1 Ecuador / Fiscal and current account balances FIGURE 2 Ecuador / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 50 5000 Fiscal balance 4 45 4500 Current account balance 40 4000 2 35 3500 0 30 3000 25 2500 -2 20 2000 -4 15 1500 10 1000 -6 5 500 -8 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -10 International poverty rate Lower middle-income pov. rate 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Ecuador and Ministry of Economy and Finance. Source: World Bank. Notes: See Table 2. MPO 22 Apr 22 low-quality jobs to prevent a larger erosion Poverty declined from 30.6 to 29.6 percent the tax reform enacted in late 2021 will in- of their earnings. between 2020 and 2021, and vulnerable crease revenues through a mix of mea- The fiscal deficit dropped from 6.1 to 0.3 and middle-class populations recovered. sures, including permanent changes to percent between 2020 and 2021 due to re- However, most people did not rebound to personal income tax brackets and exemp- covering tax and oil revenues and low- their pre-pandemic status. Lack of fiscal tions. This consolidation is expected to re- er interest payments after the debt rene- space and insufficient targeting limited the duce the country's sovereign risk premi- gotiation. These factors more than off- Government's capacity to cushion the cri- um, allowing the Government to gradually set the effect of high health and social sis. Food insecurity remains high, and ac- return to international capital markets. Al- protection expenditure, the partial recov- cess to education and health is con- though the public sector is expected to ac- ery of public investment, and the increase strained, foreshadowing long-term im- cumulate some savings, public debt is pro- in fuel subsidies; this increase was a re- pacts on human capital. jected to fall to 51 percent by 2024. sult of higher oil prices and the sus- The Russia-Ukraine conflict is likely to af- pension of the system to gradually align fect banana, flowers, and shrimp exports, national diesel and gasoline prices with but total exports are expected to increase their international benchmarks. Despite Outlook due to high commodity prices and grow- sizable multilateral financing, public debt ing volumes. Surging imports, however, fell from 61 percent of GDP in 2020 to 58 Although the ongoing recovery and high will gradually reduce the current account percent in 2021 due to economic growth oil prices will allow Ecuador to grow surplus over the projection period. Despite and a lower fiscal deficit. 4.3 percent in 2022, growth is expected low foreign investment, the current ac- The current account surplus increased due to slow to 2.9 percent in the medium count surpluses and external financing to surging oil prices, increasing mining ex- term while structural growth-enhancing will expand the money supply and inter- ports, lower interest payments, and recov- reforms bear fruit. Although the current national reserves. ering remittances. With sizable multilater- expenditure consolidation will continue, The bottom of the distribution is expected to al financing and SDR allocation, this sur- the windfall oil revenues will allow the recover slowly due to improving labor mar- plus increased international reserves and Government to increase public invest- ket conditions, partially stopped by higher spurred the money supply. With low non- ment and build fiscal buffers. consumption prices, bringing poverty to al- performing loans, banks used their liquid- Given the government objective of reduc- most pre-pandemic level (25.9 percent) by ity to fuel domestic credit. ing public debt and building buffers, the 2024 and widening the share of vulnerable Despite the sustained increase in domestic fiscal deficit is projected to turn into a sur- people. Poverty and inequality reduction fuel and food prices, average inflation re- plus from 2022 onwards due to the ongo- could be constrained by higher food infla- mained near zero as the economy re- ing current expenditure rationalizations tion, war escalation, natural disasters, social mained below its potential. and improving oil revenues. Additionally, tensions, or political instability. TABLE 2 Ecuador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.0 -7.8 4.4 4.3 3.1 2.9 Private Consumption 0.3 -8.2 4.6 3.8 2.8 2.7 Government Consumption -2.0 -5.1 3.0 1.5 1.3 2.0 Gross Fixed Capital Investment -3.3 -19.0 17.8 12.5 5.6 3.9 Exports, Goods and Services 3.6 -5.4 6.7 3.1 2.7 2.7 Imports, Goods and Services 0.3 -13.8 16.5 6.5 3.3 2.9 Real GDP growth, at constant factor prices 0.3 -7.4 3.9 4.2 3.1 2.8 Agriculture 1.6 0.4 2.1 2.1 2.1 2.1 Industry 0.2 -10.0 5.3 4.2 3.0 2.7 Services 0.1 -7.2 3.4 4.6 3.2 3.1 Inflation (Consumer Price Index) 0.3 -0.3 0.1 3.9 1.7 1.7 Current Account Balance (% of GDP) -0.1 2.6 3.3 3.5 2.7 2.3 Net Foreign Direct Investment (% of GDP) 0.9 1.2 0.8 1.2 1.4 1.4 Fiscal Balance (% of GDP) -2.8 -6.1 -0.3 2.8 2.6 2.3 Debt (% of GDP) 51.4 60.9 58.2 53.5 51.9 50.2 Primary Balance (% of GDP) 0.0 -3.3 1.1 4.1 4.1 3.8 a,b International poverty rate ($1.9 in 2011 PPP) 3.6 6.5 4.6 3.9 3.6 3.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 14.2 12.2 10.5 9.9 9.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 25.4 30.6 29.6 27.3 26.2 25.9 GHG emissions growth (mtCO2e) 2.4 -3.4 0.7 1.3 -0.1 -0.4 Energy related GHG emissions (% of total) 41.5 40.0 40.0 40.4 40.0 39.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2007-ENEMDU, 2019-ENEMDU, and 2020-ENEMDU. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using microsimulation. MPO 23 Apr 22 crisis and there is no clear and feasible fis- cal consolidation plan. As a result, it is not EL SALVADOR Key conditions and clear that the country will be able to meet its financing needs and avoid a debt dis- challenges tress situation, this is reflected in the record level of sovereign risk (near 2,000 Table 1 2021 The COVID-19 crisis intensified El Sal- basis points). Population, million 6.5 vador’s structural weakness. Productivity Finally, the recent weakening of checks GDP, current US$ billion 27.9 has been declining since 2002, neverthe- and balances and the introduction of bit- GDP per capita, current US$ 4281.0 less, the country experienced a low and coin as legal tender have introduced signif- a 1.3 International poverty rate ($1.9) stable growth rate in the decade prior to icant policy uncertainty that is detrimen- a 5.7 the crisis, fueled by some of the highest re- tal to investments. Although the liquidity Lower middle-income poverty rate ($3.2) a 22.3 mittance inflows in the region. The crisis and technology in cryptocurrencies can be Upper middle-income poverty rate ($5.5) Gini index a 38.8 led to a collapse in economic activity in leveraged to help El Salvador to develop, School enrollment, primary (% gross) b 90.3 2020, followed by a sharp recovery in 2021. potential adverse impacts need to be taken b 73.3 The government has made significant into account. Life expectancy at birth, years progress in vaccination against COVID-19; Total GHG Emissions (mtCO2e) 13.7 70 percent of the population has received Source: WDI, Macro Poverty Outlook, and official data. at least one dose. However, to support this a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). recovery and grow productivity, El Sal- Recent developments vador needs to make progress in produc- tivity-enhancing reforms, including re- GDP rebounded in 2021, with an estimated El Salvador’s GDP rebounded in 2021, forms related to trade facilitation and the growth rate of 10.7 percent, led by man- business environment, innovation and ufacturing, commerce, and transport. On largely fueled by remittances. Growth competition, and regulations for private the demand side, private consumption prospects are threatened by high debt and sector participation in infrastructure. (boosted by remittances) and investment financing needs, slow progress on produc- The country experienced a significant re- led growth. The employment-to-popula- tivity-enhancing reforms, and policy un- duction in poverty before the COVID-19 tion ratio grew from 65 percent pre-pan- crisis; however, vulnerability to poverty demic to 69.6 percent in June 2021, but in- certainty. Poverty is not estimated to re- has been rising and it is among the highest creases in formal employment were con- turn to its pre-pandemic levels in 2021. in LAC. The sustainability of poverty re- centrated in the public sector. Limited fiscal space and lack of effective and duction is limited by: (i) slow human cap- Remittances grew 27 percent in 2021 boost- adaptive safety nets limit poverty reduc- ital accumulation, (ii) low progressivity of ing imports, which grew 46 percent. Ex- tion. Given its dollarization, establishing a safety nets, (iii) negligible coverage of ports rebounded at a slower pace (31.4 per- well-targeted conditional cash transfer cent). The trade deficit increased more credible fiscal framework and implement- (CCT) programs; and (iv) employment than remittances, resulting in a current ac- ing growth-enhancing reforms are critical barriers disproportionately affecting those count deficit estimated at 3.6 percent of for El Salvador to respond to shocks amid at the bottom. GDP, financed by FDI and debt. an uncertain global environment. Fiscal accounts, which have been a struc- Inflation averaged 3.5 percent in 2021 (from tural weakness, have worsened during the -0.4 percent in 2020), largely due to external FIGURE 1 El Salvador / Emerging markets bond global index FIGURE 2 El Salvador / Actual and projected poverty rates and real GDP per capita Spread (Basis Points) Poverty rate (%) Real GDP per capita (constant LCU) 2500 50 4500 El Salvador Latin America Costa Rica Argentina 45 4000 Ecuador 40 2000 3500 35 3000 30 1500 2500 25 2000 20 1000 1500 15 10 1000 500 5 500 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate Mar '21 May '21 Jul '21 Sep '21 Nov '21 Jan '22 Upper middle-income pov. rate Real GDP pc Source: JPMorgan Chase. Source: World Bank. Notes: see Table 2. MPO 24 Apr 22 factors like supply disruptions and com- to increase due to higher interest pay- modity prices. Food and transport prices ments and public sector wage bill. The grew 2.3 and 6.9 percent, respectively. Outlook deficit could remain above five percent The fiscal deficit declined from 9.2 percent of of GDP after 2022, while debt may reach GDP in 2020 to 4.5 in 2021. Expenditures GDP will still grow above its potential 90 percent of GDP. Since there is no grew by 6.2 percent, led by the generous re- in 2022 as a result of a large growth clear financing path for such fiscal pol- sponse to the pandemic, bitcoin set-up costs, carry-over from 2021, remittances, and icy trajectory, the baseline scenario as- and the wage bill. Revenues grew by 23.7 government consumption. The war in sumes that El Salvador would have to percent fueled by economic activity and tax Ukraine will reduce growth in 2022 due pursue at least a modest fiscal consol- administration efficiency. The debt stock in- to lower US growth and higher com- idation with the aim of stabilizing its creased by US$1.7 billion in 2021. However, modity prices. After 2022, growth will debt-to-GDP ratio. In this scenario, debt the debt-to-GDP ratio dropped from 91.8 in be around 2 percent as progress in would stabilize around 85 percent of 2020 to 85.6 percent of GDP in 2021. productivity-enhancing reforms remains GDP due to slower growth in public in- The poverty rate (US$5.5) is estimated to de- limited and policy uncertainty remains vestments and current expenditures. cline in 2021 but will still be 2.2 percentage high. Inflation will peak in 2022 due to Risks to this scenario are substantial. The points higher than in 2019. Vulnerability to higher fuel and food prices, but is pro- geopolitical environment could deteriorate poverty is estimated to decline to 42.2 per- jected to moderate afterwards. further, reducing global growth, increas- cent and about one-quarter of the popula- The current account will remain in ing inflation, and weakening the external tion is estimated to be in the middle class in deficit given the increase in imports, account of oil- and food-importing coun- 2021. The COVID-19 crisis led to an increase high commodity prices and a moder- tries like El Salvador. Changes in fiscal pol- in poverty, despite the generous fiscal re- ation in remittance growth. Financing icy may not be sufficient or timely enough sponse and large increase in remittances. the current account deficit will become to avoid debt distress. Meaningful poverty Mitigation measures were not well-target- increasingly challenging, given modest reduction requires fiscal space and re- ed, and remittances did not compensate for FDI prospects and limited access to ex- sources shifts toward progressive and pro- labor income losses at the bottom of the dis- ternal financing. poor social programs and human capital tribution, as only a small share of poor and In the absence of a credible fiscal consol- investments, tackling critical employment vulnerable households receive them. idation plan, the fiscal deficit is expected barriers is also necessary. TABLE 2 El Salvador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.6 -8.0 10.7 2.9 1.9 2.0 Private Consumption 3.2 -10.6 8.0 2.7 1.5 1.8 Government Consumption 0.6 6.1 5.5 4.8 2.4 0.9 Gross Fixed Capital Investment 6.7 -7.9 54.5 3.6 6.1 5.5 Exports, Goods and Services 6.2 -21.3 20.5 3.9 3.0 2.0 Imports, Goods and Services 2.9 -10.2 23.0 4.1 4.0 3.2 Real GDP growth, at constant factor prices 2.9 -7.9 10.7 2.9 1.9 2.0 Agriculture -0.5 -2.3 4.8 2.1 2.1 2.1 Industry 4.4 -10.0 5.1 2.8 2.2 2.3 Services 2.5 -7.5 13.6 3.0 1.7 1.9 Inflation (Consumer Price Index) 0.1 -0.4 3.5 4.7 2.4 1.6 Current Account Balance (% of GDP) -0.6 0.5 -3.6 -3.4 -4.3 -4.9 Net Foreign Direct Investment (% of GDP) 2.4 0.8 2.3 2.5 2.9 2.7 a Fiscal Balance (% of GDP) -3.0 -9.2 -4.5 -4.4 -4.5 -3.8 b Debt (% of GDP) 73.6 91.8 85.6 85.3 85.8 85.7 a Primary Balance (% of GDP) 0.7 -4.8 -0.4 -0.4 0.0 0.4 c,d International poverty rate ($1.9 in 2011 PPP) 1.3 1.4 1.2 1.1 0.9 0.8 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 5.7 7.4 6.4 5.6 5.0 4.5 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 22.3 26.9 24.5 22.1 20.2 18.4 GHG emissions growth (mtCO2e) 3.2 -5.3 4.1 1.3 0.9 0.2 Energy related GHG emissions (% of total) 53.9 53.4 53.9 53.7 53.4 52.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2019-EHPM. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. d/ Projections using microsimulation methods. MPO 25 Apr 22 to the financing market to cushion the ex- ternal shocks and invest in new opportu- GRENADA Key conditions and nities. The pandemic led to a sharp eco- nomic contraction of 13.8 percent in 2020, challenges and increased the debt to above 70 per- cent of GDP. It further narrowed the fis- Table 1 2021 Prior to the pandemic, Grenada was firmly cal space to mitigate economic volatilities Population, million 0.1 on its path to improved fiscal sustainabil- and support resilient growth. GDP, current US$ billion 1.1 ity, poverty reduction and climate re- GDP per capita, current US$ 9929.9 silience. Real GDP growth averaged 4.7 a 106.9 School enrollment, primary (% gross) percent between 2014 and 2019, supported Life expectancy at birth, years a 72.4 by strong demand in tourism, and by Recent developments Total GHG Emissions (mtCO2e) 2.2 structural reforms aimed at improving the Source: WDI, Macro Poverty Outlook, and official data. business environment and building cli- Following a deep recession in 2020, real a/ Most recent WDI value (2019). mate resilience; this led to a steady reduc- GDP growth is estimated to recover tion in poverty from 38 percent in 2008 to strongly at 5.3 percent in 2021, lowering 25 percent in 2018. Prudent fiscal manage- unemployment and poverty. The gradual Economic growth rebounded from the ment anchored by the Fiscal Responsibili- loosening of traveling protocols in 2021Q4 ty Law (FRL) and growth-friendly consol- has led to a significant increase of stay- sharp economic contraction of 2020, sup- idation measures led to an average of 4.2 over tourists, especially from the United ported by the resumption of tourism and percent of GDP primary surplus over the States. The total number of stay-over construction projects. Higher growth will same period. As a result of solid growth tourists remains lower than in 2020, but facilitate returning to the pre-pandemic and fiscal discipline, the public debt stock longer stays resulted in higher total spend- poverty reduction trend. The higher debt dropped from 108 percent of GDP in 2013 ing. Strategies to enhance the public pro- to 59.7 percent in 2019. ject implementation caused a significant level resulting from deep economic con- However, vulnerabilities remain mainly increase in public construction in 2021, traction and the additional fiscal spend- due to the intrinsic characteristics as a which, along with partially resumed pri- ing have threatened debt sustainability small island developing economy, and vate investment in agriculture and accom- and narrowed fiscal space. A medium- the severe aggravation of these pre-ex- modation, contributed largely to the isting challenges by the pandemic. As a growth. The return of international stu- term recovery plan, combined with a re- small island developing state, Grenada's dents at St. George's University (20 percent turn to the fiscal rule and improved fiscal economy and labor market remain heav- of GDP) to in-person learning also sup- transparency, will enhance the Govern- ily reliant on tourism, a sector that is ported 2021 GDP growth. These factors ment's capacity to finance social develop- deeply affected by the global business cy- helped reduce unemployment from 28.4 cle, natural disasters and with the highest percent in 2020Q2 to 16.6 percent in ment and climate resilience building. share of working women. Climate change 2021Q2 and led to a poverty reduction of and natural disasters have been a major 1.9 percent in 2021, reaching 29.0 percent. source of economic volatility and dispro- Recovery among women has been slower portionately affecting the poorest. Private as a result of the faster recovery in con- sector and households have limited access struction than tourism. FIGURE 1 Grenada / The evolution of main macro indicators FIGURE 2 Grenada / Unemployment rate Percent, percent of GDP Percent of GDP Percent 10 80 35 70 30 5 60 25 0 50 20 40 -5 30 15 20 10 -10 10 Standard def. 5 -15 0 CSO official def. 2019 2020 2021 2022 2023 2024 0 Debt-GDP(rhs) Primary balance GDP growth rate 2013 2015 2017 2019 Q2 2021Q2 Source: World Bank, Macroeconomics and Fiscal Management Global Practice. Source: Labor Force Survey 2013-2021, Central Statistical Office. Note: e= estimate; f = forecast * The estimates for the primary balance for 2020 included the Grenlec related payment of EC$162 million. MPO 26 Apr 22 The primary balance is estimated at a food, pushed up inflation and limited and return to the FRL in 2023 at 3.6 percent surplus of 2.3 percent of GDP in 2021. the reduction in extreme poverty to of GDP. A significant portion of public It is a narrowing surplus from 2020, ex- only 0.7 percentage points. construction will continue into 2022, in- cluding the December 2020 repurchase of creasing capital expenditure to a projected the electricity company at around 5.8 per- 9.5 percent of GDP. This increase will ex- cent of GDP. The lowered surplus reflect- ceed the gains in the tax revenue from in- ed a stronger increase in public construc- Outlook creased economic activities and turn the tion, partially continued supportive fis- primary balance into a deficit in 2022. Over cal measures, and a 4 percent growth of GDP and poverty rate are expected to re- the medium term, the primary balance is the wage bill. These factors outweighed cover gradually over the medium term as expected to return to the FRL level in 2023, the additional tax revenue. After having tourism rebounds. Real GDP is projected supported by the continued recovery of triggered the escape clause under the to reach its 2019 level by 2024, in tan- the economy, and the completion of major FRL for three years, the Government has dem with the assumed gradual resump- public construction projects. The Medium- committed to return to the FRL in 2023 tion of international travel, the expected term Fiscal Framework includes other sta- and has published a recovery plan that return of international students, and a re- bilizing factors such as improvements to lays out the medium-term fiscal strategy. bound in public and private construction tax administration and gains in spending Strong GDP growth and fiscal surplus projects. In line with the macroeconomic efficiency which will allow keeping total are estimated to reduce public debt from performance and the labor market's slow spending bounded. As a result, the debt- 73.1 percent of GDP in 2020 to 70.8 per- recovery, poverty is expected to reduce to-GDP ratio is projected to fall to about cent in 2021. slowly and reach around 27 percent in 64.8 percent by 2024. The current account deficit is estimat- 2022, approaching the pre-pandemic level Downside risks are high to the economic ed to have widened slightly to 20.2 only after 2023. Inflationary pressure, due outlook. In addition to natural disasters, percent of GDP in 2021, from 19.0 per- to the extended pandemic impacts and inflationary pressures and risks from the cent in 2020. The widening deficit re- the war in Ukraine, will affect negative- war in Ukraine could erode the real in- sults from higher global commodity ly the economic recovery and the poor- come growth in tourism source countries prices and increased imports to sup- est groups disproportionately. High glob- and negatively affect tourism recovery. port economic activities, which exceed al commodity prices, together with the These risks may also delay the build-up the higher exports associated with increasing imports demand, are expected of fiscal buffers to cushion future shocks. tourism. A significant portion of the to keep the external balance deficit at a Though progress in fiscal transparency higher external deficit is financed by high level, albeit with the improvement of and risk management has been achieved disbursement from pre-secured project tourism-related exports. in recent years, these could become ma- loans. Higher global commodity The primary surplus is expected to continue jor sources of risk and continue to re- prices, especially gas and fuel, and narrowing in 2022 but will likely improve quire attention. TABLE 2 Grenada / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices 0.7 -13.8 5.3 3.8 3.4 3.1 a Real GDP growth, at constant factor prices 1.3 -13.7 5.3 3.8 3.4 3.1 Agriculture -2.3 -14.5 5.2 3.3 2.8 1.9 Industry -0.6 -14.8 6.5 4.2 2.9 2.0 Services 2.0 -13.4 5.0 3.7 3.6 3.5 Inflation (Consumer Price Index) 0.6 -1.2 2.2 4.1 2.6 1.9 Current Account Balance (% of GDP) -13.6 -19.0 -20.2 -22.5 -16.0 -13.2 b Fiscal Balance (% of GDP) 5.0 -4.6 0.4 -2.7 1.8 2.2 Debt (% of GDP) 59.7 73.1 70.8 69.3 67.6 64.8 b Primary Balance (% of GDP) 6.8 -2.6 2.3 -0.7 3.6 3.9 GHG emissions growth (mtCO2e) 1.9 -13.5 5.1 3.1 1.8 0.7 Energy related GHG emissions (% of total) 12.9 12.9 12.9 12.9 12.8 12.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ The estimates for the fiscal balance and primary balance for 2020 excluded the Grenlec-related payment. MPO 27 Apr 22 Guatemala remains one of the countries with the highest level of social and eco- GUATEMALA Key conditions and nomic exclusion in the region. Rural areas, the northern and northwest regions, and challenges indigenous groups exhibit higher levels of monetary and nonmonetary poverty, low- Table 1 2021 Guatemala experienced a prolonged peri- er living standards, and more limited eco- Population, million 17.2 od of economic growth and macro-eco- nomic opportunities. The pandemic exac- GDP, current US$ billion 86.5 nomic stability prior to the COVID-19 pan- erbated the low and unequal rates of ac- GDP per capita, current US$ 5038.8 demic. In the pre-pandemic decade, real cess to basic services, and the resulting hu- a 8.8 International poverty rate ($1.9) GDP growth averaged 3.5 percent pro- man capital losses are among the largest a 24.4 pelled by remittance-fueled private con- in Central America, according to Human Lower middle-income poverty rate ($3.2) a 49.1 sumption. The Government implemented Capital Index estimates. Upper middle-income poverty rate ($5.5) Gini index a 48.3 prudent fiscal and monetary management. A fragmented political system, low rev- School enrollment, primary (% gross) b 100.6 Foreign exchange interventions by the enue mobilization, and low levels of public b 74.3 Central Bank supported a stable exchange investment remain among the country’s Life expectancy at birth, years rate. International reserves reached 24 per- salient challenges. Administrative mea- Total GHG Emissions (mtCO2e) 43.1 cent of GDP at end 2021. Investment and sures increased revenue mobilization to Source: WDI, Macro Poverty Outlook, and official data. productivity growth remain low, limiting 12.3 percent of GDP in 2021 (up from 11.2 a/ Most recent value (2014), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy the country’s long-term growth prospect. percent in 2019 but still the second lowest (2019). Despite stable economic growth, there has in the region, above Haiti). Political frag- been little progress in reducing poverty in mentation has complicated the adoption of recent years. Simulations for 2019 show tax and productivity-enhancing reforms. While the COVID-19 pandemic inter- that about 47.8 percent of the population Thus, GDP growth has relied on factor ac- rupted a prolonged period of growth, re- was below the poverty line (US$5.50 2011 cumulation and is constrained by negative PPP per day per person), slightly down total factor productivity. silient remittances and a timely fiscal from 49.1 percent in 2014 (last official stimulus package helped alleviate the im- poverty estimate). While the impact of the pact and supported a strong rebound; real pandemic increased poverty to an estimat- GDP is estimated to have increased by ed 52.4 percent in 2020, this increase would Recent developments have been two to three times greater with- 8.0 percent in 2021. At the same time, out the government’s policy response, tar- Economic growth is estimated to have slow vaccine rollout, political tensions, geted at the poor. Some vulnerable house- reached 8.0 percent in 2021 supported by strong dependance on remittances, and holds (between US$5.50 and US$13) record-high remittances that fueled private rising international prices pose signifi- slipped into poverty, resulting in a decline consumption and investment; GDP sur- cant risks. Higher food and energy prices in vulnerability from 36.5 in 2019 to 33.6 in passed the pre-pandemic projected trend. 2020 percent of the population. There was Guatemala experienced one of the smallest could adversely affect purchasing power, GDP contractions in the region in 2020, also a reduction in middle-class house- especially among the vulnerable, curbing holds (between US$13 and US$70) from and economic activity recovered to pre- poverty reduction in 2022. 15.2 to 13.5 percent of the population. pandemic levels in the first quarter of 2021 FIGURE 1 Guatemala / Remittances inflows and net FIGURE 2 Guatemala / Actual and projected poverty rates international reserves build up (in billion USD) and real private consumption per capita Remittances Inflows Net reserves Poverty rate (%) Real private consumption per capita (constant LCU) 20 30 60 35000 18 25 50 30000 16 14 25000 20 40 12 20000 10 15 30 15000 8 10 20 6 10000 4 10 5000 5 2 0 0 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate Remittances Inflows Stock of Net International Reserves Upper middle-income pov. rate Real priv. cons. pc Source: Central Bank of Guatemala. Source: World Bank based on ENCOVI 2006 and 2014. Notes: see Table 2. MPO 28 Apr 22 and maintained momentum throughout percentage points to 13.5 percent of GDP The fiscal deficit is projected to increase to the year, supported by a remarkable ex- as emergency spending was scaled back; 2.3 percent of GDP in 2022 but continued pansion in the inflow of remittances. the primary surplus is estimated to have fiscal consolidation efforts are expected to Export growth was outpaced by imports, reached 0.5 percent of GDP. stabilize debt. Government spending is set narrowing the current account surplus. to increase to 14.5 percent of GDP in 2022, In 2021, strong external demand in- due to an increase in social transfers and creased merchandise exports, especially investment. Also, the government expand- apparel, textiles and coffee. A rebound Outlook ed the energy emergency subsidies in re- in domestic demand boosted import vol- sponse to increased prices. Fiscal consoli- ume growth to 24 percent, double the GDP growth is projected to be 3.4 percent dation will resume in 2023 as tax admin- growth rate of exports. Remittances kept in 2022 and converge to 3.5 percent in istration measures, including digital filing, the current account in surplus. The mon- the medium term. The war in Ukraine are projected to improve revenue mobi- etary policy rate was kept unchanged as damped the outlook for 2022 and 2023. lization by 0.4 p.p. between 2022 and 2024, average headline inflation was 4.3 per- The current account surplus is projected reducing the interest-to-revenue ratio from cent in 2021, within the policy range of to narrow, and tourism to remain sub- 14.1 percent in 2021 to 13.2 in 2024. The 3-5 percent. dued until 2023. Higher commodity debt burden is projected to decline in 2022, The growth in remittances is estimated to prices, especially food and energy prices, as additional revenues from 2021 will be have contributed to lower poverty in 2021. are projected to drive inflation up in 2022 used to cancel debt. Economic growth in Guatemala has had a and 2023. Foreign exchange interventions Risks to the forecast are skewed to the limited effect on poverty reduction in re- to stabilize the exchange rate are project- downside, although there are also upside cent decades, remittances increased reach- ed to continue and monetary policy may risks. New waves of COVID-19, natural dis- ing approximately US$800 per capita, tighten if inflation rises. aster events, and a worsening of supply which is expected to bring the poverty rate Poverty is expected to decline gradually chain constraints affecting exports could (US$5.50 2011 PPP per day) down to 51.7 but could be negatively affected by price slow recovery. Furthermore, lower than percent in 2021. Inequality is expected to developments. The expected hike in prices projected revenues would hinder social in- have decreased slightly, from a Gini index could limit purchasing power, curbing ef- vestment and worsen already weak social of 0.485 in 2020 to 0.481 in 2021. forts to reduce poverty and inequality. A indicators. On the upside, increased fiscal The fiscal deficit narrowed to 1.2 percent of slowdown of the US economy, in line with revenues that translate into public invest- GDP in 2021 as a result of improved rev- a somber global outlook, may lead to a re- ment and improved infrastructure, coming enues and under-execution of the budget. duction in remittances, further hindering on top of the increase in investment that was In 2021, government spending fell by 2.1 poverty reduction. recorded in 2021, could boost productivity. TABLE 2 Guatemala / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.9 -1.5 8.0 3.4 3.4 3.5 Private Consumption 4.5 -1.1 8.9 4.1 3.8 4.0 Government Consumption 2.5 1.6 6.6 3.2 0.4 0.9 Gross Fixed Capital Investment 8.7 -5.9 18.4 6.4 4.9 4.4 Exports, Goods and Services 0.1 -4.4 12.4 4.7 3.9 3.0 Imports, Goods and Services 4.9 -4.6 23.7 6.7 4.4 3.9 Real GDP growth, at constant factor prices 3.7 -1.4 7.6 3.4 3.4 3.5 Agriculture 2.1 2.9 2.5 2.3 2.4 2.4 Industry 3.8 -1.2 7.6 2.6 2.8 2.8 Services 3.9 -2.2 8.4 3.9 3.8 3.9 Inflation (Consumer Price Index) 3.7 3.2 4.3 5.0 4.5 4.0 Current Account Balance (% of GDP) 2.3 5.1 3.1 1.1 0.5 0.1 Fiscal Balance (% of GDP) -2.2 -4.9 -1.2 -2.3 -1.9 -1.9 Debt (% of GDP) 26.5 31.6 30.6 29.7 29.5 29.4 Primary Balance (% of GDP) -0.6 -3.2 0.5 -0.6 -0.3 -0.2 a,b International poverty rate ($1.9 in 2011 PPP) 8.4 10.9 9.8 9.8 9.7 9.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 23.7 27.2 25.7 25.5 25.5 25.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 47.8 52.4 51.7 51.5 51.1 51.2 GHG emissions growth (mtCO2e) 3.7 6.1 1.3 2.3 2.5 2.0 Energy related GHG emissions (% of total) 56.3 58.3 57.4 57.5 57.6 57.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2006-ENCOVI and 2014-ENCOVI. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. b/ Projections based on microsimulations. MPO 29 Apr 22 to vaccination hesitancy. At least 54 per- cent of the population was inoculated with GUYANA Key conditions and at least one dose of vaccine as of mid-Feb- ruary 2022. challenges The new Natural Resource Fund (NRF) Act, adopted in December 2021, intro- Table 1 2021 Guyana is going through a period of ex- duced a revised framework for the man- Population, million 0.8 ceptional growth with the development agement and transfers from the SWF. It al- GDP, current US$ billion 7.4 of its oil and gas sector. Real GDP per so revamped the oversight committee, in- GDP per capita, current US$ 9378.7 capita is expected to reach US$ 23,000 by cluding the establishment of a Board of Di- a 97.8 School enrollment, primary (% gross) 2024, more than double 2020 levels, with rectors, and is largely consistent with the a 69.9 the share of the oil and gas sector ris- Santiago Principles. The new rule allows Life expectancy at birth, years Total GHG Emissions (mtCO2e) 22.5 ing to approximately 60 percent of to- transfers to the budget starting 2022, using Source: WDI, Macro Poverty Outlook, and official data. tal GDP. Nevertheless, agriculture, gold, a simple mathematical formula to calculate a/ Most recent WDI value (2019). bauxite, and timber production remain withdrawal amounts which should aver- relevant, especially for the non-oil econ- age between 4 to 5 percent of GDP over the omy, as together, they account for a sig- medium term. As increased fiscal revenues Guyana's economy is expanding at an nificant share of jobs. The transformation will allow Guyana to rapidly scale up pub- also implies a significant increase in rev- lic expenditures, it is vital to ensure that extraordinary rate, fueled primarily by enues which, up to 2021, was being saved spending is efficient, and reforms address the expansion of oil output. This is ex- in a sovereign wealth fund (SWF) outside social and infrastructure gaps. In parallel, pected to continue over the medium of the economy. Guyana will need to manage the risks of term as more fields are added to produc- Guyana's resource wealth contrasts with large inflows from oil revenues to prevent tion. Increasing oil and gas revenues the overall needs of the population, overheating the economy and generating marked by ethnic and social polarization. Dutch Disease effects. will allow financing of significant bud- At 48.4 percent in 2019, Guyana’s poverty For long-term pro-poor growth, and in line get outlays to address development rate is among the highest in the region, us- with the country’s new national develop- needs and tackle poverty. Significant ing the upper-middle income poverty line ment strategy, more efficient and effective risks remain, including the management (US$5.5 per day in 2011 PPP). Between public service delivery is essential. This is 2006 and 2019, the income of the bottom particularly the case in areas like health, of oil wealth, the quality of spending, 40 percent grew slower than the average, education, and digital connectivity, which and Dutch disease effects. resulting in increased income inequality, improve human capital. Sound and trans- with the Gini coefficient rising from 0.46 parent management of oil revenues will be to 0.52. Poverty and social exclusion, in- critical to avoid increased polarization and cluding limited access to basic services, are further erosion of already weak institu- particularly severe in Guyana’s hinterland tions and governance. Reforms to support and among Amerindians. Furthermore, private sector growth are also critical. early evidence suggests that the pandemic COVID-19 remains a key risk for the econ- increased poverty and food insecurity omy, given the threat to the normalization amid limited progress in vaccination due of business conditions and livelihoods. FIGURE 1 Guyana / Oil production, real oil, and real non-oil FIGURE 2 Guyana / Selected food insecurity indicators in GDP, 2019-2024 June 2021 Real GDP (G$B, 2012 prices) Oil production (thousand barrels per day) Percent of households 4,000 350 45 40 3,500 300 35 3,000 30 250 2,500 25 200 20 2,000 15 150 1,500 10 100 5 1,000 0 500 50 Ran out of food Ran out of food An adult did not An adult could (pre pandemic, (last 30 days) eat for an entire not eat healthy 0 0 feb-2020) day and nutritious 2019 2020 2021 e 2022 f 2023 f 2024 f (last 30 days) food Oil GDP Non-Oil GDP Oil Production (rhs) (last 30 days) Source: World Bank staff estimates. Note: f=forecast. 2024 values assume full- Source: World Bank staff estimates based on World Bank and UNDP LAC High capacity production in Liza I and II. Frequency Phone Surveys, Phase II, Wave 1. MPO 30 Apr 22 The current account deficit (CAD) consumption, higher input costs, and sup- widened to 21.2 percent of GDP in 2021, ply chain disruptions. This threatens the Recent developments driven largely by the importation of purchasing power and food security of Guyana’s second floating production stor- poor and vulnerable households, especial- Real GDP is estimated to have increased age and offloading (FPSO) vessel, Liza ly if food prices continue to increase. by 19.9 percent in 2021, owing primarily Unity, and increased net service payments. Guyana’s natural resource boom will lead to an expansion of oil production, which The CAD was primarily funded by private to a sustained current account surplus in averaged about 107,500 barrels per day as inflows, while international reserves in- the coming years, improving the country's Liza I approached full capacity. The expan- creased by 19.1 percent to US$ 810.8 mil- international reserves position. The war in sion of the oil sector was accompanied by a lion, representing 2.1 months of total im- Ukraine and its impact on fuel prices will 4.6 percent growth in the non-oil economy ports in 2021. also influence Guyana’s current account linked to ongoing recovery from the im- going forward. pact of the pandemic, particularly in con- Guyana's fiscal deficit is expected to nar- struction and services. Inflation increased row to 4.9 in percent of non-oil GDP by to 4.8 percent in 2021, reflecting higher Outlook 2024. Increased revenues, largely tied to food prices which rose by 11.6 percent. inflows from the NRF will partly offset Guyana’s exchange rate regime remains a Guyana is expected to remain one of the higher spending on capital infrastruc- de facto stabilized arrangement with for- world's fastest-growing economies in the ture projects. In this context, public debt eign exchange rate interventions. medium term, as new oil fields are devel- is expected to fall to 23.6 percent of Negative impacts from the pandemic on oped and production capacity expands to GDP by 2024. employment and household income per- approximately 330,000 barrels per day by Guyana is now highly vulnerable to oil- sisted in 2021 and are likely to have in- 2024. Oil production, and consequently re- related shocks, both to price and output. creased poverty. The World Bank – UNDP al GDP, is expected to jump in 2022 as Liza It also faces well-known risks associated High-Frequency Phone Survey, conducted II begins operation. Real GDP is expected with resource-dependent economies, such in June 2021, suggests considerable in- to more than double by 2023, pushing per as a lack of diversification, increasing re- creases in food insecurity. About 40 per- capita income to over US$20,000 at the cur- liance on the state which can affect private cent of households ran out of food due to rent nominal exchange rate. Real GDP sector competitiveness, and an erosion of a lack of money or other resources within growth could accelerate further with the institutions. Guyana needs to maintain an the 30 days preceding the survey. Further- commissioning of additional fields in the operational SWF to mitigate the imbalance more, 47.3 percent of households have still medium term. between the resource inflow and the econ- not recovered their pre-pandemic level of Poverty reduction will depend on the omy’s absorptive capacity while also limit- income. This is also reflected in higher un- performance of the non-oil economy ing waste. Furthermore, oil production has employment rates. through job creation, including those environmental consequences that must be The fiscal deficit increased to 10.4 percent linked to public investment projects and carefully considered, and the sector may of non-oil GDP in 2021. The widening was local content for the oil sector, as well as face additional risks as the world transi- primarily driven by flood relief assistance the redistribution of resource revenues. tions away from fossil fuels. payments to farmers and households and The expansion of oil and gas production The pandemic resulted in severe disrup- increased capital expenditure outlined by will boost private investment and accel- tions in education with a third of school- the government’s public sector investment erate the growth of services. Increased aged children not attending school in program. Public debt fell to 40.7 percent of gold and bauxite output will also drive mid-2021. If resulting learning gaps are not overall GDP in 2021 due to increased eco- export growth. Inflation will remain el- addressed, this can have substantial long- nomic growth. evated, reflecting increasing government term impacts on welfare. TABLE 2 Guyana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at purchaser prices (total) 5.4 43.5 19.9 47.9 34.3 3.8 b Real GDP growth, at factor prices (non-oil) 3.1 -6.2 4.6 7.2 5.7 5.4 Agriculture -0.5 4.1 -9.1 3.6 3.0 3.0 Industry 5.4 -10.5 9.2 14.8 10.3 8.8 Services 4.0 -9.9 11.6 4.0 3.8 4.0 Inflation (Consumer Price Index) 1.4 1.0 4.8 7.3 6.5 6.2 c Current Account Balance (% of GDP) -54.6 -15.1 -21.2 45.7 42.6 34.9 d Fiscal Balance (% of GDP) -2.8 -9.4 -10.4 -7.0 -5.1 -4.9 Debt (% of GDP) 34.2 47.4 40.7 29.2 25.0 23.6 d Primary Balance (% of GDP) -2.0 -8.6 -9.7 -6.2 -4.5 -4.4 GHG emissions growth (mtCO2e) 1.5 9.0 6.2 6.0 13.7 3.8 Energy related GHG emissions (% of total) 14.1 19.5 22.6 32.5 39.5 40.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Total GDP at 2012 prices. b/ Non-oil GDP at 2012 prices. c/ BOP definition in current US$. d/ Share of non-oil GDP. MPO 31 Apr 22 2021, marking the third consecutive year of negative growth. All three sectors of the HAITI Key conditions and economy declined, with agriculture regis- tering the largest slide at 4.1 percent, partly challenges as a result of watershed degradation and low rainfall. The economic slump affected Table 1 2021 The political and institutional crisis, com- households, with 68 percent of them re- Population, million 11.5 pounded by increasing levels of insecuri- porting income drop compared to the pre- GDP, current US$ billion 20.9 ty, continues to hinder Haiti’s economic pandemic period (HFS). GDP per capita, current US$ 1814.6 performance. Other key challenges to On the fiscal front, the government strug- a 24.5 International poverty rate ($1.9) boost productivity and economic growth gled to mobilize tax revenues. The fiscal a 50.3 include deficient infrastructure, limited deficit is estimated at 2.5 percent of GDP Lower middle-income poverty rate ($3.2) a 78.6 human capital, weak governance and in- in 2021, with direct subsidies to the energy Upper middle-income poverty rate ($5.5) Gini index a 41.1 stitutions, and an unfavorable business sector accounting for 1.3 percent of GDP. Life expectancy at birth, years b 64.0 environment characterized by uncertain- In Q1 FY2022, however, the government Total GHG Emissions (mtCO2e) 10.5 ty, under-developed finance markets, and partially removed oil subsidies, hiking re- limited market contestability. tail fuel prices by 74.3 percent on average. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2012), 2011 PPPs. Vulnerability to natural hazard shocks Due to the strong gourde policy engi- b/ Most recent WDI value (2019). and climate change is likely to continue neered at the beginning of FY2021, the cur- to hinder growth, hurting the poor and rency appreciated by 23.2 percent on av- the vulnerable. erage against the US dollar by the end of Haiti’s economy contracted for a third The lack of credibility in the policy frame- FY2021. Headline inflation consequently work and uncertainty of the political edged down to 15.9 percent and food in- consecutive year in 2021, increasing the process erodes confidence and impair eco- flation declined to 19.6 percent, from 27.5 already high poverty levels. This reflects nomic agents' ability to plan for the long percent the previous year. The poorest are the deep structural challenges the country term or create jobs. Moreover, limited ac- disproportionally affected by the high in- must surmount, including a deepening cess to quality healthcare and education flation levels given their high share of lingering political crisis, unprecedented hinders the possibility of building human household expenditures on food. In line capital to break the cycle of poverty. with the reduced household incomes and level of insecurity, and weak governance, high inflation levels, food insecurity has which, combined with relatively low worsened, especially in the poorest rural skilled labor, leads to a strong dependence households, where 80 percent reported on imports. The country is also highly Recent developments running out of food. But the incidence of COVID-19 remained relatively mild, de- vulnerable to natural hazard shocks and Political instability and security concerns spite a vaccination rate below 1.0 percent. is recovering from a devastating earth- due to armed gangs vying for control over By the end of February 2022, about 26,000 quake and tropical storm Grace in the business districts depressed investment positive cases had been officially reported. Southern peninsula in 2021. which contracted by 21.8 percent in 2021, A corollary of the strong gourde policy is taking a toll on economic activity. There- the depletion of net international reserves, fore, GDP contracted by 1.8 percent in which declined by 35.8 percent to stand FIGURE 1 Haiti / Real GDP growth and sectoral contributions FIGURE 2 Haiti / Actual and simulated poverty rates and to real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 4 90 60000 80 3 58000 70 2 60 56000 50 1 54000 40 0 30 52000 20 -1 50000 Agriculture Industry 10 -2 0 48000 Services GDP 2012 2014 2016 2018 2020 2022 2024 -3 International poverty rate Lower middle-income pov. rate 2001-2005 2006-2010 2011-2015 2016-2020 2021 Upper middle-income pov. rate Real GDP pc Source: Haiti Statistical Office (IHSI). Source: World Bank staff calculations. MPO 32 Apr 22 at US$ 457.6 million in FY2021. Gross re- While the recent fuel price adjustment exports are expected to contract. Despite serves are, however, at a healthy level of provided temporary relief, given the on- the global economic recovery and ensu- 6.5 months of imports. The current account going Russia-Ukraine war, ensuring retail ing increasing remittances, the CAB will balance (CAB) remained positive at 0.7 prices are adjusted regularly to reflect in- turn to a deficit of around 1.3 percent of percent of GDP, on large remittances in- ternational market price conditions for all GDP in FY2022. flows increase, higher exports, and the col- fuel products will be needed. Fiscal con- The economy is expected to rebound in the lapse in investment. ditions will remain tight since the author- medium term, supported by strong remit- Despite a recent political agreement to ities stated their intentions to commit to tances and increased private investment as form a new interim government, the polit- fiscal consolidation within the IMF Staff political tensions ease, and the security sit- ical situation remains volatile. The govern- Monitored Program (SMP) framework. uation improves. GDP is expected to ex- ment’s most urgent task is to reestablish Hence, the fiscal deficit is expected to nar- pand by 1.7 percent over the medium term. security and organize credible elections. row to 1.5 percent of GDP, albeit 1.9 per- Donor support and finalization of the SMP cent of GDP of central bank (BRH) financ- with the IMF, with several structural mea- ing is anticipated. The fuel price increase, sures focusing on tax revenue mobilization coupled with declining agricultural out- and greater spending efficiency, will likely Outlook put and BRH financing, will exert pres- help maintain the fiscal deficit at manage- sure on CPI inflation, which is expected able levels over the medium term, easing The tense political context and heightened to close at around 26.2 percent, with the pressure on prices. The CAB is expected to security concerns continue to depress pri- exchange rate moving pari passu. The re- stabilize at around -2.0 percent of GDP, on vate investment, with attendant conse- sulting increase in the cost of basic goods stronger growth of remittances. quences on growth. GDP is therefore ex- would hurt the poorest. The outlook remains fraught and hinges pected to contract by 0.4 percent. Agricul- Imports will grow at a faster rate, on strongly on how the political context ture, on which most vulnerable and poor higher fuel and food prices and material evolves and security improves. Delay in im- households depend for their livelihood, will to meet post-earthquake reconstruction plementing critical reforms, including in continue to hamper growth; one reason for needs. However, the workers’ strike at the electricity sector, customs, and internal this is the constant reduction of arable land the beginning of FY2022 in the textile revenue service, and vulnerability to natur- and low credit to the sector (0.1 percent of sector, coupled with rising insecurity, al hazard shocks may also hinder growth total commercial loans in FY2021). will affect the sector’s output. Therefore, and achievement of shared prosperity. TABLE 2 Haiti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2018/19 2019/20 2020/21 2021/22e 2022/23f 2023/24f Real GDP growth, at constant market prices -1.7 -3.3 -1.8 -0.4 1.4 2.0 Private Consumption -1.0 -4.0 1.2 1.0 1.8 0.9 Government Consumption -8.6 11.1 9.7 9.5 8.1 -2.1 Gross Fixed Capital Investment 7.7 -20.6 -21.8 -0.8 -7.3 23.5 Exports, Goods and Services 6.8 -39.7 1.4 -1.0 4.0 2.0 Imports, Goods and Services 4.2 -18.3 2.7 6.2 2.5 3.1 Real GDP growth, at constant factor prices -1.1 -2.9 -2.5 -0.1 1.4 2.0 Agriculture -1.9 -2.5 -4.1 -1.1 0.9 1.0 Industry -6.8 -6.9 -2.5 -1.5 1.7 1.5 Services 2.1 -1.2 -2.0 0.9 1.4 2.6 Inflation (Consumer Price Index) 17.3 22.9 15.9 26.2 18.9 13.4 Current Account Balance (% of GDP) -1.1 1.5 0.7 -1.3 -2.1 -1.5 Net Foreign Direct Investment (% of GDP) 0.5 0.2 0.2 0.4 0.4 0.3 Fiscal Balance (% of GDP) -2.0 -3.0 -2.5 -1.5 -1.7 -1.5 Debt (% of GDP) 26.2 24.4 25.6 26.1 21.8 23.2 Primary Balance (% of GDP) -1.7 -2.7 -2.2 -1.2 -1.4 -1.3 a,b International poverty rate ($1.9 in 2011 PPP) 23.5 25.1 26.0 26.5 26.5 26.2 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 48.3 51.0 52.3 52.9 52.8 52.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 77.6 79.0 80.0 80.6 80.5 80.1 GHG emissions growth (mtCO2e) -0.6 -0.7 0.4 0.4 1.9 2.5 Energy related GHG emissions (% of total) 33.3 32.4 32.2 32.4 33.6 35.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2012-ECVMAS. Actual data: 2012. Nowcast: 2013-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2012) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 33 Apr 22 debt service remained relatively low. However, contingent liability risks remain HONDURAS Key conditions and high, including those related to the state electricity company (ENEE) and exoge- challenges nous shocks. Vaccination helped slow the spread of Table 1 2021 Honduras's export-oriented growth model COVID-19 by end-2021 (at 47 percent of the Population, million 10.1 has been insufficient to boost growth and population in March 2022). Yet, high hesi- GDP, current US$ billion 28.4 incomes. The country's exposure to exter- tancy rates among the elderly and less edu- GDP per capita, current US$ 2822.8 nal shocks and natural hazards, combined cated expose the country to new waves. a 14.8 International poverty rate ($1.9) with high crime rates and a weak institu- A key challenge is maintaining the reform a 29.0 tional and business environment, under- momentum amid political fragmentation Lower middle-income poverty rate ($3.2) a 49.0 mine its competitiveness. Real GDP and policy uncertainty, while mitigating Upper middle-income poverty rate ($5.5) Gini index a 48.2 growth averaged 3.1 percent over the past the social impacts of recent shocks. Better School enrollment, primary (% gross) b 90.2 decade, mainly driven by remittance-fu- targeting and execution of support pro- b 75.3 eled private consumption. Yet, in 2019, al- grams; strengthening resilience to climate Life expectancy at birth, years most half the population lived on less than risks; and improving the business environ- Total GHG Emissions (mtCO2e) 27.2 US$5.50 per day, making Honduras one of ment, governance and institutions remain Source: WDI, Macro Poverty Outlook, and official data. the poorest countries in the Latin America critical to boost economic opportunities for a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). and Caribbean region. Prudent macroeco- a largely poor and vulnerable population. nomic management anchored in the Fiscal Responsibility Law (FRL), a crawling peg Honduras's real GDP reached its pre-cri- exchange with ample foreign reserves, and sis level in 2021, led by remittance-fueled a sound financial sector supported macro Recent developments stability in the run-up to the crisis. private consumption, post-hurricane re- The impacts of the pandemic and hurri- Real GDP is estimated to have grown construction, and robust export demand. canes Eta and Iota exacerbated existing 11.9 percent y.o.y in 2021, rebounding Poverty and inequality are estimated to economic and social challenges. Real GDP to pre-crisis level. This expansion was contracted by 9 percent, and poverty broad-based and driven by private con- have declined in 2021 but remain above (US$5.50 line) is estimated to have in- sumption and investment associated with pre-crisis levels. GDP growth is expected creased by 6.4 percentage points in 2020 to remittances and reconstruction activities. to moderate in the medium term amid 55.4 percent. The country's relatively low Growth in remittances, representing 24.3 tempering of global demand, unwinding public debt and deficit coupled with good percent of GDP, accelerated by 19.6 per- of pandemic support, and completion of access to concessional financing allowed cent y.o.y in 2021. Yet, as of mid-2021, for a countercyclical response, in line with about 41 percent of households reported reconstruction activities. Adverse effects the FRL's escape clause, to cushion the im- incomes below the pre-pandemic level as of the prolonged pandemic on livelihoods pacts of the multiple shocks. Yet, emer- about 1 in 3 workers in Honduras lost and human capital accumulation pose gency programs had a relatively small mit- their pre-pandemic jobs. Job stoppages af- risks to future poverty reduction. igating impact. Despite a steep increase, fected women disproportionately, espe- public debt remained sustainable, and the cially mothers of 0–5-year-old children, FIGURE 1 Honduras / Fiscal balance and debt FIGURE 2 Honduras / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 2 58 70 25000 1 53 60 0 20000 -1 50 48 -2 40 15000 -3 43 30 10000 -4 38 20 -5 -6 5000 33 10 -7 0 0 -8 28 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2010 2012 2014 2016 2018 2020 2022 2024 International poverty rate Lower middle-income pov. rate Fiscal Balance Primary Balance Debt (rhs) Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Honduras and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 34 Apr 22 the elderly (age 65+), and the less-educat- stable exchange rate, inflation accelerated with higher import values is expected to be ed. Although food security improved in to 6.4 percent y.o.y in February 2022 – financed primarily by FDI inflows. Finally, 2021, Honduras still has the lowest rates above the Central Bank’s (BCH) target the poverty rate (USD 5.5 Line) is expected in Central America. band (4 percent ± 1 percent) – amid higher to decline to 47.8 percent by 2023 as labor Poverty (US$5.50 line) is estimated to have food and energy prices and strong domes- markets recover. declined in 2021 to 49.1 percent, still above tic demand. Higher food and gasoline Honduras is expected to continue receiv- the pre-crisis level. In 2021, the middle prices pose a risk to poverty reduction as ing external financial support while re- class (US$13-$70 per day in 2011 PPP) re- they account for a higher share of house- turning to the FRL target of 1 percent covered to its pre-crisis level of 17.9 per- hold income at the bottom of the distribu- NFPS deficit in 2023. The required fiscal cent, after a 3.6 percentage point fall at the tion. Moreover, high energy costs could af- tightening is challenging and is expected onset of the pandemic in 2020. fect light manufacturing (maquilas), which to be supported by the gradual unwind- The government continues with expansion- employs 12 percent of workers with an in- ing of pandemic support, budget reallo- ary policy as reconstruction and health come under the poverty line. The BCH cations, and revenue growth aided by the needs are significant. In keeping with the maintained the key policy rate at 3 percent economic recovery and revenue mobiliza- FRL's escape clause, the Non-Financial Pub- in early 2022. tion measures. The compliance with FRL lic Sector (NFPS) deficit is estimated to have will enable public debt to stabilize over reached 3.7 percent of GDP in 2021, bring- the medium term. ing total NFPS debt to 53.1 percent of GDP Monetary tightening is likely in the near (compared to 54.1 percent in 2020). The gov- Outlook term as inflation accelerates amid increas- ernment authorized new borrowing for up ing energy and food prices and anticipated to US$2 bn in 2022-23 and withdrew US$335 Real GDP is expected to moderate to an monetary policy tightening in the U.S. m in IMF's Special Drawing Rights. average annual rate of 3.5 percent slowly A weak legislative position within the rul- After registering a historical surplus of converging to its potential as global de- ing party could slow progress on fiscal, so- 2.9 percent of GDP in 2020, the current mand tempers and crisis support is phased cial, and structural reforms, and along account is estimated to have reversed to out. Remittances will continue to fuel do- with budget execution issues, weaken a deficit in 2021 on the back of recov- mestic consumption, albeit at a slower rate growth and raise risks of social unrest. ering imports. The external position re- amid stabilization in U.S. growth and Prolonged unemployment and high infla- mains strong, supported by remittances higher commodity prices amid the conflict tion could heighten food insecurity, par- and external financing. Foreign reserves in Ukraine. Agriculture is expected to re- ticularly for informal low-income house- stood at 30.6 percent of 2021 GDP at cover but will remain vulnerable to the holds that lack insurance and savings, and end-2021, supporting exchange rate stabil- U.S. import demand and climate shocks. could have lingering effects on human cap- ity. While being contained by a relatively A wider current account deficit associated ital and livelihoods. TABLE 2 Honduras / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.7 -9.0 11.9 3.1 3.6 3.7 Private Consumption 4.7 -6.4 6.1 3.3 3.4 3.2 Government Consumption 1.7 2.9 9.3 -2.9 -3.5 1.8 Gross Fixed Capital Investment -5.2 -23.8 27.3 5.3 4.8 3.8 Exports, Goods and Services 2.4 -20.3 18.1 6.3 5.4 4.9 Imports, Goods and Services -2.4 -18.5 13.7 5.5 3.7 3.6 Real GDP growth, at constant factor prices 2.7 -9.0 11.9 3.1 3.6 3.7 Agriculture -1.0 -6.3 0.3 5.3 4.1 3.1 Industry 1.8 -14.3 19.0 2.2 4.7 4.8 Services 4.0 -7.2 11.9 2.9 3.0 3.4 Inflation (Consumer Price Index) 4.4 3.5 4.5 5.5 5.0 4.0 Current Account Balance (% of GDP) -2.7 2.9 -3.1 -3.5 -3.9 -4.0 Net Foreign Direct Investment (% of GDP) 2.0 1.5 2.3 2.8 3.1 2.9 a Fiscal Balance (% of GDP) -0.9 -5.5 -3.7 -2.3 -1.0 -1.0 a Debt (% of GDP) 43.5 54.1 53.1 55.3 55.5 55.7 a Primary Balance (% of GDP) 0.2 -4.2 -2.3 -1.0 0.5 0.7 b,c International poverty rate ($1.9 in 2011 PPP) 14.8 18.5 14.1 13.9 13.4 13.0 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 29.0 35.3 29.0 28.5 27.9 27.2 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 49.0 55.4 49.1 48.4 47.8 46.8 GHG emissions growth (mtCO2e) -1.0 -6.6 4.7 2.6 2.4 1.6 Energy related GHG emissions (% of total) 35.8 33.0 34.5 34.6 35.9 36.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal data refers to non-financial public sector. b/ Calculations based on SEDLAC harmonization, using 2019-EPHPM. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. c/ Projection using neutral distribution (2019) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 35 Apr 22 improving the efficiency and effectiveness of public spending. It will also demand an JAMAICA Key conditions and acceleration in reforms to address fiscal risks including those from natural disasters. challenges Containment of the COVID-19 pandemic is critical for economic recovery and in- Table 1 2021 Jamaica's real gross domestic product clusive growth. As of February 20, 2022, Population, million 3.0 (GDP) per capita has averaged $4,746 over approximately 25 percent of the popula- GDP, current US$ billion 12.5 the past decade, below the average for the tion has received one dose of vaccine and GDP per capita, current US$ 4204.7 1990s. Income per capita has declined fur- only 21 percent has been fully vaccinated a 90.6 School enrollment, primary (% gross) ther with the pandemic. Falling per capital against COVID-19, among the lowest in a 74.5 income coincided with a larger share of the the region due to high vaccine hesitancy. Life expectancy at birth, years Total GHG Emissions (mtCO2e) 9.7 population at work suggesting declining Jamaica’s near-term recovery will depend Source: WDI, Macro Poverty Outlook, and official data. average labor productivity. Jamaica’s low on the normalization of international trav- a/ Most recent WDI value (2019). growth and declining productivity is at- el, with the tourism sector accounting for tributed to a long list of constraints includ- more than 30 percent of GDP and one- ing limited interconnectedness of enclave third of the workforce. New COVID-19 industries with the rest of the economy, variants represent a major threat. and pervasive crime and violence which Jamaica remains on the Financial Action discourages investments. The country is Task Force's (FATF) grey list of non-com- also vulnerable to climate shocks affecting pliant countries due to flaws in its anti- Jamaica is recovering from the pandemic, mainly vulnerable groups as well as key money laundering and counter-terrorism with growth recently picking up and un- sectors like tourism and agriculture. Fur- financing framework. This could lead to employment falling to historic lows, re- ther, the cost of energy and internet con- large international banks de-risking, which nectivity are extremely high even by re- could have an impact on trade. sulting in a decrease in poverty. Nonethe- gional standards and there are gaps in hu- less, the country is still beset by a high man capital with high migration of skilled level of debt, low labor productivity, and labor and a weakening in learning and ed- a weak enabling environment for greater ucation outcomes. Recent developments Despite a steep reduction of public debt private sector participation in the econo- in recent years, from 145 to an estimated Real GDP rose by 4.6 percent in 2021, dri- my. Vaccine hesitancy, new COVID-19 96 percent of GDP between 2013 and ven by private and government consump- variants, the ongoing war in Ukraine, 2021, it remains among the highest in the tion, and by external demand as there was disaster shocks, and a slow tourism recov- region. As such, faster growth is need- some slowdown in investments. Govern- ed to reduce the debt burden and create ment consumption remained robust ery all pose significant risks. space for pro-poor interventions. Achiev- amidst a continuation of efforts to stem the ing the target of a debt stock of at least impact of the pandemic on livelihoods. At 60 percent of GDP by 2028 as outlined in the sectoral level, the expansion in real the Fiscal Responsibility Law will require GDP was principally attributed to a partial addressing constraints to growth while rebound in tourism from the near closure FIGURE 1 Jamaica / Fiscal balances and public debt FIGURE 2 Jamaica / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) GDP per capita (LCU constant) 120 110.4 8 30 310000 96.4 94.7 87.4 100 6 25 300000 80.3 80 74.3 4 20 60 2 15 290000 40 0 10 280000 20 -2 5 0 -4 0 270000 2019 2020 2021 e 2022 f 2023 f 2024 f 2014 2016 2018 2020 2022 2024 Debt (lhs) Fiscal Balance Primary Balance National poverty rate Real GDP pc Sources: GoJ, IMF, and World Bank staff estimates. Source: World Bank staff calculations. Note: Poverty projections are estimated based on 2018 JSLC. Projection using growth semi-elasticity of poverty = -1 and GDP per capita in constant LCU. MPO 36 Apr 22 of the sector in 2020. In this context, the un- 2020. Although the employment rate The fiscal accounts should remain in sur- employment rate fell to a historic low of 7.1 slightly surpassed pre-pandemic levels in plus over the medium-term with a gradual percent in October 2021. October 2021, nearly 50,000 workers still fall in spending as the COVID-19 cash sup- Inflation rose sharply in the second half had not returned to the labor force, forego- port and other programs are phased out. of the year, averaging 5.9 percent in 2021. ing earned income. Lower-income house- As such, financing needs will decline Most of the increase was due to higher holds, in particular, are feeling strained as pulling debt below 90 percent of GDP and food and fuel prices. As a result, the central prices continue to rise. closer to the target of 60 percent of GDP. bank raised its policy rate by 350 basis Nevertheless, the trajectory for public debt points to 4 percent between September remains vulnerable to uncertainties related 2021 and February 2022. to COVID-19, tightening financial market The fiscal account is estimated to have Outlook conditions, fiscal risks posed by state- recorded a surplus of 0.3 percent of GDP owned enterprises and to natural disaster in 2021. Higher tax and non-tax collections Over the medium term, real GDP growth shocks, posing risks for poverty. boosted revenues to 31.8 percent of GDP. is expected to average 2.2 percent, driven The current account is expected to record Spending fell by 0.9 percentage point to primarily by private consumption, invest- an average annual deficit of 3.2 percent of 31.5 percent of GDP, reflecting lower pro- ments, and net external demand, assuming GDP over the medium term as rising fuel gram, compensation and capital expendi- a steady recovery in tourist arrivals as vac- prices increase spending on imports and tures. In this context, the public debt to cination progresses and more travel routes remittances revert to pre-pandemic levels. GDP ratio fell by 14.1 percentage points to are restored. Investments are expected to Private flows are expected to improve, re- 96.3 percent of GDP in 2021. increase, driven by tourism-related and ducing the need for public sector borrow- In 2021, Jamaica's current account surplus public infrastructure projects. On the sup- ing to finance the deficit. Gross reserves was 1.3 percent of GDP, thanks to a 15.5 ply side, construction, agriculture, and are expected to remain at healthy levels, percent increase in visitor arrivals and a tourism will remain key drivers of growth. averaging more than 5 months of imports. 20.4 percent increase in remittances. Mining and quarrying will also support Poverty is projected to fall to around 13 Tourist visitors are still down 63.7 percent growth with the planned resumption in percent by 2024 as household incomes im- from pre-pandemic levels. Jamaica ended mining at the country’s major alumina prove with the economic recovery. Infla- 2021 with US4,832.4 million dollars in of- plants. Inflation is envisaged to average tion will need to be kept in check to protect ficial reserve assets (equivalent to 8.4 around 6.5 percent with the upside risk of purchasing power. Disruptions in learning months of total imports), up 18.4 percent remaining higher given ongoing develop- during the pandemic may have longer- from the year prior. Most of the increase ments in Europe. term effects on human capital and the fu- was driven by Special Drawing Rights and Monetary policy will continue to balance ture earning potential of students. the IMF Reserve Position. support to growth while strengthening ef- The economic outlook is vulnerable to sig- The poverty rate at the national poverty forts to dampen inflation expectations and nificant downside risks, such as slower- line is estimated to have declined to 18 per- avert pressures on the currency from an- than-expected tourism recovery, cent in 2021, following a sharp rise in 2020 ticipated monetary policy tightening in the COVID-19 variants, higher prices, capital to about 23 percent. Over 150,000 workers United States. Jamaica's financial institu- flow volatility, and natural disasters, as either lost their jobs or dropped out of the tions are still sound, though a protracted well as the possibility of a worsening of labor market between January and July crisis may pose stability challenges. Europe's ongoing crisis. TABLE 2 Jamaica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.9 -10.0 4.6 3.2 2.3 1.2 Private Consumption 1.0 -13.2 3.0 2.9 2.0 1.4 Government Consumption 3.1 11.7 2.1 -0.2 2.4 3.7 Gross Fixed Capital Investment 1.0 -15.9 -3.3 8.2 6.9 0.9 Exports, Goods and Services 3.6 -30.0 19.0 5.9 3.1 2.5 Imports, Goods and Services 4.2 -26.7 7.4 5.8 4.7 3.3 Real GDP growth, at constant factor prices 1.0 -10.0 4.6 3.2 2.3 1.2 Agriculture 0.4 -1.4 1.1 1.3 1.6 1.6 Industry -0.7 -5.7 2.7 3.0 1.2 0.7 Services 1.6 -12.1 5.6 3.5 2.7 1.3 Inflation (Consumer Price Index) 3.9 5.7 5.9 8.0 5.8 5.7 Current Account Balance (% of GDP) -2.3 -0.3 1.3 -4.1 -3.2 -2.5 Net Foreign Direct Investment (% of GDP) 1.4 1.9 1.2 2.4 2.5 2.5 a Fiscal Balance (% of GDP) 0.9 -3.1 0.3 0.3 0.3 0.3 a Debt (% of GDP) 94.7 110.4 96.4 87.4 80.3 74.3 a Primary Balance (% of GDP) 7.1 3.5 6.3 5.9 5.3 4.9 GHG emissions growth (mtCO2e) 4.1 -9.4 0.7 1.8 -0.6 0.2 Energy related GHG emissions (% of total) 81.9 80.6 81.2 81.6 82.0 82.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 37 Apr 22 COVID-19. These factors are likely to have long-term impacts on human capital, pro- MEXICO Key conditions and ductivity, and inequality. Mexico's fiscal position deteriorated in challenges 2020. The limited fiscal response to the pandemic, albeit at the risk of a weaker Table 1 2021 Trade openness, with a strong export man- recovery, and the sharp depreciation led Population, million 130.3 ufacturing base connected to Global Value to an increase in public indebtedness, al- GDP, current US$ billion 1292.4 Chains and integrated with the U.S. econ- though this was lower than other emerg- GDP per capita, current US$ 9921.6 omy, and a stable macroeconomic frame- ing markets. The recently approved ad- a 3.1 International poverty rate ($1.9) work, are staples of the Mexican economy. ministrative tax reform seeks to simplify a 9.8 Potential output growth declined in the tax compliance for MSMEs and broaden Lower middle-income poverty rate ($3.2) a 28.1 previous decade due to weak productivity the tax base. Moving forward, broader Upper middle-income poverty rate ($5.5) Gini index a 45.4 growth and sluggish investment. Produc- revenue-enhancing reforms will be need- School enrollment, primary (% gross) b 104.7 tivity heterogeneity is considerable across ed to meet spending pressures, increase b 75.1 sectors, regions, and firms as long-stand- access to quality public services and in- Life expectancy at birth, years ing structural barriers to growth remain, frastructure, while preserving debt sus- Total GHG Emissions (mtCO2e) 699.1 such as: limited access to finance, regulato- tainability. Higher oil prices will boost Source: WDI, Macro Poverty Outlook, and official data. ry burden, infrastructure bottlenecks, and revenue in the short term, but PEMEX's a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). inadequate provision of public services. challenging situation calls for a turn- Significant regional differences persist: 63 around. Uncertainty about regulatory percent of the multidimensional extreme changes could hamper the recovery of Real GDP growth is projected at 2.1 per- poor lived in six of Mexico's 32 states in some sectors, particularly energy. 2020. Rural areas, particularly in the south, cent in 2022. The labor market has yet to suffer from a vicious cycle of low produc- fully recover as most gains in employ- tivity, low physical and human capital in- ment took place in informal and low-wage vestments, and high poverty rates. Despite Recent developments jobs. Poverty is expected to decline mar- the positive effects of urbanization, most of Mexico's poor live in urban areas where Real GDP grew 4.8 percent in 2021, sup- ginally in 2022. Risks to recovery include public services provision is inadequate. ported by solid performances in services higher and persistent inflation, accelerat- The pandemic has exacerbated labor mar- and manufacturing in 2021 H1, as both ed monetary policy normalization in the ket weaknesses, including underemploy- mobility and U.S. demand increased. The U.S., increases in COVID-19 cases, con- ment, low female labor force participation, recovery lost impulse in 2021 H2 because tinuing job quality decline, and supply widespread informality, and lower quality of supply chain shortages, a rise in of newly created jobs. Access to quality ed- COVID-19 cases, and depressed invest- chain disruptions. Addressing pre-pan- ucation worsened as schools shut down, ment. Between July 2020 and December demic structural constraints to growth leading to higher dropout rates and a re- 2021, 7.4 million additional jobs were and inclusion remains critical for a ro- duction of 1.5 learning-adjusted years of added, surpassing pre-pandemic levels by bust medium-term economic recovery. education. Healthcare access declined as 0.8 million. However, most employment the system struggled to cope with gains were in informal and low-wage jobs FIGURE 1 Mexico / Inflation FIGURE 2 Mexico / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 8 40 150000 35 6 145000 30 4 140000 25 20 135000 2 15 130000 0 10 125000 5 -2 Jan '19 Jul '19 Jan '20 Jul '20 Jan '21 Jul '21 Jan '22 0 120000 Core Non-core Food 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Non-core Energy Non-core Utilities International poverty rate Lower middle-income pov. rate Inflation Upper middle-income pov. rate Real GDP pc Source: INEGI. Source: World Bank. Notes: see Table 2. MPO 38 Apr 22 and unemployment and underemploy- Government fiscal deficit was 3.8 percent projects. It envisages stabilizing the public ment rates remained above pre-pandemic of GDP during 2021. Government rev- debt-to-GDP ratio at 51 percent, support- levels. Female labor force participation enues benefited from the economic recov- ed by the enacted tax administration re- has not recovered, standing at 44.6 per- ery, tax settlements with large companies, form and economic growth. The strong cent at the end of 2021 compared to 45.2 and higher oil prices. Expenditures remain recovery in oil prices will help this debt percent in 2019. contained, despite the continuation of stabilization process. Monetary poverty using the US$5.5 poverty large public investment projects. Job creation, labor income growth, and line is expected to have declined from 28.1 higher social transfers in the form of non- percent in 2020 to 26.4 percent in 2021, sup- contributory pensions are expected to ported by a recovery in labor incomes. lead to a gradual reduction in monetary While the poverty headcount rate is back to Outlook poverty in 2022 and a further reduction its 2018 level, there are one million more through 2024. Enduring high inflation people in poverty compared to 2018 as a re- The economy is projected to expand by 2.1 could affect poverty reduction, as nearly sult of population growth. The vulnerable percent in 2022. Real GDP growth is fore- 55 (36) percent of the rural (urban) pop- (incomes between US$5.5 and US$13 per cast at 2.1 and 2.0 percent in 2023 and 2024, ulation had incomes below the basic food capita per day) increased slightly, making in line with Mexico's potential growth. The basket in 2021 Q4. up 44.5 percent of the population in 2021. economy is projected to reach its pre-pan- The economic recovery is subject to The current account deficit was 0.4 percent demic level in 2023. High inflation and risks. New COVID-19 variants might af- of GDP in 2021. Recovery in imports, due slow recovery in labor income are expect- fect mobility and private consumption, to inventory re-stocking and GVCs nor- ed to continue to weigh on domestic con- mitigated by the pace of vaccination. malcy, was attenuated by export perfor- sumption. Public investment is expected to Persistent bottlenecks in international mance, and remittances that amounted to support the recovery, while private invest- supply chains could slow the recovery US$51.6 billion in 2021. ment is projected to remain weak as regu- in manufacturing and exports. Regula- Headline (core) inflation reached 7.3 (6.6) latory uncertainties remain. tory uncertainty surrounding the ener- percent in February 2022. The cost of the The Central Bank is expected to continue gy sector may result in subdued pri- basic food basket increased by 13.9 (12.8) to raise its policy rate to rein in inflation, vate investment. Inflationary pressures percent in rural (urban) areas in the same anchor expectations, and accommodate may erode households' purchasing pow- period. The Central Bank increased its pol- the normalization of monetary policy in er and expedite interest rate hikes, icy rate from 4.0 in February 2021 to 6.0 the U.S. Inflation is projected to fall within which will affect investment and con- percent in February 2022 to maintain the target band after 2022. sumption. The current war in Ukraine medium-term expectations within the tar- The 2022 budget maintains prudent public ex- might add additional inflationary pres- get (3 ± 1 percent). penditure, focusing on flagship investment sures and increase financial risk. TABLE 2 Mexico / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.2 -8.2 4.8 2.1 2.1 2.0 Private Consumption 0.4 -10.5 7.2 2.7 2.5 2.4 Government Consumption -1.8 0.1 0.4 0.7 0.3 -0.2 Gross Fixed Capital Investment -4.7 -17.8 9.8 2.7 2.5 2.3 Exports, Goods and Services 1.5 -7.3 7.2 6.4 5.9 5.0 Imports, Goods and Services -0.7 -13.7 14.6 7.2 6.1 5.1 Real GDP growth, at constant factor prices -0.2 -7.9 4.7 2.1 2.1 2.0 Agriculture -0.3 0.3 2.9 2.0 1.7 1.3 Industry -1.8 -9.8 6.5 2.5 2.5 2.1 Services 0.6 -7.5 4.1 1.9 1.9 2.0 Inflation (Consumer Price Index) 3.6 3.4 5.7 6.0 3.9 3.5 Current Account Balance (% of GDP) -0.3 2.4 -0.4 -0.9 -1.2 -1.7 Net Foreign Direct Investment (% of GDP) 1.9 2.3 2.5 2.3 2.1 2.0 Fiscal Balance (% of GDP) -2.3 -4.0 -3.8 -3.4 -3.3 -3.3 Debt (% of GDP) 44.5 51.7 50.0 49.0 49.0 49.5 Primary Balance (% of GDP) 0.4 -1.0 -1.2 -0.7 0.0 0.3 a,b International poverty rate ($1.9 in 2011 PPP) 3.1 2.1 2.5 2.5 2.4 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 8.0 8.5 8.3 8.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 28.1 26.4 26.0 25.4 25.0 GHG emissions growth (mtCO2e) 1.1 -2.5 2.0 0.8 0.7 0.6 Energy related GHG emissions (% of total) 67.2 66.7 67.2 67.3 67.4 67.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2020-ENIGHNS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Based on microsimulation model for 2021-2022. For 2023-24, assumes neutral distribution (2020) with pass-through = 0.87 based on GDP per capita. MPO 39 Apr 22 in Ukraine lowers growth prospects in advanced economies and puts pressure NICARAGUA Key conditions and on commodity prices. The current domes- tic political context and subsequent in- challenges ternational reaction pose additional chal- lenges to economic recovery, including Table 1 2021 Prior to 2018, market-oriented reforms and lower FDI inflows and higher borrowing Population, million 6.7 sound macroeconomic management (in- costs. It will therefore be more urgent to GDP, current US$ billion 14.0 cluding a crawling peg exchange rate and establish productivity-boosting and con- GDP per capita, current US$ 2090.9 modest fiscal deficits) contributed to a sol- fidence-enhancing reforms, including im- a 3.4 International poverty rate ($1.9) id economic expansion. Between 2000 and proved access to finance, property rights a 13.1 2017, growth averaged 3.9 percent, led by and innovation. Lower middle-income poverty rate ($3.2) a 35.4 domestic demand fueled by remittances Upper middle-income poverty rate ($5.5) Gini index a 46.2 and Foreign Direct Investment (FDI). Nev- School enrollment, primary (% gross) b 120.6 ertheless, growth was driven primarily by Life expectancy at birth, years b 74.5 factor accumulation and led by low-skill Recent developments manufacturing exports. Total GHG Emissions (mtCO2e) 40.4 Following a two-year recession brought on Real GDP increased 10.3 percent in 2021. Source: WDI, Macro Poverty Outlook, and official data. by the sociopolitical crisis of 2018, the This recovery can be attributed to: (i) pri- a/ Most recent value (2014), 2011 PPPs. b/ WDI for School enrollment (2010); Life expectancy country suffered further declines in eco- vate consumption fueled by robust remit- (2019). nomic activity because of the pandemic tance inflows; (ii) public consumption and and two major hurricanes. Compared to investment aimed at addressing the im- regional peers, the economic impact of the pacts of COVID-19 and hurricane dam- Robust remittance inflows, a fiscal stimu- pandemic was limited due to mild contain- ages; and (iii) private investment and ex- lus, and favorable commodity prices have ment measures. Nonetheless, real GDP de- ports supported by favorable commodity clined 1.8 percent in 2020 as voluntary prices. Mining, manufacturing, construc- been the main drivers of the economic re- shutdowns weighed on domestic demand, tion, and trade have been the main drivers covery following a three-year recession while the global crisis dragged external de- of growth; tourism is recovering slowly. brought on by the 2018 sociopolitical cri- mand. With cumulative loss amounting to Nevertheless, welfare impacts of the sis, the COVID-19 pandemic, and two 8.7 percent since 2018, economic activity COVID-19 crisis remain. Data shows low- is estimated to have recovered to pre-2018 er employment rates in 2021Q3 (44 per- major hurricanes. However, fiscal consoli- levels in 2021. cent) than 2020Q3 (46 percent), as labor- dation, war in Ukraine, and repercus- While 60 percent of the population is fully intensive sectors like construction, hotel sions from the present political context vaccinated (as of February 2022), further and restaurants have not fully recovered are expected to reduce growth. Nicaragua vaccinations will be necessary to ensure a their employment levels. According to the still faces lingering pandemic-associated robust economic recovery, as more coun- World Bank High Frequency Survey, tries reduce COVID-19 restrictions and around 13 percent of those formally em- negative welfare impacts with lower ployed, prior to the pandemic, had tran- global tourism normalizes. Nonetheless, wages and employment and higher infor- the global environment is expected to sitioned to an informal job by June 2021. mality compared to the pre-crisis period. weigh on growth in Nicaragua as the war Employment and wage declines drove a FIGURE 1 Nicaragua / Real GDP growth and contributions FIGURE 2 Nicaragua / Actual and projected poverty rates to real GDP growth and real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 60 35000 20 50 30000 15 10 25000 40 5 20000 0 30 15000 -5 20 -10 10000 -15 10 5000 2017 2018 2019 2020 2021f 2022f 2023f 2024f Private Consumption Public Consumption 0 0 Public GFCF Private GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Exports Imports International poverty rate Lower middle-income pov. rate GDP Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Nicaragua and World Bank. Source: World Bank. Notes: see Table 2. MPO 40 Apr 22 reduction in family income for 44 percent The current account deficit is expected to of households by mid-2021. widen in 2022 amid deteriorating terms of At the onset of the pandemic, the Central Outlook trade and a marginal deceleration in remit- Bank implemented policies to ensure liq- tances, balancing by 2024 as a result of a uidity in the financial system, and these Growth is expected to decelerate in 2022 gradual resumption in tourism, robust ex- are still in place. The financial system has to 2.9 percent amid global headwinds and ports, and growing, albeit at a declining been gradually recovering, as asset quality a fiscal consolidation. Authorities are plan- pace, remittance inflows. Meanwhile, FDI and profitability have continuously im- ning a consolidation starting 2022 as part inflows are expected to slow, given the proved. Inflation reached 4.9 percent in of their commitment to the IMF and con- present political context. 2021 pressured by rising commodity cerns over debt sustainability, by reducing Fiscal consolidation will bring the deficit prices, especially food and transportation. capital spending, however, current spend- down in coming years. Financing needs The fiscal deficit is estimated to have nar- ing momentum will remain to ensure ab- will be met through domestic borrowing rowed to 1.5 percent of GDP in 2021 as rev- sorption of COVID-19 funds, declining and non-concessional external borrowing, enue growth surpassed spending growth. thereafter. Recent international geopoliti- which will increase the cost of debt but not While emergency-related multilateral sup- cal developments are expected to weigh on compromise debt sustainability. The debt port enabled a ramp up in capital expen- growth amid elevated oil prices and low- burden is expected to reach 63.0 percent of ditures, including on hurricane-related re- er demand, partially offset by positive im- GDP in 2024. construction and pre-election spending, pacts from higher prices of exported com- Risks to the forecast are on the downside current expenditures rose more slowly as modities. Moreover, the present domestic and include the following: (i) deterioration execution of COVID-19 funds lagged. Debt political context is expected to keep in- of the domestic and international political is therefore expected to have reached 67.3 vestment and growth below historical context, including the war in Ukraine, (ii) percent of GDP by the end of 2021. levels throughout the forecast. These further international isolation, (iii) new The current account is estimated to have events will maintain the poverty rate (de- COVID-19 waves, (iv) delayed resumption recorded a deficit of 1 percent of GDP in fined as $3.2/day PPP) hovering around of international travel to Nicaragua; (v) nat- 2021 as increases in imports outweighed the 13 between 2020 and 2022. Meanwhile, in- ural disasters; and (vi) rising commodity pickup in exports. Meanwhile, FDI in- flation is expected to pick up further to prices. On the other hand, China-oriented creased to an average 8.5 percent of GDP in 5.9 percent in 2022 as commodity price policies, including the signing of the Belt the first three quarters of 2021 on the back pressures and supply-chain disruptions and Road Initiative MoU, could unlock ex- of financing for mining and energy projects are aggravated by recent geopolitical ternal loans on more favorable conditions spurred by favorable commodity prices. events, gradually declining thereafter. not subject to international sanctions. TABLE 2 Nicaragua / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -3.8 -1.8 10.3 2.9 2.3 2.5 Private Consumption -1.3 -0.6 8.1 3.2 2.2 2.4 Government Consumption 0.7 1.9 4.4 2.9 -2.3 2.4 Gross Fixed Capital Investment -24.5 10.4 33.9 -3.0 4.1 3.4 Exports, Goods and Services 5.6 -8.9 18.0 5.6 5.4 4.5 Imports, Goods and Services -3.4 0.4 18.5 2.8 3.9 4.1 Real GDP growth, at constant factor prices -3.3 -1.7 8.3 2.9 2.3 2.5 Agriculture 2.0 0.1 6.9 2.4 1.7 1.4 Industry -3.3 -1.4 17.7 3.9 2.7 2.6 Services -4.8 -2.4 5.0 2.5 2.2 2.8 Inflation (Consumer Price Index) 5.4 3.7 4.9 5.9 5.2 4.8 Current Account Balance (% of GDP) 6.0 5.9 -1.0 -1.6 -1.0 -0.1 a Fiscal Balance (% of GDP) -1.7 -2.6 -1.5 -1.6 -1.0 -0.7 b Debt (% of GDP) 58.1 65.9 67.3 67.7 66.1 63.0 a Primary Balance (% of GDP) -0.4 -1.3 -0.3 -0.4 0.2 0.3 c,d International poverty rate ($1.9 in 2011 PPP) 3.4 3.5 3.3 3.3 3.3 3.2 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 13.1 13.2 12.9 12.8 12.8 12.7 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 35.4 35.6 34.9 34.8 34.7 34.6 GHG emissions growth (mtCO2e) 0.8 1.1 2.6 1.8 1.8 1.8 Energy related GHG emissions (% of total) 15.2 15.0 15.8 16.1 16.2 16.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2007-, 2019-, and 2014-EMNV. Actual data: 2014. Nowcast: 2015-2021. Forecasts are from 2022 to 2024. d/ Projection using average elasticity (2007-2019) with pass-through = .3 based on GDP per capita in constant LCU. MPO 41 Apr 22 Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) are PANAMA Key conditions and deterrents to Foreign Direct Investment (FDI) and to leveraging Panama as a region- challenges al business and financial hub. Table 1 2021 Prior to the COVID-19 crisis, Panama sus- Population, million 4.4 tained high but declining growth rates, re- GDP, current US$ billion 63.6 lying on construction and public invest- Recent developments GDP per capita, current US$ 14515.0 ment. The middle class expanded from a 1.2 International poverty rate ($1.9) 50.8 percent of the population in 2015 to The spread of COVID-19 slowed in 2021 a 4.6 56.9 percent in 2019, however, rural pover- as a result of vaccination, with 73 percent Lower middle-income poverty rate ($3.2) a 12.1 ty remained six times higher than in urban of population at least partially vaccinated. Upper middle-income poverty rate ($5.5) Gini index a 49.8 areas. The COVID-19 crisis led to a two- The Omicron variant triggered a new School enrollment, primary (% gross) b 93.2 digit contraction in GDP in 2020 and a 2.7 spike, but the number of new cases was b 78.5 percentage-points increase in the poverty down by 85 percent by mid-February com- Life expectancy at birth, years rate, despite strong poverty-mitigation ef- pared to end-January. Total GHG Emissions (mtCO2e) 24.9 forts. Economic activity started to recover Panama’s GDP has rebounded from the Source: WDI, Macro Poverty Outlook, and official data. by the end of 2020, and the country needs COVID-19 crisis with 2021 growth at 15.3 a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). to ensure that the pandemic stays at bay percent. Growth was driven by copper to allow lagging sectors, such as tourism, mining from Panama Cobre, construction, to fully recover. Moreover, excess stock of manufacturing, and commerce, which ac- Panama’s strong rebound in 2021 buildings, higher household indebtedness, count for 70 percent of workers in vulner- and reduced fiscal space require a rethink ability (income between US$5.5 and US$13 brought real GDP above its pre-crisis lev- of the growth model. a day). The mining sector now accounts for el. Poverty is estimated to decline to al- The pandemic amplified existing chal- 7.1 percent of GDP in 2021 up from 3.8 per- most pre-crisis levels, in part due to lenges. Panama’s fiscal deficit (5.5 percent of cent in 2020. Poverty is estimated to have Panama’s mitigative social assistance GDP in 2021 vs. 2.9 in 2019) and debt levels decreased from 14.8 percent in 2020 to 12.3 (63.7 percent of GDP in 2021 vs. 46.3 in 2019) percent in 2021. measures. Nonetheless, some populations are much higher than before the pandemic. Panama’s external position remains remain vulnerable to income and employ- As a dollarized economy, the country needs stronger than in the pre-crisis period. Im- ment losses and require further protec- to promote fiscal consolidation to reduce in- ports are still below 2019 levels. The min- tion. As a dollarized economy, Panama terest payments, reduce public debt, and ing sector boosted exports in 2021, which now needs to curb the rise in public debt, comply with the deficit targets set by the Fis- are 137 percent higher than in 2019. The cal and Social Responsibility Law - FSRL (4 current account turned from a surplus in while promoting reforms that can in- percent of GDP for 2022). The main fiscal 2020 to a deficit in 2021, however, the crease potential growth and address the risk is the deficit in the pension system, deficit until September (2.1 percent of large urban-rural poverty divide. which requires larger transfers from the GDP) is 68 percent lower than in 2019. Net Treasury every year. Tax revenues are lower FDI inflows (3.2 percent of GDP) were than peers. The country’s weaknesses in more than enough to finance the deficit. FIGURE 1 Panama / Good exports and current account FIGURE 2 Panama / Actual and projected poverty rates and balance real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 4 40 12000 Non-Mining Exports (lhs) Mining Exports (lhs) Current Account Balance (rhs) 2 35 5 10000 30 0 8000 4 25 -2 20 6000 3 -4 15 4000 2 10 -6 2000 5 1 -8 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 -10 International poverty rate Lower middle-income pov. rate 2018 2019 2020 2021 Upper middle-income pov. rate Real GDP pc Source: INEC. Source: World Bank. Notes: see Table 2. MPO 42 Apr 22 Inflation increased in 2021 but is still at a inflows. Inflation will remain higher in moderate level compared to the US and re- 2022 due to higher fuel prices and the gional peers. The main culprit was trans- Outlook reduction in energy subsidies but should portation prices, driven by fuel and air- converge to lower levels as US inflation fares, which increased by 9.2 percent (aver- GDP is expected to grow strongly again in subsides. High food prices might exac- age prices). 2022 on the back of the growth carry-over erbate the effects of the pandemic on Panama’s fiscal position improved in from 2021 (9.4 percent), continued expan- food insecurity, which doubled during 2021, but deficits and debt are still at sion of the mining sector, and the late recov- the pandemic. This could affect house- a high level. The fiscal deficit declined ery in tourism and air transportation. In the holds in the lowest income decile the from 10 percent of GDP in 2020 to 5.5 medium term, GDP will converge to its po- most, who allocate 30 percent of their percent, below the 7-percent limit set by tential growth rate of around 5 percent. Al- budget to food. the LRSF. The debt-to-GDP ratio declined though Panama Solidario, the emergency Fiscal results will continue to improve, but from 69.8 in 2020 to 63.7, while debt social assistance program, has played a crit- compliance with the FSRL deficit limits risk indicators improved. Deficit reduc- ical role in mitigating the adverse effects of will become harder, hinging on rollback of tion was achieved due to higher revenue COVID-19, the more limited efficacy of the COVID-19 expenditures, efficiency gains growth (16.9 percent), moderation on cur- program in rural areas calls for further pro- from tax administration, expenditure dis- rent expenditures (5.6 percent growth), tection to prevent poverty and inequality cipline, and a solution to the pension sys- and containment on capital expenditures from increasing further. tem debt, even taking into account the new (17.7 percent contraction). However, rev- The increase in GDP, along with higher US$375 million yearly revenue flow from enues and expenditures are still not back commodity prices caused by the war in mining royalties. The main external risks at the pre-crisis level. In 2021, revenues Ukraine, will continue to boost imports. to the forecast are higher prices and risk reached 18.2 percent of GDP (18.5 percent Still, the current account deficit will be aversion brought by heightened geopoliti- in 2019) and expenditures were at 23.7 lower than historical averages as a result cal events. Climate change risks also arise percent of GDP (21.3 percent in 2019), of increasing mining exports and com- from drought and sea level rise, including due to increases in subsidies, transfers, petitiveness gains in service exports. The through their potential effects on the oper- and interest payments. deficit will be financed by FDI and other ation of the Panama Canal. TABLE 2 Panama / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.0 -17.9 15.3 6.5 5.0 5.0 Private Consumption 3.4 -18.5 8.5 6.4 5.0 4.6 Government Consumption 4.5 4.3 4.3 2.0 1.7 0.9 Gross Fixed Capital Investment 0.0 -37.9 40.3 9.7 8.9 6.0 Exports, Goods and Services -0.1 -22.0 15.5 7.0 5.0 5.1 Imports, Goods and Services -3.3 -29.3 20.0 7.7 6.8 4.5 Real GDP growth, at constant factor prices 3.2 -17.9 15.3 6.5 5.0 5.0 Agriculture 2.5 3.8 6.7 3.0 2.5 2.0 Industry 3.4 -32.1 30.6 7.4 4.0 3.7 Services 3.2 -12.7 10.7 6.3 5.5 5.6 Inflation (Consumer Price Index) -0.4 0.0 1.6 3.5 2.5 2.1 Current Account Balance (% of GDP) -5.3 3.1 -0.8 -1.2 -2.5 -3.5 Net Foreign Direct Investment (% of GDP) 5.5 3.2 4.9 5.1 5.4 6.0 Fiscal Balance (% of GDP) -3.5 -10.3 -5.5 -4.1 -3.0 -1.8 Debt (% of GDP) 46.4 69.8 63.7 63.5 63.0 62.4 Primary Balance (% of GDP) -1.6 -7.5 -3.1 -1.7 -0.6 0.7 a,b International poverty rate ($1.9 in 2011 PPP) 1.2 1.9 1.3 1.3 1.2 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.6 6.1 4.9 4.4 4.1 3.9 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 12.1 14.8 12.3 11.7 11.3 10.9 GHG emissions growth (mtCO2e) 9.4 -5.2 6.9 7.7 4.3 -1.0 Energy related GHG emissions (% of total) 48.9 51.3 52.9 55.8 57.3 56.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2019-EH. Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 43 Apr 22 PARAGUAY Key conditions and Recent developments challenges Real GDP grew 5.8 percent year-on-year (yoy) over the first nine months of 2021, dri- Table 1 2021 Buttressed by sound macroeconomic ven by strong fixed investment growth from Population, million 7.2 management, Paraguay achieved strong both private and public construction works, GDP, current US$ billion 37.9 economic growth and poverty reduction as well as by private consumption growth. GDP per capita, current US$ 5248.5 between 2002 and 2019. Real GDP grew Despite high commodity prices, net exports a 0.8 International poverty rate ($1.9) 4.1 percent on average, poverty fell from contributed negatively to growth, as the a 4.7 45.9 to 15.4 percent of the population, drought suppressed export volumes. On Lower middle-income poverty rate ($3.2) a 17.9 and inequality declined from 57.3 to 45.7 the production side, growth was mainly dri- Upper middle-income poverty rate ($5.5) Gini index a 43.5 Gini points. This performance helped ven by services, followed by manufacturing School enrollment, primary (% gross) b 84.6 Paraguay cushion the effects of the pan- and construction. Nonetheless, high-fre- b 74.3 demic, as it recorded one of the smallest quency indicators point to slower growth in Life expectancy at birth, years GDP contractions in the region in 2020 the fourth quarter of 2021. Although the Total GHG Emissions (mtCO2e) 96.9 (-0.8 percent) and a modest increase in drought suppressed employment growth Source: WDI, Macro Poverty Outlook, and official data. poverty (2.5 percentage points) from the in rural areas, leading to a decline in the av- a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). 15.4 percent in 2019. erage unemployment rate by just 0.4 per- However, Paraguay’s growth has been cent (yoy), unemployment among urban highly volatile, linked to its economic women fell by 1.1 percent (yoy). Paraguay’s economic recovery is con- dependence on agriculture and hydro- Rising food and fuel prices led inflation to electric energy exports which make increase from an average of 2.5 percent yoy strained by adverse climate developments up 60 percent of total goods exports. in the first quarter of 2021 to 7.3 percent yoy and global uncertainty. The ongoing Thus, climate conditions are important in the fourth quarter, the fastest pace in a drought is reducing agricultural yields drivers of economic cycles and poverty decade and well above the target range (2-6 and hydroelectric exports, and driving up reduction, affecting incomes in the percent), despite a relatively stable ex- agricultural sector where the poorest change rate. Core inflation also doubled to 6 logistics costs, in the context of high fuel people work. percent over the same period. Despite sev- prices. Growth is thus expected to slow The severe ongoing drought in the Paraná en consecutive interest rate hikes of a cumu- down to 1.5 percent in 2022, weakening River basin illustrates the limitations of lative 500bps since August, inflation picked fiscal outcomes. Despite a fall in the un- Paraguay’s highly climate-dependent up further to 9.3 percent yoy in February employment rate, mainly among urban growth model. The prolonged dry spell 2022. Reserves stood at US$9.8 billion at has impacted the quantity and quality of end-February, equivalent to 9 months of women, poverty reduction is impeded by crops, driven up logistics costs, and pro- goods and services’ imports. Higher infla- the uptick in inflation, currently running voked widespread forest fires. Structural tion hindered poverty reduction, especially at the fastest pace in a decade. reforms that diversify Paraguay’s econo- for those at the lower end of the income dis- my will serve to increase its resilience to tribution. The poverty rate, measured at 5.5 external shocks. PPP dollars and 3.2 PPP dollars per day, is FIGURE 1 Paraguay / Headline and core CPI inflation FIGURE 2 Paraguay / Actual and projected poverty rates and real private consumption per capita Inflation, year-on-year change (percent) Poverty rate (%) Real private consumption per capita (millions constant LCU) 10 45 25 Headline CPI 40 Core CPI 20 8 35 Average 30 15 6 25 2021: 4.8 20 10 4 15 10 5 2 5 2020: 1.8 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 0 International poverty rate Lower middle-income pov. rate Feb'19 Jul'19 Dec'19 May'20 Oct'20 Mar'21 Aug'21 Jan'22 Upper middle-income pov. rate Real priv. cons. pc Sources: Central Bank of Paraguay and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 44 Apr 22 estimated to have declined by only 1.3 and driven by large private investments (name- slows due to the drought and as the import 0.4 percentage points respectively in 2021, ly a pulp plant and a biorefinery), with high- bill, especially for fuel, increases. The fi- leading to a marginal increase in the Gini co- er agricultural commodity prices only par- nancial account is expected to remain sta- efficient. These effects were more accentuat- tially offsetting the effects of the drought. ble as a share of GDP despite impending ed in rural areas where the drought limited This would lead to lower incomes, especial- interest rate increases in the United States, poverty reduction. ly in the rural areas, and to stagnating ex- as residents mainly own domestic curren- The pick-up in activity and prices improved treme poverty. Higher fuel prices, triggered cy-dominated assets. fiscal accounts, along with the continued by the war in Ukraine, are expected to com- The outlook assumes that weather con- phase-out of COVID-19 related emergency pound inflation challenges. Inflation is thus ditions will improve towards the end of social transfers and the reduction of public expected to recede only gradually despite 2022, that the shock to commodity prices investment, narrowing the fiscal deficit monetary policy tightening. As weather is temporary, and that future waves of from 6.1 percent in 2020 to an estimated 3.8 conditions normalize in 2023 and 2024, ex- the COVID-19 pandemic will not require percent of GDP in 2021. Revenues rose by al- port growth is expected to increase. mobility restrictions. However, only 45 most 14 percent, driven by corporate income The Government has deferred tax obliga- percent of the population had received tax collections, while total expenditures in- tions for soy producers and provided spe- two doses of a COVID-19 vaccine by Feb- creased by only 1.3 percent. Public debt is es- cial financing facilities to small-hold farm- ruary 2022, one of the lowest in the re- timated to have risen slightly to 36 percent of ers but it lacks the fiscal space to enact fur- gion. Fifteen percent of respondents to GDP at the end of 2021. Credit ratings re- ther stimulus measures. With lower rev- the World Bank High-Frequency Phone main stable; in January 2022, the Govern- enues, the fiscal deficit is expected to come Survey indicated that they were not plan- ment placed an 11-year US$500 million in at 3.6 percent of GDP and gradually nar- ning to receive the vaccine in June 2021. bond at 3.85 percent partly to repurchase row to reach the Government’s target of Fostering greater trust in institutions, in- outstanding bonds due in 2023 and 2026. 1.5 percent by 2024, in line with the fiscal cluding by improving the quality of pub- responsibility law. The Government in- lic services and by strengthening institu- tends to achieve this target by reducing tional capacity, is a key challenge. These personnel and capital spending. Debt is ex- reforms would also help Paraguay im- Outlook pected to stabilize due to faster growth prove the enabling environment for the and a lower deficit. private sector and thus attract more for- Economic growth is expected to slow to 1.5 The current account is forecast to register eign direct investment to boost growth in percent in 2022 and to remain primarily a small deficit in 2022 as export growth the medium term. TABLE 2 Paraguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices -0.4 -0.8 4.5 1.5 4.1 3.8 Private Consumption 1.8 -3.6 5.8 1.6 3.9 4.0 Government Consumption 4.7 5.1 -1.3 -1.7 -0.6 1.3 Gross Fixed Capital Investment -6.1 5.3 11.3 6.6 5.6 4.2 Exports, Goods and Services -3.4 -9.0 4.8 1.2 6.5 5.4 Imports, Goods and Services -2.0 -15.2 9.5 3.5 5.5 5.2 Real GDP growth, at constant factor prices -0.2 -0.5 4.6 1.5 4.1 3.8 Agriculture -3.1 7.4 -11.0 -25.0 30.0 8.5 Industry -3.0 0.7 7.0 6.0 4.0 4.5 Services 2.4 -3.1 6.8 3.9 0.3 2.4 Inflation (Consumer Price Index) 2.8 1.8 4.8 6.5 4.0 4.0 Current Account Balance (% of GDP) -0.5 2.5 0.8 -0.7 0.9 1.3 Net Foreign Direct Investment (% of GDP) 0.6 0.3 0.4 0.6 0.6 0.6 Fiscal Balance (% of GDP) -2.9 -6.1 -3.8 -3.6 -2.5 -1.5 Debt (% of GDP) 23.4 34.5 36.0 36.6 36.3 35.9 Primary Balance (% of GDP) -2.0 -5.1 -2.7 -2.3 -1.2 -0.3 a,b International poverty rate ($1.9 in 2011 PPP) 0.9 0.8 0.7 0.7 0.8 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.5 4.7 4.3 4.5 4.5 4.4 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 15.4 17.9 16.6 17.1 17.1 16.9 GHG emissions growth (mtCO2e) -0.3 0.7 1.3 -9.1 -2.2 -0.4 Energy related GHG emissions (% of total) 9.6 9.2 9.8 0.8 0.7 0.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2020-EPH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. MPO 45 Apr 22 officials. In addition, political tensions be- tween the Executive and Congress, and polit- PERU Key conditions and ical fragmentation at national and subnation- allevelscontinuetobeasourceofuncertainty. challenges Theeconomyisalsovulnerabletocapitalout- flows, sudden reductions in prices of miner- Table 1 2021 Peru has solid macroeconomic fundamen- als,andnaturaldisasters.However,theongo- Population, million 33.4 tals, including a relatively low public debt to ing energy transition is expected to support GDP, current US$ billion 223.2 GDP ratio, considerable international re- the price of copper, Peru´s main export prod- GDP per capita, current US$ 6690.7 serves, and a solid central bank. However, uct,inthemediumterm. a 4.4 International poverty rate ($1.9) important structural weaknesses related to a 14.1 widespread informality, limited economic Lower middle-income poverty rate ($3.2) a 32.9 diversification, and weak state capacity Upper middle-income poverty rate ($5.5) Gini index a 43.8 have led to a significant slow-down in Recent developments School enrollment, primary (% gross) b 121.0 growth since the end of the commodity b 76.7 boom in 2014, slowing the pace of poverty After a strong recession in 2020, real GDP Life expectancy at birth, years and inequality reduction. Progress in reduc- grew 13.3 percent in 2021, reaching its pre- Total GHG Emissions (mtCO2e) 173.2 ing the size of the informal sector, which em- pandemic level. The recovery was led by Source: WDI, Macro Poverty Outlook, and official data. ploys three-quarters of workers in low pro- domestic demand, supported by the ex- a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). ductivity jobs, has been limited. In addition, pansion of both public and private expen- low quality government services, including diture. While employment levels have al- in education, health and water, hamper most returned to the pre-crisis levels, this Peru´s economy rebounded strongly in growth and poverty reduction. They also was largely driven by low quality jobs in made the country more vulnerable to the the informal sector. In fact, formal employ- 2021, but poverty reduction was slowed COVID-19 pandemic as the poverty rate ment in urban areas is still more than 20 by structural rigidities in the labor mar- (US$5-a-day -line) increased more than 12 percent below pre-pandemic levels. Lower ket and inflation. GDP growth is expect- percentage points, reaching 32.9 percent in quality of employment has led to a reduc- ed to return to its pre-pandemic trend of 2020. Although output strongly rebounded tion of household income, and by the end in 2021, workers' income and poverty have of the year, the average wage was still 13 around 3 percent annually in 2022, as the not yet reached their pre-pandemic levels. percent below that registered in 2019. boost from favorable export prices com- Medium-term prospects for growth and in- Mainly driven by the rebound in GDP, pensates for political uncertainty. Poverty clusion will depend on the capacity of the poverty declined by an estimated 4.6 per- is expected to remain well above its 2019 government to implement a credible reform centage points in 2021, reaching 28.3 per- level. Overcoming structural challenges program. In recent months, business confi- cent, still well above its level in 2019. dence and investment prospects have been The public deficit decreased from 8.9 per- related to wide-spread informality, low undermined by the uncertainty surround- cent in 2020 to 2.6 percent in 2021, one of the quality of public services, and limited eco- ing the policy agenda and potential policy fastest fiscal consolidations in the region. nomic diversification are critical for medi- reversals, including in critical areas such as This reduction was mainly driven by a 40 um-term to long-term growth. public transport, higher education, labor percent real increase in public revenues, as market, and a large turnover of public sector a result of higher tax collection from mining FIGURE 1 Peru / Real GDP growth and contributions to real FIGURE 2 Peru / Actual and projected poverty rates and real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 60 20000 Private Consumption 20 Public Consumption 18000 Gross Investment 50 16000 15 Exports Imports 14000 40 10 GDP 12000 5 30 10000 0 8000 20 6000 -5 4000 10 -10 2000 -15 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -20 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021 2022f 2023f 2024f Upper middle-income pov. rate Real GDP pc Sources: Central Bank and World Bank staff. Source: World Bank. Notes: See Table 2. MPO 46 Apr 22 companies, the effect of some administra- the short-term, with more than 70 per- in the coming years, the large-scale new in- tive measures, and prepayment of some tax cent of the population receiving two vestment pipeline is expected to compress fines. Public debt reached 36 percent of doses and more than 30 percent receiv- due to political and social tensions. GDP, just slightly above its 2020 levels. ing a booster dose. Peru was hit by the The fiscal deficit is expected to tem- Inflation trended upwards in the second half third wave of COVID-19 in early 2022 porarily increase in 2022, mainly due to of the year, reaching 6.4 percent by Decem- and the economic effects were limited. lower revenues from prepayments of tax ber. This brought average annual inflation to However, the long-term effects of the fines compared to 2021. From 2023 on- 4.0 percent in 2021, well above the 1-3 per- pandemic could be significant, through wards, the deficit could gradually de- cent target range. Price dynamics reflected the impacts of school closures on future cline, given the offsetting effects of fis- the global increase in the price of food and labor productivity. cal consolidation efforts and spending energy, the depreciation of the domestic The economy is expected to expand pressures to maintain citizen support. currency and the lagging effect of the sizable about 3.4 percent in 2022, mainly driven The announced reinstatement of the fis- monetary stimulus of 2020. In this context, by higher export volumes, while domes- cal rule for 2023 onwards would help to the Central Bank increased its reference rate tic demand will gradually decelerate. Ex- guide this decline. 375 basis points between August 2021 and ports will be supported by the entry into The current account deficit is expected to March 2022, to curb inflation expectations. operation of important copper mines. decline after 2022, mainly reflecting the The external current account recorded a Capital spending on mining will contin- combined effect of increasing exports and 2.8 percent deficit in 2021, mainly reflect- ue to support private investment due to the slowdown in imports, in a context of ing the effect of higher commodity prices the continuation of some large invest- a moderation in domestic demand. An ex- on foreign mining firms’ profits and their ment projects, offsetting the effect of low pected minor correction in export prices impact on income payments abroad, more business confidence. In addition, the re- since 2023 could also contain growth in than offsetting the effect of a record sur- covery of the formal labor market, and mining firms’ profits. plus in trade balance. the gradual normalization of activities, is Due to recent shocks to the price of energy expected to support an increase in pri- and food products, average inflation may vate consumption. pick up in 2022, slowing the pace of pover- In 2023 and 2024, GDP growth is expected ty reduction. Given the determined policy Outlook to gradually slow down, along with do- stance by the Central Bank and as infla- mestic demand and a weakening new in- tionary pressures ease, the inflation rate is Significant progress with vaccinations is vestment in the mining sector. Despite this, expected to gradually reverse to the target likely to limit the impact of COVID-19 in mineral prices are expected to remain high range by end 2023. TABLE 2 Peru / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.2 -11.0 13.3 3.4 3.1 3.0 Private Consumption 3.2 -9.8 11.7 3.3 3.0 3.0 Government Consumption 3.6 9.1 6.0 4.0 3.1 3.1 Gross Fixed Capital Investment 2.9 -16.2 34.1 1.8 1.9 1.9 Exports, Goods and Services 0.3 -18.2 17.1 6.9 6.3 5.9 Imports, Goods and Services 1.7 -15.4 25.1 5.2 5.0 5.0 Real GDP growth, at constant factor prices 2.2 -10.9 13.3 3.4 3.1 3.0 Agriculture 1.5 1.0 3.7 2.3 2.3 2.4 Industry -0.1 -13.3 16.4 3.7 4.8 3.6 Services 3.8 -10.7 12.7 3.4 2.1 2.6 Inflation (Consumer Price Index) 2.1 1.8 4.0 5.3 4.0 2.8 Current Account Balance (% of GDP) -1.0 0.8 -2.8 -2.5 -2.1 -2.1 Net Foreign Direct Investment (% of GDP) 2.9 0.4 2.7 2.8 2.6 2.6 Fiscal Balance (% of GDP) -1.6 -8.9 -2.6 -2.8 -2.7 -2.5 Debt (% of GDP) 26.8 34.7 36.1 36.0 36.6 37.3 Primary Balance (% of GDP) -0.2 -7.3 -1.1 -1.0 -0.9 -0.8 a,b International poverty rate ($1.9 in 2011 PPP) 2.2 4.4 3.1 3.0 2.8 2.7 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 7.5 14.1 10.9 10.5 10.1 9.8 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 32.9 28.3 27.6 26.9 26.3 GHG emissions growth (mtCO2e) -0.9 -14.2 9.3 -0.3 -0.4 -0.5 Energy related GHG emissions (% of total) 26.3 16.3 22.1 21.8 21.3 20.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2010-ENAHO, 2019-ENAHO, and 2020-ENAHO. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2010-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 47 Apr 22 SAINT LUCIA Key conditions and Recent developments challenges Strong tourism recovery and construction resumption are estimated to have driven Table 1 2021 Saint Lucia (SLU) is a small tourism-de- economic growth to 6.6 percent in 2021 and Population, million 0.2 pendent island economy. Tourism ac- reduced the poverty rate. Total stay-over GDP, current US$ billion 1.8 counted for around 68 percent of GDP tourists are estimated to have increased by GDP per capita, current US$ 9591.9 in 2019. The island is highly vulnerable 53 percent in 2021 compared to 2020, but re- a 4.6 International poverty rate ($1.9) to external shocks and natural disasters, main far from full recovery at only 47 per- a 10.2 whose impacts are becoming increasingly cent of the 2019 level. Private and public con- Lower middle-income poverty rate ($3.2) a 19.9 severe due to climate change. The result- struction, such as hotel projects, road im- Upper middle-income poverty rate ($5.5) Gini index a 51.2 ing economic volatility weighs on longer- provement projects, hospital and airport, re- School enrollment, primary (% gross) b 101.1 term growth as well as the most vulner- sumed momentum and reached more than b 76.2 able groups disproportionately. Saint Lu- 10 percent growth rate in 2021. Agriculture, Life expectancy at birth, years cia recorded a very high economic con- however, experienced another year of reces- Total GHG Emissions (mtCO2e) 0.5 traction of 20.4 percent in 2020, and an in- sion, reflecting pre-existing concerns over Source: WDI, Macro Poverty Outlook, and official data. crease in unemployment of almost 5 per- banana exports, and the negative impacts of a/ Most recent value (2016), 2011 PPPs. b/ Most recent WDI value (2019). centage points, with women and young Hurricane Elsa in July 2021. Resumed eco- workers most affected. Widespread re- nomic activities are expected to have re- ductions in income are expected to have duced the poverty rate, which, nevertheless, After a steep economic contraction in increased poverty, despite supportive is projected to be more than 3 percentage government measures. points above its pre-pandemic level. Phone 2020, Saint Lucia’s growth picked up in The pandemic further heightened Saint survey data from June 2021 shows that 55.1 2021 as tourism started to recover. Real Lucia’s debt vulnerabilities. Leading up percent of households had not yet recuper- GDP and poverty are projected to reach to the pandemic, a fiscal deficit averaging ated their pre-pandemic income level. 2019 levels only by 2024. The pandemic 2 percent of GDP between 2015-19 The current account deficit is estimated to pushed up the public debt level to 60 remain high at 8.0 percent of GDP. The re- also led to a sharp increase in public percent of GDP by end-2019. The eco- bound of tourism receipts was offset by the debt. This aggravates pre-existing fiscal nomic contraction and additional fiscal rise in global commodity prices, especially vulnerabilities and refinancing risks, de- spending in 2020 led to a further increase oil, and increased imports to support do- spite the projected strong medium-term in public debt to more than 85 percent of mestic activities. Remittances and Citizen- recovery. A concrete fiscal consolidation GDP and debt service climbed to above ship-by-Investment inflows are estimated 15 percent of GDP. This high public to remain strong, consistent with the eco- strategy could mitigate the risks and en- debt level severely constrains the Gov- nomic recovery in the major economies. hance the financing ability for sustain- ernment’s borrowing capacity to finance They help to meet the current account fi- able development projects. new projects and mitigate socio-econom- nancing needs, along with the disbursement ic vulnerabilities to external shocks and from pre-secured project loans, and other natural disasters. tourism-related foreign direct investments FIGURE 1 Saint Lucia / Key macroeconomic variables FIGURE 2 Saint Lucia / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 25 PPG debt-to-GDP (rhs) 100 30 35000 20 Primary Balance 90 25 30000 15 Real GDP Growth 80 25000 10 70 20 5 60 20000 15 0 50 15000 -5 40 10 10000 -10 30 5 5000 -15 20 0 0 -20 10 2016 2018 2020 2022 2024 -25 0 International poverty rate Lower middle-income pov. rate 2017 2018 2019 2020 2021e 2022f 2023f 2024f Upper middle-income pov. rate Real GDP pc Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Source: World Bank. Notes: see Table 2. Global Practices. Notes: e = estimate, f = forecast. MPO 48 Apr 22 (FDI), and support from multilateral and bi- holds, which already increased to concern- lateral partners. Imputed net foreign re- ing levels during the pandemic. serves are relatively stable at an estimated Outlook The current account deficit is projected to 4.1 months of imports. Gas and fuel prices decrease over the medium term. The trend drove up inflation in 2021, negatively im- Strong return of tourism and continued is driven by the opposing forces of increased pacting the purchasing power and food se- construction projects will drive economic exports in tourism receipts, and higher curity of the most vulnerable groups. Phone recovery and lower the poverty rate, but global commodity prices along with higher survey data from June 2021 suggests that risks to the economic outlook are elevated. imports to meet domestic activities. Risks to food insecurity remains elevated with more GDP growth is projected to average 5.8 FDI inflows are high with monetary policy than one third of households having run out percent between 2022 and 2024. Continued tightening in major economies. of food due to a lack of money or resources. recovery momentum, additional airlifts Despite the medium-term improvement of The fiscal deficit is estimated to narrow to from US and UK, and scheduled pick-up fiscal outturns and the solid economic re- 7.5 percent of GDP in 2021 from 11.0 per- of cruises will maintain tourism growth. covery, debt remains high and poses sig- cent in 2020. Recovery in economic activi- Robust growth in construction will arise nificant refinancing risks. The disburse- ties brought tax revenues up by around 12 from continuation and completion of the ment of the remaining airport loan and the percent from 2020, but remain 15 percent large public infrastructure projects and overall fiscal deficit are expected to keep lower than the pre-pandemic level. Partial major hotel and entertainment projects debt at above 80 percent of GDP. With exiting of the COVID-19 related measures throughout 2024. However, tourism recov- around half of the central government’s and a delayed payment of agreed public ery remains highly uncertain due to the debt maturing in the next 4 years, the Gov- wage increases in 2021 helped lower cur- pandemic evolution. Meanwhile, due to ernment faces challenges to meet financing rent expenditure. But higher utility costs the war in Ukraine and continued pan- needs. Rising concerns over high public and increased capital expenditure partially demic impacts, the recovery faces elevated debt and tightening of market liquidity offset this improvement and led to only risks from global inflationary pressures, may result in higher financing costs and a marginal decrease of total expenditure. especially in 2022, which threaten to de- lower roll-over rates, which could further The fiscal deficit, together with the addi- crease the real income in tourism source push up public debt levels. Early and tional disbursements for the airport rede- countries and increase traveling costs. In- transparent fiscal consolidation will help velopment project, led to a further increase flationary pressures will also threaten food mitigate the refinancing risks and break in public debt to 89.2 percent of GDP. security of poor and vulnerable house- the vicious cycle of “high debt-high costs”. TABLE 2 St. Lucia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices -0.1 -20.4 6.6 7.9 5.8 3.7 a Real GDP growth, at constant factor prices 0.8 -20.3 6.6 7.9 5.8 3.7 Agriculture 3.6 -9.5 -10.3 4.8 3.4 1.8 Industry -1.4 -9.9 8.6 6.9 4.2 2.9 Services 1.1 -21.9 6.8 8.1 6.0 3.8 Inflation (Consumer Price Index) 0.6 -1.7 2.5 3.9 2.4 1.9 Current Account Balance (% of GDP) 6.1 -8.3 -8.0 -7.2 -5.3 -1.7 b Fiscal Balance (% of GDP) -3.4 -11.0 -7.5 -5.9 -4.0 -3.5 b Debt (% of GDP) 59.7 86.5 89.2 89.5 87.3 87.0 b Primary Balance (% of GDP) -0.4 -7.2 -3.8 -2.3 -0.5 -0.3 c,d International poverty rate ($1.9 in 2011 PPP) 4.5 6.4 5.4 4.7 4.6 4.5 c,d Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.4 13.0 12.1 11.3 10.2 9.7 c,d Upper middle-income poverty rate ($5.5 in 2011 PPP) 19.2 25.0 22.8 20.6 19.8 19.2 GHG emissions growth (mtCO2e) 2.5 -22.7 3.8 9.2 4.9 1.1 Energy related GHG emissions (% of total) 65.5 67.4 68.5 67.1 66.3 66.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Fiscal balances are reported in fiscal years (April 1st -March 31st). c/ Calculations based on SEDLAC harmonization, using 2016-SLC-HBS. Actual data: 2016. Nowcast: 2017-2021. Forecasts are from 2022 to 2024. d/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 49 Apr 22 2008, the poverty rate was 30.2 percent us- ing the national poverty line of EC$5,523 or ST. VINCENT AND Key conditions and US$2,046 per annum per adult. challenges THEGRENADINES St. Vincent and the Grenadines (SVG) is a Recent developments small island developing state (SIDS) with an Table 1 2021 economy driven largely by tourism and COVID-19 and the volcanic eruption have Population, million 0.1 agriculture. This makes it particularly vul- had a sizeable impact on economic growth. GDP, current US$ billion 0.8 nerable to climate change, external econom- The fall in tourism following the COVID-19 GDP per capita, current US$ 7190.1 ic shocks, and natural disasters such as those pandemic resulted in a GDP contraction of School enrollment, primary (% gross) a 113.4 experienced recently with the volcanic -5.3 percent in 2020. Livelihoods were then a 72.5 eruption and the COVID-19 pandemic. Pri- completely disrupted by the volcanic erup- Life expectancy at birth, years or to the pandemic, SVG was upgrading es- tion in April 2021, when 22,800 people were Total GHG Emissions (mtCO2e) 0.4 sential infrastructure to lay the foundation evacuated from their homes, farms, and Source: WDI, Macro Poverty Outlook, and official data. for increased growth and economic diversi- businesses. This contributed to a significant a/ Most recent WDI value (2019). fication, including completion of a new in- loss in income and has depressed domestic ternational airport, modernization of the demand. Electricity and water services were seaport (a 22 percent of GDP public invest- interrupted. Education was severely dis- The volcanic eruption and COVID-19 ment), and plans for the construction of a rupted as schools throughout the country significantly impacted GDP growth in new hospital. To ensure the sustainability of were used as shelters, although teachers 2021. Poverty is expected to have fur- these essential investments, fiscal consoli- continued to be paid. Tourism had already ther increased due to the economic con- dation had commenced, and primary fiscal been hard hit by COVID-19, the volcanic surpluses had been achieved from 2016 eruption and ongoing COVID-19 develop- traction and volcano induced disloca- through 2019. SVG adopted a Fiscal Respon- ments have further delayed the expected re- tions. After several years of primary sibility Framework with fiscal balance, ex- bound in tourism. surpluses, these recent shocks have ex- penditure, wage bill, and debt targets, and The overall fiscal deficit widened to 4.2 erted pressure on public finances. Public the creation of a contingency fund. Howev- percent of GDP in 2021, largely in response er, the COVID-19 shock and the volcanic to the fiscal demands imposed by the vol- investment projects will pose fiscal chal- eruption have disrupted this agenda. canic eruption. The government imple- lenges. Natural disasters and rising food The volcanic eruption, which displaced mented direct fiscal spending measures to- and fuel prices pose additional risks. The about 20 percent of the population, com- taling 7.1 percent of GDP to address the risk of debt distress remains high. pounded the impact of the COVID-19 immediate post-volcano humanitarian cri- shock. Heavy ashfall, critical utility inter- sis. Additional spending will be needed for ruptions, increased food insecurity, and the reconstruction and recovery efforts. Thus, subsequent flooding and mudslides are ex- the deficit is expected to widen to 5.3 per- pected to have had a significant poverty and cent of GDP in 2022. This will pose chal- welfare impact which is difficult to quanti- lenges in a context where the government fy. Based on the last available data from plans to continue with critical investment FIGURE 1 St. Vincent and the Grenadines / Fiscal balances FIGURE 2 St. Vincent and the Grenadines / Public debt Percent of GDP Percent of GDP 4 90 80 2 70 0 60 50 -2 40 -4 30 Public Debt Overall Fiscal Balance 20 -6 Public External Debt Primary Balance 10 -8 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Sources: SVG Minister of Finance (2020) and World Bank staff estimates. Sources: SVGs Minister of Finance (2020) and World Bank staff estimates. MPO 50 Apr 22 projects, such as the port modernization tourism continues to rebound and is ex- non-port projects; increasing the customs project and the new hospital, while taking pected to return to levels approaching service charge; enhancing taxpayer com- steps to strengthen its fiscal framework. 80 percent of pre-COVID levels by 2023. pliance; limiting import duty and VAT ex- In terms of external vulnerabilities, the Tourism growth over the medium term emptions; strengthening SOE governance; current account deficit increased to 24.1 is expected to be facilitated by the new and exploring measures to reform the percent of GDP in 2021, from 16.3 percent airport. However, ongoing COVID-19 de- government workers’ pension system. in 2020, following the volcanic eruption. velopments continue to contribute to con- The fiscal deficit is forecast to increase International reserves fell modestly to 5 siderable uncertainty. The sizeable invest- to 5.3 percent of GDP in 2022 and 6.3 months of import coverage. Public debt ment pipeline should also contribute to percent in 2023 as the public investment rose to 87.5 percent of GDP in 2021, of growth over the short term, as will in- program is implemented and volcano re- which external debt is 69 percent of GDP, creased economic efficiency following construction efforts continue. Limiting the and SVG remains at a high risk of debt dis- port modernization. deficit given the uncertain global econom- tress. Debt is currently assessed as sustain- In an environment of relatively low histor- ic environment will require careful man- able given the authorities’ fiscal consolida- ical growth, high unemployment rates are agement of the ambitious public invest- tion plans, which would ensure that the expected to continue. Considering the im- ment program. Balances in the contin- public debt to GDP ratio would fall to un- pact on the informal sector, poverty rates gency fund, which had been accessed to der 60 percent of GDP by 2035, the East- are likely to have increased. Economic address COVID-19 and volcano needs, ern Caribbean Currency Union’s (ECCU’s) stimulus measures in response to the pan- are expected to be replenished and then regional goal. Government gross financing demic expanded social protection mea- continue to grow, which bodes well for needs are covered primarily by official ex- sures, and volcano-related humanitarian future fiscal resilience. Primary fiscal sur- ternal financing and some recourse to do- efforts have helped mitigate the impacts on pluses approaching 3.0 percent of GDP mestic financing through the issuance of T- poverty, though not eliminate them. should facilitate a reduction in public Bills. SVG is participating in the Debt Ser- Continued fiscal reforms are necessary to debt levels over the medium term as soon vice Suspension Initiative. build fiscal buffers and to ensure pub- as COVID-19 impacts dissipate, recon- lic debt returns to a downward trajectory. struction activities are addressed, and the To accomplish these fiscal consolidation port modernization is complete. measures have been adopted, including: Forecasts are subject to considerable Outlook containing nominal growth of the wage downside risk given rising food and fuel bill over the medium term; limiting pub- prices, the economic impact of global Growth is forecast to accelerate to 4.2 per- lic investment by focusing on reconstruc- geopolitical developments, and the ever- cent in 2022 and 7.3 percent in 2023 as tion and port modernization; scaling back present risk of natural disasters. TABLE 2 St. Vincent and the Grenadines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f a Real GDP growth, at constant market prices 0.4 -5.3 -2.8 4.2 7.3 4.2 a Real GDP growth, at constant factor prices 0.4 -5.9 -2.8 4.2 7.3 4.2 Agriculture -1.6 1.6 -22.7 13.5 10.4 -3.8 Industry -5.5 -7.8 3.9 4.0 1.9 1.1 Services 1.8 -6.1 -2.4 3.6 8.2 5.4 Inflation (Consumer Price Index) 0.9 -0.6 1.6 4.8 2.9 2.2 Current Account Balance (% of GDP) -8.8 -16.3 -24.1 -16.9 -16.8 -11.8 b Fiscal Balance (% of GDP) 0.3 -2.5 -4.2 -5.3 -6.3 -3.8 b Debt (% of GDP) 67.9 81.0 87.5 86.7 85.5 85.0 b Primary Balance (% of GDP) 2.6 -0.3 -1.9 -3.1 -4.0 -1.6 GHG emissions growth (mtCO2e) 0.8 -3.3 3.7 13.1 2.1 2.0 Energy related GHG emissions (% of total) 77.6 76.9 77.7 80.2 80.6 81.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Budget balances and public debt are for the central government. MPO 51 Apr 22 in consumption poverty and one in 20 in extreme poverty. Over half of the popula- SURINAME Key conditions and tion in the interior regions lived in pover- ty. About 13 percent of the population was challenges non-poor but at risk of falling into poverty. Table 1 2021 Suriname is a small, natural-resource-rich, Population, million 0.6 upper middle-income country. Gold cur- GDP, current US$ billion 3.1 rently represents more than 80 percent of Recent developments GDP per capita, current US$ 5204.6 total exports and the overall mining sector a 109.2 School enrollment, primary (% gross) accounts for nearly half of public sector Economic mismanagement compounded a 71.7 revenue. The government redistributes by restrictions on economic activity to curb Life expectancy at birth, years Total GHG Emissions (mtCO2e) 12.7 revenue earned from extractive industries the spread of COVID-19 resulted in a se- Source: WDI, Macro Poverty Outlook, and official data. through significant public sector employ- vere economic crisis, with GDP contracting a/ Most recent WDI value (2019). ment and, to a lesser extent, through some 15.9 percent in 2020 and another estimated categorically targeted income support to 3.5 percent in 2021. people with disabilities, households with Suriname continues to experience signif- Suriname built up substantial macroeco- children, the elderly, and vulnerable icant COVID-19 related challenges, in- households. The private sector is mostly cluding peak transmission rates in Sep- nomic imbalances as a result of economic engaged in provision of non-tradeable ser- tember 2021 and January 2022 leading mismanagement and high commodity vices, often through small firms employing to tightening restrictions on mobility and revenue volatility. A newly elected gov- informal workers. economic activity, depending on the ernment adopted a comprehensive macro- Substantial macroeconomic imbalances number of new COVID-19 cases. The economic stabilization program and ob- have built up since the closure of bauxite country has been able to ensure a suffi- mines in 2015 and a sharp decline in com- cient stock of COVID-19 vaccines, mainly tained support through an IMF Extended modity prices in 2015-16. In the run-up to from bilateral sources. In February 2022, Fund Facility by end-2021. The the 2020 general elections, macro-econom- about 40 percent of the population had COVID-19 pandemic exacerbated exist- ic imbalances were further exacerbated by been fully vaccinated. ing domestic vulnerabilities, leading to a severe economic mismanagement includ- The government adopted a comprehensive ing a substantial expansion in the number program of policy measures with respect sharp GDP contraction, increased unem- of civil servants, excessive borrowing, and to fiscal and debt sustainability, monetary ployment and high inflation which creat- monetary financing of the fiscal deficit. A and exchange rate policy, financial sector ed an increase in poverty. The discovery fixed official exchange rate created a stability and governance to address macro- of offshore oil, if adequately managed, widening gap between the official and par- economic imbalances as of mid-2020. On allel market rates and led to a near-exhaus- December 22, 2021, the IMF board ap- may accelerate fiscal consolidation and tion of usable gross international reserves. proved a three- year Extended Fund Facil- higher growth in the longer-term. Suriname does not regularly publish em- ity in support of this program. ployment and poverty statistics. The latest Public debt amounted to US$3.4 bn or 126 poverty data were collected in 2016. At the percent of GDP at the end of 2021 and arrears time over a quarter of the population lived on external bilateral and private market debt FIGURE 1 Suriname / Consumer price inflation FIGURE 2 Suriname / GDP per capita MoM percent Annual percent SRD (thousand) US$ (thousand) 16 80 35 10 Month-on-Month 14 70 30 Annual (rhs) 8 12 60 25 10 50 6 20 8 40 15 4 6 30 10 4 20 2 5 2 10 0 0 0 0 2015 2016 2017 2018 2019 2020 2021e Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 SRD (constant prices 2015) US$ Source: General Bureau of Statistics. Sources: General Bureau of Statistics and World Bank. MPO 52 Apr 22 are estimated at about 11 percent of GDP. currency depreciation. Banks are likely Restoring debt sustainability under the to face a capital shortfall and need for IMF-supported program will require im- recapitalization, the exact magnitude of Outlook portant debt relief from Suriname’s private which will be determined through an as- and bilateral external creditors. In the set quality review. Suriname faces challenging economic con- meantime, the country is expected to con- Beneficiaries of social protection programs ditions. The near-term outlook critically tinue to accumulate arrears on its liabilities received additional payments during the depends on the successful implementation to these creditors. 2020 economic downturn and, in 2021 and of the macroeconomic stabilization pro- Revenue enhancing and expenditure re- 2022, the amounts provided by these pro- gram, including an external public debt re- duction measures have already led to grams were increased to compensate ben- structuring with a sizeable reduction in the modest surpluses in the country’s overall eficiaries for price increases. However, this Net Present Value of the debt. After two and primary fiscal balances on a cash basis. increase is not expected to fully offset de- years of sharp contraction in economic ac- Additional measures, such as the introduc- clines in disposable household incomes tivity, a gradual resumption of economic tion of a Value Added Tax, the elimination that were brought about by declines in em- growth is expected for 2022-24 to nearly 3 of electricity subsidies and the rationaliza- ployment and rapid inflation. percent per year in the medium term. tion of civil service, should turn the prima- Micro-simulations suggest that employ- The longer-term growth outlook may be ry balance from a persistent deficit into a ment losses induced by the economic more positive following the discoveries of surplus of 3-4 percent of GDP by 2023-24. downturn, combined with a loss in pur- several offshore oil deposits as of 2020. A The government introduced a floating ex- chasing power stemming from high levels Final Investment Decision (FID) by one of change rate, and a reserve money targeting of inflation, led to a substantial increase the major oil companies is expected later regime was adopted as the basis of mon- in poverty rates. Women, especially those this year at which point there is more cer- etary policy in June 2021. The exchange who were single and those with lower lev- tainty about a possible revenue flow from rate stabilized at the then prevailing paral- els of education, were more likely to be offshore oil production which will take lel market rate of about SRD21/US$ (com- poor pre-pandemic and more heavily af- several years to materialize. pared to the official exchange rate of fected by the economic downturn. The modest economic recovery will at SRD7.5/US$ early 2020). The large step- Exchange rate depreciation as well as the best partially counterbalance the signif- wise depreciation of the exchange rate overall economic downturn led to a sig- icant challenges faced by many house- throughout 2020 and 2021, led to a sharp nificant shift in the current account of the holds. Planned efforts to improve the de- pass-through to month-on-month con- balance of payments: from a deficit of 11 livery and effectiveness of social assis- sumer price inflation rates and annual percent of GDP in 2019 to a surplus of 9 tance, therefore remain a priority. Al- (12-month accumulated), inflation peaked and 5 percent of GDP in 2020 and 2021, though purchasing power is expected to in August 2021 at 74.4 percent. Reserve respectively. The change in the current stabilize gradually, international infla- money targets are employed to anchor in- account was mainly brought about by a tionary pressure due to global conflict flation expectations, whereas a flexible ex- sharp contraction in imports of goods and poses a risk, especially to the poorest. La- change rate should moderate the apprecia- services, a build-up of arrears on exter- bor market indicators are not expected tion of the real exchange rate. nal debt-service liabilities as well as a to return to their pre-pandemic level any The banking system is facing a rise in non- strengthening in the price of gold, the time soon, with continued negative im- performing loans due to the recession and main export commodity. plications for poverty. TABLE 2 Suriname / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 1.1 -15.9 -3.5 1.8 2.1 2.7 Real GDP growth, at constant factor prices 1.1 -15.9 -3.5 1.8 2.1 2.7 Agriculture -18.8 -1.5 -2.0 1.2 3.0 3.0 Industry -5.1 -17.1 -2.5 2.0 2.0 2.5 Services 7.7 -17.1 -4.2 1.8 2.0 2.8 Inflation (Consumer Price Index) 4.3 34.8 59.1 37.9 22.2 14.1 Current Account Balance (% of GDP) -11.2 9.1 5.4 1.9 0.7 -0.9 Net Foreign Direct Investment (% of GDP) -0.2 0.0 -5.3 3.3 3.2 2.9 a Fiscal Balance (% of GDP) -18.8 -11.2 1.6 -1.0 -0.4 0.4 a Debt (% of GDP) 85.2 148.3 125.9 123.7 115.3 112.6 a Primary Balance (% of GDP) -15.7 -7.5 3.8 2.1 3.1 3.9 GHG emissions growth (mtCO2e) 1.2 -4.0 -0.9 0.0 -0.2 0.1 Energy related GHG emissions (% of total) 17.2 14.9 14.4 14.6 14.5 14.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Budget balances and public debt are for the central government. MPO 53 Apr 22 Report of 2016, the national unemploy- ment rate was 12.75 percent. Unemploy- THE BAHAMAS Key conditions and ment was 4 percentage points higher for women than for men, and 15 percentage challenges points higher for youth below 25 years than among adults 25 years and older. Table 1 2021 The Bahamas is a high-income service Vulnerability to climate change and global Population, million 0.4 economy heavily dependent on tourism health risks jeopardize the country’s devel- GDP, current US$ billion 11.5 and financial services. GDP has risen opment trajectory. Sea-level rise associat- GDP per capita, current US$ 29087.8 steadily over the past 3 decades, with an- ed with increasing temperatures threatens a 96.1 School enrollment, primary (% gross) nual growth averaging 1.4 percent in real The Bahamas’ low-lying islands in addi- a 73.9 terms. Nonetheless, the country’s econom- tion to the severe impacts of disasters such Life expectancy at birth, years Total GHG Emissions (mtCO2e) 2.3 ic position remains vulnerable due to its as Hurricane Dorian in 2019. Source: WDI, Macro Poverty Outlook, and official data. small size, lack of economic diversification The COVID-19 pandemic led to a steep a/ Most recent WDI value (2019). and vulnerability to natural disasters. The decline in tourism arrivals and the re- Bahamas relies significantly on foreign in- sulting job losses have been particularly vestment, especially related to tourism. felt by vulnerable populations, such as Tourism, together with tourism-driven low-income households, informal work- construction and manufacturing, accounts ers, and women. School closures are like- for approximately 60 percent of GDP and, ly to have impacted learning, with poten- GDP is estimated to have expanded by directly or indirectly, employs about half tial longer-term impacts on human capital 5.6 percent in 2021, as tourist arrivals of the country's workforce. and potential earnings. to the islands rebounded thanks to vac- Economic growth in recent decades has The pandemic also negatively impacted cination efforts in The Bahamas and eas- not been distributed evenly across all seg- women’s day-to-day lives in The Ba- ments of the population. According to the hamas. Women’s workload in the house- ing travel restrictions in main tourism 2013 Household Expenditure Survey, 12.8 hold increased more than that of men, markets. Tourism remains the country’s percent of the population lived below the as related to homeschooling for example, main economic activity and source of national poverty line. Moreover, inequality 62.8 percent of women and only 25.8 per- revenue, with over 50 percent of the la- was well above the average of high-income cent of men are dealing with the addi- economies, with a Gini index of 41.4. tional workload of supporting children bor force employed in the sector. The While no official poverty indicators have with schoolwork. current account deficit remains high but been produced since 2013, The Bahamas narrowed to 19.3 percent of GDP. Fiscal has exhibited improvements in other areas, accounts deteriorated in 2021, but the such as education and life expectancy, as country is expected to restore the fiscal reflected by the 2 percent increase in the Recent developments Human Development Index (HDI) in the consolidation and reconstruction efforts past two decades. GDP expanded by 5.6 percent in 2021, fol- following Hurricane Dorian. Similar to economic growth, economic op- lowing a 14.5 percent contraction in 2020. portunities have not been inclusive. Ac- Tourist arrivals to the islands grew at a cording to the Labor Force and Household faster pace during the second half of 2021, FIGURE 1 The Bahamas / Real GDP growth and FIGURE 2 The Bahamas / Fiscal balances and public debt contributions to real GDP growth Percent, percentage points Percent of GDP Percent of GDP 10 120 4 102.8 2 87.3 5 100 91.3 0 85.2 74.1 -2 0 80 59.7 -4 -5 60 -6 -8 40 -10 -10 -12 20 -15 -14 2019 2020 2021e 2022f 2023f 2024f 0 -16 Private Consumption Government Consumption 2019 2020 2021e 2022f 2023f 2024f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of The Bahamas; IMF and World Bank staff estimates. Sources: Government of The Bahamas; IMF and World Bank staff estimates. MPO 54 Apr 22 totaling nearly 2 million for the entire year. total public debt jumped to 102.8 percent of record a primary surplus in FY2023/24. This is still below the record inflow of 7.2 GDP in 2021, compared to 74.1 percent of Public debt is projected to decrease once million tourists in 2019. The hotel occu- GDP in 2020. the economy is back on the growth path, pancy rate averaged 50 percent in 2021. The external sector was particularly hit by as revenues rebound, and pandemic-re- Tourism-related FDI projects, together the COVID-19 pandemic, as net travel re- lated expenditures are wound down but with post-hurricane rebuilding efforts sup- ceipts make the largest contribution to the will remain above 85 percent of GDP in ported the construction sector output. current account balance. In fact, the ser- the medium term. Unemployment increased 5 percentage vices account balance posted deficits from The current account deficit is expected to pointsin2020asaresultofthepandemic,set- the second quarter of 2020 to the third decrease to 18.1 percent of GDP in 2022, ting the labor market back to the 2009 level, quarter of 2021. The current account deficit as tourism receipts expand. An improve- with an estimated 14.4 percent unemploy- was 19.3 percent of GDP in 2021, an im- ment of the account deficit is also ex- ment rate. Estimates suggest that unem- provement from 23.5 percent of GDP in pected for 2023 and 2024, with projec- ployment fell to 13.2 percent in 2021, and it is 2020. It was financed through borrowing tions of 12.6 percent of GDP and 8.6 per- predicted to fall below 13percent in 2022. from capital markets and IFIs as well as cent of GDP, respectively. Outlook is sub- The Bahamas was hit by two coronavirus through decreasing international reserves. ject to significant uncertainty related to waves in 2021, in August and end-Decem- the possibility of new travel restrictions ber. Vaccination started in March 2021 and worldwide affecting tourist arrivals to the only 40 percent of the population was fully country; there are also global geopolitical vaccinated by February 2022. As a com- Outlook risks, as well as the risk of natural disas- plement to vaccination efforts, the govern- ters. Higher oil prices and imported infla- ment launched free COVID-19 testing this The economy is expected to grow by 6.0 tion due to global geopolitical risks may year and announced the elimination of percent in 2022 and 4.1 percent in 2023, trigger higher consumer prices with im- curfews and lockdowns, enhancing the as tourism flows to the island continue to plications for the poorest. The govern- prospects for economic recovery. revert to pre pandemic levels. The vacci- ment will continue to finance the rebuild- CPI inflation is estimated at 3.2 percent for nation campaign will continue with sup- ing of public and private buildings to in- 2021. The highest increases were registered port from PAHO/WHO donations. The in- crease their resilience to natural disasters in food, beverages, and clothing, dispro- flation rate is projected to significantly in- as well as to implement a mitigation pol- portionately affecting the purchasing pow- crease to 7.3 percent in 2022, pushed by en- icy for climate change. er of the poor and vulnerable. ergy and oil prices, and to average around The pandemic will erase some of the Public finances continued to deteriorate 3.6 percent in the medium-term. The pri- progress in recent years in terms of human during FY 2020/21 to a 9.4 percent of GDP mary and overall fiscal deficits will im- development and is expected to increase primary deficit and 13.6 percent of GDP prove in FY2021/22 to 2.7 percent of GDP poverty and inequality, widening the di- overall deficit, after recording a 3.9 percent and 6.7 percent of GDP respectively. They vide for women, youth, informal workers, of GDP primary deficit and a 7.0 percent of are expected to steadily improve in the fol- and other vulnerable populations. Recov- GDP overall fiscal deficit in FY 2019/20. lowing two years in response to the gov- ery efforts need to support these groups In part due to the government’s comprehen- ernment’s expenditures reduction efforts decisively and allow for more diversifica- sive response to the COVID-19 pandemic, as well as needed tax reforms, and will tion of income sources. TABLE 2 The Bahamas / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.7 -14.5 5.6 6.0 4.1 3.0 Real GDP growth, at constant factor prices 0.7 -14.5 6.0 5.9 4.1 3.0 Agriculture -0.8 -8.8 -1.3 3.6 4.8 4.8 Industry -1.0 -2.0 1.7 3.5 1.4 1.7 Services 1.0 -16.4 6.8 6.3 4.5 3.2 Inflation (Consumer Price Index) 2.5 0.0 3.2 7.3 4.5 3.3 Current Account Balance (% of GDP) 4.0 -23.5 -19.3 -18.1 -12.6 -8.6 Net Foreign Direct Investment (% of GDP) 2.0 2.2 2.2 2.4 2.8 2.6 a Fiscal Balance (% of GDP) -1.6 -7.0 -13.6 -6.7 -3.5 -3.1 a Debt (% of GDP) 59.7 74.1 102.8 91.3 87.3 85.2 a Primary Balance (% of GDP) 1.3 -3.9 -9.4 -2.7 0.2 0.9 GHG emissions growth (mtCO2e) 1.2 -15.3 2.1 11.1 4.0 3.5 Energy related GHG emissions (% of total) 87.6 86.7 86.2 86.9 86.9 86.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 55 Apr 22 trade agreement with China to enhance in- tegration into the global economy as well URUGUAY Key conditions and as policy actions to address vulnerability to climate change, SOEs’ competitiveness, challenges and pensions and education reform. Table 1 2021 The COVID19 shock marked the first eco- Population, million 3.5 nomic contraction since 2002. Between GDP, current US$ billion 59.3 2002 and 2019, Uruguay’s economy ex- Recent developments GDP per capita, current US$ 17022.8 panded faster than the regional average, a 0.2 International poverty rate ($1.9) poverty fell to historical lows, and the GDP fell 4.3 percent yoy in the first a 0.7 country reaffirmed its relatively low lev- quarter of 2021, hit by border closures Lower middle-income poverty rate ($3.2) a 4.6 els of inequality and its large middle- heading into the 2021 summer season, Upper middle-income poverty rate ($5.5) Gini index a 40.2 class. Yet, GDP growth started decelerat- but recovery resumed reaching pre-crisis School enrollment, primary (% gross) b 104.3 ing in 2015 following a deterioration in levels in the third quarter. Growth was b 77.9 the external environment, while pover- widespread, with contact-intensive sec- Life expectancy at birth, years ty reduction stalled and even increased tors having the greatest incidences. On Total GHG Emissions (mtCO2e) 33.0 slightly in 2018-2019. the demand side, growth was fueled by Source: WDI, Macro Poverty Outlook, and official data. An economy reliant on agricultural ex- exports, investment, and government a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). ports and tourism, the pandemic affected consumption. Strong investment was Uruguay early for a 6.1 percent fall in GDP partly associated with the continuation of in 2020. The economy recovered in 2021, a US$3bn paper mill project (UPM 2) and Uruguay’s GDP rebounded in 2021, on the back of a comprehensive vaccina- related public infrastructure works. The tion campaign. economy continued to recover in the last reaching pre-crisis levels. The economic The impacts of the pandemic on house- quarter, for a 4.4 percent expansion in recovery and fiscal discipline helped re- hold income and employment were miti- 2021. Despite signs of improvement, the duce the fiscal deficit to below the 2019 gated through multiple support measures labor market was still significantly affect- level, despite additional COVID19 ex- reaching the poor and vulnerable, and ed in the first half of 2021. High-frequen- the middle class. These measures includ- cy survey data show that 9.8 percent of penditures. With inflation above the tar- ed cash transfers, pension benefits, wage pre-pandemic formal workers were in an get range, the Central Bank started a subsidies, and labor regulation adjust- informal job by June 2021. Young work- gradual monetary tightening process in ments to support paid unemployment ers and women were more affected, with August 2021. Improving economic and and reduced work time. 18.7 and 10.2 percent having switched labor market conditions supported Prudent fiscal management helped lower from a pre-pandemic formal job to infor- the fiscal deficit in 2021 to below its 2019 mality, respectively. poverty reduction. However, global un- level, despite increased COVID19-related Exports increased 14.4 percent in 2021, certainty, commodity prices, and new expenditures. Aside from fiscal discipline, boosted by a hike in commodity prices and COVID19 variants present risks to a the government is committed to a reform recovered external demand. Imports grew sustained recovery. agenda to address structural growth bot- 20.9 percent over the same period, partly tlenecks. These include pursuit of a free fueled by investment and consumption of FIGURE 1 Uruguay / Actual and projected primary and FIGURE 2 Uruguay / Actual and simulated poverty rates and overall fiscal balances real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 6 20 600000 Primary fiscal balance 5 18 Overall fiscal balance 500000 16 4 14 400000 3 12 2 10 300000 1 8 200000 6 0 4 100000 -1 2 -2 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 -3 International poverty rate Lower middle-income pov. rate 2010 2012 2014 2016 2018 2020 2022 2024 Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy and Finance, Central Bank of Uruguay, and World Source: World Bank. Notes: see Table 2. Bank staff calculations. MPO 56 Apr 22 durable goods. Merchandise exports target range (3-6 percent starting in Sep- reached a record high in 2021, estimated at tember 2022), in a context of high inertia US$11.5bn. Outlook and high commodity prices. Backed by the economic recovery, the Cen- The fiscal consolidation process is ex- tral Bank initiated a monetary tightening In a context of high commodity prices, de- pected to continue. The overall deficit process in August 2021, increasing the celerating global economic growth, and is expected to fall to 2.5 percent of monetary policy rate 275 basis points in six partial reactivation of the tourism sector, GDP in 2022, largely due to a reduc- months. A relatively stable exchange rate GDP is projected to grow 3.3 percent in 2022 tion in COVID19-related expenditure through 2021 contributed to a fall in infla- despite an ongoing drought that affects and a further contraction in current tion from 9.8 percent in 2020 to 7.7 per- agricultural production, and to converge to public expenditure, reaching 1.9 per- cent in 2021. However, inflation remains 2.5 percent by 2024. In this baseline scenario, cent of GDP by 2024. The approval of above the upper bound of the current tar- poverty (measured by the international up- a pension reform, informed by a mul- get range of 7 percent. per-middle income line) is expected to come ti-party technical committee, will play The economic recovery also contributed down to its pre-pandemic levels in 2022, de- a key role in supporting fiscal sustain- to a substantial improvement of fiscal pending on the evolution of real earnings ability in the long-term. accounts. The fiscal deficit reached an among vulnerable populations. While an overall improvement in macro- estimated 3.0 percent of GDP in 2021, Following high growth in 2021, exports of fiscal conditions is expected, risks lie on down from 5.4 percent in 2020, mostly goods and services are expected to deceler- the downside. Heightened global uncer- due to higher fiscal revenue and con- ate to 5.1 percent in 2022, but are projected to tainty and its impact on commodity tractions in major expenditure cate- regain dynamism in 2023 as the pulp plant prices, financial conditions, and global gories. Uruguay continued to have fa- UPM 2 starts exporting by the end of the first economic activity represent a major vorable access to international credit quarter. Import growth is expected to decel- source of risk. They add to the expected markets through the crisis. erate, given the expected private consump- monetary tightening in developed coun- The national poverty rate fell in the first tion and investment dynamics. After a small tries, which could deteriorate external de- semester of 2021. It is estimated to have deterioration in 2022 due to the negative net mand and Uruguay’s access to credit reached close to pre-pandemic levels at the effect of high commodity prices on terms- markets. New COVID19 variants could end of 2021, driven by improvements in of-trade, the current account deficit is ex- affect both internal and external demand economic activity and unemployment, pected to gradually narrow. and labor supply. A growth deceleration which registered 7 percent in December, Monetary tightening is expected to bring in China, Uruguay’s main trading partner its lowest level in the past three years. inflation down only gradually to the new is another major risk. TABLE 2 Uruguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 0.4 -6.1 4.4 3.3 2.6 2.5 Private Consumption 0.5 -6.9 2.3 3.5 2.2 2.1 Government Consumption 1.1 -7.1 7.3 -3.3 -1.4 0.4 Gross Fixed Capital Investment 0.8 1.3 15.8 6.0 0.3 2.6 Exports, Goods and Services 3.6 -16.0 14.4 5.1 7.5 4.2 Imports, Goods and Services 1.5 -12.0 20.9 3.3 2.8 2.5 Real GDP growth, at constant factor prices 0.4 -6.2 4.4 3.3 2.6 2.5 Agriculture -0.3 -0.4 3.2 3.1 2.5 2.5 Industry -3.7 -5.6 5.2 3.9 2.0 2.0 Services 1.1 -6.8 4.4 3.2 2.7 2.6 Inflation (Consumer Price Index) 7.9 9.8 7.7 7.0 6.3 5.8 Current Account Balance (% of GDP) 1.6 -0.6 -0.9 -1.0 -0.6 -0.6 Net Foreign Direct Investment (% of GDP) 2.2 1.7 1.7 1.5 1.4 1.4 a Fiscal Balance (% of GDP) -3.9 -5.4 -3.0 -2.5 -2.2 -1.9 Debt (% of GDP) 60.5 68.3 66.4 66.9 67.7 67.7 a Primary Balance (% of GDP) -1.7 -2.8 -1.0 -0.4 0.0 0.3 b,c International poverty rate ($1.9 in 2011 PPP) 0.1 0.2 0.1 0.1 0.1 0.1 b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.7 0.5 0.4 0.4 0.3 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 3.2 4.6 3.7 3.2 2.9 2.6 GHG emissions growth (mtCO2e) -1.7 -2.3 0.0 1.1 0.3 0.2 Energy related GHG emissions (% of total) 19.1 18.5 18.2 18.8 18.9 18.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Non-Financial Public Sector. Excluding revenues associated with the "cincuentones". b/ Calculations based on SEDLAC harmonization, using 2013-ECH, 2019-ECH, and 2020-ECH. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. c/ Projection using point-to-point elasticity (2013-2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 57 Apr 22 Macro Poverty Outlook 04 / 2022