“Governments across Latin America and the Caribbean face the enormous challenge of both protecting lives and limiting the impact of the economic fallout,” said Martín Rama, World Bank Chief Economist for the Latin America and the Caribbean region. “This will require coherent, targeted policies on a scale rarely seen before.”
To help the vulnerable face the loss of earnings from the lockdown, existing social protection and social assistance programs should be rapidly scaled up and their coverage extended, according to “The Economy in the Time of Covid-19,” the latest semiannual report from the World Bank’s Chief Economist Office for Latin America and the Caribbean.
In the report issued on 12 April 2020, the World Bank calls for governments to take on the burden of much of the losses due to the impact of the coronavirus on the Latin American and Caribbean region. Socializing the losses may require taking ownership stakes in financial sector institutions and strategic employers through recapitalization. This support will be key to preserving jobs and allowing for a recovery, states the report.
The global financial institution warns: “However, these processes need to be transparent and strong arrangements need to be put in place to manage the newly acquired assets, building on the best examples of sovereign wealth funds and asset management companies,”
The World Bank highlights that the Latin America and Caribbean (LAC) region is seeing a sharp decline in growth due to the Covid-19 (coronavirus) crisis, which requires several policy responses to support the most vulnerable, avert a financial crisis, and protect jobs.
The coronavirus pandemic is fueling a major supply shock. Demand from China and G7 countries is falling dramatically, affecting commodity exporters in South America and exporters of manufactured goods and services in Central America and the Caribbean. A collapse in tourism is severely impacting some countries in the Caribbean.
Many countries in LAC are confronting the crisis with a constrained fiscal space. Large informal sectors in their economies make it difficult to reach out to all households and protect all sources of employment. Many households live from hand to mouth and do not have the resources to cope with the lockdowns and quarantines needed to contain the spread of the pandemic. Many also depend on collapsing remittances. To help the vulnerable face this economic challenge, existing social protection and social assistance programs should be rapidly scaled up and their coverage extended.
At the same time, governments may need to support financial sector institutions and key sources of employment. “We need to help people face these enormous challenges and make sure that financial markets and employers can weather the storm,” said Humberto López, World Bank Acting Vice President for the Latin America and the Caribbean Region. “That means limiting the damage and laying the groundwork for recovery as fast as possible.”
The World Bank forecasts that Gross Domestic Product (GDP) in the Latin America and Caribbean region (excluding Venezuela) will decline -4.6% in 2020.* A return to growth of 2.6% is expected by 2021.
Specifically on the Dominican Republic, the World Bank writes:
“Following a period of sustained economic growth in the Dominican Republic, the Covid-19 is projected to trigger a slowdown and disrupt fiscal consolidation. The financial sector is well capitalized, and the current account deficit is projected to narrow as sharp contraction in imports offsets falls in remittances, tourism and other exports. Poverty is projected to increase in the wake of declining tourism and remittances. The main short-term risk is sustained slowdown while long-term climate change risks remain. “
Moreover, the World Bank estimates that the Dominican Republic will end 2020 with a 0% GDP growth, down from 5.1% in 2019. The country is expected to recover in a year, with 2.5% in 2021 and 4% by 2022.
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World Bank
13 April 2020