Member Spotlight
IDB Governors: The Case for Capital Replenishment Needs To Be Made
Center for Global Development
|
Thu, Mar 18, 2021
by
Scott Morris and Amanda Glassman
Body
This week, the Inter-American Development Bank’s governors gather for their annual meeting. Much is at stake as the region reels under the compound crises of COVID-19 and recession. With 718,000 dead and 23 million COVID-19 cases, Latin America is living through the worst economic crisis of the past 120 years, with a drop of 7.7 percent in regional GDP in 2020.
On the expenditure side, countries are faced with massive and expanding health and safety net requirements alongside inflexible pension and wage bills. Thus far, spending has not met needs—the region spent only 4.3 percent of GDP in countercyclical response, in sharp contrast to the 8-12 percent spent by less affected high-income countries, likely aggravating or extending the crisis and its effects. And despite these needs, the IDB perplexingly kept its new commitments flat during 2019-2020.
Most analysts foresee a slow recovery with risks tilted to the downside. Fiscal consolidation challenges and rising (and exceptionally) high levels of public debt will likely continue to put downward pressure on sovereign ratings through to 2022, and the costs of borrowing are increasing.
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IDB Governors: The Case for Capital Replenishment Needs To Be Made
Center for Global Development | Thu, Mar 18, 2021
by Scott Morris and Amanda Glassman
This week, the Inter-American Development Bank’s governors gather for their annual meeting. Much is at stake as the region reels under the compound crises of COVID-19 and recession. With 718,000 dead and 23 million COVID-19 cases, Latin America is living through the worst economic crisis of the past 120 years, with a drop of 7.7 percent in regional GDP in 2020.
On the expenditure side, countries are faced with massive and expanding health and safety net requirements alongside inflexible pension and wage bills. Thus far, spending has not met needs—the region spent only 4.3 percent of GDP in countercyclical response, in sharp contrast to the 8-12 percent spent by less affected high-income countries, likely aggravating or extending the crisis and its effects. And despite these needs, the IDB perplexingly kept its new commitments flat during 2019-2020.
Most analysts foresee a slow recovery with risks tilted to the downside. Fiscal consolidation challenges and rising (and exceptionally) high levels of public debt will likely continue to put downward pressure on sovereign ratings through to 2022, and the costs of borrowing are increasing.