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New Approaches to Closing the Fiscal Gap (The World Bank)

New Approaches to Closing the Fiscal Gap published by The World Bank (10/2022)

“As the COVID-19 crisis recedes, Latin America and the Caribbean (LAC) is back to work and looking forward. Is the region back to normal? As chapter 1 discusses, reported deaths related to the pandemic are low and have plausibly converged to global levels—albeit from much higher levels than previously thought. Yet low vaccination rates in some countries leave them vulnerable to new variants. In most countries, gross domestic product (GDP) and employment have fully recovered their 2019 levels, although forecasted growth rates might be said to be “resiliently mediocre”: banking systems appear sound, and rising debt burdens are manageable so far, but growth is not expected to exceed the low levels of the 2010 decade. Poverty in terms of income (monetary poverty) has largely receded with the economic recovery,1 but the longer-term scars of the pandemic in terms of education and health have planted deep seeds of future inequality. Redressing these problems and undertaking the structural reforms needed to reach higher levels of growth and reduce poverty remain central on the policy agenda.

The new and unwelcome entrant in the policy space is inflation. While comparable to advanced country levels and well managed by regional monetary authorities, inflation nonetheless is being propelled by forces that may give it more staying power than originally hoped. Finally, financial deficits induced by the pandemic and the need to finance critical government programs and directions have led policy makers to search for ways to raise taxes or cut some types of government spending and costs to ease the constrained fiscal space. The pros and cons of various types of taxes and cost saving being considered is the subject of chapter 2…”

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