October 30, 2020

External public debt plummets in Caribbean – ECLAC

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eclacFrom Guyana Times
In its annual fiscal report on Latin America and the Caribbean, the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) highlights that in the last 25 years, external public debt has fallen from 70 per cent to 16 per cent of the Region’s Gross Domestic Product (GDP).
Projects financed with public or public-private resources can increase economic activity, especially when the economy is going through a period of idle capacity and when infrastructure investment needs are clearly identified, which is true of the Region today, ECLAC said in “Fiscal Panorama of Latin America and the Caribbean 2015: Policy space and dilemmas”.
Latin America and the Caribbean has used fiscal policy to reactivate investment and confront the current context of economic deceleration, although with variations among countries, according to the document, which was presented during the XXVII Regional Seminar on Fiscal Policy last week at ECLAC’s headquarters in Santiago, Chile.
Blue line equals external debt; yellow domestic debt over external debt
Blue line equals external debt; yellow domestic debt over external debt
In the study, the United Nations organisation warns that the decline in commodities prices implies a reduction in the income derived from non-renewable natural resources, which will weaken the public finances of countries that export these products.
This could be compensated by recent tax reforms, the report says, especially by the strengthening of direct taxation. Taking a long-term view with regard to the proportion of public debt versus GDP, Latin America (considering the average of 19 countries) experienced a long period of rising debt levels (1970-1989), followed by phases in which they fell (1990-1997 and 2004-2008, after a brief period of increases between 1998 and 2003), and they ultimately stabilised between 2009 and 2014.
Changing composition
Between 2003 and 2008, the level of public debt fell considerably and its composition also changed in a significant way, with longer maturities, greater participation of fixed-rate debt, a greater proportion of resident debt holders and the growing importance of debt denominated in the local currency. In this sense, in the last 25 years the reduction of external public debt has been notable in the Region: in the early 1990s, it represented more than 70 per cent of GDP, compared with 16 per cent in 2014.
Indebtedness levels vary widely among countries. Brazil has the highest public debt in Latin America (63.5 per cent of GDP in 2014), although the amount of its net debt is much lower (37 per cent). Other countries in South America (Uruguay, Colombia and Argentina) and some in Central America (El Salvador, Costa Rica, Honduras, the Dominican Republic and Panama), as well as Mexico, have moderate levels of indebtedness (between 36 per cent and 44 per cent of GDP). On the other extreme, with debt levels below 22 per cent of GDP, stand Chile, Peru and Paraguay. According to the “Fiscal Panorama of Latin America and the Caribbean 2015”, the tax burden rose five points of GDP between 2000 and 2013 in the Region, with a structure of regressive taxes.
This explains why the impact of fiscal policy on income distribution is not significant. For that reason, ECLAC urges countries to continue taking action to fight fiscal evasion and circumvention, reduce preferential treatment and generally strengthen taxation on capital gains.
For more: http://www.guyanatimesgy.com/2015/03/17/external-public-debt-plummets-in-caribbean-eclac/

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