World Bank urges LAC countries to leverage economic gains for growth
…publish new report
Kaieteur News – On Thursday, the World Bank unveiled its new report which urges the Latin America and Caribbean (LAC) region to seize the momentum to accelerate growth. The report titled, “Taxing Wealth for Equity and Growth” outlines that the LAC region is expected to grow by 1.9 percent this year, slightly exceeding previous estimates. In 2025, the region is forecast to grow by 2.6 percent, the lowest rates among all global regions.
The Bank says that the U.S. Federal Reserve’s recent decision to lower interest rates coupled with slowing inflation in several LAC countries, is expected to provide some relief to the region, and presents an opportunity to attract much-needed investment.
“The region has made strides in managing inflation and stabilizing its macroeconomic environment. This is a crucial moment to leverage these achievements to attract the investments necessary for sustainable development, foster innovation, build human capital, create more and better jobs, and empower the region to break free from this low-growth cycle,” said Carlos Felipe Jaramillo, World Bank Vice President for Latin America and the Caribbean.
The report highlights that despite favorable conditions, both public and private investments in LAC remain low. With the region facing structural challenges, the Bank warned that without capitalising on current economic momentum, LAC risks remaining stuck in a low-growth cycle. It was outlined that the region is not fully capitalising on nearshoring opportunities, which could boost its economic outlook.
Foreign direct investment (FDI) levels are below what they were 13 years ago, and new investment projects are favouring other regions, despite competitive wages. The Bank highlighted several factors, including high capital costs, weak education systems, underdeveloped infrastructure, and social instability, are diminishing the region’s attractiveness as a nearshoring destination.
“Seizing LAC’s major windows of opportunity, the green transition and the nearshoring movement, requires structural reforms across the board to make the region more productive and competitive. This will require generating more fiscal space, improving government efficacy, as well as reducing the tax burden on the productive sectors. This is a good time for the region to reconsider how its tax systems can best generate revenue while stimulating growth and advancing equity,” said William Maloney, World Bank Chief Economist for Latin America and the Caribbean.
Moreover, the report also explores how wealth taxes could help the region create fiscal space while promoting growth and reducing inequality. LAC’s debt-to-GDP ratio rose to 62.8 percent in 2024, limiting governments’ ability to increase public investment. Closing this gap requires reforms in revenue collection and spending efficiency, according to the World Bank.
Notably, the Bank outlined that while LAC imposes some of the highest corporate tax rates globally, it collects only 2.7 percent of its revenues from wealth taxes, compared to higher rates in North America and Europe. One area of potential reform is property taxes. Despite real estate holding 80 percent of the region’s wealth, only 2 percent of tax revenues come from property taxes.
The report recommends modernising property valuation systems and improving tax collection efforts that could help LAC countries raise significant revenue, potentially contributing up to 3 percent of GDP. This, it was stated, could empower local governments and reduce the fiscal burden on businesses. However, it was highlighted that reforms must be carefully designed to avoid overburdening low-income property owners.
