For the organization, it is key to improve tax collection since in most economies in the region, tax revenues are low and, on average, represented 21.5% of GDP in 2022, compared to 34% in the OECD.
Latin American and Caribbean countries must strengthen tax collection and spending, improve public debt management and mobilize more private resources to finance their ambitious development agendas, according to the latest edition of the report 'Latin American Economic Outlook: Financing Sustainable Development' published this Monday by the OECD.
The 17th edition of the report argues that the region's sustainable financing gap, estimated at $99 billion annually, can be overcome if private and public actors improve coordination, with the support of their international partners.
The region's challenging socioeconomic context requires an ambitious set of reforms. Many countries maintain a restrictive monetary stance to keep inflation expectations anchored and are undergoing a phase of fiscal consolidation, after the region's fiscal space was significantly reduced in the wake of the COVID-19 pandemic.
In this context, there is little scope for expansionary economic policies to support aggregate demand and social goals.
The report identifies improving tax collection as one of the priorities for mobilizing resources for sustainable development in Latin America. In most economies in the region, tax revenues are low and, on average, accounted for 21.5% of GDP in 2022, compared to 34% in the OECD.
Furthermore, adjusting the tax structure or making better use of existing taxes could help reduce inequalities, support the green transition, improve health outcomes and foster entrepreneurship.
Another measure involves optimizing budget allocation and increasing spending efficiency to free up additional resources. Public spending is concentrated on current expenses, such as salaries and transfers (82% in 2023), focused on the short term and allocated inefficiently.
Improving debt management through sound fiscal frameworks to maintain fiscal sustainability is another of the OECD report's proposals.
PRODUCTIVE TRANSFORMATION
Another point to be addressed is to promote productive transformation to achieve sustainable growth and the promotion of competitive sectors, increasing the presence of private issuers and improving the liquidity of the capital market.
Today, Latin America's debt markets are largely driven by the public sector, accounting for 81% of local issuance between 2015 and 2023. To address this concentration, policies should aim to broaden the participation of institutional investors, update regulatory frameworks, improve financial literacy and strengthen regional integration.
Development finance institutions (DFIs) play a key role in a financial market that is still developing.
34% of DFIs have a specific mandate to support the financial inclusion of micro, small and medium-sized enterprises, but only 19% of the financial instruments they propose address the green transition, gender equality and digital transformation or innovation.
COOPERATION
International cooperation is also essential for mobilising new resources. Among these is the EU-LAC Global Investment Agenda, which mobilises funds through public-private partnerships to address infrastructure needs, while creating local added value and promoting growth, employment and social cohesion.
Financing instruments such as green, social and sustainability-linked bonds remain an attractive mechanism, according to the report. Catastrophe bonds, debt-for-nature swaps and natural disaster clauses can also mobilise public and private investment where the needs are greatest. Establishing harmonised frameworks and reliable monitoring and oversight mechanisms for these instruments should prevent greenwashing.
Finally, the OECD has indicated that the region should coordinate to present its own regional perspective at the Fourth United Nations International Conference on Financing for Development (to be held in mid-2025 in Seville).
