Latin America and the Caribbean Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World Annual Meetings 2023 © 2023 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Latin America and the Caribbean Annual Meetings 2023 Argentina Dominican Rep. Nicaragua Bahamas, The Ecuador Panama Barbados El Salvador Paraguay Belize Grenada Peru Bolivia Guatemala St. Lucia Brazil Guyana St. Vincent and the Grenadines Chile Haiti Suriname Colombia Honduras Uruguay Costa Rica Jamaica Dominica Mexico MPO 1 Oct 23 a result, poverty and vulnerability have increased since informal employment rep- ARGENTINA Key conditions and resents the main source of household in- come (41 percent) among the population in challenges the bottom 40 percent of the distribution. Robust and credible macro-fiscal policies Table 1 2022 Argentina is facing rapidly declining re- are imperative for macroeconomic stabil- Population, million 46.1 serves and high inflation. Monetary fi- ity. Beyond stabilizing policies, bold re- GDP, current US$ billion 630.7 nancing of persistent fiscal deficits has forms to improve the business environ- GDP per capita, current US$ 13695.6 pushed inflation into triple digits and led ment and incentivize private sector invest- a 1.0 International poverty rate ($2.15) to a decline in confidence in the Peso. ment and job creation will be required to a 2.5 International reserves have fallen, driven achieve sustainable and inclusive growth. Lower middle-income poverty rate ($3.65) a 10.6 by overvalued, and multiple, foreign ex- Closing infrastructure gaps and strength- Upper middle-income poverty rate ($6.85) Gini index a 42.0 change rates. Capital controls, trade dis- ening skill acquisition are key to lifting Ar- School enrollment, primary (% gross) b 108.9 tortions, and policy uncertainty deter pri- gentina’s low growth potential. b 75.4 vate investment and constrain Argenti- Life expectancy at birth, years na’s growth potential. Total GHG emissions (mtCO2e) 412.4 Despite Argentina’s comparative advan- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2021), 2017 PPPs. tage in agroindustry and specific manufac- Recent developments b/ WDI for School enrollment (2020); Life expectancy turing and services segments, external com- (2021). petitiveness remains constrained by an anti- The economy expanded by 5 percent in 2022, export bias and macroeconomic distortions. after a swift rebound from the COVID-19 Export diversification has narrowed over pandemic in 2021. Growth in Q4 2022 con- time, making the country more vulnerable tracted by 1.7 percent (q-o-q, seasonally ad- A devastating drought intensified to economic and climatic shocks. The cur- justed), driven by the impact of the drought, rent drought is estimated to lead to export and remained subdued in the first half of macroeconomic imbalances, leading to losses of US$20 billion. The effects of these 2023. The lack of rain and high temperatures large losses in agricultural production, shocks are amplified by a procyclical fiscal caused an average 40 percent drop in main exports, and fiscal revenues. Monetary policy stance. Poverty has stagnated as a re- crop output, an estimated 22 percent de- financing of persistent fiscal deficits is sult and is likely to have increased in 2023 crease in exports, and about 0.5 percent of despite additional social transfers. GDP decline in fiscal revenues. fueling triple-digit inflation, deterring Although both labor participation and External borrowing helped finance non- progress in poverty reduction. Growth is employment have increased, most new agricultural imports in the first half of 2023 projected to be negative in 2023, before jobs are own-account and informal. This at the expense of increasing macroeconom- turning positive in 2024 as the drought has increased the proportion of workers ic vulnerabilities. The value of goods im- recedes. A sustainable macroeconomic with higher exposure to losses in real ports in Q2 2023 is among the highest of wages due to high inflation. Post-pan- the past decade, resulting – together with policy combined with growth-enhancing depressed exports – in a deterioration of demic, the average formal wage main- structural reforms is needed for growth tained its real value while the average in- the trade balance. The current account and poverty reduction. formal wage decreased by 23 percent. As deficit widened to US$5.7bn in H1 2023. It FIGURE 1 Argentina / Net international reserves and FIGURE 2 Argentina / Actual and projected poverty rates foreign exchange premium gap and real GDP per capita US$ billion Percent Poverty rate (%) Real GDP per capita (constant LCU) 50 200 18 20000 16 18000 40 160 14 16000 30 120 14000 12 12000 10 20 80 10000 8 8000 10 40 6 6000 4 4000 0 0 2 2000 -10 Net Reserves (lhs) -40 0 0 Alternative FX premium (rhs) 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -20 -80 International poverty rate Lower middle-income pov. rate 2011 2013 2015 2017 2019 2021 2023 Upper middle-income pov. rate Real GDP pc Source: World Bank based on Ministry of Economy. Source: World Bank. Notes: see Table 2. Notes: Net Reserves are gross reserves minus CB external liabilities. Alternative foreign exchange premium is the gap between the official and the informal rate. MPO 2 Oct 23 was partially financed by non-traditional between the alternative and official ex- Growth is expected to accelerate in 2024, short-term financing sources (bilateral and change rates. Following the primary elec- thanks to improved climatic conditions multilateral debt). Arrears accumulation of tion results in mid-August, and amidst a and continued historically high soybean importers increased. Net international re- new round of financial turmoil, the gov- prices, allowing for the expansion of agri- serves turned negative in Q2 2023. ernment allowed an 18 percent deprecia- cultural output, with positive effects in The drought-induced shortfall in public tion of the Peso in the official regulated manufacturing and transportation via in- revenues widened the fiscal deficit, de- market, coupled with a hike in the CB ref- put-output linkages. Over the medium spite the inflation-driven real terms con- erence interest rate. term, investments in the energy sector, traction of public spending. Due to re- particularly the Presidente Néstor Kirch- stricted capital market access, the Trea- ner gas pipeline, will reduce energy im- sury turned to the Central Bank for fi- ports, increase exports, and support re- nancing, intensifying an already pro- Outlook serve accumulation. nounced inflationary environment. The The downside, mainly domestic, risks re- reference interest rate, currently at 118 The economy is expected to contract by 2.5 main substantial. Given historically low percent, remains negative in real terms. percent in 2023, owing to persistent macro- levels of external reserves, a rapid Annualized inflation has reached triple economic imbalance and the impact of the passthrough from the devaluation of the digits, disproportionately affecting mar- drought. Non-agricultural sectors are ex- Peso to domestic prices could exacerbate ginalized segments of the population. At pected to contract through the end of the inflation and worsen already delicate eco- the same time, social assistance flagship year. The current account deficit is project- nomic and social indicators, especially in programs –Asignación Universal por Hijo ed to reach 0.6 percent of GDP in 2023, the absence of a credible macro-fiscal an- and Potenciar Trabajo- helped mitigate a rise exacerbating pressures on international re- chor. Rising poverty and inflation also cre- in poverty that in 2022 reached 10.3 per- serves given restricted access to global cap- ate the potential for social unrest. Prompt cent of the urban population, measured ital markets and multiple exchange rate restoration of confidence is crucial for the under the international poverty line controls. The poverty rate is projected to country to access global capital markets, (US$6.85 per day). reach 12.9 percent of the urban population relieve the pressure on monetary policy, Negative reserves, FX regulations, and pol- in 2023 under the international poverty and reduce the risk of failing to refinance icy uncertainty continued to widen the gap line (US$6.85 per day). upcoming maturities. TABLE 2 Argentina / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -9.9 10.7 5.0 -2.5 2.7 3.2 Private consumption -12.2 10.4 9.7 0.5 -0.7 2.1 Government consumption -2.0 6.3 1.9 1.3 -0.6 1.2 Gross fixed capital investment -12.9 33.8 11.1 -7.4 -2.0 8.0 Exports, goods and services -17.4 8.5 5.8 -11.1 23.8 4.6 Imports, goods and services -17.2 20.4 17.9 -3.4 3.2 3.7 Real GDP growth, at constant factor prices -9.9 10.4 4.9 -2.5 2.7 3.2 Agriculture -7.5 1.9 -4.5 -17.8 24.2 3.1 Industry -9.3 15.5 5.7 -2.2 1.4 2.8 Services -10.6 9.4 6.0 -0.6 1.0 3.5 Current account balance (% of GDP) 0.7 1.4 -0.7 -0.6 1.1 0.8 Net foreign direct investment inflow (% of GDP) 1.0 1.1 2.1 1.8 0.8 1.2 a Fiscal Balance (% of GDP) -8.3 -4.3 -3.7 -3.9 -3.5 -1.7 Revenues (% of GDP) 32.4 32.2 32.2 31.5 32.3 31.8 a Debt (% of GDP) 110.3 85.7 89.9 90.0 78.9 72.7 a Primary Balance (% of GDP) -5.9 -2.5 -1.7 -1.5 -0.5 0.5 b,c International poverty rate ($2.15 in 2017 PPP) 1.1 1.0 0.7 0.9 0.9 0.9 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 3.5 2.5 2.4 3.0 3.0 3.0 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 14.1 10.6 10.3 12.9 12.4 12.3 GHG emissions growth (mtCO2e) -1.9 3.2 2.1 -1.2 1.2 1.6 Energy related GHG emissions (% of total) 39.8 41.0 41.9 41.2 41.9 42.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal data refer to the general government. b/ Calculations based on SEDLAC harmonization, using 2022-EPHC-S2. Actual data: 2021 and 2022 (preliminary). Forecasts are from 2023 to 2025. c/ Projections using microsimulation methodology. MPO 3 Oct 23 least 102 days have resulted in significant learning losses for young students, with THE BAHAMAS Key conditions and less than 50 percent of registered students attending online classes during the first challenges week of closure. The public debt remains high, and the gov- Table 1 2022 The main driver of economic growth in ernment is working to reduce it by means Population, million 0.4 The Bahamas is tourism, particularly of tax reforms, enhancing tax administra- GDP, current US$ billion 12.9 from a few foreign markets, followed by tion, and improving public financial man- GDP per capita, current US$ 31458.3 financial services, which rely heavily on agement. The Bahamas has made progress a 96.1 School enrollment, primary (% gross) foreign investment. Economic growth in addressing financial crime and was re- a 71.6 slowed down in The Bahamas after the cently removed from the Financial Action Life expectancy at birth, years Total GHG emissions (mtCO2e) 3.0 global financial crisis, averaging 0.8 per- Task Force's grey list. Ongoing efforts are Source: WDI, Macro Poverty Outlook, and official data. cent between 2010 and 2019, due to sever- being made to strengthen the country's a/ WDI for School enrollment (2006); Life expectancy al factors, such as the country's small size, Anti-Money Laundering regulation and (2021). lack of productive diversification, high supervision to ensure that it remains com- import dependency, and the risk of natur- pliant with international standards. al disasters. The economy shrunk by 23.5 percent in 2020 due to the pandemic but recovered its pre-pandemic size by 2022. Despite the recovery of the service sector, Recent developments which represents 85 percent of the total The economy grew by 14.4 percent in GDP and employs a significant portion The economy grew 14.4 percent in 2022, 2022, slightly less than in 2021 (17.0 per- of the country's workforce, The Bahamas slightly slower than the 17.0 percent cent), driven by the recovery of services, still faces the challenge of a high unem- achieved in 2021. Growth was mainly dri- particularly by tourism which has almost ployment rate. National statistics indicate ven by tourist arrivals, which expanded to that in May 2023 the unemployment rate 7 million in 2022, representing a growth of returned to pre-pandemic levels. The fis- was 8.8 percent of the population, with 233.3 percent compared to 2021. This led to cal accounts improved significantly, with men experiencing a higher rate of 9.1 per- significant increases in the service sector, the overall deficit decreasing from 13.3 cent compared to women at 8.5 percent. particularly in accommodation, food ser- percent of GDP in 2021 to 5.8 percent in Those between 25 and 34 years old faced vices, and transportation activities, which the highest unemployment rate at 25 per- grew by 9.3 percent in 2022. Government 2022. The current account deficit remains cent, followed by those between 35 and consumption also contributed significantly high at 14.3 percent of GDP but is also 44 years old at 19 percent. Poverty esti- to growth in 2022. Public investment re- improving. Sustainable growth in the mates have not been updated since 2013 lated to post-hurricane reconstruction and tourism sector, low inflation, and food se- when 12.8 percent of the population lived climate change mitigation, along with the curity are critical for poverty reduction. below the basic needs line. The pandemic emergence of new tourism-related foreign has deepened some of the medium-term direct investment (FDI) projects, boosted growth challenges, and public finances the construction sector. FDI reached 3.5 have deteriorated. School closures for at percent of GDP in 2022. FIGURE 1 The Bahamas / Real GDP growth and contributions FIGURE 2 The Bahamas / Fiscal balance and public debt to real GDP growth Percent, percentage points Percent of GDP Percent of GDP 30 120 4 2 20 100 0 10 -2 80 -4 0 60 -6 -10 -8 40 -10 -20 -12 20 -30 -14 2020 2021 2022 2023 e 2024 f 2025 f 0 -16 Private Consumption Government Consumption Investment Net trade 2020 2021 2022 2023 e 2024 f 2025 f Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of The Bahamas, IMF, and World Bank staff estimates. Sources: Government of The Bahamas, IMF, and World Bank staff estimates. MPO 4 Oct 23 However, the average inflation rate ac- have their prices. The CAD has been fi- 2023, with a primary surplus of 0.6 percent celerated from 2.9 percent in 2021 to 5.6 nanced with debt from capital markets of GDP. The downward trend is expected percent in 2022, largely driven by higher and IFIs as well as FDI. International re- to be sustained in the subsequent two prices of imported food, clothing, and fu- serves amounted to almost 6 months of years, due to the government's ongoing ef- el. Food security is a pressing issue on imports at the end of 2022. forts to reduce expenditures and resume the island, with 17.2 percent of the pop- tax reforms aimed at expanding the tax ulation experiencing moderate to severe base and enhancing compliance. Revenues food insecurity during the pandemic. The in the first quarter of 2023 were VAT-led. country currently relies heavily on food Outlook Public debt is expected to decrease to imports, with nearly 90 percent coming about 83 percent of GDP in the near term from outside sources. To address this is- Economic growth is estimated to be at 4.3 as growth continues and revenues re- sue, the government announced plans to percent in 2023, a significant slowdown bound. In the longer term, the govern- develop a National Food Policy in Janu- from the 14.4 percent reached in 2022, as ment's target is to decrease debt to 50 per- ary 2023, aimed at strengthening the agri- tourist inflow returned to pre-pandemic cent of GDP by FY2030/31. cultural sector. levels; although the tourist arrivals contin- The CAD is expected to decrease to 9.5 per- Public finances are entering a consolida- ued to expand, growing 67 percent from cent of GDP in 2023, as tourism receipts ex- tion phase after worsening during the pan- the first half of 2022 to the first half of 2023. pand further. It is expected to continue to demic. Revenue collection is improving, Growth is projected to decline to 1.8 per- gradually narrow in 2024 and 2025, help- and pandemic-related spending is being cent in 2024 and 1.6 percent in 2025, after ing to maintain gross international re- phased out. The fiscal deficit is estimated the post-pandemic recovery is completed. serves at an adequate level. to have declined from 13.3 percent of GDP It is expected that the government and FDI Several factors pose potential risks to the in 2021 to 5.8 percent in 2022, while public construction-related projects will continue outlook. These include a potential reduc- debt is estimated to have declined from to support the construction sector. A po- tion in tourism activity, closely tied to the 100.3 percent of GDP to 88.7 percent over tential slowdown in tourism will also slow performance of advanced economies such the same period. poverty reduction efforts, as this sector is a as the United States, the United Kingdom, The external sector was strongly affected major source of employment. and Canada. Additionally, there is expo- during the pandemic, but the current ac- Inflation is projected to decrease to 3.9 per- sure to global import price fluctuations, count deficit (CAD) fell from 22.5 percent cent in 2023 and 3.2 percent in 2024 as import the possibility of natural disasters, and in 2021 to 14.3 percent in 2022, as net prices gradually decline, providing relief to broader macroeconomic uncertainties travel receipts improved. However, de- poor households. The overall fiscal deficit is linked to tightening financial conditions on mand for key imports has increased, as expected to decrease to 3.6 percent of GDP in the global stage. TABLE 2 The Bahamas / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -23.5 17.0 14.4 4.3 1.8 1.6 Private consumption -18.9 23.3 7.7 5.6 1.6 1.4 Government consumption -10.8 12.5 19.0 8.4 6.1 4.7 Gross fixed capital investment -31.6 12.4 -9.7 -4.9 1.1 1.2 Exports, goods and services -45.5 22.6 39.9 10.2 9.7 8.8 Imports, goods and services -27.4 10.3 1.7 10.0 11.5 10.1 Real GDP growth, at constant factor prices -18.6 8.1 9.3 4.3 1.8 1.6 Agriculture 16.5 -32.4 29.7 24.0 4.0 4.0 Industry -29.6 -14.8 10.2 7.2 2.9 2.7 Services -17.0 11.7 9.0 3.8 1.7 1.5 Inflation (consumer price index) 0.0 2.9 5.6 3.9 3.2 2.5 Current account balance (% of GDP) -24.2 -22.5 -14.3 -9.5 -8.8 -7.7 Net foreign direct investment inflow (% of GDP) 3.9 3.6 3.5 3.0 3.0 3.0 a Fiscal Balance (% of GDP) -7.0 -13.3 -5.8 -3.6 -2.8 -2.2 Revenues (% of GDP) 18.5 18.8 21.0 21.2 22.0 22.2 a Debt (% of GDP) 74.3 100.3 88.7 84.2 83.7 82.9 a Primary Balance (% of GDP) -3.9 -9.2 -1.4 0.6 1.6 2.2 GHG emissions growth (mtCO2e) -2.8 -1.4 -1.2 -0.8 -0.5 -0.3 Energy related GHG emissions (% of total) 88.8 88.2 87.9 87.5 87.2 86.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 5 Oct 23 available survey data from 2016, 17.2 per- cent of households and 25.7 percent of BARBADOS Key conditions and people were under the basic needs line. challenges Table 1 2022 Barbados's main challenges lie in its small Recent developments Population, million 0.3 size, its high dependence on tourism from GDP, current US$ billion 5.7 a few markets and imports of essential GDP growth increased from -0.8 percent in GDP per capita, current US$ 20255.2 goods, and its vulnerability to external 2021 to 11.3 percent in 2022. This increase a 98.3 School enrollment, primary (% gross) shocks, including climate change. It is was due to the recovery of the services sec- a 77.6 highly affected by increases in import tor, which grew from 0.6 percent in 2021 Life expectancy at birth, years Total GHG emissions (mtCO2e) 3.5 prices, especially from the US, given the to 12.9 percent in 2022, fueled by a 273 Source: WDI, Macro Poverty Outlook, and official data. high import content of its economy and percent increase in the number of visitors, a/ Most recent WDI value (2021). its fixed exchange rate that causes partial from 144,833 in 2021 to 539,746 in 2022. transmission of inflation from abroad. At Yet, tourist arrivals have not yet reached the same time, the Central Bank has few pre-pandemic levels. Economic growth in- instruments to tighten the monetary con- creased the demand for agricultural prod- ditions in response to rising inflation. Al- ucts. However, the agriculture sector has Barbados’ economy grew at 11.3 percent so, high debt levels followed by the re- not fully recovered after being affected by in 2022 as the number of tourists cent economic contraction have reduced a combination of adverse weather condi- reached pre-pandemic levels, allowing fiscal space. However, the Government tions (including a hurricane, a drought, the recovery of hotel and retail activities, launched the BERT 2022 plan, which and a prolonged rainy season) and rising transportation, and real estate. The seeks to reduce public debt by about 60 costs of inputs. The sector contracted by percent of GDP by 2035/36, incentivize a -6.4 percent in 2022, a slower pace than resurgence of the economy is expected to transition to green energy, invest in hu- -10.4 percent in 2021. The industrial sector, alleviate poverty and improve house- man capital, diversify the economy, and driven by manufacturing, rebounded by 5 holds’ living conditions. The implemen- improve competitiveness. The Govern- percent in 2022. tation of the Barbados Economic Recov- ment receives financial support from the Inflation reached a historic high of 9.2 per- IMF through the Extended Fund Facility cent in 2022, largely due to rising food and ery and Transformation (BERT) plan, (EFF) and Resilience and Sustainability oil prices, The Central Bank of Barbados which seeks to increase the primary sur- Facility (RSF) program approved in De- has kept its benchmark rate at 2 percent plus and reduce external and natural cember 2022. The program is aimed at to support the economic recovery from the vulnerabilities, has resumed. Public debt debt reduction, macroeconomic stability, pandemic. Credit to the private sector re- resilience to climate change, and the re- mains low and has only started growing – reached 122 percent of GDP in 2022. A duction of gas emissions, one of the main albeit at a low rate of 3.7 percent – in 2022. slowdown in tourism source markets, contributors to the greenhouse effect and The labor market also shows signs of post- increases in oil prices, and climate climate change. There have been no of- pandemic recovery, resulting in increased change represent a latent risk. ficial poverty estimates available since income and reduced poverty. Since 2020, 2017, however, based on the most recent the unemployment rate has decreased by FIGURE 1 Barbados / Real GDP growth and contributions to FIGURE 2 Barbados / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 15 160 6 140 10 4 120 5 2 100 0 80 0 -5 60 -2 -10 40 -4 -15 20 2020 2021 2022 2023 e 2024 f 2025 f 0 -6 Agriculture Industry 2020 2021 2022 2023 e 2024 f 2025 f Services Net taxes on production Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of Barbados, IMF, and World Bank staff estimates. Sources: Government of Barbados, IMF, and World Bank staff estimates. MPO 6 Oct 23 2.5 percentage points to 7.2 percent, the The Government achieved a reduction in the resumption of SOE reforms. A prima- lowest level in several years, according to the overall fiscal deficit from 4.5 percent of ry surplus of 3.5 percent of GDP is expected ILO estimates. Additionally, the nominal GDP in 2021 to 2.1 percent of GDP in 2022, in 2023, increasing to 5 percent in 2025. Pub- minimum wage has increased by 36 per- as revenues recovered and pandemic-relat- lic debt is expected to decline from 114.9 to cent since 2020. However, inflationary ed spending was phased out. 100.1 percent of GDP from 2023 to 2025. The pressures may erode households’ purchas- inflation rate is projected to decrease to 5.2 ing power, particularly for the poorest and percent in 2023, and 3.1 percent in 2024 as most vulnerable families who spend a food and fuel prices ease. The CAD is pro- larger portion of their budget on staples Outlook jected to decrease to 7.9 percent of GDP in (42.8 percent vs. 33.6 percent for the poor- 2023 and then narrow to 7.1 in 2024 as the ser- est and richest households, respectively). Growth is expected to slow to 4.6 percent vices surplus continues to increase. The The current account deficit (CAD) re- in 2023 and then to 4.0 and 3.0 percent CAD will continue to be financed from IFIs mained significant, despite the rebound in in 2024 and 2025, respectively, as tourism and increases in private capital inflows. tourism; it reached 10.3 percent of GDP in returns to pre-pandemic levels and fiscal However, the performance of the tourism 2022 as a result of higher demand for im- consolidation will reign in government sector and the evolution of the US dollar will ports and higher fuel and food prices. Con- consumption. The fiscal balance will con- continue to play a crucial role in sustaining tinued support from international financial tinue to improve. The fiscal deficit is ex- employment and income growth. In the institutions helped finance it. Gross inter- pected to decline to 1.7 percent of GDP longer term, the looming threat of climate national reserves are estimated at 6.7 in 2023 and to 1.2 percent in 2024, sup- change could negatively impact household months of imports as of July 2023. ported by an increase in revenues and income and exacerbate poverty. TABLE 2 Barbados / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -12.7 -0.8 11.3 4.6 4.0 3.0 Real GDP growth, at constant factor prices -12.7 -0.8 11.3 4.6 4.0 3.0 Agriculture 1.0 -10.4 -6.4 2.9 2.9 2.9 Industry -1.4 -6.3 5.0 2.2 1.0 0.5 Services -15.0 0.6 12.9 5.0 4.5 3.4 Inflation (consumer price index) 3.0 3.1 9.2 5.2 3.1 2.9 Current account balance (% of GDP) -6.8 -10.5 -10.3 -7.9 -7.1 -6.3 Fiscal balance (% of GDP) -4.6 -4.5 -2.1 -1.7 -1.2 0.1 Revenues (% of GDP) 29.0 27.7 27.9 28.2 28.3 28.8 Debt (% of GDP) 141.7 129.1 122.3 114.9 107.4 100.1 Primary balance (% of GDP) -1.0 -0.8 2.5 3.5 4.0 5.0 GHG emissions growth (mtCO2e) -1.6 -5.3 -0.1 2.8 1.4 1.1 Energy related GHG emissions (% of total) 29.8 25.8 25.0 26.0 26.1 26.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. MPO 7 Oct 23 structurally higher poverty rates, includ- ing Belizeans of Maya descent, children BELIZE Key conditions and and adolescents, and large households. Low levels of female labor force par- challenges ticipation hamper poverty reduction and contribute to a tight labor market. Table 1 2022 Belize is an upper-middle country, reliant Population, million 0.4 on tourism – its most important source of GDP, current US$ billion 2.5 foreign exchange – agriculture and remit- GDP per capita, current US$ 6049.2 tances. Belize’s economic performance de- Recent developments a 102.6 School enrollment, primary (% gross) pends strongly on that of the US – the main a 70.5 origin of its tourists and remittances, prin- Real GDP growth in 2022 was relatively Life expectancy at birth, years Total GHG emissions (mtCO2e) 6.9 cipal export destination, and source of FDI. high at 12.7 percent, yet somewhat lower Source: WDI, Macro Poverty Outlook, and official data. Belize’s exchange rate is pegged to the US than the rate of 15.2 percent reached in a/ Most recent WDI value (2021). dollar and, as a net importer of oil and gas, 2021, which was mainly a result of the it is strongly affected by fluctuations in en- post-COVID-19 reopening. Growth was ergy prices. The country is also highly ex- fueled by the continued recovery of posed to weather-related shocks, such as tourism and commercial activities. In 2022, flooding and wind damage. visitor arrivals reached 67 percent of pre- The country is gradually emerging from a pandemic levels, with the recovery of GDP grew 12.7 percent in 2022 boosted challenging period of economic instabili- cruise ship tourism still lagging. Capital by the recovery of commercial activities ty and large fiscal imbalances, exacerbat- investment was strong, led by construction and tourism. Unemployment fell to an ed during the COVID-19 pandemic. The and infrastructure activities, with an im- all-time low of 2.8 percent by April of country has made important progress in portant externally financed component. reducing its public debt, supported by Strong growth led to improved labor 2023 as the economy continued to grow debt restructuring and a blue bond is- market outcomes, with unemployment at a double-digit rate in the first quarter. suance, and strengthening fiscal manage- reaching its lowest level in recorded his- However, increases in global commodity ment. However, severe constraints on the tory at 2.8 percent in April 2023 (com- prices weakened the external position of business environment hamper growth and pared to an unemployment rate of 9.4 poverty reduction. In particular, limited and 11.2 percent in April of 2018 and the country and reduced households’ pur- credit to the private sector, important in- 2021 respectively, years of previous chasing power. The government contin- frastructure gaps, lack of skills, and high poverty measurements in Belize). ued the implementation of structural re- crime and violence cause an unfriendly Inflation moderated to 3.3 percent in June forms with a focus on improving growth business environment. of 2023, but prices continued to rise more The latest poverty statistics indicate that rapidly for food and non-alcoholic bever- while considering climate change and the over a third of the population lived ages, thus eroding households’ purchas- protection of the most vulnerable. in multidimensional poverty (in 2021) ing power. The CBB successfully com- and over half could not afford adequate pleted the process of resolving problem- nutrition and basic non-food items (in atic loans, strengthening domestic banks’ 2018). Some population groups have balance sheets, and putting some banks FIGURE 1 Belize / Real GDP growth and contributions to FIGURE 2 Belize / Fiscal balances and public debt real GDP growth Percent, percentage points Percent of GDP Percent of GDP 20 120 4 15 2 100 10 0 80 5 -2 0 60 -4 -5 40 -6 -10 20 -8 -15 2020 2021 2022 2023 e 2024 f 2025 f 0 -10 Private Consumption Government Consumption 2020 2021 2022 2023 e 2024 f 2025 f Investment Net trade Real GDP Growth Debt (lhs) Fiscal balance Primary balance Sources: Government of The Bahamas, IMF, and World Bank staff estimates. Sources: Government of The Bahamas, IMF, and World Bank staff estimates. MPO 8 Oct 23 under enhanced supervision. The author- current account deficit increased from 6.3 to 2.1 in the near term. An overall fis- ities are updating the national assessment percent of GDP in 2021 to 9.2 percent in cal deficit of 0.6 percent of GDP and a of money laundering and terrorism financ- 2022, following increases in external pay- primary surplus of 1.2 percent of GDP is ing risks and the action plan before the ments. The deficit has been financed by expected between 2023 and 2025, as rev- mutual evaluation by the Caribbean Finan- multilateral and bilateral loans and FDI in- enues outpace expenditures due to tax cial Action Task Force in November 2023. flows. Gross international reserves covered receipts, capital grants, and tourism re- The government continued to implement 3.7 months of imports at the end of 2022. covery. An increase in minimum wages fiscal consolidation measures, which in- in 2023, reduced inflation and a strong cluded lower government spending labor market are expected to put down- through cuts in public sector wages and ward pressure on poverty. The current the postponement of wage increases, as Outlook account deficit is projected to be moder- well as other structural reforms to improve ate at 6.4 percent of GDP in 2023, and growth. These measures were comple- In the baseline scenario, growth will to contract further in the near term, led mented by the steps to mitigate the effects slow to 4.9 percent in 2023 and to 3.5 by the lower fuel prices. The CAD is ex- of climate change on the population and percent in 2024 as retail activities and pected to continue to be fully financed on the economy and by protecting the vul- tourist arrivals are expected to reach pre- by FDI, remittances, and loans. nerable through initiatives related to disas- pandemic levels. Agricultural production Further tightening of monetary policy in ter-risk management, education, and hous- is projected to continue declining at 2.5 the United States, as well as a faster-than- ing. The fiscal deficit remained low at 0.6 percent in 2023 due to a combination of expected global growth slowdown, would percent of GDP in 2022. The strong eco- climatic and pest/disease factors, declin- negatively affect Belize’s economic nomic growth in 2022 helped maintain the ing quality of soil, and lower use of fer- growth. Political pressure to raise govern- downward trajectory of the debt/GDP ra- tilizer due to increased prices. Monetary ment spending could increase and affect tio, which declined from 98.6 percent in tightening in the USA, global commodity fiscal sustainability. Other risks to the out- 2020 to 63.8 percent in 2022. price normalization, and a deceleration look include exposure to extreme weather The increase in global prices also weak- in domestic demand are expected to re- events, climate change, and the emergence ened the country’s external position. The duce inflation to 4.1 percent in 2023 and of new COVID-19 variants. TABLE 2 Belize / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -13.4 15.2 12.7 4.9 3.5 3.3 Private consumption -12.4 13.6 1.8 1.8 1.7 1.7 Government consumption -25.0 4.9 -25.3 6.0 3.7 2.9 Gross fixed capital investment 14.1 20.0 44.9 8.1 5.2 5.2 Exports, goods and services -29.8 35.1 4.3 4.0 3.5 3.0 Imports, goods and services -22.9 31.8 4.8 3.5 3.0 2.8 Real GDP growth, at constant factor prices -12.5 14.5 11.2 4.9 3.5 3.3 Agriculture 1.2 17.1 -4.3 -2.5 1.5 1.8 Industry -1.8 15.1 5.4 3.7 1.2 1.0 Services -17.2 13.8 15.7 6.3 4.4 4.1 Inflation (consumer price index) 0.1 3.3 6.3 4.1 2.5 1.6 Current account balance (% of GDP) -6.2 -6.3 -9.2 -6.4 -6.2 -6.0 Net foreign direct investment inflow (% of GDP) 3.5 5.0 6.4 5.3 4.3 4.2 a Fiscal Balance (% of GDP) -8.4 -0.5 -0.6 -0.6 -0.6 -0.6 Revenues (% of GDP) 21.0 26.6 22.6 22.7 22.8 22.9 a Debt (% of GDP) 98.6 77.9 63.8 60.0 57.2 55.7 a Primary Balance (% of GDP) -6.7 1.2 1.2 1.2 1.1 1.1 GHG emissions growth (mtCO2e) 1.7 -0.2 -0.1 0.8 0.8 0.9 Energy related GHG emissions (% of total) 10.0 10.6 11.3 11.9 12.5 13.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 9 Oct 23 modernizing labor regulations, improving transport and logistics, easing agricultural BOLIVIA Key conditions and export restrictions, and fostering environ- mentally and socially sustainable mining. challenges Table 1 2022 The Government continues to implement Population, million 12.2 a state-led development strategy focused Recent developments GDP, current US$ billion 44.0 on import substitution, public investment, GDP per capita, current US$ 3599.0 and state-owned enterprises and remains After the 6.1 percent rebound in 2021, eco- a 2.0 International poverty rate ($2.15) committed to the current exchange rate nomic growth slowed to 3.5 percent in a 5.4 peg. However, after years of expansionary 2022 following a decline in gas exports, Lower middle-income poverty rate ($3.65) a 15.2 policies and the pandemic, and in the con- stagnating public investment, sporadic Upper middle-income poverty rate ($6.85) Gini index a 40.9 text of limited access to global capital mar- diesel shortages, and social unrest. Al- School enrollment, primary (% gross) b 98.8 kets, diminishing international reserves, though unemployment slightly declined, b 63.6 and declining gas production, growth is the slowdown increased informality and Life expectancy at birth, years slowing significantly. decelerated labor participation and em- Total GHG emissions (mtCO2e) 136.7 A medium-term plan to improve the ployment growth. This context, combined Source: WDI, Macro Poverty Outlook, and official data. business environment, strengthen institu- with the removal of the emergency cash a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy tions, and reduce the fiscal deficit is crit- transfers and higher food inflation, in- (2021). ical to address macroeconomic imbal- creased poverty (US$6.85 a day in ances, ignite new sources of growth, and 2017PPP) from 15.2 percent in 2021 to an resume poverty reduction. estimated 16.9 percent in 2022. Fiscal sustainability and performance The economy continued to slow in the first As limited external financing and inter- could be enhanced by rationalizing cur- months of 2023 as declining gas produc- rent spending, improving public invest- tion and droughts were compounded by national reserves are constraining public ment efficiency, and replacing universal uncertainty resulting from foreign ex- spending and private sector activity, subsidies with more targeted and pro- change shortages that led to an incipient growth is expected to decline to 1.9 per- gressive support for vulnerable house- parallel exchange rate. Yet, the authorities cent in 2023, preventing poverty reduc- holds. Social assistance programs are have partially restored foreign exchange rigid, benefits are small and not adjusted supply in recent months by drawing down tion. Bolivia would benefit from imple- for inflation, and they are not well-target- the country's SDR allocation, getting leg- menting a medium-term strategy to ad- ed to the poor and vulnerable. islative approval to use up to half of the dress macroeconomic imbalances, enhance Pressures from a demographic transition, gold reserves, and mobilizing financing fiscal policy efficiency and progressivity, increasing urbanization, and a more ed- from regional development banks. More- and foster private investment. This would ucated workforce increase the urgency of over, they intervened and liquidated the generating more and better jobs. Foster- fourth-largest bank after it was unable to cement confidence, foster growth, and re- handle a deposit withdrawal. ing private and foreign investment, crit- duce poverty while enhancing resilience ical for growth, would benefit from re- The 12-month rolling fiscal deficit increased to downside risks. ducing red tape, removing tax distortions, from 7.1 percent of GDP in December 2022 to FIGURE 1 Bolivia / Public debt and international reserves FIGURE 2 Bolivia / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 100 45 4500 40 4000 80 35 3500 30 3000 60 25 2500 20 2000 40 15 1500 10 1000 20 5 500 0 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2003 2006 2009 2012 2015 2018 2021 2024 International poverty rate Lower middle-income pov. rate Public debt International reserves Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Bolivia and Ministry of Economy and Public Finance. Source: World Bank. Notes: see Table 2. MPO 10 Oct 23 7.6 percent in April 2023 due to declining is projected to remain close to 2.0 percent gas exports, high fuel subsidies, and rising due to low commodity prices and declin- interest payments, which more than offset Outlook ing natural gas production. With low for- the reduction in capital expenditure. Yet, eign investment and substantial capital public debt remained stable in the first Growth is expected to decline gradually to outflows, this deficit is expected to con- four months of 2023, as the accumulated about 1.5 percent by 2025 as a moderate El tinue reducing international reserves, de- fiscal accounts were near balance due to Niño weather oscillation in 2023 and 2024 spite the Central Bank's efforts to strength- their seasonal pattern, and the Govern- will be compounded by declining public en them, for example, by buying gold from ment struggled to get legislative approval spending, including public investment, re- mining cooperatives. to contract external loans. sulting from limited access to external fi- Poverty is expected to stagnate due to the The trade balance swung from a US$1.7 nancing and falling international reserves. economic slowdown and, to a lesser ex- billion surplus in the first half of 2022 to a Moreover, with substantial Government fi- tent, inflationary pressures resulting from US$ 78 million deficit in the same period nancing needs, credit to the private sector restricted access to foreign currency. As a of 2023 due to lower export prices, declin- is expected to slow down. result, the need for a better-targeted social ing gas exports, and increasing fuel im- The fiscal deficit will continue going down protection system coupled with inclusive ports. In conjunction with smuggling, un- as lower external and Central Bank financ- growth becomes more urgent. registered capital outflows, and dollar cash ing constrains expenditures. Falling hy- High public debt and low buffers increas- demand, this deficit continued to reduce drocarbon revenues and high fuel subsi- ingly expose the country to lower commodi- international reserves. dies are projected to increase public debt, ty prices, tighter global financial conditions, The money supply lost momentum as de- including with the Central Bank, which is lower gas production, and natural disasters posit growth slowed, and the Govern- expected to increase from 80 percent in caused by, for example, a stronger El Niño ment increasingly tapped into pension 2022 to 88 percent in 2025. than expected. Although the Government funds financing, recently taken over by a Although the Government has made some has managed to moderate the incipient par- public institution, crowding out the finan- effort to mobilize foreign and public in- allel exchange rate, a more adverse econom- cial sector. Despite exchange shortages, vestment in lithium development and gas ic context could shift market sentiment, inflation remained one of the lowest in exploration, delays and the long invest- adding pressures on the exchange market. the region due to fixed exchange rates, ment horizons are expected to limit their Political tensions may also thwart an agenda frozen fuel prices, food subsidies, smug- impact in the projection period. Despite to address imbalances and structural con- gling, and export restrictions. the slowdown, the current account deficit straints to growth and poverty reduction. TABLE 2 Bolivia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -8.7 6.1 3.5 1.9 1.5 1.5 Private consumption -7.9 5.3 4.2 2.6 2.3 2.0 Government consumption -2.8 5.4 4.0 0.2 -2.9 -1.9 Gross fixed capital investment -25.9 11.9 6.5 -1.9 -1.9 -1.7 Exports, goods and services -18.8 15.4 15.6 3.5 3.5 3.5 Imports, goods and services -25.0 15.7 7.6 2.0 1.5 1.5 Real GDP growth, at constant factor prices -8.4 6.4 3.5 1.9 1.5 1.5 Agriculture 3.1 1.8 3.7 3.0 3.4 4.4 Industry -11.8 9.6 1.0 1.0 0.8 0.8 Services -9.3 5.8 5.3 2.2 1.3 1.0 Inflation (consumer price index) 0.9 0.7 1.7 3.1 4.5 4.5 Current account balance (% of GDP) -0.1 2.2 -0.4 -2.0 -1.9 -1.8 Net foreign direct investment inflow (% of GDP) -2.8 1.2 0.7 0.8 0.8 0.8 Fiscal balance (% of GDP) -12.7 -9.3 -7.1 -6.8 -6.1 -5.3 Revenues (% of GDP) 25.3 25.1 26.6 26.9 26.5 26.5 Debt (% of GDP) 78.1 81.6 80.1 84.7 86.6 87.6 Primary balance (% of GDP) -11.2 -7.9 -5.5 -5.0 -4.0 -3.0 a,b International poverty rate ($2.15 in 2017 PPP) 3.1 2.0 3.0 3.1 3.5 3.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 6.4 5.4 6.5 6.7 7.0 7.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 17.3 15.2 16.9 16.8 17.0 17.0 GHG emissions growth (mtCO2e) -2.3 0.6 0.3 0.6 0.7 0.8 Energy related GHG emissions (% of total) 13.2 13.7 14.2 14.7 15.2 15.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2021-EH. Actual data: 2021. Nowcast: 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 11 Oct 23 BRAZIL Key conditions and Recent developments challenges After growing 1.8 percent in Q1 2023 dri- ven by a strong agricultural output, re- Table 1 2022 The constraints of a growth model al GDP grew 0.9 percent on a q-o-q sea- Population, million 203.1 based on factor accumulation resulted sonally adjusted (q-o-q s.a.) basis in Q2 GDP, current US$ billion 1935.2 in a decade of meager growth and 2023, as robust household and govern- GDP per capita, current US$ 9528.4 continued deforestation. Labor produc- ment consumption grew 0.9 percent and a 5.8 International poverty rate ($2.15) tivity and real wages have remained 0.7 percent q-o-q s.a., respectively, due to a 11.3 stagnant in the manufacturing and ser- the fiscal stimulus and income transfers, Lower middle-income poverty rate ($3.65) a 28.4 vices sectors as a result of a cumber- which more than offset the effect of mon- Upper middle-income poverty rate ($6.85) Gini index a 52.9 some business environment, an over- etary tightening and higher household in- School enrollment, primary (% gross) b 105.5 ly complex tax system, and persistent debtedness. As CPI inflation eased to 4.6 b 72.8 barriers for firm entry. Insufficient pri- percent in August 2023 from a peak of Life expectancy at birth, years vate infrastructure investments, hin- 12.1 percent in April 2022, falling with- Total GHG emissions (mtCO2e) 2331.1 dered by low savings, production bot- in the target range (3.25 percent with a Source: WDI, Macro Poverty Outlook, and official data. tlenecks, along with constrained public +/-1.5 interval), the Central Bank cut its a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy investment further compound the pro- policy rate to 12.75 in September, from (2021). ductivity challenge. Progress in en- 13.75 percent in July, where it had stood hancing human capital has been slow since September 2022. The 12-month cur- as poverty and inequality returned to rent account deficit stood at 2.5 percent 2011 levels by 2021. Despite improve- of GDP in July 2023, partly financed by Led by growth in agriculture and ex- ments, in 2022, about one-sixth of the net FDI inflows (2.4 percent of GDP). The population was estimated to be chron- exchange rate appreciated between 2022 ports, real GDP is projected to expand ically poor. and the end of August 2023, from R$/US$ 2.6 percent in 2023, slightly slower than Key reforms have been underway in 5.22 to around R$/US$ 4.90. in 2022. An increase in the minimum 2023. These include a new fiscal frame- After an improvement in 2022, fiscal bal- wage continued albeit with slow job work that seeks to improve policy pre- ances deteriorated in 2023 since one-off dictability and medium-term debt stabi- revenues vanished and social transfers in- growth and new social benefits under lization. A tax reform that is moving creased. The 12-month primary deficit of the Bolsa Familia program are expected through the legislative branch would re- the public sector reached 0.8 percent of to reduce poverty in 2023. Fiscal man- place consumption taxes with a value- GDP in July 2023, from a surplus of 1.3 agement improved due to recent fiscal added tax (VAT) aligned with good inter- percent in 2022. High domestic interest reforms. Structural reforms to boost sus- national practices and, if passed, would rates resulted in higher financing costs, likely boost growth. Paired with addi- with interest payments reaching 6.2 per- tainable growth while protecting the tional tax measures, it could also reduce cent of GDP, up from 6.0 percent in 2022. most vulnerable will be critical for con- the tax burden on the poorest, enhancing The general government’s gross debt in- tinuous gains in poverty reduction. tax progressivity. creased to 74.1 percent of GDP in July FIGURE 1 Brazil / Indices of output per worker by sector FIGURE 2 Brazil / Actual and projected poverty rates and real GDP per capita 1995 = 100 Poverty rate (%) Real GDP per capita (constant LCU) 500 30 6200 Agriculture Manufacturing 25 6000 400 Services 20 5800 300 15 5600 200 10 5400 5 5200 100 0 5000 2012 2014 2016 2018 2020 2022 2024 0 International poverty rate Lower middle-income pov. rate 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 Upper middle-income pov. rate Real GDP pc Source: World Bank staff calculations based on data from the Brazilian Institute Source: World Bank. Notes: see Table 2. of Economy (FGV/IBRE). MPO 12 Oct 23 2023, from 72.9 percent in 2022. However, Família parameters, including larger pay- context, the primary deficit is expected to external debt is low at 8.5 percent of GDP. ments to bigger families and an extra reach 0.9 percent of GDP in 2023 but to Between 2021 and 2022, the poverty rate benefit per child, are expected to reduce gradually improve, supported by revenue (US$6.85 per day, 2017 PPP) dropped from poverty to 22.1 percent (US$ 6.85 per measures, and achieve a surplus of 0.7 28.4 percent to 23.5 percent - below pre- day) in 2023. Further economic growth percent of GDP by 2025. Public debt is pandemic levels- aided by the expansion may contribute to marginal poverty re- projected to peak at 76.3 percent of GDP of Bolsa Família program and higher ductions in the upcoming years: the in 2024 before embarking on a down- wages. Employment was stagnant (y-o-y poverty rate is projected to decrease to ward trajectory. growth slowed to 0.65 percent in Q2 2023 21.9 percent and 21.5 percent in 2024 and The main macroeconomic risks arise from following the rapid post-COVID recovery) 2025, respectively. However, the absence concerns about the pace of fiscal consolida- and hours worked remained constant. of improved investments in the quality of tion and additional revenue collection ef- Still, real wages rose by 6.4 percent y-o- public education and other social infra- forts that may not completely materialize. y in Q2, boosted by a 7.4 percent increase structure may hinder progress. Unfavorable external conditions, such as in the minimum wage. The unemployment However, an expected slowdown in eco- further tightening of global financial mar- rate in Q2 2023 (8.0 percent) was the lowest nomic activity in the second semester of kets, or a decline in commodity prices since 2015, with the decline in unemploy- 2023, and a regression of agricultural out- could have a significant effect on the ment especially benefitting women, Afro put closer to the historical average are ex- growth outlook. Yet, the robust buffers and Brazilians, and youth. pected to lead to a GDP growth rate of institutions—ample reserves, low external 1.3 percent in 2024. Inflationary pressures debt, a resilient financial system, and ex- are expected to ease in 2023, and gradually change rate flexibility under the inflation converge towards the Central Bank’s tar- targeting regime and an independent cen- Outlook get of 3 percent by 2025, allowing for grad- tral bank—mitigate these concerns. The El ual easing of monetary policy and boost- Niño event may disrupt markets in 2023, Real GDP growth in 2023 is estimated at ing GDP growth in 2025 (2.2 percent). raising food and energy prices, which 2.6 percent, driven by robust agricultural Baseline fiscal projections assume the im- would disproportionately affect the poor- exports and increased social transfers plementation of the new fiscal framework est: households in the bottom decile devote boosting household consumption. Labor proposed by the federal government to re- almost 40 percent of their consumption ex- market gains combined with new Bolsa place the current spending cap rule. In this penditures to these items. TABLE 2 Brazil / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -3.3 5.0 2.9 2.6 1.3 2.2 Private consumption -4.6 3.7 4.3 2.5 1.2 2.4 Government consumption -3.7 3.5 1.5 1.0 1.2 0.9 Gross fixed capital investment -1.7 16.5 0.9 0.1 1.3 2.2 Exports, goods and services -2.3 5.9 5.5 5.0 2.0 2.0 Imports, goods and services -9.5 12.0 0.8 0.0 2.0 2.0 Real GDP growth, at constant factor prices -3.0 4.7 3.1 2.6 1.3 2.2 Agriculture 4.2 0.3 -1.7 13.2 2.8 1.9 Industry -3.0 4.8 1.6 0.6 1.1 1.7 Services -3.7 5.2 4.2 2.1 1.2 2.4 Inflation (consumer price index) 3.2 8.3 9.3 4.7 4.0 3.8 Current account balance (% of GDP) -1.9 -2.8 -2.9 -2.0 -2.2 -2.6 Net foreign direct investment inflow (% of GDP) 2.8 1.8 3.1 3.0 3.0 3.0 Fiscal balance (% of GDP) -13.3 -4.3 -4.6 -7.3 -5.2 -3.9 Revenues (% of GDP) 32.4 35.8 36.1 34.2 35.0 34.9 Debt (% of GDP) 86.9 78.3 72.9 75.6 76.3 75.3 Primary balance (% of GDP) -9.3 0.7 1.3 -0.9 0.2 0.7 a,b International poverty rate ($2.15 in 2017 PPP) 1.9 5.8 3.5 1.7 1.7 1.7 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.3 11.3 8.4 6.6 6.6 6.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 18.7 28.4 23.5 22.1 21.9 21.5 GHG emissions growth (mtCO2e) 0.6 12.0 -4.7 -4.3 -5.2 -3.6 Energy related GHG emissions (% of total) 17.8 17.8 19.2 20.8 22.3 23.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-PNADC. Actual data: 2021 and 2022 (preliminary). Forecasts are from 2023 to 2025. b/ Projection using microsimulation methodology. MPO 13 Oct 23 proposal will be presented in March 2024, and an increase in mining royalties has al- CHILE Key conditions and ready been enacted. A pension reform to increase contribu- challenges tions, replacement rates, and the solidarity pillar is being debated in Congress with Table 1 2022 Chile’s economy made significant limited progress. In April, Congress ap- Population, million 19.6 progress in resolving macroeconomic im- proved a bill to progressively reduce the GDP, current US$ billion 301.0 balances accumulated in recent years. Do- labor week from 45 to 40 hours. GDP per capita, current US$ 15355.5 mestic demand continued to adjust and a 0.7 International poverty rate ($2.15) inflation waned, although it remains a 1.7 above target. Growth, which averaged Lower middle-income poverty rate ($3.65) Upper middle-income poverty rate ($6.85) a 8.0 just 2 percent in the six years before the Recent developments Gini index a 44.9 pandemic, would need to accelerate for School enrollment, primary (% gross) b 101.5 progress. Boosting productivity growth, Real GDP contracted 1 percent y-o-y in b 78.9 which has been declining for decades, 2023H1, mainly driven by the lagged ef- Life expectancy at birth, years will be vital for creating well-paid formal fects of fiscal and monetary contraction in Total GHG emissions (mtCO2e) 42.3 jobs and export diversification. This re- 2022 after extraordinary spending in 2021. Source: WDI, Macro Poverty Outlook, and official data. quires efforts to reduce regulatory barri- Consumption, especially of durable goods, a/ Most recent value (2020), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy ers, foster technology adoption, promote adjusted amid a weaker labor market and (2021). competition, enhance education quality tighter financial conditions. Investment re- and managerial capabilities, and increase mained stagnant for several quarters, female labor force participation. while exports remained low amid soft cop- A second constitutional proposal is ex- per output. On the supply side, commerce Real GDP is expected to fall in 2023 due pected to be submitted to a referendum continues to lead the decline. in December 2023 after the rejection of The unemployment rate rose 0.7 percent- to the lagged effects of fiscal and mone- the first one. The new draft will main- age points y-o-y in June 2023. Female labor tary tightening in 2022. Inflation has re- tain main principles such as a bi-cam- force participation grew 2 percentage ceded from last year’s peak, driven by do- eral Congress, Central Bank autonomy, points y-o-y but remains below pre-pan- mestic and external factors, but remains and the Executive’s exclusive mandate demic levels. Despite a decreasing trend, on fiscal spending. the gender gap in employment rate stands above target. As pressures continue to re- At the same time, the government seeks to high at 18 pp, with women more likely to cede, the Central Bank has started a mon- increase fiscal revenues to fulfill its social work in the informal sector and earning 8.4 etary easing cycle. Medium-term agenda in areas like pensions, healthcare, percent lower hourly salaries. prospects will be shaped by the capacity to and social protection. Following the rejec- Inflation stood at 6.5 percent y-o-y in Ju- generate more inclusive, productivity-dri- tion by Congress of a first tax reform bill in ly 2023, well below the peak of 14.1 per- March 2023, a broader Fiscal Pact compris- cent in August 2022, as demand pres- ven growth while preserving sound sures weakened after a determined mon- ing anti-avoidance and anti-evasion mea- macroeconomic fundamentals. sures was presented in August. A new cor- etary tightening. A rate cut cycle has porate and personal income tax reform started with a first 100 bp reduction in FIGURE 1 Chile / Growth of the IMACEC monthly indicator of FIGURE 2 Chile / Actual and projected poverty rates and economic activity real GDP per capita Percent growth Poverty rate (%) Real GDP per capita (constant million LCU) 25 35 12.0 20 30 10.0 15 25 10 8.0 5 20 6.0 0 15 -5 4.0 10 -10 2.0 5 -15 0 0.0 -20 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2019M01 2020M01 2021M01 2022M01 2023M01 International poverty rate Lower middle-income pov. rate Imacec (y/y) Imacec SA (3m/3m growth rate) Upper middle-income pov. rate Real GDP pc Source: World Bank based on Central Bank of Chile. Source: World Bank. Notes: see Table 2. MPO 14 Oct 23 July. Declining commodity prices con- amid the adjustment of household con- global energy transition as well as produc- tributed on the external side. sumption. The current account deficit was tion of green hydrogen, may contribute to Substantial spending cuts, especially the financed by Foreign Direct Investment, a growth in the longer term. removal of COVID-related transfers, and reversal from the pandemic period when Inflation could remain high in the short revenue overperformance led to a fiscal FDI levels were low, and the current ac- term, given some inertia, especially in core surplus in 2022. The deficit started to rise count deficit was financed by portfolio services, but converge to the 3 percent tar- again and the 12-month rolling public investment inflows from the repatriation get in 2024 amid a negative output gap and balance reached -1.8 percent of GDP by of pension fund assets and the issuance receding cost pressures. June 2023. of external sovereign debt. The peso re- Poverty (US$6.85 a day) is estimated to in- Public transfers became more targeted in gained most of the value it had lost in crease by 0.5 pp between 2022 and 2023, 2022 compared to 2021, but poor house- mid-2022. Local banks have strong liquid- reaching 5.2 percent in 2023, while the Gini holds received, on average, significantly ity and solvency positions and firms con- coefficient is projected to remain at the larger amounts in 2022 than pre-pandemic. tinued to reduce their indebtedness after same level as in 2022 at 0.43. The rise in non-labor incomes and the la- the pandemic. The fiscal deficit reached 2.3 percent of bor market recovery contributed to pover- GDP in 2023 amid the economic downturn ty and inequality returning to declining and higher social spending and invest- pre-pandemic trends. Poverty (US$6.85 a ment. It gradually converges toward the day) dropped from 8.0 percent in 2020 to Outlook structural deficit target in the medium 4.7 percent in 2022. Income inequality, term to stabilize the debt-to-GDP ratio at measured by the Gini coefficient, reached In the outlook, economic activity stagnates around 42 percent. The current account 0.43 in 2022. However, deprivations in in 2023, starting a gradual recovery by the deficit continues to narrow. non-monetary dimensions, such as health last quarter. Domestic demand remains Downside risks to the outlook include care and social security, increased com- weak as monetary policy is still contractive geopolitical tensions, weaker-than-expect- pared to 2020. and investment sentiment remains sub- ed growth in China, additional monetary The current account deficit narrowed to 4.5 dued. External conditions are improving tightening in advanced economies, and percent of GDP by the end of the second but remain subject to high uncertainty. Re- natural hazards such as a stronger-than- quarter of 2023 after reaching a decades- al GDP is forecast to contract 0.4 percent expected El Niño event. Domestic risks high 9 percent in 2022. The correction was in 2023 and return to a 2 percent trend stem mainly from increased political un- led by higher export prices and lower im- growth rate in the medium term. Increased certainty around the new constitution and port volumes (-13.2 percent y-o-y in 2Q23) demand for copper and lithium amid the the debate on tax and pension reforms. TABLE 2 Chile / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -6.1 11.7 2.4 -0.4 1.8 2.3 Private consumption -7.4 20.8 2.9 -5.0 1.7 2.2 Government consumption -3.5 13.8 4.1 3.0 2.0 2.7 Gross fixed capital investment -10.8 15.7 2.8 -3.3 1.0 2.0 Exports, goods and services -0.9 -1.4 1.4 1.3 4.0 2.2 Imports, goods and services -12.3 31.8 0.9 -9.2 3.0 2.1 Real GDP growth, at constant factor prices -6.2 10.6 2.6 -0.4 1.8 2.3 Agriculture -2.5 4.4 0.1 0.0 2.3 2.3 Industry -3.4 4.6 -0.9 -1.7 2.1 2.2 Services -7.7 14.0 4.4 0.1 1.6 2.3 Inflation (consumer price index) 3.0 4.5 11.6 7.7 3.6 3.0 Current account balance (% of GDP) -1.9 -7.3 -9.0 -3.6 -3.3 -3.1 Net foreign direct investment inflow (% of GDP) 2.0 0.6 2.7 2.6 2.6 2.6 Fiscal balance (% of GDP) -7.1 -7.5 1.4 -2.3 -2.2 -1.9 Revenues (% of GDP) 22.0 26.0 28.1 23.2 24.0 23.6 Debt (% of GDP) 32.4 36.3 38.0 38.2 41.0 42.5 Primary balance (% of GDP) -6.1 -6.6 2.4 -1.1 -0.9 -0.6 a,b International poverty rate ($2.15 in 2017 PPP) 0.7 .. 0.4 0.5 0.5 0.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 1.7 .. 0.9 1.0 1.0 1.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 8.0 .. 4.7 5.2 5.1 5.1 GHG emissions growth (mtCO2e) -15.1 2.1 -11.8 -2.0 1.5 1.7 Energy related GHG emissions (% of total) 178.6 176.5 186.7 187.8 186.0 184.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-CASEN (preliminary). Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2025. b/ Projections using microsimulation methodology. MPO 15 Oct 23 resilience among the non-poor will require enhancing the social security system, mak- COLOMBIA Key conditions and ing labor markets more efficient and in- clusive, improving access to quality educa- challenges tion, health, and infrastructure across the territory, and addressing regional dispari- Table 1 2022 Colombia has a stable macroeconomic ties in opportunities. Population, million 51.6 framework supported by a sound fiscal Structural transformation towards a more GDP, current US$ billion 343.6 rule, a credible inflation-targeting regime, productive, diversified, inclusive, and GDP per capita, current US$ 6658.1 and a flexible exchange rate. This has pro- prosperous economy will also be required a 6.6 International poverty rate ($2.15) moted stable economic growth, without a to navigate the climate transition agenda. a 16.0 recession since 1999 (except for the Despite short-term trade-offs, climate and Lower middle-income poverty rate ($3.65) a 39.2 COVID-19 induced recession in 2020), key development objectives can reinforce each Upper middle-income poverty rate ($6.85) Gini index a 51.5 for poverty reduction and shared prosper- other in the medium-to-long run. School enrollment, primary (% gross) b 112.7 ity. Yet, growth rates remain too low to re- b 72.8 duce the development gaps with respect Life expectancy at birth, years to high-income countries. Moreover, dif- Total GHG emissions (mtCO2e) 263.7 ferences in GDP per capita within Colom- Recent developments Source: WDI, Macro Poverty Outlook, and official data. bia are extreme, with modern urban cen- a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy ters coexisting with large portions of the The strong post-pandemic growth has lost (2021). country that remain isolated and with steam. After growing 7.3 percent in 2022 dri- fragile state presence. ven by repressed consumption and the Long-standing challenges underlie Colom- lagged effects of fiscal and monetary stimuli, bia’s development outcomes. Sluggish GDP expanded 1.7 percent (y-o-y) in productivity growth lies at the core, under- 2023H1, amid a moderation of private con- pinned by lagging quality of labor (poor sumption and exports and a fall in invest- GDP grew 7.3 percent in 2022 and is educational outcomes), capital (especially ment. On the supply side, construction and projected to grow 1.5 percent in 2023. transport infrastructure, not appropriate mining are still below pre-pandemic levels. The economy is soft-landing and imbal- for the country’s rugged terrain), and insti- Employment and labor force participation ances in the economy are correcting, with tutions (such as high costs of bureaucracy). continued to recover by June 2023 (y-o-y), Low productivity undermines trade inte- stronger among women and in urban ar- declining inflation and fiscal and external gration with the world. Despite joining nu- eas, with a decline in informality and the deficits. Key risks include persistent infla- merous trade agreements, Colombia has unemployment rate reaching one-digit. tion due to El Niño; uncertainty around very limited trade, with exports below However, the employment rate declined in the reform agenda; and a slower fiscal comparable countries and highly concen- several high-poverty cities, underemploy- consolidation path. Poverty reduction is trated on commodities, notably fossil fuels. ment remains stagnant, and wage gains Sluggish productivity is also a key deter- have been eroded by inflation. projected to decelerate in line with the The deceleration in economic activity af- minant of high informality, poverty, and pace of economic activity. inequality, which reinforces low labor fected imports, while export volumes (es- quality. Reducing poverty and increasing pecially of services) continued to increase FIGURE 1 Colombia / Indices of real GDP and its FIGURE 2 Colombia / Actual and projected poverty rates components and real private consumption per capita Index 2019=100 Poverty rate (%) Real private consumption per capita (constant million LCU) 130 60 16.0 120 14.0 50 110 12.0 100 40 10.0 90 30 8.0 80 6.0 70 20 4.0 60 10 2.0 50 2018Q1 2018Q4 2019Q3 2020Q2 2021Q1 2021Q4 2022Q3 2023Q2 0 0.0 GDP Consumption 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross fixed capital formation Exports International poverty rate Lower middle-income pov. rate Imports Upper middle-income pov. rate Real priv. cons. pc Sources: DANE and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 16 Oct 23 despite declining prices, narrowing the cur- supported by the yields of the 2022 tax re- The fiscal deficit of the general govern- rent account deficit (CAD) from a record 6.2 form and low budget execution levels. The ment is projected to decline in 2023 to 3.9 percent of GDP deficit in 2022 to 3.6 percent peso appreciation and a reduction of the percent of GDP. The draft budget bill for of GDP in June 2023. Primary payments also deficit helped to decrease the debt-to-GDP 2024, however, projects higher spending fell but remained high. Foreign direct in- ratio. EMBIG spreads have also declined to from the central government across social vestment (FDI) inflows reached a record 6.2 320 bps but remain among the highest in spending, intergovernmental transfers, percent of GDP in 2023Q2, marked by oil the region. and interest payments. The Autonomous and mining FDI, while portfolio investment Fiscal Council flagged risks of compliance posted net outflows. International reserves with the fiscal rule due to the high reliance remain strong. on contingent revenues. Inflation moderated to 11.8 percent in July Outlook Poverty is projected to stagnate in 2023, as (y-o-y), helped by falling food prices and lower GDP growth hampers the recovery the appreciation of the peso, but remains Amid tight monetary and fiscal policies in labor incomes and while inflation has persistently high in the face of high indexa- GDP growth is projected to decline to 1.5 declined, it remains high, impacting real tion. The central bank halted the monetary percent in 2023, dragged by a decline in in- incomes and food security. Adjusting the tightening cycle in June but has not yet re- vestment in a context of uncertainty and social protection system, expanding cover- duced rates, as inflation expectations for low execution of capital expenditure, and a age, and including adaptiveness to shocks, end-2023 and 2024 are still above the target moderation of consumption. Growth is ex- would help build resilience. band. High rates, greater global financial pected to accelerate in 2024 and converge Risks to the growth outlook include high- liquidity, and less policy uncertainty ben- to potential growth by 2025, as exter- er inflation pressures, exacerbated by the efited the peso, which appreciated 20 per- nal demand strengthens, and consump- effects of El Niño on food and utility cent relative to its low in early November. tion picks up as inflation and interest prices; continued high currency volatility; In 2022, high inflation eroded labor income rates come down. lower-than-expected yields from the tax gains, partially offsetting the growth-dri- The CAD is projected to decrease to 3.8 authority administration reform (worsen- ven recovery. A modest reduction in percent of GDP in 2023 and converge to- ing fiscal outcomes); and uncertainty poverty is estimated for 2022 (38.8 percent wards 3.6 percent by 2025, as import around the reform agenda, which could at $6.85/day) but the recent fall in food growth decelerates and payments to for- lead to delays in private sector invest- prices may provide some relief to the poor. eign investors moderate. FDI is projected ment. The impact of climate shocks on The central government’s deficit declined to provide the bulk of financing, stabiliz- the most vulnerable is a continuous to an estimated 1.4 percent of GDP in June, ing around 3.5 percent of GDP by 2025. source of concern. TABLE 2 Colombia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -7.3 11.0 7.3 1.5 2.1 3.1 Private consumption -4.9 14.5 9.5 1.0 2.0 2.9 Government consumption -0.8 9.8 0.3 1.7 1.5 1.2 Gross fixed capital investment -24.0 17.3 11.4 -3.0 2.8 4.4 Exports, goods and services -22.7 15.9 14.8 3.3 4.8 5.5 Imports, goods and services -19.9 26.7 22.3 -6.5 4.0 3.9 Real GDP growth, at constant factor prices -7.4 10.6 6.9 1.5 2.1 3.1 Agriculture 2.3 3.1 -1.8 1.5 4.1 3.8 Industry -15.3 8.9 7.0 -0.6 2.7 3.2 Services -4.9 12.1 7.8 2.3 1.7 2.9 Inflation (consumer price index) 2.5 3.5 10.2 11.5 6.4 3.8 Current account balance (% of GDP) -3.4 -5.6 -6.2 -3.8 -3.7 -3.6 Fiscal balance (% of GDP) -7.2 -7.1 -6.5 -3.9 -3.8 -3.2 Revenues (% of GDP) 26.0 26.6 27.7 30.8 31.0 30.4 Debt (% of GDP) 67.3 65.7 64.9 60.4 58.9 58.5 Primary balance (% of GDP) -4.3 -3.7 -2.1 0.5 0.8 0.9 a,b International poverty rate ($2.15 in 2017 PPP) 9.4 6.6 6.4 6.3 6.2 6.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.3 16.0 15.5 15.2 15.0 15.0 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 42.2 39.2 38.8 38.3 38.2 38.1 GHG emissions growth (mtCO2e) -1.2 -0.5 -0.9 -0.9 -0.6 -0.1 Energy related GHG emissions (% of total) 26.7 24.5 23.0 22.8 22.7 22.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2021-GEIH. Actual data: 2021. Nowcast: 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 17 Oct 23 and the 2018 fiscal reforms, but public debt remains elevated. Poverty (US$6.85 pover- COSTA RICA Key conditions and ty line) increased from 13.7 percent in 2019 to 19.8 percent in 2020, with unemploy- challenges ment rates nearly doubling and surpassing 20 percent in mid-2020. Unemployment is Table 1 2022 An outward-oriented growth model, in- now lower than before the pandemic, but Population, million 5.2 vestment in human capital, and good gov- labor participation is still lower, and GDP, current US$ billion 68.4 ernance allowed Costa Rica to double its poverty rates are receding to 2019 levels GDP per capita, current US$ 13198.5 income per capita over the last two (poverty stayed at 14 percent in 2022). a 0.9 International poverty rate ($2.15) decades. The country upgraded and diver- Costa Rica’s short-term challenge is to a 3.3 sified its exports, increasing resilience to further reduce public debt while improv- Lower middle-income poverty rate ($3.65) a 14.1 external shocks. Over this period, Costa Ri- ing tax enforcement, spending efficiency, Upper middle-income poverty rate ($6.85) Gini index a 47.2 ca also consolidated its green trademark, and social protection. For broad-based School enrollment, primary (% gross) b 106.7 by promoting sustainable use of natural growth and lower inequality, the country b 77.0 resources and reforestation. However, this needs to sustain reforms to mobilize pri- Life expectancy at birth, years model had two shortcomings. vate investment and improve the busi- Total GHG emissions (mtCO2e) 8.5 First, growth in the domestic-oriented ness climate, education, and labor market Source: WDI, Macro Poverty Outlook, and official data. economy lagged behind the external-ori- opportunities, while maintaining its a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). ented one, amplifying income and territo- green trademark. rial disparities. Despite a decline in mul- tidimensional poverty due to better access GDP grew 4.3 percent in 2022 and acceler- to education, reduction in monetary pover- ated further in H1-2023 driven by strong ty was limited, and inequality increased, Recent developments reflecting limited labor opportunities for domestic and external demand. Timely low-skilled workers. Poverty rates re- After reaching 4.3 percent in 2022, growth monetary and fiscal tightening and lower mained even higher for vulnerable groups surpassed expectations in H12023 (4.7 per- international prices helped dissipate infla- such as Afro-descendants, Indigenous cent), supported by strong domestic and populations, and migrants. external demands. Inflationary pressures tionary pressures. This has allowed for a Second, fiscal vulnerabilities accumulated receded in H12023. Inflation declined less restrictive monetary stance since between 2008 and 2018, as spending pres- quickly from its peak of 12 percent in Au- March 2023, boosting private consumption sures increased while revenues stayed flat gust 2022, returning to the targeted band and investment. Poverty is expected to de- as a share of GDP. The pandemic deepens by March 2023, and turning into a defla- cline in 2023 converging to 2019 levels. Fis- both challenges. It worsened fiscal dynam- tion in June (1 percent) and July (1.7 per- ics as revenues collapsed and spending cent). This dynamic enabled the Central cal consolidation is already enhancing mar- grew due to government-led mitigation Bank to gradually cut the policy rate since ket access, but it is key to continue to pro- measures. The public debt-to-GDP ratio in- March, boosting private consumption and mote efficiency gains while protecting the creased from 56 percent in 2019 to a peak investment. Manufacturing exports, espe- most vulnerable. of 68 percent in 2021. Fiscal consolidation cially medical equipment, tourism, and resumed in 2021, supported by growth business services exports also expanded. FIGURE 1 Costa Rica / Economic activity growth (seasonally FIGURE 2 Costa Rica / Actual and projected poverty rates adjusted) and real GDP per capita Growth y/y (percent) Poverty rate (%) Real GDP per capita (constant million LCU) 36 30 9.0 IMAE - Economic Activity Index 30 IMAE - Definitive Regime 8.0 IMAE - Special Regime 25 7.0 24 20 6.0 18 5.0 15 12 4.0 10 3.0 6 2.0 0 5 1.0 -6 0 0.0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -12 International poverty rate Lower middle-income pov. rate Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22 Feb-23 Upper middle-income pov. rate Real GDP pc Sources: Central Bank of Costa Rica and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 18 Oct 23 As a result, labor market outcomes im- country also successfully placed US$1.5 the services sector, the poverty rate is proved. Unemployment reached 9.6 per- billion in Eurobonds in March. Costa Ri- expected to decline to 13.8 percent in cent in June, the lowest in five years. Real ca’s impressive climate achievements sup- 2023 and then to around 13.5 percent in household per-capita labor income de- ported the inclusion of its sovereign bonds 2024. Poverty could be further reduced by clined 2 percent in 2022, which limited in the JP Morgan’s sustainability index. implementing targeted social assistance poverty reduction, but lower inflation and measures to historically disadvantaged recovering labor markets offer better groups and to those living under the prospects for 2023. poverty threshold. The current account deficit decreased in Outlook Fiscal consolidation is expected to contin- H12023 (y-o-y) due to a larger trade sur- ue over the forecasting period, anchored in plus, as exports growth outpaced imports Global uncertainty and slower growth in the fiscal rule, which limits the growth in recovery, and was financed by strong in- key trading partners is expected to moder- spending, helping bring the debt-to-GDP vestment flows. Costa Rica remained a ate external demand in H22023 and 2024. ratio to around 60 percent by 2025. Recent worldwide top recipient of Greenfield FDI Growth is expected to stay at 4.2 percent in improvements in debt management (share of GDP). Reserves recovered to 6 2023, given the strong performance in should help lower Costa Rica’s financing months of G&S imports, while the ex- H12023, and moderate to 3.3 in 2024. While costs. Additional reforms have been an- change rate appreciated about 10 percent. external demand is expected to gain mo- nounced, including reductions in tax ex- The primary surplus remained at 1.4 per- mentum in 2025, domestic demand should penditures, income tax; and reduced frag- cent of GDP in H12023, slightly above the moderate as monetary policy stabilizes and mentation of social programs. These re- 1.3 percent in H12022. The fiscal deficit de- fiscal consolidation continues, helping close forms are critical to reinforce fiscal consol- clined slightly to 0.9 percent (from 1 per- the output gap. The current account deficit is idation and create buffers against shocks cent in the same period in 2022) - despite expected to stay at 2.9 percent of GDP in 2023 while protecting the poor. the high-interest bill (2.3 percent in as external demand decelerates but declines This outlook faces downside risks. As a H12023). The solid fiscal performance, gradually as terms of trade improve in 2024 small, open economy, Costa Rica is highly which is aligned with the targets set by the and global growth starts to recover in 2025. vulnerable to external shocks, including IMF program, was achieved by increased The deficit is expected to remain fully fi- global inflationary pressures, weaker glob- tax collection and contained spending and nanced by net FDI inflows. al growth, and tighter financing condi- led to an upgrade of Costa Rica’s sovereign As inflation stabilizes and labor market tions. Climate vulnerabilities, intensified credit rating by Fitch to BB- from B. The conditions improve, driven by growth in by the El Niño, add to this uncertainty. TABLE 2 Costa Rica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -4.3 7.8 4.3 4.2 3.3 3.5 Private consumption -6.9 7.0 3.3 3.7 3.7 3.5 Government consumption 0.8 1.7 1.9 1.2 0.9 0.9 Gross fixed capital investment -3.4 11.0 0.8 3.1 3.2 2.8 Exports, goods and services -10.6 15.9 12.2 12.9 5.7 6.3 Imports, goods and services -12.9 16.9 3.5 11.9 5.6 5.6 Real GDP growth, at constant factor prices -3.7 7.3 4.1 4.3 3.3 3.4 Agriculture 0.5 3.8 -6.6 0.4 1.8 2.0 Industry 1.0 10.2 3.0 3.1 2.5 2.8 Services -5.3 6.6 5.2 4.9 3.6 3.7 Inflation (consumer price index) 0.7 1.7 8.3 0.7 1.9 3.0 Current account balance (% of GDP) -1.0 -2.5 -3.7 -2.9 -2.6 -2.5 Net foreign direct investment inflow (% of GDP) 2.6 4.9 4.5 4.5 4.1 4.1 Fiscal balance (% of GDP) -8.0 -5.0 -2.5 -2.4 -2.2 -2.1 Revenues (% of GDP) 13.1 15.8 16.6 16.1 16.0 16.4 Debt (% of GDP) 66.9 68.0 63.8 63.2 62.1 60.5 Primary balance (% of GDP) -3.4 -0.3 2.1 1.7 1.9 2.0 a,b International poverty rate ($2.15 in 2017 PPP) 2.3 1.2 0.9 0.9 0.9 0.9 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 6.0 3.7 3.3 3.3 3.2 3.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 19.9 14.5 14.1 13.8 13.5 13.3 GHG emissions growth (mtCO2e) -3.9 5.8 -1.1 -1.7 0.7 2.7 Energy related GHG emissions (% of total) 89.6 88.3 85.0 82.0 79.6 77.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-ENAHO. Actual data: 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 19 Oct 23 of inflation on the poorest led to high fiscal deficits and pushed public debt over 100 DOMINICA Key conditions and percent of GDP. Going forward, the gov- ernment seeks to implement a highly am- challenges bitious public investment pipeline, fi- nanced largely by CBI revenues, including Table 1 2022 Dominica is a small island developing a new international airport and geother- Population, million 0.1 state (SIDS), highly vulnerable to climate mal energy investments, requiring addi- GDP, current US$ billion 0.6 change, natural disasters, and external tional fiscal measures to meet Dominica’s GDP per capita, current US$ 8414.5 shocks. The economy recovered strongly primary balance target of 2 percent of a 102.5 School enrollment, primary (% gross) from the pandemic supported by infra- GDP. Moreover, Dominica faces the chal- a 72.8 structure investments, a rebound of lenge of shifting focus from the current Life expectancy at birth, years Total GHG emissions (mtCO2e) 0.2 tourism, which accounts for 25 percent of emphasis on recovery and reconstruction Source: WDI, Macro Poverty Outlook, and official data. GDP, and strong agricultural output to building ex-ante resilience based on fis- a/ Most recent WDI value (2021). growth. However, the increase in global cal buffers, increasing climate-resilient in- commodity prices pushed inflation to a vestment, and expanding public and pri- historical high. Also, scarring effects from vate insurance protection and social assis- the school closures during the pandemic tance within a context of limited fiscal and the erosion of fiscal space pose chal- space. Geothermal energy development lenges for Dominica’s growth outlook. and a new airport bode well for future Dominica’s GDP per capita has – togeth- A recent round of the CARICOM/WFP growth prospects and will help address er with tourism – returned to pre-COVID COVID-19 Food Security and Livelihoods competitiveness challenges by reducing levels. Nonetheless, poverty is expected to Impact Survey in the Caribbean (May 2023) dependence on fossil fuels, significantly remain above its pre-COVID-19 level as indicates that about half of respondents lowering the cost of energy, and increasing faced livelihood disruptions in the thirty access and connectivity. the formal labor market is lagging the days prior to the survey, largely due to un- GDP recovery and high inflation erodes affordable livelihood inputs. While improv- households’ purchasing power, especially ing with respect to earlier rounds, 29 percent among the poor. Fiscal space remains lim- of the respondents experienced a job loss or Recent developments a reduction in labor income in the last six ited despite buoyant Citizen-by-Invest- months. Furthermore, of the respondents af- Growth continued to rebound in 2022 at ment (CBI) revenues. The risk of debt dis- fected by natural hazards in the twelve 5.9 percent on relaxation of domestic tress remains high with public debt ex- months prior to the survey (44 percent), COVID-19 containment measures and im- ceeding 100 percent. Medium-term nearly 60 percent reported moderate or se- proving tourist arrivals. Growth is estimat- vere impacts on livelihoods or income. ed to remain strong at 4.9 percent in 2023 growth prospects appear favorable, al- The fiscal deficit widened significantly as tourism returns to 2019 levels and is though considerable uncertainty remains. during the pandemic, despite strong CBI- supported by public investment and related revenues. Pandemic-related sup- strong agricultural production. Inflation port, increased infrastructure spending, reached 7.8 percent in 2022, driven largely and fiscal measures to mitigate the impact by fuel and energy prices, and to a lesser FIGURE 1 Dominica / Real GDP growth and fiscal balance FIGURE 2 Dominica / Public debt Percent, percent of GDP Percent of GDP 30 120 25 20 100 15 10 80 5 0 60 -5 40 -10 -15 Public Debt 20 -20 Public External Debt 2011 2013 2015 2017 2019 2021 2023 2025 Overall Fiscal Balance (percent of GDP) 0 Real GDP growth at constant factor prices 2011 2013 2015 2017 2019 2021 2023 2025 Sources: Government of Dominica and World Bank staff estimates. Source: World Bank staff estimates. MPO 20 Oct 23 extent by food prices, and is expected to environment. Public debt remains high need to be prioritized in order to ensure decline to 5.5 percent in 2023. at 104.3 percent of GDP at end-2022 after fiscal and debt sustainability. Growth re- The increase in inflation has negatively af- peaking at 109.2 percent in 2021. A combi- duced post-disaster losses, and lower in- fected poorer households’ purchasing nation of sound fiscal policy and sustained flation should contribute to a reduction power and access to food, given Domini- growth is needed to put public debt levels in poverty rates in the medium term. ca’s dependence on imported food prod- on a firm downward trajectory. The fiscal deficit is expected to narrow ucts. According to the CARICOM/WFP The current account deficit (CAD) at 21.8 as CBI revenues remain relatively strong, survey, nearly all respondents reported an percent of GDP in 2022 reflects Dominica’s though declining, exceptional spending increase in food, gas, transport, and elec- SIDS status and is financed primarily by measures are wound down, and current tricity prices over the prior three months. CBI revenues, grants, and FDI. Financial spending is reduced and rationalized. From a production perspective, farmers sector stability and related risks are limited The CAD is forecast to narrow as tourism and fishermen continue to report input as banks are well capitalized. Recapitaliza- receipts increase, though high food and cost increases. Food insecurity appears to tion of credit unions is progressing, though fuel prices will maintain some pressure have leveled out in the first half of 2023, al- balance sheets remain strained following on the CAD. Financial sector vulnerabil- though it remains widespread. Food con- recent shocks. Private sector credit remains ities will continue to require monitoring sumption and respondents’ diets deterio- constrained as most recent bank lending given implicit contingent fiscal liabilities rated compared to 2021 (and remained has been to the public sector. arising from the large credit union and similar to 2022), with 35 percent skipping insurance sectors. These sectors, while meals or eating less than usual and 33 per- improving, have yet to fully recover from cent eating less preferred foods. A consid- Hurricane Maria and the impacts of the erably large number of respondents indi- Outlook COVID-19 pandemic continue to be felt cated that they reduced essential non-food on balance sheets. expenditures (e.g., education and health) Short- to medium-term GDP growth con- Forecasts are subject to considerable and spent savings to meet immediate food tinues to be driven by tourism aided downside risk given uncertain food and needs, which could compromise their by a robust public investment program fuel prices, the economic impact of glob- well-being in the long term and make them using CBI revenues. Geothermal devel- al geo-political developments, and con- less prepared for future shocks. opments and an international airport tinued reliance on volatile CBI revenues. The fiscal position registered an overall should boost structural and potential Risks from natural disasters and the im- deficit of 7.6 percent in FY22 but is ex- growth. Nonetheless, these large public pact of climate change remain, including pected to decline to 1.2 percent by end- investment projects will require careful rising sea levels. Risks also arise from FY23 as tax revenues rebound and cur- management and implementation, and the financial sector and fiscal and public rent expenditure falls in a post-COVID additional investments in the pipeline debt vulnerabilities. TABLE 2 Dominica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -16.6 6.9 5.9 4.9 4.6 4.0 Real GDP growth, at constant factor prices -14.1 6.8 5.8 4.9 4.6 4.1 Agriculture 3.2 23.4 5.4 3.5 2.6 2.1 Industry -31.5 5.0 2.0 3.5 3.2 3.0 Services -11.8 4.5 6.7 5.5 5.2 4.7 Inflation (consumer price index) -0.7 1.5 7.8 5.5 2.3 2.0 Current account balance (% of GDP) -35.4 -27.6 -21.8 -21.3 -17.8 -15.1 a Fiscal Balance (% of GDP) -3.6 -6.4 -7.6 -1.2 -1.0 -0.9 Revenues (% of GDP) 53.3 62.1 51.3 47.5 46.7 45.6 a Debt (% of GDP) 109.1 109.2 104.3 97.0 91.6 88.5 a Primary Balance (% of GDP) -1.0 -4.2 -5.0 2.0 1.9 1.6 GHG emissions growth (mtCO2e) -3.3 -24.2 20.8 12.0 10.9 9.5 Energy related GHG emissions (% of total) 77.6 68.4 75.2 79.2 82.4 85.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (July 1st -June 30th). MPO 21 Oct 23 (ii) fostering competitive markets; (iii) re- vamping the innovation strategy; (iv) im- DOMINICAN Key conditions and proving public spending; and (v) strengthening resilience against external challenges REPUBLIC shocks and climate change. Moreover, these efforts should be integrated with a The Dominican Republic (DR) has been territorial planning focus, improvements one of the fastest-growing economies in in public services, and well-defined labor Table 1 2022 Latin America and the Caribbean, expand- policies that actively discourage informal- Population, million 10.7 ing at an annual average of 5.4 percent ity. These policies could also create op- GDP, current US$ billion 113.6 from 2005 to 2022. Prudent monetary and portunities for near-shoring. GDP per capita, current US$ 10665.4 fiscal policy contributed to macroeconomic International poverty rate ($2.15) a 0.9 stability. Foreign direct investment (FDI) a inflows (averaging about 4 percent of GDP Lower middle-income poverty rate ($3.65) Upper middle-income poverty rate ($6.85) a 4.3 23.2 over the same period) fueled tourism, ser- Recent developments a vices, manufacturing, construction, and Gini index 38.5 mining, while strong remittances sus- Reflecting tighter monetary conditions of b 96.7 School enrollment, primary (% gross) tained domestic demand. Between 2004 2022 and early 2023, economic growth b 72.6 Life expectancy at birth, years and 2022, poverty, using the upper-mid- decelerated to 1.2 percent in 2023S1. No- Total GHG emissions (mtCO2e) 40.4 dle-income countries' poverty line (UMIC- tably, private investment shrank by 2.9 Source: WDI, Macro Poverty Outlook, and official data. PL) of US$6.85 per day (2017 PPP), has fall- percent in 2023Q1. On the sectoral side, a/ Most recent value (2021), 2017 PPPs. en from 57 to 22 percent. Despite its strong industry and construction contracted, af- b/ Most recent WDI value (2021). external position, the DR’s participation in fected by elevated borrowing costs and global value chains remains low and ex- high input prices, while the hotels, bars, ports declined from 28 percent to 22 per- and restaurants sector expanded by 14.2 The economy is expected to cool down in cent of GDP from 2005 to 2022. percent in 2023Q1, cushioning the eco- 2023. GDP grew 1.2 percent in the first While GDP has fully recovered from the nomic slowdown. half of the year, dragged by a slowdown pandemic, the fiscal position has weak- In fact, the country recorded 4.5 million ened. Public debt remains above pre-pan- arrivals, with a y-o-y growth of 15.9 in private investment. Inflationary pres- demic levels and the interest bill absorbed percent in 2023S1. Remittances grew 3.3 sures have eased, and inflation is current- three percent of GDP in 2022. Reduced fis- percent in 2023S1, showing a stabiliza- ly within the target band. This allows the cal space has led to a decline in public in- tion of inflows above pre-pandemic fig- central bank to maintain a more accom- vestment (from 3.9 to 2.6 percent of GDP ures. As a result, the 2023Q1 current modative monetary stance. Unemploy- between 2005 and 2022). Improving do- account deficit (CAD) narrowed to 2.8 mestic resource mobilization and spending percent of GDP, down from 4.5 percent ment has decreased and labor incomes efficiency is essential for supported growth of GDP in 2022Q1, financed by robust have improved, bringing poverty levels while rebuilding fiscal buffers. FDI and increased long-term capital in- down, but still holding poverty levels Fostering sustainable, resilient, long-term flows. Reserves rose to 13.2 percent of above pre-pandemic. growth demands strategic structural re- GDP by June 2023, up from 12.7 percent forms, including: (i) improving education; of GDP in 2022. FIGURE 1 Dominican Republic / Inflation FIGURE 2 Dominican Republic / Actual and projected poverty rates and real private consumption per capita Annual percent growth Poverty rate (%) Real private consumption per capita (constant LCU) 12 Upper bound 50 250000 Lower bound 45 10 Core CPI CPI 40 200000 35 8 30 150000 25 6 20 100000 15 4 10 50000 5 2 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 0 International poverty rate Lower middle-income pov. rate Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Upper middle-income pov. rate Real priv. cons. pc Source: World Bank staff calculations based on Central Bank data. Source: World Bank. Notes: see Table 2. MPO 22 Oct 23 In June 2023, inflation declined to 3.9 per- aligned with a gradual phase-out. As of by public investments and pre-election ex- cent y-o-y, reaching its targeted range of June 2023, the debt of the Non-Financial penses, potentially offsetting subsidy 4±1 percent. In response, the Central Bank Public Sector (NFPS) stood at 44.8 per- phasing-out and improved tax administra- adopted a more accommodative posture, cent of GDP, down 0.7 percentage points tion gains. Medium-term projections in- introducing a liquidity facility for 2 per- from end-2022. clude a declining path of energy and fuel cent of GDP to stimulate key sectors and subsidies due to the ongoing Electricity decreasing its policy rate from 8.5 percent Pact reforms. These expenditure consoli- to 7.75 percent in late June. dation efforts are expected to gradually Inflation has eased but may continue to Outlook bring the fiscal deficit to 2.6 percent of erode incomes, particularly for vulnerable GDP in the medium term. The public debt- groups, as the labor income (per hour) for Growth is expected to decelerate from 4.9 to-GDP ratio is forecasted to stabilize the bottom 20 percent of the occupied pop- percent in 2022 to 3.1 percent in 2023 as around 56 percent over the same period. ulation increased less in 2023Q1 YoY. The domestic investment and consumption re- The macroeconomic outlook faces external unemployment rate fell to 5.2 percent in main weak, and high input costs impact and domestic risks. A faster-than-expected 2023Q1 and the occupation rates in the for- manufacturing and construction. Inflation- slowdown of the US economy could di- mal sector increased to 43.3 percent in ary pressures are easing, allowing the cen- rectly affect tourist arrivals and exports. 2023Q1. Nevertheless, both rates remain tral bank to maintain an accommodative Further increases in global energy prices, above pre-pandemic levels. Consequently, policy to boost economic activity. The could disrupt an already fragile energy poverty based on the UMICPL is projected medium-term outlook relies on boosted sector affecting the energy import bill and to drop to 21 percent in 2023, remaining consumption and investment rebound due service stability, underscoring the need to above pre-pandemic levels. to lower interest rates, input price normal- enhance infrastructure and energy access. In 2023H1, the fiscal deficit expanded to ization, and the implementation of struc- Additionally, the intensification of El Niño 0.4 percent of the 2022 GDP. Total rev- tural reforms (energy, water, PPPs), cou- could have a significant impact on the enues surged by 14.5 percent compared to pled with efforts to improve education and economy and the poor and vulnerable. 2022H1, largely due to a 25.2 percent attract FDI. As a result, growth is projected Given the country’s low degree of financial growth in corporate income during this to regain momentum and accelerate to 5 protection against these risks, compound period. However, expenditures rose 16.1 percent by 2025, reducing poverty rates shocks could substantially increase contin- percent y-o-y in 2023H1, driven by a 30.9 (US$6.85 per day, 2017 PPPs) to reach pre- gent fiscal liabilities, especially given limit- percent increase in public investment and pandemic levels at 20 percent by 2025. ed fiscal space. Strengthening resilience is an 18.3 percent uptick in interest pay- The fiscal deficit is projected to widen in critical to sustain its growth trajectory and ments. Subsidies decreased by 6.6 percent, 2023 due to expenditure pressures driven make it more inclusive. TABLE 2 Dominican Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -6.7 12.3 4.9 3.1 4.6 5.0 Private consumption -3.4 6.6 5.1 3.5 4.8 5.2 Government consumption 4.9 0.1 3.9 2.8 2.1 3.4 Gross fixed capital investment -12.1 22.1 4.0 1.3 4.9 4.7 Exports, goods and services -30.3 36.2 13.7 6.1 4.1 4.3 Imports, goods and services -14.5 25.7 10.9 4.3 3.7 3.9 Real GDP growth, at constant factor prices -6.3 11.5 4.7 3.1 4.6 5.0 Agriculture 2.8 2.6 5.0 3.5 3.2 3.0 Industry -6.7 16.5 1.3 0.4 3.9 3.8 Services -7.1 10.0 6.5 4.4 5.1 5.7 Inflation (consumer price index) 3.8 8.2 8.8 4.4 4.0 4.0 Current account balance (% of GDP) -1.7 -2.8 -5.8 -4.1 -3.2 -2.7 Net foreign direct investment inflow (% of GDP) 3.2 3.4 3.5 3.4 3.4 3.4 a Fiscal Balance (% of GDP) -7.9 -2.9 -3.2 -3.3 -3.1 -2.6 Revenues (% of GDP) 14.2 15.6 15.3 16.2 15.0 14.9 b Debt (% of GDP) 69.1 62.6 58.6 58.6 57.6 56.0 a Primary Balance (% of GDP) -4.7 0.2 -0.4 -0.2 0.0 0.6 c,d International poverty rate ($2.15 in 2017 PPP) 1.0 0.9 0.8 0.7 0.7 0.6 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.2 4.3 4.0 4.0 4.0 3.9 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 23.2 23.2 21.5 21.1 20.7 20.2 GHG emissions growth (mtCO2e) -6.1 5.1 2.9 2.3 2.2 2.1 Energy related GHG emissions (% of total) 61.6 61.3 60.8 59.6 58.3 57.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are shown for the non-financial public sector (i. e. excluding central bank quasi-fiscal balances). b/ Consolidated public sector debt. c/ Calculations based on SEDLAC harmonization, using 2022-ECNFT-Q03. Actual data: 2021 and 2022 (preliminary). Forecasts are from 2023 to 2025. d/ Projections using microsimulation methodology. MPO 23 Oct 23 Unleashing Ecuador’s growth potential is becoming more urgent as, with more than ECUADOR Key conditions and half of the workers in informality and only one-third earning at least the minimum challenges wage, the lack of good quality jobs remains an issue, especially for women and the dis- Table 1 2022 Ecuador, the largest fully dollarized econ- advantaged, limiting Ecuador's poverty re- Population, million 18.0 omy, has significantly reduced macroeco- duction potential. Also, the pandemic’s GDP, current US$ billion 115.0 nomic imbalances in recent years and has long-lasting effects on education may hin- GDP per capita, current US$ 6391.3 taken significant steps to protect the most der more inclusive growth. a 3.2 International poverty rate ($2.15) vulnerable, propel private investment, and a 9.5 address climate change challenges. Lower middle-income poverty rate ($3.65) a 29.9 The government significantly reduced its Upper middle-income poverty rate ($6.85) Gini index a 45.5 fiscal deficits and public debt. Yet, the Recent developments School enrollment, primary (% gross) b 98.1 country has not reached a political con- b 73.7 sensus to address structural barriers that GDP grew by only 0.7 percent y-o-y in Life expectancy at birth, years hinder the creation of formal jobs, private the first quarter of 2023 due to high po- Total GHG emissions (mtCO2e) 98.5 investment, and export diversification, in- litical uncertainty, increasing insecurity, Source: WDI, Macro Poverty Outlook, and official data. cluding a dysfunctional insolvency frame- and a new disruption in oil production a/ Most recent value (2022), 2017 PPPs. b/ Most recent WDI value (2021). work, generalized market intervention, caused by preventive works in the main weak competition, limited trade integra- pipelines. Ecuador’s EMBI spread has tion, and rigid labor regulation. On top of fluctuated around 1,800 basis points for that, a sustained surge in insecurity has be- most of this year. come an increasing impediment. Urban unemployment remained stable at High international interest rates, political The country's growth potential was also low levels, but it reached 4.8 percent for uncertainty, surging crime, and limited dragged down by sectoral constraints, women (vs.3.2 percent for men), as the progress on growth-enhancing reforms such as the lack of institutional instru- lagged recovery of some sectors from the are expected to reduce growth to 1.3 per- ments to allow sustainable exploitation of pandemic has offset the slowdown. The untapped mining resources, small farms’ national poverty ratio increased, as real cent in 2023. Realizing Ecuador’s growth limited productivity and market linkages, earnings declined, affecting mostly the and poverty reduction potential would re- and the lack of coordination to release middle class. quire cementing macroeconomic stability, tourism potential. The 12-month rolling fiscal deficit rose from dampening insecurity, improving the Given the fiscal constraints and the expected 0.2 percent of GDP in December 2022 to 1.0 business climate, reducing informality, medium- to long-term reduction in oil prices percent in May 2023 due to lower oil rev- due to global decarbonization, private and enues, the end of emergency tax measures, and addressing bottlenecks in sectors with foreign investment could help to ignite new lower tax collection led by the slowdown, in- competitive advantages, all while build- sources of growth, take advantage of emerg- creasing international interest rates, and ad- ing up to consensus to address more criti- ing opportunities in mining and agriculture, ditional security expenditure. However, cal constraints to equitable growth. improve infrastructure, and enhance non- public debt declined in the first half of 2023 conventional renewable energy supply. as seasonal fiscal patterns resulted in a slight FIGURE 1 Ecuador / Emerging Market Bond Index FIGURE 2 Ecuador / Actual and projected poverty rates and real private consumption per capita Basis points Poverty rate (%) Real private consumption per capita (constant LCU) 7000 50 2800 45 2700 6000 40 2600 5000 35 30 2500 4000 25 2400 20 2300 3000 15 2200 2000 10 5 2100 1000 0 2000 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 0 International poverty rate Lower middle-income pov. rate Jan'20 Jul'20 Jan'21 Jul'21 Jan'22 Jul'22 Jan'23 Jul'23 Upper middle-income pov. rate Real priv. cons. pc Source: JP Morgan Chase. Source: World Bank. Notes: see Table 2. MPO 24 Oct 23 deficit, and most external financing from to increasing political polarization and in- government is expected to issue sover- multilateral creditors had yet to materialize. security. Despite the election of an inter- eign bonds at the end of the projection The trade surplus decreased from im president this year, economic activi- period, primary expenditure will remain US$2.0 billion in the half of 2022 to ty will remain dampened in 2024 due to constrained by increasing debt repay- US$1.1 billion in 2023 as declining oil remaining political uncertainty, declining ments. This fiscal pattern and recovering exports offset the reduction in fuel im- oil production after a recent referendum growth are expected to reduce public ports, the robust expansion of non-oil decided to stop oil exportation in the Ya- debt from 58 percent in 2022 to 54 per- exports, and dampened imports. With suni National Park, and a moderate El cent by 2025. limited external financing and foreign Niño climate oscillation. However, a re- The current account surplus is projected to investment, international reserves de- duction in political uncertainty following decline gradually due to lower commodity clined from US$8.4 billion (2.8 months the 2025 elections is expected to help the export prices and increasing imports. De- of imports) in December 2022 to US$6.9 economy to start a recovery in 2025. Weak spite low foreign investment and rising ex- billion in July 2023. Despite this, the economic growth and labor conditions, ternal debt service, international reserves money supply and domestic credit to especially for women, will limit poverty will remain stable due to current account the private sector continue to grow. reduction, which is projected to remain at surpluses, financing from international fi- Annual inflation decreased from a peak of around 29 percent; the vulnerable popu- nancial institutions, and international 4.1 percent in September 2022 to 2.1 per- lation is expected to increase slightly to bond issuances. cent in July 2023, one of the lowest in the 34.5 percent by 2025. In addition to its vulnerability to lower oil region, due to dollarization, frozen fuel The fiscal deficit is projected to increase prices and tightening financial conditions, prices, declining international food prices, from 0.2 percent in 2022 to 1.2 percent Ecuador is exposed to natural disasters, in- and dampened economic growth. in 2023 due to declining oil and tax rev- cluding a stronger-than-expected El Niño enues, rising interest payments, and effect. It is also exposed to a disordered growing security expenditures. Despite ending of oil exploitation in the Yasuni, so- declining oil production in the Yasuni, the cial unrest, political instability, and surg- Outlook fiscal deficit is expected to narrow from ing crime that could hamper fiscal pru- 2024 onwards due to prudent fiscal man- dence and prevent the country from tack- Growth is projected to decline from 2.9 agement, recovering tax revenues, and ling long-lasting constraints to growth and percent in 2022 to 1.3 percent in 2023 due declining interest payments. Although the poverty reduction. TABLE 2 Ecuador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -7.8 4.2 2.9 1.3 1.9 2.2 Private consumption -8.2 10.2 4.6 1.6 2.2 2.5 Government consumption -5.1 -1.7 4.5 3.7 -1.1 -0.6 Gross fixed capital investment -19.0 4.3 2.5 -4.0 4.8 6.3 Exports, goods and services -5.4 -0.1 2.5 2.5 0.8 0.9 Imports, goods and services -13.8 13.2 4.5 0.8 1.9 2.9 Real GDP growth, at constant factor prices -7.4 3.8 2.8 1.3 1.9 2.2 Agriculture 0.4 3.4 -1.0 1.0 1.0 2.9 Industry -10.0 0.5 1.1 0.7 0.8 1.2 Services -7.2 5.8 4.5 1.6 2.6 2.6 Inflation (consumer price index) -0.3 0.1 3.5 2.4 1.7 1.5 Current account balance (% of GDP) 2.2 2.9 1.9 1.4 0.8 0.8 Net foreign direct investment inflow (% of GDP) 1.1 0.6 0.7 0.5 0.6 0.6 Fiscal balance (% of GDP) -7.1 -1.7 -0.2 -1.2 -0.7 -0.5 Revenues (% of GDP) 29.7 35.5 36.7 35.7 35.2 34.5 Debt (% of GDP) 60.9 62.3 57.7 57.0 55.9 54.2 Primary balance (% of GDP) -4.3 -0.3 1.4 1.1 1.3 1.4 a,b International poverty rate ($2.15 in 2017 PPP) 6.5 3.6 3.2 3.4 3.2 3.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 14.4 10.9 9.5 9.8 9.5 9.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 34.6 31.7 29.9 30.3 29.5 28.7 GHG emissions growth (mtCO2e) -4.1 2.2 1.8 1.1 1.1 1.2 Energy related GHG emissions (% of total) 34.2 34.9 35.6 35.9 36.3 36.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-ENEMDU. Actual data: 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 25 Oct 23 government short-term debt (11 percent of bank assets). EL SALVADOR Key conditions and El Salvador has a low productive base. Fos- tering long-term growth will require struc- challenges tural reforms (improving education and infrastructure) to boost productivity, at- Table 1 2022 El Salvador is a small, dollarized econo- tract FDI, and diversify the economy. Population, million 6.3 my with one of the largest inflows of re- However, fiscal imbalances with no access GDP, current US$ billion 32.5 mittances (24.1 percent of GDP). Between to external borrowing and a large current GDP per capita, current US$ 5127.3 2013 and 2019, it grew at an annual rate account deficit could undermine the efforts a 3.4 International poverty rate ($2.15) of 2.5 percent and poverty dropped from to increase potential growth through struc- a 8.6 42.7 to 28.8 percent. Nonetheless, major tural reforms, such as the ongoing im- Lower middle-income poverty rate ($3.65) a 27.5 obstacles remain, such as low produc- provements in trade facilitation. Upper middle-income poverty rate ($6.85) Gini index a 38.8 tivity and low human capital accumula- School enrollment, primary (% gross) b 106.3 tion (fueled by malnutrition and school b 70.7 dropouts). World-leading homicide rates Life expectancy at birth, years Total GHG emissions (mtCO2e) 13.2 affected economic prospects, but the gov- Recent developments ernment has significantly curbed gang-re- Source: WDI, Macro Poverty Outlook, and official data. lated violence since 2022. The economy grew by 2.6 percent in a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2014); Life expectancy El Salvador has significant fiscal imbal- 2022, although the labor market indica- (2021). ances, with high public debt (78 percent tors showed more modest progress. Pri- of GDP in 2022) even before the response mary consumption was the primary dri- to the COVID-19 pandemic, and financing ver of such growth, mainly driven by the options largely restricted to official cred- increase in remittances (3.2 percent), bol- Economic growth is projected to acceler- itors and short-term domestic debt, par- stering services. Growth has decelerated tially due to the effects and response to (2.8 percent annually in S12023), support- ate from 2.6 percent in 2022 to 2.8 per- the pandemic. Recent reforms to the pen- ed by government expenditure and in- cent in 2023 led by remittance-fueled sion system create fiscal space in the short vestment. Annual inflation has declined household consumption, tourism, and re- run but are likely to deepen structural im- since August 2022 to 3.7 percent in June duced crime. Inflation is expected to sta- balances in the pension system and cre- 2023 (6.9 percent for food). The interna- ate contingent liabilities (guaranteed min- tional poverty rates, measured at US$6.85 bilize at 3.7 percent. The current account imum pension). and US$3.65 (2017 PPP) per person, de- deficit is expected to narrow, but the fiscal External imbalances, linked to low produc- clined to 27.5 and 8.6 percent in 2022, position remains precarious due to spend- tivity of export sectors, pose a challenge respectively. The national poverty rates ing pressures and uncertain financing op- given moderating remittances growth. show a mixed story. The moderate pover- tions. Official figures show a slow de- Capital inflows to finance the current ac- ty rate remains relatively stable, close count deficit are limited and put pressure to the pre-pandemic level, while the ex- crease in moderate poverty, but extreme treme increased in 2022, staying 4.1 per- on reserves. Banks are profitable and have poverty shows an opposing tendency. low non-performing loans, but reserve re- centage points higher to 2019. Since the quirements have been reduced to finance official extreme poverty rate is lower than FIGURE 1 El Salvador / Emerging Market Bond Index FIGURE 2 El Salvador / Actual and projected poverty rates sovereign spread and real GDP per capita Basis points Poverty rate (%) Real GDP per capita (constant LCU) 4000 60 5000 3500 4500 50 4000 3000 3500 40 2500 3000 30 2500 2000 2000 20 1500 1500 1000 1000 10 500 500 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 0 International poverty rate Lower middle-income pov. rate Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Upper middle-income pov. rate Real GDP pc Source: JP Morgan. Source: World Bank. Notes: see Table 2. MPO 26 Oct 23 the lower middle-income country poverty in Q12023 due to falling oil prices and pressure on international reserves will line of US$3.65/day, this result suggests record apparel exports. Remittances grew likely continue without additional capital that the least favored segment of the pop- 5.2 percent in H12023, in line with pre- inflows and further fiscal consolidation. ulation is growing. pandemic levels. FDI partially financed the The overall fiscal deficit is expected to in- Revenues increased modestly (1.6 percent) deficit (1.7 percent of GDP in Q12023). Re- crease in 2023. This is because revenue in H12023, driven by social security (31.2 serves remain low at 2 months of imports. from the plan to reduce tax evasion is an- percent), and despite a decline in tax rev- ticipated to moderate as a share of GDP, enues (-1.5 percent). The lack of financing while expenditure pressures, such as wage alternatives limited spending growth (4 increases, investment, pensions, and pre- percent), but lower subsidies (-9 percent) Outlook election expenses, are likely to rise. and the pension reform allowed for higher The country's fiscal position remains frag- capital spending (30 percent). The overall Economic growth is projected to reach ile. The government faces liquidity pres- balance is estimated at USD 153m, up from 2.8 percent in 2023 and 2.3 percent in sures due to narrowing financing alterna- -26.8m in H12022. The EMBI risk premium the medium term, driven by remittance tives. The absence of a clear medium-term declined to 1,025 points in July 2023, well consumption, investors’ confidence asso- fiscal framework heightens uncertainty, below its peak of 3,400 in 2022, helped by ciated with crime reduction, and tourism. pressuring the domestic banking sector to Eurobond payment in January 2023, short- Inflation is easing and is anticipated to roll over the increasing internal debt. term savings from the pension restructur- be 3.7 percent in 2023. Poverty and vul- However, a sustained decline in sovereign ing, and debt repurchases in 2022. The nerability rates are expected to remain spreads could enable El Salvador’s return government obtained legislative autho- at their current levels over the medium to international markets. rization to issue medium-term debt to can- term, which may indicate that these seg- Risks to growth and fiscal projections are cel half of its short-term debt, reducing re- ments of the population may not be the tilted to the downside. Lower-than-expect- financing risks. Nevertheless, interest ones benefiting the most from remittances ed global growth could significantly affect spreads for the sovereign remain high. or overall economic growth. This calls economic activity in El Salvador, while el- Though a large part of the population has for focalized policies to support extremely evated pre-electoral public spending could virtual wallets, the use of Bitcoin as a legal poor households. weaken the fiscal position. El Niño poses tender seems limited. The CAD is expected to improve over time a risk to agricultural output and food in- High import prices led to large current ac- as terms of trade shocks subside, and it is flation. On the upside, security measures count deficits (CAD) in 2021 and 2022, but likely to be partially financed by official could increase domestic demand and the deficit narrowed to -2.9 percent of GDP lending and recovering FDI. However, the growth more than expected. TABLE 2 El Salvador / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -7.9 11.2 2.6 2.8 2.3 2.3 Private consumption -8.0 16.1 2.6 2.5 2.2 2.2 Government consumption 8.7 7.2 -1.4 6.0 3.9 1.7 Gross fixed capital investment -7.8 25.1 2.6 7.4 1.3 1.9 Exports, goods and services -24.6 29.4 10.2 7.0 5.0 4.9 Imports, goods and services -14.8 28.9 1.2 8.0 4.0 3.5 Real GDP growth, at constant factor prices -7.9 10.2 3.1 2.8 2.3 2.3 Agriculture -4.4 4.0 0.6 -0.5 0.0 0.1 Industry -10.9 10.5 3.6 3.1 2.0 2.0 Services -7.0 10.7 3.2 2.9 2.6 2.6 Inflation (consumer price index) -0.4 3.5 7.2 3.7 1.7 1.3 Current account balance (% of GDP) 1.6 -4.3 -6.6 -4.2 -3.5 -3.5 Net foreign direct investment inflow (% of GDP) 1.1 1.0 -0.3 1.6 1.7 1.7 a Fiscal Balance (% of GDP) -9.1 -4.8 -2.7 -3.1 -3.7 -3.7 Revenues (% of GDP) 22.7 23.8 24.2 23.8 23.7 23.7 b Debt (% of GDP) 90.7 82.7 78.0 72.7 74.0 76.1 a Primary Balance (% of GDP) -4.8 -0.4 1.9 1.6 1.7 1.9 c,d International poverty rate ($2.15 in 2017 PPP) .. 3.6 3.4 3.4 3.4 3.4 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) .. 8.7 8.6 8.7 8.7 8.6 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) .. 28.4 27.5 27.6 27.6 27.7 GHG emissions growth (mtCO2e) -7.0 2.0 -0.3 1.3 -0.1 -0.1 Energy related GHG emissions (% of total) 53.4 53.0 52.2 52.4 52.1 51.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2022-EHPM. Actual data: 2022. Forecasts are from 2023 to 2025. d/ Projections using microsimulation methodology. MPO 27 Oct 23 sustain growth, reduce poverty, and bol- ster climate resilience. The Government GRENADA Key conditions and has committed to reinstating the fiscal rules in 2023 and plans to amend the FRA challenges to improve accountability and oversight. Further structural reforms are required to Table 1 2022 Grenada outperformed its regional peers enhance the effectiveness of social protec- Population, million 0.1 before the pandemic, achieving higher tion programs. GDP, current US$ billion 1.2 growth and lower public debt while mak- GDP per capita, current US$ 9544.0 ing substantial progress in reducing pover- a 106.9 School enrollment, primary (% gross) ty. This was underpinned by a series of Life expectancy at birth, years a 74.9 pro-growth reforms initiated around 2014. Recent developments Total GHG emissions (mtCO2e) 2.2 The Fiscal Responsibility Act (FRA), adopt- Source: WDI, Macro Poverty Outlook, and official data. ed in 2015, provided a robust fiscal anchor Economic activity and the pace of poverty a/ WDI for School enrollment (2018); Life expectancy and lowered public debt from 90 percent of reduction improved in 2022 and early (2021). GDP in 2015 to 58.5 percent in 2019. Sus- 2023, as stayover tourist arrivals reached tained reforms allowed for better resource 87 percent of their 2019 level in 2022, and allocation to cushion shocks, strengthen several construction projects were imple- climate resilience and invest in human mented. However, losses in agriculture capital projects. Real output growth av- due to extreme weather and higher costs, eraged 3.9 percent annually between as well as a decline in enrollment at St. 2015-2019, leading to a decrease in nation- George’s University, weighed on growth. Supported by tourism and construction, al poverty rates from 37.7 percent in 2008 Inflation rose to 2.9 percent by end-2022 Grenada is set to return to its strong pre- to 25.0 in 2018. and remained at that level in early 2023. COVID growth of 3.9 percent in 2023. However, vulnerabilities remain. Grena- Although poverty is estimated to have de- However, continued implementation of da's economy relies heavily on tourism, clined since the increase in 2020, it is pro- which is significantly affected by the glob- jected to have remained above pre-pan- pro-growth reforms, closing infrastruc- al business cycle and natural disasters. The demic levels at 29.4 percent in 2022. ture gaps, building climate resilience, and pandemic led to a sharp economic contrac- The current account deficit is estimated to resuming the implementation of its fiscal tion of 13.8 percent in 2020, with sizable have widened in 2022, as the increased responsibility framework will be critical negative impacts on poverty and inequal- import bill exceeded the recovery in ity. The female unemployment rate went tourism-driven exports. Remittances are for Grenada to sustain this growth and from 18.3 percent in 2019-Q4 to 30.6 in estimated to have slowed from the pan- make continued progress in poverty re- 2020-Q2, while poverty is estimated to demic peak, possibly due to the higher duction. Significant risks remain due to have risen to 33.5 percent in 2020. Addi- cost of living in remittance-sending coun- the lingering impacts of the pandemic and tionally, the pandemic raised public debt tries, which eroded migrants’ real income. global economic uncertainties. to over 70 percent of GDP in 2020 and nar- However, it is not expected to impact rowed the fiscal space. poverty, as the wealthiest households ac- A strong commitment to fiscal rules and count for most of the remittances re- further structural reforms is needed to ceived. Citizenship-by-Investment (CBI) FIGURE 1 Grenada / Key macroeconomic variables FIGURE 2 Grenada / Annual average inflation Percent of GDP Percent of GDP Percent 10 80 4 3.0 2.9 2.9 70 3 5 60 3 1.9 2.0 0 50 2 40 2 -5 30 1 20 1 -10 10 0 -15 0 -1 2020 2021 2022 e 2023 e 2024f 2025f Debt-GDP(rhs) Primary balance (lhs) -1 GDP growth rate (lhs) 2018 2019 2020 2021 2022 2023 2024 2025 Source: World Bank. Source: World Bank staff estimates. Notes: e= estimate; f = forecast. MPO 28 Oct 23 inflows were smaller than expected. Still, reflects a slower pace of expansion in both will add another 0.7 percent of GDP to ex- robust Foreign Direct Investment (FDI) tourism and construction activity, as pub- penditures compared to pre-pandemic lev- helped finance the external deficit and ad- lic investments are expected to scale back els. Measures aimed at boosting economic ditional loans from multilateral and bilat- due to the binding fiscal rules. Nonethe- recovery will result in revenue losses. A eral development partners. Reserves im- less, robust private investment is expected strong recovery in tax revenue collection proved in 2022 to 5 months of imports. to continue to support construction activ- and additional revenue enhancement mea- The fiscal surplus improved in 2022. Tax ity. The implementation of structural and sures, estimated at EC$5.5 million annual- revenue rose to 22.7 percent of GDP in climate resilience reforms is also expected ly, such as a higher VAT on “sin” prod- 2022, 5 percent higher than in 2021, thanks to positively contribute to output. As the ucts, is expected to offset the additional to the economic recovery and higher economy recovers, unemployment and spending and maintain the primary bal- prices. Grant receipts included a one-off poverty are expected to continue their de- ance above the FRA target over the medi- EC$81 million grant from St. George’s Uni- cline in 2023 and 2024. National poverty is um term. Public debt will continue to de- versity and another from Saudi Arabia for projected to reach 28.2 percent in 2023 and cline, supported by output growth, fiscal EC$27 million. These improvements more 26.9 percent in 2024, returning to pre-pan- surplus, and declining debt service pay- than compensated for the one-off pension- demic levels in 2025. Inflation is expect- ments, and is expected to reach 55.1 per- related payment of EC$85 million and oth- ed to peak at 3.0 percent by end-2023 and cent of GDP by 2025. er additional expenditure measures of gradually abate thereafter, reflecting a Risks to the outlook are substantial and about 2.6 percent of GDP. The fiscal sur- slow pass-through of international prices encompass uncertainty in tourism mar- plus and higher growth lowered public to domestic prices following the reduction kets, a sharp rise in global prices, and debt from 71.0 percent of GDP in 2021 to of temporary relief measures. natural disasters. Domestically, higher- 64.6 percent in 2022. The Government has made progress in re- than-expected pensions, other contingent turning to the FRA in 2023. On the expen- liabilities, and the new unemployment in- diture side, the Government plans to cau- surance scheme, if not adequately fund- tiously increase the wage bill while staying ed, could place additional stress on public Outlook within the FRA ceiling of 9 percent of GDP. finances. The government’s commitment CBI inflows are projected to taper off fol- to the FRA will contribute to improving Real output growth is projected to moder- lowing significant increases in 2022–23, its financial position while implementing ate in 2023 to 3.9 percent, with an average providing less financing for capital spend- the Disaster Risk Strategy (DRS) should of 3.7 percent over the medium term. This ing. Additional annual pension obligations mitigate climate-related risks. TABLE 2 Grenada / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f a Real GDP growth, at constant market prices -13.8 4.7 6.4 3.9 3.8 3.5 a Real GDP growth, at constant factor prices -13.7 5.2 6.2 3.9 3.8 3.5 Agriculture -14.5 15.7 -11.0 3.0 2.3 2.7 Industry -14.8 15.3 12.7 3.9 3.4 4.0 Services -13.4 2.0 6.1 4.0 4.0 3.4 Inflation (consumer price index) -0.8 1.9 2.9 3.0 2.9 2.0 Current account balance (% of GDP) -16.4 -13.2 -17.3 -14.8 -13.2 -12.2 b Fiscal Balance (% of GDP) -4.5 0.3 1.0 2.1 1.9 2.0 Revenues (% of GDP) 28.1 32.1 33.7 30.4 29.3 28.8 Debt (% of GDP) 71.4 71.0 64.6 63.9 60.2 55.1 b Primary Balance (% of GDP) -2.6 2.2 2.7 3.8 3.4 3.4 GHG emissions growth (mtCO2e) -13.4 4.0 1.7 1.5 1.3 0.9 Energy related GHG emissions (% of total) 13.6 13.6 13.6 13.6 13.4 13.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ The estimates for the fiscal balance and primary balance for 2020 excluded the Grenlec-related payment. MPO 29 Oct 23 GUATEMALA Key conditions and Recent developments challenges Guatemala has returned to stable and above-LAC average economic growth. Table 1 2022 Despite steady growth and high remit- GDP grew 4.1 in 2022 and 3.7 percent in Population, million 17.3 tances, Guatemala’s poverty, inequality, the first quarter of 2023, led by govern- GDP, current US$ billion 92.7 and child malnutrition levels remain ment consumption and investment. The GDP per capita, current US$ 5346.6 high. Poverty remained stagnant through- monthly activity index grew 3.7 percent a 9.5 International poverty rate ($2.15) out 2014-2019, limited by a decline in la- up to June, suggesting robust growth go- a 25.9 bor income across all education levels. ing into 2023Q3. Lower middle-income poverty rate ($3.65) a 55.4 Moreover, only 43.1 percent of the pop- Solid GDP growth, however, has not yet Upper middle-income poverty rate ($6.85) Gini index a 48.3 ulation had access to basic services (in- translated into better labor market perfor- School enrollment, primary (% gross) b 102.0 cluding potable water, sanitation, electric- mance. While GDP reached the pre-pan- b 69.2 ity, and trash collection) in 2022, reflect- demic level in mid-2020 and is catching Life expectancy at birth, years ing social and racial exclusion and geo- up with the pre-pandemic forecast level, Total GHG emissions (mtCO2e) 39.7 graphical disparities. Malnutrition affects employment levels are still below those of Source: WDI, Macro Poverty Outlook, and official data. nearly half of all children. 2019. In addition, 71.1 percent of the occu- a/ Most recent value (2014), 2017 PPPs. b/ Most recent WDI value (2021). Guatemala has implemented a prudent pied population is employed in the infor- macroeconomic policy, recognized by re- mal sector (ENEI 2022), above the pre-pan- cent rating upgrades and low sovereign demic level of 65.3 percent. spreads. It has a historically low tax rev- Inflation accelerated in 2022 and peaked enue, translating into low spending, public in February 2023 (9.9 percent), pushed by Supported by sound macroeconomic poli- debt, and fiscal deficit, but high debt ser- food (15.4 percent) and transport prices cies and slightly expansionary fiscal poli- vice costs relative to revenues. A policy (7.8 percent). The central bank increased cies, Guatemala’s economy is showing re- combination that is insufficient to address interest rates with some delay, which com- silience with stable and above-LAC aver- key development gaps. Remittances (19 bined with ample liquidity in the economy percent of GDP in 2022) are an important and long monetary policy lags led to per- age growth. Poverty has declined but re- driver of economic activity, underpinning sistent high inflation. However, inflation mains above pre-pandemic levels. The private consumption and contributing to dropped to 4.5 percent in July 2023 as food new administration, starting January the current account balance. A weak busi- (6.5 percent) and transportation price (-2.2 2024, will need to expand investment in ness environment deters investment and percent) pressures eased. human capital and infrastructure within undermines growth. In 2022, while lower inflation and GDP A new congress and president were elect- growth contributed to poverty reduction, a fiscally sustainable framework and build ed recently. A key challenge for the new labor market outcomes limited progress, consensus around reforms to create for- administration, which will not enjoy a ma- and poverty (U$6.85 2017 PPP line) is ex- mal jobs and promote inclusive growth. jority in Congress, is to foster consensus pected to decline only slightly to 56 per- around critical reforms in support of inclu- cent, while inequality is expected to reach sive growth and vulnerable populations. 0.49, measured by the Gini coefficient. FIGURE 1 Guatemala / Consumer price inflation and FIGURE 2 Guatemala / Actual and projected poverty rates selected sub categories (y/y) and real private consumption per capita Percent (y/y) Poverty rate (%) Real private consumption per capita (constant LCU) 30 70 35000 CPI Food 25 60 30000 Services Transportation 20 50 25000 15 40 20000 10 30 15000 5 20 10000 0 10 5000 -5 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -10 International poverty rate Lower middle-income pov. rate Jan '20 Jul '20 Jan '21 Jul '21 Jan '22 Jul '22 Jan '23 Jul '23 Upper middle-income pov. rate Real priv. cons. pc Source: Guatemala National Statistics Institute. Source: World Bank. Notes: see Table 2. MPO 30 Oct 23 Total credit in the economy grew 22.5 per- increased by 50 and 16 percent respective- inequality reduction, but unless formal cent in June 2023, accelerating from 2022, ly. The overall balance went from a surplus employment increases, progress is likely led by consumption credit, especially cred- (0.1 percent of GDP) in the first half of 2022 to be subdued. Therefore, poverty is pro- it card debt. Banking system indicators re- to a deficit (0.7 percent of GDP) in the same jected to decline modestly to 55.1 in 2023 mained solid with non-performing loans at period of 2023, due to large ad-hoc expen- and 54.3 in 2024, close to pre-pandemic 1.35 percent of gross loans. diture increases prior to the elections. Pub- levels. Inequality is expected to decline Guatemala maintained a current account lic debt stood at 29.3 percent of GDP in slightly to 0.489 in 2023. surplus of 3.8 percent of GDP in the first June 2023, and the country’s sovereign rat- The fiscal accounts are expected to im- quarter of 2023 driven by a lower trade ing was upgraded by major rating agencies prove slightly in 2023. The government deficit and higher remittances. Both ex- and is now one notch below investment has tightened expenditure controls for ports and imports declined in value: 7.8 grade according to Moody’s and two the second half of 2023, which if sus- percent and 7.3 percent respectively until notches according to S&P and Fitch. tained into 2024 and combined with bet- June - the volume of exports fell more than ter tax enforcement, especially on VAT, the volume of imports (-9.6 vs. -5.6 per- will reduce the fiscal deficit. In the cent). Remittances grew 10.9 percent in the medium term, the new administration first half of 2023, lower than in 2022, but Outlook faces the challenge of implementing its still higher than the historical average. The ambitious policy program in a fiscally exchange rate showed little fluctuation GDP is growing near its potential over the sustainable manner. during the first half of 2023 and interna- medium term, supported by solid growth The main risks to the scenario are a reces- tional reserves were kept above US$20 mil- in the US, continued credit growth, and sion in the US and the impact of El Niño. lion, close to eight months of imports. strong remittance inflows, which will also The first would reduce remittances and Fiscal accounts deteriorated in the first half keep the current account balance in sur- Guatemalan exports affecting growth and of 2023. Revenues increased by 9.8 percent plus. Inflation is expected to converge to the current account, while the second while expenditures grew by 16.3 percent the target (4 percent end-of-period infla- would cause food prices to increase, affect in the same period. The increase in expen- tion) by the end of 2023. growth through reduced agricultural out- ditures was driven by goods and services, Moderate economic growth and disin- put, and negatively impact the most vul- and transfers to local governments, which flation will contribute to poverty and nerable segments of the population. TABLE 2 Guatemala / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -1.8 8.0 4.1 3.4 3.5 3.5 Private consumption -1.4 8.9 4.2 3.4 3.7 3.7 Government consumption 1.5 5.0 5.9 2.6 1.9 1.8 Gross fixed capital investment -6.2 20.8 5.6 5.5 4.1 4.1 Exports, goods and services -7.7 11.7 6.3 3.0 3.3 3.3 Imports, goods and services -5.7 22.1 6.5 3.7 3.6 3.6 Real GDP growth, at constant factor prices -1.8 8.0 4.1 3.4 3.5 3.5 Agriculture -0.2 3.5 2.3 2.4 2.4 2.4 Industry -1.2 8.4 2.6 2.8 2.8 2.8 Services -2.2 8.5 4.9 3.8 3.9 3.9 Inflation (consumer price index) 3.2 4.3 6.9 5.9 4.3 3.7 Current account balance (% of GDP) 5.1 2.5 1.1 1.5 1.1 1.4 Net foreign direct investment inflow (% of GDP) 1.0 3.8 1.3 1.3 1.4 1.3 Fiscal balance (% of GDP) -4.9 -1.2 -1.8 -1.6 -1.2 -0.7 Revenues (% of GDP) 10.7 12.3 13.0 13.0 13.1 13.3 Debt (% of GDP) 31.6 30.8 30.9 31.1 30.8 30.3 Primary balance (% of GDP) -3.2 0.5 -0.1 0.0 0.4 0.8 a,b International poverty rate ($2.15 in 2017 PPP) 12.7 10.8 10.4 10.0 9.6 9.6 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 29.8 28.1 27.4 26.5 25.6 25.2 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 59.0 57.0 56.0 55.1 54.3 54.1 GHG emissions growth (mtCO2e) 0.2 2.2 0.7 1.3 1.5 1.7 Energy related GHG emissions (% of total) 53.8 53.1 52.6 52.2 51.9 51.7 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2014-ENCOVI. Actual data: 2014. Nowcast: 2015-2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 31 Oct 23 Rising budget resources present opportu- nities and risks for Guyana. They have GUYANA Key conditions and allowed the government to respond to the global pandemic and inflation while challenges scaling up spending to address infra- structure gaps and human development Table 1 2022 Guyana is a small state with abundant nat- needs. The efficient use and management Population, million 0.8 ural resources including significant oil and of O&G revenues to support growth in GDP, current US$ billion 14.7 gas (O&G) reserves and extensive forest the non-oil economy and prevent “Dutch GDP per capita, current US$ 18199.5 cover. With a large part of its territorial Disease” effects are critical. Sound man- a 97.8 School enrollment, primary (% gross) waters still unexplored, Guyana’s gross oil agement of the O&G sector necessitates a 65.7 resources are conservatively estimated at strengthening governance and proactive Life expectancy at birth, years Total GHG emissions (mtCO2e) 26.9 over 11 billion barrels. The start of oil pro- public financial management practices Source: WDI, Macro Poverty Outlook, and official data. duction in 2019 led to an unprecedented while boosting transparency and account- a/ WDI for School enrollment (2012); Life expectancy rate of economic growth, resulting in the ability to avoid increased social polariza- (2021). country being reclassified as high-income tion. The growing oil sector also increas- as of July 2023. es the urgency to advance the implemen- While Guyana is experiencing accelerated tation of the government’s Low Carbon economic growth, Amerindians and those Development Strategy 2030. living in the hinterland still endure pover- ty and social exclusion. The development of the O&G sector has allowed a notable scale-up of investments in infrastructure to Recent developments Guyana has emerged as one of the world's support growth in other industries. With fastest-growing economies following the over 70 percent of the working-age popu- Guyana’s economy expanded at a record development of its oil and gas sector. In lation residing in rural areas in 2021, agri- pace in 2022 amid increased oil produc- culture, forestry, and fishing remain rele- tion. Real GDP expanded by 63.4 percent, light of the substantial oil revenues, the vant for jobs and poverty reduction. exceeding the annual average growth rate government is implementing an aggres- Guyana’s oil revenues are held at the Natur- of 31.8 percent since the start of oil extrac- sive investment program to structurally al Resource Fund (NRF), outside of the econ- tion. Oil GDP more than doubled in 2022, transform the non-oil economy and ad- omy, to mitigate exchange rate pressures. with production rising to approximately Transfers to the budget are expected to ap- 278,000 barrels per day (bpd). The non-oil dress its development needs. proximate 5 percent of GDP (and over 35 economy grew by 11.6 percent, as a result percent of fiscal revenues) in the medium of increased agricultural yields, growth in term, based on withdrawal rules of the 2021 construction, expansion in mining and NRF Act. The country is also advancing ini- support services for the O&G industries, tiatives to sell carbon credits which repre- as well as a pickup in services. The strong sent an additional source of fiscal revenues growth momentum continued in the first and will be partly employed in the sustain- half of 2023, with real non-oil GDP growth able management of its forests. estimated at 12.3 percent. FIGURE 1 Guyana / Oil production, real oil, and real non-oil FIGURE 2 Guyana / Fiscal balances and Natural Resource GDP, 2020-2025 Fund transfers Real GDP (G$B, 2012 prices) Oil production (thousand barrels per day) Percent of GDP Percent of non-oil GDP 7,000 800 6 0 6,000 700 -2 5 600 -4 5,000 4 500 -6 4,000 400 3 -8 3,000 300 -10 2 2,000 200 -12 1,000 1 100 -14 0 0 0 -16 2020 2021 2022 e 2023 f 2024 f 2025 f 2020 2021 2022 e 2023 f 2024 f 2025 f Oil GDP Non-Oil GDP Oil Production (rhs) NRF transfers (lhs) Fiscal Balance Primary Balance Source: Government of Guyana and World Bank staff estimates. Notes: e=esti- Sources: Guyana Ministry of Finance and World Bank staff estimates. mate, f=forecast. 2023 values assume full-capacity production in Liza I and II, Notes: e=estimate, f=forecast. and 2024 values assume the additional full operation of Liza Prosperity (Payara). MPO 32 Oct 23 The urban consumer price index in- GDP in 2022, 14.1 percentage points low- poor and vulnerable households, as well creased by an average of 6.4 percent in er than in 2021, as the economy grows. In as on translating the good performance of 2022, primarily due to rising fuel and August 2023, the government approved the non-oil economy into jobs. food prices globally. Higher living costs hikes in the external and domestic debt The fiscal deficit is projected to average disproportionately affected the poor and ceilings, from $650b to $900b and from 13.7 percent of non-oil GDP as the increase vulnerable, who spend a larger portion $500b to $750b respectively. A current in capital spending outstrips NRF trans- of their budget on food, and jeopardized account surplus of 26.0 percent of GDP fers. Public debt is expected to expand in food security. Price increases slowed in was recorded in 2022, reflecting increased 2023, with domestic debt increasing due to the first half of 2023, with an average in- earnings from oil exports. higher issuance of treasury bills, but will flation rate of 4.3 percent. The nominal remain low in the medium term, at ap- exchange rate has remained stable since proximately 25 percent of GDP. Increased 2019 through periodic intervention, while exports of oil, gold, and bauxite will result the real effective exchange rate appreciat- Outlook in an average current account surplus of ed slightly in 2022. nearly 20 percent of GDP over the medium The fiscal deficit was 11.7 percent of non- Guyana's economy is expected to contin- term, notwithstanding a smaller surplus in oil GDP in 2022, despite significant trans- ue the strong expansion in the medium 2023 amid the importation of Guyana’s fers from the NRF. The first year of trans- term, with rising oil production driving third oil vessel. fers from the NRF approximated US$608 the overall growth path. The introduction The extractive sector is the dominant million (4.1 percent of GDP) in 2022 and of the third vessel, Liza Prosperity, is source of growth and fiscal revenues. is expected to grow to US$1 billion (5.8 expected by the end of 2023 and will This increases the country’s susceptibility percent of GDP) in 2023. As of June 2023, increase production capacity by around to oil-related shocks and requires proac- the closing balance in the NRF amounted 220,000 bpd, reflected in the steep growth tive management. Prudent NRF manage- to US$1.72 billion. Fiscal policy focused projection for 2024. The fourth develop- ment and strengthening the medium- on increasing capital investment to sup- ment project, Yellowtail, is expected to term fiscal framework are critical to pre- port non-oil economy growth while pro- start operation in 2025, further increasing venting the economy from overheating. viding relief to citizens from the adverse production capacity and oil GDP growth. Oil production has environmental conse- impact of the pandemic and rising prices. Real non-oil GDP is projected to expand quences that must be carefully consid- Relief efforts to increase household in- by an average of 7.7 percent per year in- ered, and the sector may face addition- comes and reduce poverty included di- cluding through positive spillovers from al risks amid global decarbonization ef- rect and indirect income support, with the oil sector. Inflation will slow but re- forts. Addressing climate change risks re- adjustments to the income tax threshold main elevated due to increased govern- mains central to poverty reduction giv- and a reduction in the fuel excise tax. ment consumption and higher input en that sea level rise and flooding expose The public debt-to-GDP ratio is estimated costs. Poverty reduction will depend on large segments of the population to food to have declined to 24.8 percent of total efforts to boost the purchasing power of insecurity and job losses. TABLE 2 Guyana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f a Real GDP growth, at market prices (total) 43.5 20.1 63.4 29.0 38.2 15.2 b Real GDP growth, at market prices (non-oil) -7.3 4.6 11.6 9.3 7.2 6.7 Agriculture 4.1 -9.1 11.9 6.3 4.0 3.5 Industry -10.5 5.0 12.7 14.4 10.1 8.9 Services -9.9 12.1 9.3 7.8 7.4 6.8 Inflation (consumer price index) 0.8 4.8 6.4 5.5 5.3 5.1 c Current Account Balance (% of GDP) -17.1 -24.8 26.0 16.9 21.3 19.8 d Fiscal Balance (% of GDP) -9.4 -10.1 -11.7 -15.2 -13.2 -12.8 Debt (% of GDP) 47.4 38.9 24.8 26.8 25.2 24.5 d Primary Balance (% of GDP) -8.6 -9.4 -11.1 -14.2 -12.3 -11.6 GHG emissions growth (mtCO2e) 11.9 4.9 15.9 12.2 15.8 8.1 Energy related GHG emissions (% of total) 21.8 24.7 33.5 39.4 46.4 49.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Total GDP at 2012 prices. b/ Non-oil GDP at 2012 prices. c/ BOP definition in current US$. d/ Share of non-oil GDP. MPO 33 Oct 23 by 2.9 percent in H1 FY23, amid insecuri- ty from gang violence and continued un- HAITI Key conditions and certainty around the political process. On the supply side, all sectors contributed to challenges the economic decline. Agriculture, which engages over 40 percent of the labor Table 1 2022 Haiti’s economic performance continues force, registered the largest decline (-5.0 Population, million 11.6 to be hampered by political crisis and percent). This has likely increased pover- GDP, current US$ billion 20.2 gang violence. Vulnerable to natural haz- ty and food insecurity because most poor GDP per capita, current US$ 1745.9 ard shocks and with weak disaster risk households derive their livelihoods in a 29.2 International poverty rate ($2.15) management and response systems, Haiti that sector. Therefore, increasing agricul- a 58.0 is ill-suited to cope with the effects of tural productivity remains a key policy Lower middle-income poverty rate ($3.65) a 85.8 climate change. Already limited human priority to promote inclusive growth and Upper middle-income poverty rate ($6.85) Gini index a 41.1 capital and institutional capability are be- improve equity. Life expectancy at birth, years b 63.2 ing depleted by insecurity from gang The textile sector, the largest formal pri- Total GHG emissions (mtCO2e) 11.2 warfare that has emerged as the binding vate sector employer, shed more than constraint to growth. Violent gangs 20,000 jobs (roughly one-third of the to- Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2012), 2017 PPPs. sprang up from poor neighborhoods due tal) since the beginning of the fiscal b/ Most recent WDI value (2021). partly to limited public investment in ed- year, due to insecurity. In the current ucation combined with a weak business context of limited economic opportuni- environment that limited job opportuni- ties, these layoffs are likely to push a ties for youth. large share of these workers and their Headline inflation is trending down but families into poverty. food inflation remains high, impacting Construction, production of electricity The political crisis coupled with gang vio- poor households the hardest. In line with and water, all three harbingers of fu- lence continues to negatively impact eco- a widening output gap, core inflation is ture growth, continue their decline. nomic activity, with output declining in declining after having peaked in Janu- Services contracted by 2.6 percent, led H1 FY23, hindering poverty reduction. ary from second-round pass-through ef- by hospitality. fects of retail fuel price adjustments in Tax revenue collection improved by 59.8 Inflation remained high but is decelerat- Q1 FY23. Keeping inflation on a down- percent at the end of June 2023, thanks to ing thanks to monetary policy tightening. ward trend will require addressing fiscal tighter control at the customs administra- Despite challenging conditions for the ex- pressures from chronically low tax rev- tion and higher oil tax revenue. Tax to GDP port-oriented textile sector, higher remit- enue collection. remains weak, however, owing to the eco- nomic slump and governance issues at the tances inflow and a slowing of imports customs and tax administrations. amid collapsing investment resulted in a Nonetheless, energy subsidy cuts and re- current account surplus, easing external Recent developments trenchment of capital spending helped im- financing needs. prove the fiscal position, lowering financ- Output decline continued as the in- ing needs and supporting fiscal consolida- dex of economic activity contracted tion efforts. This provided room for the FIGURE 1 Haiti / Sectoral growth rates, y/y, Q2 FY23 FIGURE 2 Haiti / Actual and projected poverty rates and real GDP per capita Percent change Poverty rate (%) Real GDP per capita (constant LCU) Non-market services 100 62000 Other market services 90 60000 Financial institutions 80 58000 Transport and communication 70 Hotel and restaurants 56000 Commerce 60 54000 Electricity and Water 50 52000 Construction 40 50000 Manufacturing 30 Mining and quarrying 20 48000 Agriculture 10 46000 ICAE 0 44000 2012 2014 2016 2018 2020 2022 2024 -20 -15 -10 -5 0 5 10 International poverty rate Lower middle-income pov. rate Tertiary = -2.6 Secondary = -2.3 Primary = -5.1 ICAE = -2.9 Upper middle-income pov. rate Real GDP pc Source: Haiti Statistical Office (IHSI). Source: World Bank. Notes: see Table 2. MPO 34 Oct 23 central bank to anchor its price stability ob- above 40 percent on average. The ensuing jective, through a 74 percent reduction y- erosion of household purchasing power o-y of monetary financing of the deficit at Outlook and the continuing economic slump are ex- the end of June, helping to decelerate in- pected to exacerbate poverty and food in- flation, which peaked at 49.3 percent y-o-y Private investment will continue to de- security. The effects of lower imports plus in January from the effect of fuel subsidy cline amid security concerns while per- higher remittances will offset the expected adjustment in December to 39.7 percent in sistent higher prices will dampen private drop in exports, leading to a current ac- July. Although on a downward trend, in- consumption, despite social protection count surplus of 1.0 percent of GDP. Over flation remains high, especially food infla- programs being implemented. GDP is ex- the medium term, as investment picks up, tion (46.1 percent on average over the pe- pected to contract by 2.5 percent in FY23. the current account is expected to register riod compared to 27.7 percent last year). In the baseline, growth is expected to a deficit above 2.0 percent of GDP. With The drivers of high inflation are continued firm up into positive territory with a re- growing security concerns and a deterio- monetization of fiscal deficit, low agricul- bound of 1.3 percent in 2024, assuming rating business environment, FDI inflow tural productivity, and gang warfare im- stabilization of the political context and currently at 0.1 percent of GDP is expected peding the seamless movement of goods improvements in security. However, with to remain well below the CAD. Besides from production sites to markets, with at- real GDP per capita growth of just 0.1 boosting exports or cutting down non-es- tendant consequences on the poor and vul- percent expected for 2024, the poverty sential imports, Haiti’s other CAD financ- nerable households. As of June 2023, 49 rate (US$3.65 per day, 2017 PPP) will re- ing option is the continuous depletion of percent of Haiti’s population was estimat- main at 63.2 percent. forex reserves, which could precipitate de- ed to be acutely food insecure. The ex- With the decline in energy subsidies and preciation of the currency and fuel infla- change rate appreciated by 0.1 percent the resulting emerging fiscal space, the fis- tion, with further aggravating conse- over the period, compared to a 1.7 percent cal deficit is expected to narrow to 2.0 per- quences for the poor. depreciation in the previous period. In the cent of GDP in FY23. Fiscal consolidation Effective management of inflation external sector, exports declined by 20 per- efforts are expected to continue over the through balanced macroeconomic inter- cent, principally due to textile sector per- medium term on revenue hikes, bringing ventions will remain key for macroeco- formance. Imports edged down just 1 per- the fiscal deficit below the 2.0 percent of nomic stability and growth prospects. Re- cent over the same period pushed up by GDP mark. ducing disaster risks through strengthen- higher fuel and food import bills. Remit- Sustained high fuel prices, low agricultural ing the institutional framework and re- tances advanced by 8 percent, boosted by productivity, and the closing of the border sponse system remains essential for inclu- favorable economic prospects in the USA, between Haiti and the Dominican Repub- sive growth. A slower-than-expected im- where upward of 70 percent of remittances lic will exert further price pressures, with provement in the security situation is a to Haiti originate. inflation expected to close the fiscal year significant downside risk. TABLE 2 Haiti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019/20 2020/21 2021/22 2022/23e 2023/24f 2024/25f Real GDP growth, at constant market prices -3.3 -1.8 -1.7 -2.5 1.3 2.2 Private consumption -4.0 1.2 -0.7 -1.6 0.7 0.6 Government consumption 11.1 9.7 21.7 18.8 8.2 15.2 Gross fixed capital investment -20.6 -21.8 -13.8 -42.5 10.4 14.8 Exports, goods and services -39.7 1.4 2.4 -2.6 2.8 2.1 Imports, goods and services -18.3 2.7 4.9 -2.7 4.0 5.5 Real GDP growth, at constant factor prices -2.9 -2.5 -2.1 -2.6 1.3 2.1 Agriculture -2.5 -4.1 -4.5 -4.1 2.0 2.0 Industry -6.9 -2.5 -0.4 -1.1 1.5 1.5 Services -1.2 -2.0 -2.1 -2.8 1.0 2.5 Inflation (consumer price index) 22.9 15.9 27.6 44.2 26.0 22.6 Current account balance (% of GDP) 1.1 0.5 -2.5 0.8 -2.5 -3.2 Net foreign direct investment inflow (% of GDP) 0.2 0.2 0.2 0.1 0.3 0.3 Fiscal balance (% of GDP) -3.0 -2.5 -3.2 -2.2 -2.3 -1.4 Revenues (% of GDP) 7.5 6.9 6.6 7.7 7.9 7.7 Debt (% of GDP) 23.5 28.4 27.6 29.2 29.8 26.6 Primary balance (% of GDP) -2.7 -2.2 -2.9 -1.9 -2.0 -1.1 a,b International poverty rate ($2.15 in 2017 PPP) 29.9 31.3 32.3 34.3 34.3 34.0 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 58.9 60.1 61.6 63.2 63.2 62.6 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 86.4 87.5 88.0 88.7 88.7 88.4 GHG emissions growth (mtCO2e) -0.8 1.2 0.5 -0.4 1.6 1.0 Energy related GHG emissions (% of total) 35.5 35.5 35.0 33.8 34.1 34.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2012-ECVMAS. Actual data: 2012. Nowcast: 2013-2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2012) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 35 Oct 23 production, particularly in agriculture, and together with the pandemic, resulted HONDURAS Key conditions and in a 9 percent GDP contraction, increas- ing poverty (US$6.85 line) by 8.2 pp, to challenges 57.7 percent. Table 1 2022 Honduras – a lower middle-income coun- Population, million 10.4 try - experienced moderate growth averag- GDP, current US$ billion 31.5 ing 3.1 percent between 2010-2019. Growth Recent developments GDP per capita, current US$ 3021.6 relies on remittance-fueled household con- a 12.7 International poverty rate ($2.15) sumption and is supported by prudent Real GDP grew 4 percent in 2022 as high a 26.4 macroeconomic management anchored in remittances fueled household consump- Lower middle-income poverty rate ($3.65) a 49.5 the Fiscal Responsibility Law (FRL), a tion. However, growth in 2023 is slow- Upper middle-income poverty rate ($6.85) Gini index a 48.2 crawling peg with adequate foreign re- ing. The economy grew 1.9 percent in School enrollment, primary (% gross) b 96.5 serves, and a sound financial sector. How- Q1-2023 y-o-y but contracted 0.2 percent b 70.1 ever, productive capacity remains weak. from Q4-2022, as lower textile/garment Life expectancy at birth, years Agriculture and light manufacturing, es- and vehicle harness production led to a Total GHG emissions (mtCO2e) 29.3 pecially textiles and garments, are major decline in overall manufacturing by 5.2 Source: WDI, Macro Poverty Outlook, and official data. sources of employment and exports, main- percent (y-o-y). a/ Most recent value (2019), 2017 PPPs. b/ WDI for School enrollment (2012); Life expectancy ly to the US. Weak institutions, a challeng- After peaking at 9.1 percent in 2022 (the (2021). ing business environment, and extremely highest since 2008) amid an accommoda- high crime deter investment and tourism, tive monetary policy stance, whereby the limiting economic growth. central bank maintained the key policy Despite moderate growth, Honduras still rate at 3 percent, headline inflation has de- Real GDP grew by 4 percent in 2022, faces persistently high poverty, with half clined since February 2023 to 5.7 percent its population living under the poverty in August, reflecting declining internation- primarily due to increased consumption line (US$6.85 per day, 2017 PPP) in 2019. al food inflation. This boosted household by households fueled by remittances, Poverty is particularly high in rural areas, consumption, but the labor market re- and private investment. Growth is ex- where it reaches 70 percent, explained by mained weak as unemployment decreased pected to slow down in 2023 as export stagnant agricultural income and high vul- only slightly, from 8.7 percent in 2022 to nerability to weather shocks. Inequality re- 7.4 percent in March 2023, and remained growth declines and remittances nor- mains high (Gini coefficient of 0.48 in above pre-pandemic levels. Poverty malize after exceptionally high inflows 2019), and food insecurity affected one- (US$6.85 line) is estimated at 52.4 percent in 2022. Although lower inflation has third of the population in 2021. Gender in 2022, a modest decline from 2021 and al- contributed to poverty reduction, slower and geographic disparities in the labor so above pre-pandemic levels. economic growth and a labor market market are persistent. Despite unfavorable terms of trade, the Honduras is highly vulnerable to climate current account deficit narrowed from 4.7 that has not reached pre-pandemic levels percent of GDP in 2021 to 3.2 percent in change, and areas more exposed to nat- are limiting progress. ural hazards tend to have higher poverty. 2022, driven by strong remittances. It was In 2020, hurricanes Eta and Iota impacted primarily financed by multilateral loans FIGURE 1 Honduras / Real GDP growth and contributions to FIGURE 2 Honduras / Actual and projected poverty rates real GDP growth and real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 40 70 25000 30 60 20000 20 50 10 15000 40 0 30 10000 -10 20 -20 5000 10 -30 2010 2013 2016 2019 2022 2025 0 0 Gov. cons. Exports GFCF 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real priv. cons. pc Sources: Central Bank of Honduras and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 36 Oct 23 and FDI. In Q1-2023, the current account high 2022 inflows, increasing the current reached a surplus of 0.9 percent of GDP, account deficit to 4.7 percent of GDP. Yet, helped by shrinking merchandise and ser- Outlook foreign reserves are expected to cover at vices trade deficits. However, net FDI least five months of imports. dropped significantly, by 40 percent q- Real GDP growth is expected to slow down Growth is projected to remain subdued at 3 o-q, explained by large outflows in the to 3.2 percent in 2023, due to low private in- percent in 2024 in line with lower US growth transport, storage, and communications vestment, slower exports and remittances projections, and increase to 3.4 percent in sectors and lower inflows in retail and growth, and weak budget execution. Never- 2025, supported by stronger remittances wholesale, hotels, and restaurants, due to theless, continued remittance inflows and exports as US growth accelerates, and lower manufacturing demand and intra- paired with lower inflation, especially in rising public investment as budget execu- firm financial flows. food, will sustain private consumption tion bottlenecks are overcome, external fi- The fiscal deficit narrowed from 3.7 per- growth. Poverty incidence is expected to nancing for pipeline projects is secured, and cent of GDP in 2021 to 0.24 percent in 2022 decline slightly in 2023 to 51.8 percent and domestic financial markets deepen. Disin- due to low budget execution (42.1 percent) may increase if downside risks materialize, flation would continue, in line with interna- and robust corporate income tax revenues. while inequality (Gini coefficient) is ex- tional prices. The fiscal deficit will gradually Public debt reached 52.3 percent of GDP pected to reach 0.47. Poverty is expected to narrow over the medium term, trending to- in 2022, slightly up from 51.6 percent in continue declining in 2024 and 2025, get- ward the FRL’s 1 percent target, supported 2021, due to recognition of previously un- ting closer to pre-pandemic levels. by revenue mobilization measures, en- accounted domestic debt. A staff-level With declining import prices, inflation is hanced public spending efficiency, and bud- agreement with the IMF was announced projected to continue trending downward get reallocations. on August 11, on a 36-month program for in 2023, averaging above the upper band Downside risks cast uncertainty. Global about US$830 million supporting reforms of the central bank’s target range (4±1 per- prices could rise, fueling inflation. Slower- to create fiscal space for urgent social cent). The fiscal deficit is projected to than-expected fiscal consolidation and ad- spending and investment, while anchoring widen to 2 percent due to improving bud- verse climate events might increase financ- macroeconomic stability. On April 13, the get execution (as capacity constraints are ing needs. Persistent capacity constraints central bank reinstated an auction mech- tackled) and revenue loss from a fuel sub- and legislative gridlock could stall social anism used between 1994 and 2021 to re- sidy. A weaker external position is antici- and structural reforms, leading to social place market-based foreign exchange allo- pated in 2023 due to slower growth of ex- unrest, business climate deterioration, cation, seeking to improve the equity of ac- ports and especially of remittances, as they lower investment and growth, and wors- cess to forex across banks and the public. normalize following the exceptionally ening labor market and living conditions. TABLE 2 Honduras / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -9.0 12.5 4.0 3.2 3.0 3.4 Private consumption -6.2 15.1 5.0 3.7 3.6 3.6 Government consumption 2.9 8.5 0.8 1.1 0.1 0.1 Gross fixed capital investment -23.8 33.3 -0.7 3.7 4.3 4.7 Exports, goods and services -20.8 21.5 5.8 4.5 4.1 4.9 Imports, goods and services -18.5 33.0 4.8 4.6 4.3 4.4 Real GDP growth, at constant factor prices -9.0 12.5 4.0 3.2 3.0 3.4 Agriculture -6.3 0.4 -0.7 3.6 3.9 4.0 Industry -14.3 20.1 5.3 4.2 4.1 4.5 Services -7.2 12.5 4.5 2.6 2.3 2.7 Inflation (consumer price index) 3.5 4.5 9.1 6.5 4.6 4.2 Current account balance (% of GDP) 2.8 -4.7 -3.2 -4.7 -4.7 -4.6 Net foreign direct investment inflow (% of GDP) 1.6 1.8 2.0 1.9 2.0 2.0 a Fiscal Balance (% of GDP) -5.5 -3.7 -0.2 -2.0 -1.7 -1.4 Revenues (% of GDP) 28.2 30.0 29.6 28.6 28.4 29.0 a Debt (% of GDP) 54.1 51.6 52.3 51.8 51.2 50.4 a Primary Balance (% of GDP) -4.3 -2.8 0.4 -0.7 -0.2 0.0 b,c International poverty rate ($2.15 in 2017 PPP) 19.5 14.5 13.3 11.7 11.4 11.0 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 34.7 29.6 28.2 26.2 25.6 24.6 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 57.7 53.3 52.4 51.8 51.0 50.6 GHG emissions growth (mtCO2e) -5.0 8.1 1.5 0.4 1.3 1.5 Energy related GHG emissions (% of total) 33.9 36.4 36.3 35.6 35.5 35.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal data refers to non-financial public sector. b/ Calculations based on SEDLAC harmonization, using 2019-EPHPM. Actual data: 2019. Nowcast: 2020-2022. Forecasts are from 2023 to 2025. c/ Projections using microsimulation methodology. MPO 37 Oct 23 Furthermore, Jamaica is highly vulnera- ble to external shocks given its reliance JAMAICA Key conditions and on imports and tourism. Tourism and agriculture, which account for more than challenges a third of jobs, are vulnerable to external shocks, especially climate shocks, which Table 1 2022 Since 2013, Jamaica has successfully imple- could undermine growth and poverty re- Population, million 2.8 mented fiscal consolidation efforts, which duction. While the financial sector is GDP, current US$ billion 17.1 helped reduce the public debt-to-GDP ra- well-capitalized and liquid, it remains GDP per capita, current US$ 6064.1 tio by more than 50 percentage points. Fis- susceptible to various shocks. To a 90.6 School enrollment, primary (% gross) cal discipline and prudent macroeconomic strengthen fiscal, financial, and social re- a 70.5 management during the pandemic sped silience to climatic shocks, Jamaica has Life expectancy at birth, years Total GHG emissions (mtCO2e) 9.1 up post-pandemic recovery amidst the been gradually integrating climate Source: WDI, Macro Poverty Outlook, and official data. challenging external environment of infla- change adaptation into its policy frame- a/ WDI for School enrollment (2007); Life expectancy tionary pressures and tightening global fi- work. Progress in addressing anti-money (2021). nancial conditions. The social protection laundering regulations and counter-ter- system has been strengthened, which con- rorism financing combined with im- tributed to increased equity, social re- proved financial supervision is necessary silience, and poverty reduction. Notably, to attract private investment. the government was able to provide tem- porary assistance to vulnerable house- Structural policies and institutional re- holds and businesses to offset income loss- forms strengthened macroeconomic es, protect jobs, and stimulate demand. Recent developments management in recent years. This al- Additional assistance was provided to vul- lowed the government to respond to the nerable households to mitigate the poten- Real GDP is estimated to have expand- pandemic and inflation shocks without tial impact of rising prices. ed by 2.9 percent in the first half of However, relatively high debt-service 2023, reaching its pre-crisis level. impairing fiscal sustainability and costs crowd out other government spend- Growth was driven by net exports from poverty reduction objectives. Jamaica’s ing, including capital investment, which is an expansion in tourism and mining, real GDP reached its pre-crisis level in critical to boost growth. Jamaica has been whilst agriculture declined due to an ex- early 2023, and poverty is estimated to among the slowest growing economies in tended drought. Rising economic activ- LAC given its concentration in low pro- ity brought the unemployment rate to have declined towards pre-crisis levels. ductivity services, limited technology 4.5 percent in April 2023 - the lowest Progress in lowering public debt and adoption and innovation, a weak business level in history. The national poverty future poverty reduction may be slower environment, high connectivity costs, and rate is estimated to have declined to than expected if global economic condi- pervasive crime. Disruptions in learning 12.6 percent in 2022. Nevertheless, the tions deteriorate and if constraints to during the pandemic will have corrosive quality of employment remains a con- effects on the growth, human capital, and cern given continued high informality growth remain unaddressed. future earning potential of students if not and fewer average hours worked rela- addressed adequately. tive to pre-pandemic levels. FIGURE 1 Jamaica / Fiscal balances and public debt FIGURE 2 Jamaica / Actual and projected poverty rates and real GDP per capita Percent of GDP Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 120 110.5 8 25 340000 100 6 330000 94.7 20 320000 78.2 80 74.4 72.8 4 71.1 310000 15 60 2 300000 10 290000 40 0 280000 5 20 -2 270000 0 260000 0 -4 2015 2017 2019 2021 2023 2025 2020 2021 2022 2023 e 2024 f 2025 f National Poverty Line Real GDP pc Debt (lhs) Fiscal Balance Primary Balance Sources: Government of Jamaica, IMF, and World Bank staff estimates. Sources: Government of Jamaica and World Bank staff estimates. Notes: Poverty projections based on JSLC 2019, growth semi-elasticity of poverty=-1, and real GDP per capita. MPO 38 Oct 23 Annual inflation decelerated to 6.6 percent The current account recorded a deficit of 0.8 Thefiscalaccountisexpectedtorecordanav- in July 2023 – down from its peak of 11.8 percent of GDP in 2022 as high commodity erage annual surplus of 0.6 percent of GDP percent in April 2022, approaching the prices offset increasing earnings from over the medium term, with stronger rev- Bank of Jamaica (BOJ)’s reference range (5 tourism and remittances. Reserves remain enues underpinned by continued economic ±1 percent). Inflation was influenced by adequate, at US$4.1 bn (about 6 months of recovery. Spending is expected to decline lower global commodity prices, as well as imports and 24 percent of GDP) as of July slightly due to lower interest payments. As the effects of tight monetary and fiscal 2023. In this context, the exchange rate re- such, public debt is projected to remain on a policies. Nonetheless, food inflation re- mained relatively stable. downward trajectory with an expected 74.5 mained elevated at 11.3 percent in July percent of GDP for FY2023/24, declining to 2023 amid droughts, undermining house- 71.3 percent of GDP by FY2025/26. hold purchasing power. According to the External account balances are expected to Food Insecurity Experience Scale, 33 per- Outlook slightly deteriorate due to deceleration in cent of Jamaicans were severely food inse- remittance inflows and tourism amid cure in May 2023. The BOJ has kept its key Real GDP growth is expected to average on- weaker economic conditions in the US and policy rate at 7.0 percent since end-2022 ly 1.8 percent over the medium term as glob- UK, partially offset by the reduced spend- and announced it would maintain that rate al growth weakens. Manufacturing on the ing on imports given lower commodity for the rest of the year amid seasonal in- supply side and consumption and net ex- prices. Gross reserves are expected to re- creases in agricultural prices. ports on the demand side are expected to main at healthy levels, averaging more The fiscal deficit of 0.9 percent of GDP in drive growth. Higher public wages, a histor- than 5 months of imports. the Q1 of 2023 brought fiscal account to a ical increase in minimum wages, and in- There are significant downside risks to the surplus of 0.3 percent of GDP in FY2022/ creases in communication services are antic- economic outlook including a possible 23 – smaller relative to a surplus of 0.9 per- ipated to generate inflationary pressures. deeper-than-expected slowdown in the cent of GDP in FY2021/22. This was a re- Monetary policy is expected to remain sup- global economy. Further tightening of fi- sult of increased spending on wages and portive of growth, ensuring adequate liq- nancial market conditions could raise the salaries, consistent with the recently ap- uidity in the financial system; minimizing cost of borrowing, curtail private invest- proved three-year compensation cycle. pressures on the currency, and returning in- ments, and derail longer-term growth, cli- Higher spending also reflected transfers flation to its target range by end-2023. Pover- mate change, and debt objectives. Worsen- (0.25 percent of GDP) to vulnerable fami- ty is projected to decline to or below pre- ing crime, social unrest, and potential nat- lies to counter inflation pressures, and fuel, pandemic levels by 2024 as incomes im- ural hazards could also impair growth and and food subsidies. prove with the economic recovery. poverty reduction efforts. TABLE 2 Jamaica / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -9.9 4.6 5.2 2.3 2.0 1.4 Private consumption -13.2 3.0 4.0 2.0 1.5 1.5 Government consumption 11.7 2.1 16.8 2.2 2.4 1.6 Gross fixed capital investment -15.3 -4.1 -9.6 1.8 2.1 1.1 Exports, goods and services -30.0 25.8 15.1 5.6 2.2 1.9 Imports, goods and services -26.7 12.0 11.8 4.5 1.5 1.5 Real GDP growth, at constant factor prices -9.9 4.6 5.2 2.3 2.0 1.4 Agriculture -1.4 8.3 9.0 -1.7 1.0 0.9 Industry -5.7 2.4 -0.4 2.1 1.9 1.4 Services -12.0 4.9 6.5 2.9 2.2 1.5 Inflation (consumer price index) 5.7 5.9 10.3 6.1 5.0 4.7 Current account balance (% of GDP) -1.1 1.0 -0.8 -1.9 -1.9 -1.3 Net foreign direct investment inflow (% of GDP) 1.9 1.8 1.5 1.6 1.7 1.8 a Fiscal Balance (% of GDP) -3.1 0.9 0.3 0.1 0.2 1.4 Revenues (% of GDP) 29.5 31.0 31.1 31.7 31.5 32.0 a Debt (% of GDP) 109.7 94.2 79.7 74.5 72.9 71.3 a Primary Balance (% of GDP) 3.5 7.3 5.6 5.3 4.9 5.5 GHG emissions growth (mtCO2e) -23.8 9.8 7.0 3.9 3.1 1.7 Energy related GHG emissions (% of total) 75.9 77.8 79.2 79.9 80.4 80.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal balances are reported in fiscal years (April 1st -March 31st). MPO 39 Oct 23 dimensions changed slightly. The excep- tion was lack of access to health services, MEXICO Key conditions and which increased from 28.2 to 39.1 per- cent. The highest measure of deprivation challenges remains access to social security, at 50.2 percent (52 percent in 2020). Table 1 2022 The Mexican economy has weathered The official extreme poverty rate declined Population, million 127.5 global uncertainty and the pandemic from 8.5 percent in 2020 to 7.1 in 2022, re- GDP, current US$ billion 1465.9 shock thanks to a stable macroeconomic turning to levels similar to 2016 and 2018 GDP per capita, current US$ 11496.5 framework and a solid and diversified (7.2 and 7.0 percent, respectively). This is a 3.1 International poverty rate ($2.15) manufacturing base connected to Global mostly due to a decline in the monetary a 9.9 Value Chains (GVC) integrated with the extreme poverty rate (from 14.9 percent in Lower middle-income poverty rate ($3.65) a 32.5 U.S. These factors, along with a dynamic, 2016 to 12.1 in 2022), offset by an increase Upper middle-income poverty rate ($6.85) Gini index a 45.4 albeit informal labor market, have sup- in the share of population with at least School enrollment, primary (% gross) b 103.7 ported economic growth in recent years. three social deprivations (from 20.0 per- b 70.2 Mexico's potential growth remains slow cent in 2016 to 24.9 in 2022). Slow progress Life expectancy at birth, years due to declining productivity and tamed in extreme poverty reflects the fact that the Total GHG emissions (mtCO2e) 673.1 investment. Improving the business envi- poorest have benefited least from earnings Source: WDI, Macro Poverty Outlook, and official data. ronment, reducing regulatory burdens, fa- growth and have been most affected by the a/ Most recent value (2020), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy cilitating access to finance, addressing in- decline in access to social services. (2021). security, closing infrastructure gaps, im- Public debt remains above pre-pandemic proving public services provision, and levels. Expenditure commitments, im- strengthening the competition framework proving access to and quality of public Mexico's economy is projected to grow is vital for enhancing competitiveness, cap- services, PEMEX’s situation, and needed 3.2 percent in 2023 and gradually con- italizing on nearshoring, and the Inflation infrastructure investment require rev- Reduction Act opportunities. enue-enhancing reforms to maintain debt verge to its potential by 2025. Monetary The official multidimensional poverty sustainability. poverty declined significantly between rate fell from 43.9 percent in 2020 to 36.3 2020 and 2022 and is projected to further in 2022, lifting 8.9 million Mexicans out decline through 2025 though at a slower of poverty (46.8 million lived in pover- pace. Addressing structural constraints ty in 2022). This multidimensional mea- Recent developments sure combines monetary poverty with in- will boost output potential and accelerate dicators of social deprivation, including Real GDP grew by 3.9 percent in 2022 and poverty reduction and inclusion. Main the education gap and lack of access to 3.7 percent in 2023H1, supported by robust downside risks stem from: persistent in- health services, food, social security, ba- consumption and a strong bounce-back in flation that could affect real labor earn- sic services, and adequate housing. The investment. Retail, manufacturing, trans- decline in multidimensional poverty is al- portation, and wholesale sectors drove ings and keep interest rates higher; the growth on the supply side. The economy most entirely due to the fall in monetary U.S. slowdown; and political uncertainty poverty, which declined from 52.8 to 43.5 added two million jobs in July 2023 y-o-y, given the elections next year. percent. All but one of the non-monetary mainly in the informal sector. FIGURE 1 Mexico / Financial account FIGURE 2 Mexico / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 8 45 205000 6 40 200000 35 195000 4 190000 30 2 185000 25 0 180000 20 175000 -2 15 170000 -4 10 165000 5 160000 -6 2008 2010 2012 2014 2016 2018 2020 2022 0 155000 Net FDI Portfolio Investment 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Financial derivatives Other International poverty rate Lower middle-income pov. rate Change in reserves Financial Account Upper middle-income pov. rate Real GDP pc Source: Banxico. Source: World Bank. Notes: see Table 2. Note: 2023 corresponds to information from the first half of the year. MPO 40 Oct 23 The current account deficit was 1.6 percent divide, and gender, ethnicity, and dis- The 2024 public budget proposes a 5.4 per- of GDP in 2023H1, fully covered by net ability gaps persist. cent of GDP overall fiscal deficit in 2024. FDI, which reached 3 percent of GDP. Sup- The overall fiscal deficit in 2023H1 was 3.2 This will be driven by increased expendi- ported by the interest rate differential, a percent of GDP. Public sector revenues de- tures, mainly social programs, public in- stable fiscal situation, and a solid external clined due to lower oil revenues, offset by vestment, and financial costs. As invest- account, the Mexican peso has continued the termination of tax subsidies introduced ment projects are completed, and debt ser- to appreciate, from 19.6 MXN/USD in De- to contain gasoline prices. On the expendi- vice costs normalize, the fiscal deficit will cember 2022 to 17.0 in August 2023. ture side, financial costs increased by 42.9 reach 3.1 percent of GDP by 2025. Annual headline (core) inflation reached percent y-o-y in 2023H1. Mexico's credit Monetary poverty measured by the up- 4.6 (6.1) percent in August 2023. Food con- rating remains investment grade, while per-middle income global threshold is ex- tributed significantly to inflation, offset by PEMEX continues with a non-investment pected to reach 22.5 percent in 2023, 22.0 the energy price decline. With core infla- grade from most agencies. in 2024, and 21.6 percent in 2025, as the tion still elevated, Banxico is expected to economy converges to its potential maintain the 11.25 percent policy rate until growth rate. the end of 2023. Risks are balanced. Persistent high inter- Monetary poverty measured by the up- Outlook est rates could reduce investment and per-middle income global threshold consumption, and add fiscal pressures. (US$6.85 a day, 2017 PPP) declined from The economy is expected to expand by Lower-than-expected economic growth or 32.5 to 23.4 percent between 2020 and 3.2 percent in 2023, 2.5 in 2024, and 2.0 tighter-than-anticipated monetary policy 2022, a trend similar to the official mon- percent in 2025. Services, manufacturing, in the U.S. could reduce exports, FDI, etary poverty measure. This decline re- and construction sectors will be the main and remittances. On the fiscal side, the sulted from an increase in real household contributors. Despite high-interest rates, absence of revenue-enhancing measures income (11 percent) due to labor earn- growth in 2023 and early 2024 will be may lead to reduced spending on edu- ings, which grew 14.3 percent, followed supported by a favorable exchange rate, a cation and infrastructure in the medium by transfers (including pensions, remit- robust labor market, and lower inflation term. Upcoming elections may create tances, and social assistance), which rose that will boost consumption and invest- short-term policy uncertainty, mitigated 8 percent. Household income growth ment, while U.S. dynamism will drive ex- by solid trade and investment links. El was solid among poorer households (18.3 ports and FDI. The economy will slow Niño could affect agricultural production and 16.6 percent in the first and second down in 2024 in line with the U.S. econ- and increase international commodity income deciles), reducing income in- omy and reflect the strong peso. Inflation prices. Critical public investments and re- equality. However, average income dif- is expected to fall within the target band forms could accelerate nearshoring and ferentials between states, the urban/rural (3 percent ± 1 percent) in 2024Q1. FDI under the Inflation Reduction Act. TABLE 2 Mexico / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -8.7 5.8 3.9 3.2 2.5 2.0 Private consumption -10.6 8.1 6.2 3.0 2.1 2.0 Government consumption -0.7 -0.5 1.3 0.5 1.3 -0.3 Gross fixed capital investment -17.3 9.3 8.6 7.2 3.9 3.2 Exports, goods and services -7.0 7.2 9.0 -2.5 3.6 5.0 Imports, goods and services -12.0 15.0 8.9 -1.4 3.1 4.8 Real GDP growth, at constant factor prices -8.3 5.5 3.8 3.2 2.5 2.0 Agriculture 1.1 2.3 2.9 1.1 1.6 1.7 Industry -9.2 6.7 5.0 3.9 2.4 1.6 Services -8.4 5.1 3.1 3.0 2.6 2.2 Inflation (consumer price index) 3.4 5.7 7.9 5.4 3.8 3.5 Current account balance (% of GDP) 2.0 -0.6 -1.2 -1.7 -1.6 -1.5 Net foreign direct investment inflow (% of GDP) -2.4 -2.6 -1.5 -1.8 -1.9 -2.0 Fiscal balance (% of GDP) -3.8 -3.8 -4.3 -3.8 -5.4 -3.1 Revenues (% of GDP) 22.2 22.4 22.4 21.9 21.3 21.0 Debt (% of GDP) 50.2 49.2 47.7 46.4 48.8 49.2 Primary balance (% of GDP) -1.0 -1.2 -1.5 -0.6 -1.7 0.3 a,b International poverty rate ($2.15 in 2017 PPP) 3.1 .. 1.6 1.6 1.5 1.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 9.9 .. 5.6 5.4 5.3 5.1 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 32.5 .. 23.4 22.5 22.0 21.6 GHG emissions growth (mtCO2e) -2.8 2.4 0.7 0.6 0.6 0.5 Energy related GHG emissions (% of total) 63.2 63.6 63.1 62.6 62.1 61.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2020-ENIGHNS. 2022 is based on preliminary harmonized data. Actual data: 2022. Forecasts are from 2023 to 2025. b/ Projection using neutral distribution (2022) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 41 Oct 23 60 percent in the first half of 2023 com- pared to the same period in 2022. Higher NICARAGUA Key conditions and remittances and tourism supported hotels and restaurants, the financial sector, and challenges commerce, which saw the largest improve- ment in the first half of 2023 together with Table 1 2022 Nicaragua is a small open economy driven mining, energy, and water. Deposits con- Population, million 6.9 by light manufacturing, services, and agri- tinued to grow in the first half of 2023, with GDP, current US$ billion 15.7 culture. It has sound macroeconomic man- a 16.5 percent y-o-y growth, while Banking GDP per capita, current US$ 2254.9 agement and a prudent fiscal policy. and Financial System (SBF) credit grew by a 3.9 International poverty rate ($2.15) Large-scale public investment (financed by 18.9 percent during the same period. a 14.4 government deposits and external finan- In June 2023, y-o-y inflation decreased to Lower middle-income poverty rate ($3.65) a 42.1 cial assistance) and strong export demand 9.87 percent from 10.37 percent, helped by Upper middle-income poverty rate ($6.85) Gini index a 46.2 helped Nicaragua recover from the im- a combination of subsidies, a controlled ex- School enrollment, primary (% gross) b 112.1 pacts of the sociopolitical crisis of 2018, change rate, and a higher policy rate. Food b 73.8 major hurricanes in 2020, and the and beverages contributed the most to the Life expectancy at birth, years COVID-19 pandemic. Real GDP continues inflation in this period (at 5.0 p.p.) fol- Total GHG emissions (mtCO2e) 39.8 its strong performance, surpassing lowed by restaurants and hotels (1.7 p.p.). Source: WDI, Macro Poverty Outlook, and official data. pre-2018 levels. However, welfare impacts Since poor households tend to spend a a/ Most recent value (2014), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy from the pandemic lingered as around 10 larger proportion of their income on food (2021). percent of workers in formal employment than the ones with higher income levels, in 2019 transitioned to the informal sector food price inflation may increase the risk by the end of 2021. of food insecurity for poorer segments of Nicaragua has not been able to boost per the population. Nicaragua's economy is projected to capita incomes and growth further as low As a result of the sustained growth in re- human capital, large infrastructure gaps, mittances combined with lower inflation grow at 3.1 percent in 2023, slightly and institutional, business, and social chal- and a modest but positive growth in the lower than the 2022 rate, due to deceler- lenges have undermined its long-term employment rate that reached 64.8 percent ation in the global economy. Growth is growth prospects. The country has many during the first half of 2023, poverty supported by investment and a surge in opportunities to create a path to sustain- (US$3.65/day 2017 PPP) is expected to de- able growth, through investment in hu- cline to 12.5 percent in 2023 from 13.1 per- remittances that fueled the retail sector man capital and promoting value added in cent in 2022. However, the employment and softened inflation's impact on con- the manufacturing and services sector. growth rate decelerated during the first sumer purchasing power. Higher remit- half of 2023 relative to the same period in tances, positive employment growth, and 2022 and remains below pre-pandemic lev- lower inflation are expected to reduce els (67 percent in 2019). poverty. In the medium term, growth is Recent developments Government revenues increased by 7.3 percent year on year in the first quarter of projected to increase as the global econo- Nicaragua’s monthly economic activity in- 2023, driven by tax revenues (6.5 percent) my picks up and inflation falls. creased by 3.7 percent and remittances by and social contributions (13.6 percent), FIGURE 1 Nicaragua / Real GDP growth, fiscal balance, FIGURE 2 Nicaragua / Actual and projected poverty rates current account balance (CAB), and public debt and real private consumption per capita Percent of GDP Percent of GDP Poverty rate (%) Real private consumption per capita (constant LCU) 15 70 60 30000 60 10 50 25000 50 40 20000 5 40 30 15000 30 0 20 10000 20 -5 10 5000 10 0 0 -10 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 International poverty rate Lower middle-income pov. rate Real GDP Growth Fiscal Balance CAB Debt (rhs) Upper middle-income pov. rate Real priv. cons. pc Sources: Central Bank of Nicaragua and World Bank. Source: World Bank. Notes: see Table 2. MPO 42 Oct 23 while government expenditures surged a historical surge in remittances, Nicaragua from 15 percent in 2022 to 12.9 percent of by 12.3 percent year on year in the same is estimated to grow at 3.1 percent in 2023, GDP in 2023, and to 9.6 percent by 2025, dri- period, primarily driven by an upswing despite the slowdown in the global econo- ven by improvements in terms of trade, in wages, procurement of goods and ser- my and the tight monetary policy environ- strong recovery in tourism, and the exports vices, transfers, public investment (which ment. Remittances are expected to grow at of gold, sugar, beans, peanut, and dairy, saw a remarkable increase of 26.9 percent 55 percent in 2023, continuing to support the combined with deceleration in imports. FDI year on year in the first quarter), and in- retail sector and private consumption, fol- flows are expected to be stronger than pre- terest payments. lowing a 50 percent increase in 2022. pandemic levels (at 7 percent of GDP in Tourism revenues sustained their strong Over the medium term, growth is project- 2023) and are likely to stabilize at 5.9 percent recovery, with an increase of 23.4 percent ed to rise modestly, driven by an increase in the medium term. The current account in the first quarter of 2023, reaching in exports as global economic conditions deficit is expected to turn into a surplus of 7.3 US$136.5 million. FDI remained robust improve and the continued strong stance percent of GDP in 2023 due to a historical rise and was estimated to be at 7 percent of of the country in remittances and foreign in remittances flow and improvements in GDP in 2023. In June 2023, internation- direct investment. Exports and FDI are ex- the trade deficit. Fiscal consolidation is to al reserves increased to 4,989 million dol- pected to benefit substantially from the moderate starting from 2023 (with a fiscal lars, with a coverage of 3.4 times the free trade agreement with China complet- deficit of 0.5 percent of GDP in 2023, reach- monetary base and 7.6 months of im- ed on July 25, 2023, which will further ing 1.9 percent by 2025), as public expendi- ports, further enhancing the capacity of boost growth. Inflation is projected to fall tures increase at a higher rate than revenues. the Central Bank to safeguard the current gradually in the medium term in line with However, public debt is expected to decline exchange rate regime. the fiscal and monetary tightening and de- to 58.2 percent in 2023 (from 61.1 in 2022) and celerating fuel and food prices. to 54.9 percent by 2025, as it grows slower The steady but lower rates of economic than nominal GDP. growth and strong remittance flows are ex- Risks to the country’s economic outlook in- Outlook pected to continue to help reduce poverty clude natural disasters, given its high vul- but at modest rates. Poverty (US$3.65/day nerability to climate change and natural Driven by a higher investment rate, 2017 PPP) is expected to hover around 12 disasters such as El Niño; deterioration in strong recovery in hotels and restaurants, percent in 2024-25. the business climate; and stricter interna- mines and quarries, financial intermedia- The external position remained strong. tional sanctions also pose risks to trade tion, energy and water, and commerce, and The trade deficit is projected to narrow and financing flows. TABLE 2 Nicaragua / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -1.8 10.3 3.8 3.1 3.2 3.5 Private consumption -0.4 8.7 5.9 3.2 3.3 3.5 Government consumption 2.4 9.3 -6.0 4.1 4.2 4.3 Gross fixed capital investment 11.1 34.3 -4.2 3.2 3.5 3.8 Exports, goods and services -9.0 18.1 8.6 4.0 4.1 4.4 Imports, goods and services 0.1 21.1 5.0 1.0 2.0 2.0 Real GDP growth, at constant factor prices -1.8 8.6 4.0 3.1 3.2 3.5 Agriculture -0.2 6.6 1.7 1.1 1.1 1.2 Industry -1.5 17.8 2.7 3.3 3.4 3.5 Services -2.3 5.6 5.3 3.6 3.7 4.2 Inflation (consumer price index) 3.7 4.9 10.5 7.0 5.0 4.0 Current account balance (% of GDP) 3.6 -3.1 -1.4 7.3 5.6 6.9 Net foreign direct investment inflow (% of GDP) 5.6 8.5 8.2 7.0 6.1 5.9 a Fiscal Balance (% of GDP) -2.6 -1.5 0.6 -0.5 -1.2 -1.9 Revenues (% of GDP) 29.6 31.4 31.7 29.6 27.6 25.7 b Debt (% of GDP) 65.4 65.9 61.1 58.2 56.2 54.9 a Primary Balance (% of GDP) -1.3 -0.3 1.9 0.9 0.1 -0.6 c,d International poverty rate ($2.15 in 2017 PPP) 6.7 6.4 5.8 5.1 5.1 4.7 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 15.0 14.2 13.1 12.5 12.0 11.6 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 40.9 38.6 36.1 34.8 34.0 32.7 GHG emissions growth (mtCO2e) 0.6 1.9 1.0 1.4 1.5 1.6 Energy related GHG emissions (% of total) 13.1 13.3 13.1 13.0 12.9 12.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Fiscal and Primary Balance correspond to the non-financial public sector. b/ Debt is total public debt. c/ Calculations based on SEDLAC harmonization, using 2014-EMNV. Actual data: 2014. Nowcast: 2015-2022. Forecasts are from 2023 to 2025. d/ Projections using microsimulation methodology. MPO 43 Oct 23 public infrastructure projects. Although Panama remains on the European Union’s PANAMA Key conditions and list of jurisdictions that do not cooperate in tax matters as it has not complied with challenges the international criteria on transparency and exchange of tax information, the gov- Table 1 2022 Panama’s economy – an important logisti- ernment is committed to complying with Population, million 4.4 cal hub in Central America and an offshore OECD recommendations on domestic tax- GDP, current US$ billion 73.4 financial center – is based on trade and ser- base erosion and profit shifting for the GDP per capita, current US$ 16660.5 vices. Copper exports have started to play Fall 2023 review. a 1.1 International poverty rate ($2.15) a more important role as the Panama Co- a 4.3 bre mine came on stream. Over the past Lower middle-income poverty rate ($3.65) a 12.9 thirty years, the country excelled in job cre- Upper middle-income poverty rate ($6.85) Gini index a 50.9 ation, leading to an outstanding decrease Recent developments School enrollment, primary (% gross) b 103.0 in poverty (from 48.2 percent in 1991 to b 76.2 12.1 percent in 2019 at $6.85 a day per capi- Panama’s GDP grew 10.8 percent in Life expectancy at birth, years ta, 2017 PPP). However, mega investments 2022 and remains strong at 7.8 percent Total GHG emissions (mtCO2e) 23.3 that fueled Panama’s growth have de- in the first quarter of 2023 supported Source: WDI, Macro Poverty Outlook, and official data. clined. As a result, unemployment and in- by services, activities in the free trade a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). formality increased between 2017 and 2019 zone, and construction. Strong economic and worsened during Covid-19. Despite a activity, improvements in labor markets, partial recovery in labor markets in and a decline in inflation boosted pri- 2021-2022, poverty reduction still depends vate consumption. on the government’s emergency transfer Inflation decreased in the first quarter of program Nuevo Panama Solidario (NPPS). 2023 and is estimated to fall to 2.5 percent Panama is expected to grow at 6.3 per- Panama’s high growth performance has in 2023, led by a reduction in food and cent in 2023, supported by construc- been driven by capital and labor accumu- transport prices (Figure 1). In 2022, the em- tion, transport, the Canal, tourism, ser- lation, rather than total factor productivity ployment rate reached 62.3 percent and the (TFP), which is key to maintaining high unemployment rate decreased to 9.9 per- vices export, and the Colon Free Trade growth in the long term. cent. According to preliminary results Zone. However, as employment and la- Authorities implemented important re- from the 2023 Population Census, the un- bor earnings have not recovered fully, forms in recent years including beneficial employment rate decreased further to 8.9 poverty reduction is expected to be slow ownership information which, in June percent in 2023. However, both employ- in 2023. Although tax revenues de- 2023, led the Financial Action Task Force ment and unemployment rates are still be- (FATF) to recognize Panama’s progress on hind 2019 levels (66.5 and 7.1, respective- creased in the first half of 2023, they all 15 areas of its Action Plan and agree ly). With this, it is estimated that poverty are expected to increase, and the gov- to an on-site visit to verify this progress. under the upper middle-income poverty ernment is maintaining fiscal consolida- Comprehensive reforms in Public Private line of US$6.85 a day per capita (2017 PPP) tion by reducing consumption. Partnerships (PPP) and procurement led decreased by 0.3 percentage points in 2023, to an increase in PPP in many important reaching 13.4 percent (Figure 2). Moreover, FIGURE 1 Panama / Total, food and transport inflation FIGURE 2 Panama / Actual and projected poverty rates and real GDP per capita Percent change, y/y Poverty rate (%) Real GDP per capita (constant LCU) 25 40 14000 Food prices 20 35 12000 Transportation prices 15 30 10000 CPI 25 10 8000 20 5 6000 15 0 4000 10 -5 5 2000 -10 0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -15 International poverty rate Lower middle-income pov. rate Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Upper middle-income pov. rate Real GDP pc Source: INEC. Source: World Bank. Notes: see Table 2. MPO 44 Oct 23 informality rates remained high, at 48.2 as fuel and food prices fall. As labor mar- reforms to meet the targets set by the So- percent. Therefore, poverty levels are still kets and private consumption recover, and cial and Fiscal Responsibility Law (SFRL), highly dependent on NPPS: without the with NPPS reducing its base of beneficia- including pension and tax reforms. The program, poverty would have reached 16.1 ries but continuing to support vulnerable deficit of the defined benefit pension sys- percent in 2023. households, poverty rates (US$6.85 a day tem was about 1.1 percent of GDP in 2022 Sustained growth since the pandemic, per capita, 2017 PPP) are expected to con- and was financed through the pension gradual fiscal consolidation, and low bor- tinue decreasing and reach 12.9 percent by fund’s reserves and an escrow fund. But rowing costs led to a decline in the fiscal 2025, closer to the pre-pandemic level of these reserves will run out by early 2025 deficit and public debt to 3.3 and 59.2 2019 (12.1 percent). The careful targeting and in the absence of a reform, the deficit percent of GDP in 2023, respectively. The of NPPS is key for both poverty reduction will be financed through debt. The public current account deficit decreased from 4.1 and spending efficiency. debt and fiscal deficit are projected to de- percent of GDP in 2022 to 3.4 percent in The current account deficit is expected to crease to 55.3 and 1.5 percent of GDP by 2023, driven by a trade surplus, while FDI narrow to 3.4 percent of GDP in 2023 on 2025, respectively. Public debt cost and reached 4 percent of GDP in 2023 from the back of higher services exports and risks are relatively low: More than 81 per- 3.6 in 2022. copper prices and lower fuel prices, before cent of public debt has fixed interest rates reaching 3 percent in the medium term. and its average maturity is 13.9 years. FDI inflows are forecast to stabilize at 4 Panama has good access to capital markets percent of GDP by 2025, fully covering the as a dollarized economy with a stable Outlook current account deficit. macroeconomic environment, investment The fiscal deficit is expected to decline fur- grade, and low sovereign spread. Econom- Growth is expected to gradually increase ther, through higher Canal revenues due ic risks could arise from: the design of pen- from 6.3 in 2023 to 6.5 in 2025 as global eco- to tariff hikes despite lower-than-expected sion reforms needed to curb the actuarial nomic growth starts to gain strength, oil Canal traffic because of the drought, and deficit of the Defined Benefit Subsystem, prices decline, while copper prices remain contained current spending, especially the inefficiencies in tax administration, and cli- high. Inflation is projected to decline further public wage bill. In the medium term, mate shocks, including increased frequen- from 2.5 percent in 2023 to 2 percent by 2025, Panama will likely require additional fiscal cy and intensity of El Niño. TABLE 2 Panama / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -17.7 15.8 10.8 6.3 6.4 6.5 Private consumption -15.9 7.0 10.9 5.7 6.7 6.8 Government consumption 16.2 9.8 6.3 5.9 5.7 5.6 Gross fixed capital investment -49.3 29.6 20.1 14.3 13.8 13.5 Exports, goods and services -20.6 20.6 12.7 8.5 8.0 7.9 Imports, goods and services -34.0 25.2 12.5 9.0 8.1 8.2 Real GDP growth, at constant factor prices -17.2 15.7 11.7 6.3 6.4 6.5 Agriculture 1.9 4.7 5.2 2.5 2.0 2.0 Industry -34.7 30.2 12.3 3.7 3.9 4.1 Services -10.7 11.7 11.8 7.4 7.4 7.5 Inflation (consumer price index) -1.6 1.6 2.9 2.5 2.5 2.0 Current account balance (% of GDP) -0.3 -3.0 -4.1 -3.4 -3.0 -3.0 Net foreign direct investment inflow (% of GDP) 0.1 2.4 3.6 4.0 4.1 4.0 Fiscal balance (% of GDP) -9.7 -6.4 -4.1 -3.3 -2.7 -1.5 Revenues (% of GDP) 17.3 17.3 18.1 17.6 17.8 18.2 Debt (% of GDP) 64.7 60.1 60.3 59.2 56.7 55.3 Primary balance (% of GDP) -7.2 -4.2 -2.3 -1.0 -0.8 0.3 a,b International poverty rate ($2.15 in 2017 PPP) 1.3 1.1 1.3 1.3 1.2 1.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 4.7 4.3 4.5 4.5 4.4 4.3 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 14.1 12.9 13.7 13.4 13.0 12.9 GHG emissions growth (mtCO2e) -13.3 -1.0 7.2 35.2 2.1 2.7 Energy related GHG emissions (% of total) 46.4 43.8 46.7 60.0 60.2 60.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2019 and 2021 EML. Actual data: 2019 and 2021. Nowcast: 2020 and 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 45 Oct 23 boost productivity and growth, creating more and better jobs. PARAGUAY Key conditions and challenges Table 1 2022 Recent developments Despite abundant natural resources, favor- Population, million 6.8 able demographics, and macroeconomic After zero growth in 2022, real GDP grew GDP, current US$ billion 41.7 stability, Paraguay’s development by 5.2 percent y-o-y in the first quarter GDP per capita, current US$ 6153.1 progress had stalled even before the of 2023 as favorable weather supported a 1.3 International poverty rate ($2.15) COVID-19 pandemic. Per capita income robust soybean and hydropower produc- a 5.6 growth averaged 3.3 percent annually be- tion. Excluding these sectors, growth con- Lower middle-income poverty rate ($3.65) a 19.9 tween 2002-2013, decelerated to 1.9 percent tracted by 0.2 percent y-o-y, reflecting Upper middle-income poverty rate ($6.85) Gini index a 45.1 between 2013-2019, and subsequently fell sluggish construction activity as private School enrollment, primary (% gross) b 89.7 by 0.2 percent between 2019-2022. Average and public investment fell. The large pos- b 70.3 labor incomes have fallen since 2013 due itive contribution from net exports to Life expectancy at birth, years to recurrent external shocks, leading a fifth growth offset the slump in fixed invest- Total GHG emissions (mtCO2e) 97.6 of the population – mostly in rural areas – ment. The recovery led the unemployment Source: WDI, Macro Poverty Outlook, and official data. to remain poor (using the US$6.85 interna- rate to fall to 6.5 percent (from 8.5 percent a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2015); Life expectancy tional poverty line). in Q1 2022), but women remained three (2021). High volatility and low productivity times more likely to be under-/unem- growth constrain faster, more inclusive ployed than men in rural areas and their growth. With commodity-dependent sec- monthly earnings are 60 percent lower. tors contributing a third of output and The recovery in soy and hydropower ex- Paraguay’s economy is expected to grow three-quarters of direct exports, growth is ports led the merchandise trade balance highly vulnerable to unpredictable weath- to record a healthy surplus of US$1.2 bil- by 4.8 percent as favorable weather sup- er patterns and shifts in commodity prices. lion or 2.6 percent of GDP in the first half ports agriculture and hydropower pro- To reignite growth and poverty reduc- of 2023 (H1 2022: -0.5 percent of GDP). duction. Poverty is expected to fall as in- tion, Paraguay needs to strengthen its in- The drought in Argentina boosted de- flation recedes but remains high at 19.5 stitutions and invest in infrastructure, hu- mand for Paraguayan soybeans, leading man capital, and adaptation to climate-re- nominal exports to grow 21 percent y-o- percent. Reforms to boost private sector lated shocks. While macroeconomic sta- y. Nominal imports only grew by 1.2 per- job creation, productivity growth, and re- bility is essential, Paraguay needs to cre- cent as Paraguay imported less fuel and silience to climate-related shocks would ate the fiscal space to invest and grow. construction materials, and as global fuel help Paraguay accelerate growth and Efforts to make public spending more ef- prices moderated. The Guaraní appreci- poverty reduction. To be sustained, these ficient will help, but Paraguay also needs ated marginally (0.6 percent) against the to explore options to improve domestic US dollar over the same period. Reserves gains would require improved governance stood at US$9.8 billion in early August, revenue collection and public service de- and more efficient management of livery. Removing barriers for firms to en- equivalent to 6.9 months of goods and Paraguay’s natural resources. ter markets, grow, and innovate would services imports. FIGURE 1 Paraguay / Fiscal deficit and public debt FIGURE 2 Paraguay / Actual and projected poverty rates and real GDP per capita Percent of GDP Poverty rate (%) Real GDP per capita (constant million LCU) 12 50 40.0 10 45 35.0 8 40 30.0 6 35 30 25.0 4 2 25 20.0 0 20 15.0 -2 15 10.0 10 -4 5 5.0 -6 0 0.0 -8 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 International poverty rate Lower middle-income pov. rate Central government fiscal deficit Change in public sector debt Upper middle-income pov. rate Real GDP pc Sources: Ministry of Economy and Finance and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 46 Oct 23 Lower fuel prices prompted steady disin- households, inequality is estimated to these payments is expected to increase flation. The consumer price index rose by have increased to 45.1 Gini points. public debt to 37.6 percent of GDP. Fiscal 3.5 percent y-o-y in July, below the Central consolidation is nonetheless expected to Bank’s 4 percent target mid-point for the continue towards the legal fiscal deficit tar- first time since April 2021. Core inflation get of 1.5 percent of GDP, albeit at a slower also fell to 5.6 percent y-o-y. In August, the Outlook pace. Given the government’s stated inten- Central Bank cut the policy rate to 8.25 per- tion to rely mostly on expenditure cuts to cent from 8.5 percent, where it had stood The economy is expected to grow by 4.8 achieve this consolidation, public con- since September 2022. percent in 2023, assuming no major dis- sumption, and investment are expected to The 12-month cumulative fiscal deficit ruptions to agriculture production. Fixed contract significantly in 2024-2025. widened to 3.4 percent of GDP as at the investment growth is forecast to contract The current account is expected to reg- end of July 2023 from 3 percent at in 2023 as tight financing conditions per- ister a surplus in 2023 but revert to end-2022. Nominal revenues only grew by sist, but large private investments are ex- a small deficit thereafter as imports of 4.3 percent y-o-y as corporate income tax pected to drive a strong recovery in machinery and capital goods increase collections declined, reflecting lower prof- 2024-2025. Private consumption is expect- alongside the implementation of large its in 2022. Nominal expenditures rose 12 ed to accelerate as inflation moderates to private investments. percent y-o-y, driven by increased social an average of 4.8 percent in 2023 and to 4 The El Niño phenomenon typically re- transfers and material expenses. Interest percent thereafter. Poverty is expected to sults in above-average rainfall in the payments on external debt almost doubled decline to 19.5 percent in 2023 and below Southern Cone, favoring soybean and hy- as a third of the portfolio is subject to vari- 19 percent in 2024-2025. High informali- dropower production, but more humid able interest rates. Public debt remained ty and underemployment prevent growth conditions could bring crop diseases that steady at an estimated 35.7 percent of GDP from reducing poverty and inequality affect agricultural production and rural at the end of July. more significantly. incomes. Heavy flooding, as experienced The drought, high inflation, and lower The fiscal deficit is expected to widen in 2015, could disrupt construction ac- pandemic-related transfers led the share of to 4.1 percent of GDP in 2023, above tivity and may increase poverty. Should people living under the US$3.65 poverty the government’s target of 2.3 percent, global fuel prices remain elevated, lin- line to increase from 4.1 to 5.6 percent be- as the government plans to settle arrears gering inflation could slow the monetary tween 2021 and 2022. As inflation eroded to government suppliers estimated at 1.1 easing cycle, dampening the pace of the purchasing power of the poorest percent of GDP. New financing to cover growth and poverty reduction. TABLE 2 Paraguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -0.8 4.0 0.1 4.8 4.0 4.0 Private consumption -3.6 6.1 2.2 3.0 3.8 3.8 Government consumption 5.1 2.6 -5.7 2.6 -1.0 -2.8 Gross fixed capital investment 5.3 18.2 -2.3 -4.2 7.0 9.8 Exports, goods and services -9.0 2.1 -1.6 13.0 4.0 4.0 Imports, goods and services -15.2 21.8 5.6 2.2 3.2 4.4 Real GDP growth, at constant factor prices -0.5 3.6 0.0 4.8 4.0 4.0 Agriculture 7.4 -11.6 -8.7 20.0 6.0 6.0 Industry 0.7 5.0 0.4 2.2 3.0 3.0 Services -3.1 6.5 1.6 3.7 4.2 4.2 Inflation (consumer price index) 1.8 4.8 9.8 4.8 4.0 4.0 Current account balance (% of GDP) 2.0 -0.8 -6.7 0.3 -0.4 -0.7 Net foreign direct investment inflow (% of GDP) 0.3 0.2 0.5 0.8 1.4 1.4 Fiscal balance (% of GDP) -6.1 -3.6 -3.0 -4.1 -2.6 -1.5 Revenues (% of GDP) 13.5 13.7 14.1 13.3 14.1 14.1 Debt (% of GDP) 34.5 34.1 36.1 37.6 37.1 36.4 Primary balance (% of GDP) -5.1 -2.5 -1.7 -2.4 -1.0 -0.1 a,b International poverty rate ($2.15 in 2017 PPP) 0.8 0.7 1.3 1.3 1.3 1.2 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 5.2 4.1 5.6 5.7 5.6 5.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 22.3 20.8 19.9 19.5 18.9 18.7 GHG emissions growth (mtCO2e) 0.7 1.1 -0.7 1.0 1.8 1.7 Energy related GHG emissions (% of total) 8.5 9.5 9.7 9.7 10.0 10.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2022-EPH. Actual data: 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 47 Oct 23 PERU Key conditions and Recent developments challenges GDP contracted by 0.5 percent in the first half of 2023, due to political uncertainty, Table 1 2022 Peru has a strong record of prudent macro- social unrest, and the occurrence of El Population, million 34.0 economic policies, which combined with Niño phenomenon. Political uncertainty GDP, current US$ billion 242.9 a relatively sound business environment, and tightened financial conditions de- GDP per capita, current US$ 7133.1 supported rapid growth over the past pressed private spending. El Niño, a 2.9 International poverty rate ($2.15) decades. The macroeconomic environment protests and road blockades impaired the a 10.2 remains stable with low public debt, ample execution of public investment, disrupted Lower middle-income poverty rate ($3.65) a 33.7 international reserves, and a credible cen- agriculture and fishing, and delayed the Upper middle-income poverty rate ($6.85) Gini index a 40.2 tral bank. The financial system is well-cap- recovery of tourism. On the upside, a School enrollment, primary (% gross) b 121.9 italized and recent stress testing indicates surge in exports by Quellaveco, which ex- b 72.4 it is well-placed to endure liquidity shocks. plains more than 10 percent of domestic Life expectancy at birth, years Peru is highly vulnerable to climate copper production, boosted growth. Also, Total GHG emissions (mtCO2e) 182.3 change, due to its exposure to natural haz- the labor market showed signs of recovery; Source: WDI, Macro Poverty Outlook, and official data. ards, and its reliance on freshwater from employment in firms with more than 50 a/ Most recent value (2021), 2017 PPPs. b/ Most recent WDI value (2021). glaciers. Unaddressed structural con- workers increased 10 percent and average straints limit the creation of formal jobs, salaries increased 4.5 percent in real terms. economic diversification, and the pace of By July, annualized government revenues poverty and inequality reduction. Well- were 1.6 percentage points of GDP lower paid formal jobs are accessible only to a than in 2022, mainly due to lower collec- Peru´s GDP medium-term projection re- minority of the population. By 2022, 31 tion of corporate income taxes and value- flects a slowdown in potential growth, percent of Peruvians lived in households added taxes, owing to a correction in min- linked to COVID-19´s scarring effects, with income below the poverty line (US$ ing prices and lower economic activity. and more challenging international and 6.85 per capita per day), mainly due to The annualized public deficit increased to low-paid jobs and the lack of adequate so- 2.5 percent of GDP, slightly above the political contexts. Poverty is projected to cial protection. An additional 39 percent amended fiscal target for 2023. Both, public remain stagnant, consistent with lower were at risk of falling into poverty. Also, debt (34 percent of GDP) and sovereign inflation and limited growth. Risks in- half of its population was moderately food spreads (at around 165 basis points) re- clude the potential intensification of El insecure -twice as many as before the pan- main among the lowest in the region. Niño or political uncertainty. Overcom- demic- and more than one in five were se- Inflation declined from 8.5 percent in De- verely food insecure. Better quality of pub- cember to 5.9 percent in July, still above ing structural challenges related to low- lic services, stronger governance, a sound the 1-3 percent target range. This was the productivity jobs and low-quality public business environment, and political stabil- result of the Central Bank’s proactive mon- services is critical to boosting long-term ity will be critical for higher and inclusive etary tightening and a decline in global fu- growth and poverty reduction. growth that promotes poverty and in- el prices, attenuated by high food inflation, equality reduction. caused by reduced agricultural production FIGURE 1 Peru / Real GDP growth and contributions to real FIGURE 2 Peru / Actual and projected poverty rates and real GDP growth GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 25 60 18000 20 16000 15 50 14000 10 40 12000 5 10000 0 30 8000 -5 20 6000 -10 4000 -15 10 2000 -20 2019 2020 2021 2022 2023f 2024f 2025f 0 0 Private Consumption Government Consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross Investment Exports International poverty rate Lower middle-income pov. rate Imports GDP Upper middle-income pov. rate Real GDP pc Sources: BCRP and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 48 Oct 23 due to El Niño. Excluding more volatile increase at around 2.3 percent annually, Annual inflation is expected to converge to food and energy prices, inflation stood at supported by exports, as new mines its 1-3 percent target range in 2024, sup- 3.9 percent and inflationary expectations (Quellaveco, Toromocho enlargement) ported by the dissipation of output shocks, fell to 3.6 percent. The Central Bank low- gradually reach their maximum produc- the moderate expansion of domestic de- ered its policy rate to 7.50 percent in Sep- tion capacity. Political uncertainty would mand, and tightened monetary policy. An tember, after keeping it unaltered at 7.75 be lower, hence an improvement in busi- expected decline in inflation expectations percent for eight consecutive months. ness confidence and private investment is would allow for a flexibilization of mone- The annualized current account deficit expected since 2024. Gradual monetary tary policy in the coming months. shrank to 1.9 percent of GDP by June 2023, easing would also support private spend- The current account deficit would gradu- from 4 percent last year, mainly due to a ing. Potential growth is expected to be be- ally decline, reflecting export-led growth lower value of imports, in the context of low pre-pandemic years, as, albeit easing, and moderate inflows of FDI, which is ex- contracting domestic demand and lower still persistent political uncertainty ham- pected to remain above 2 percent of GDP, fuel prices. The local currency appreciated pers the definition of a reform agenda, and as some mining projects finalize and others almost 5 percent in the first semester, in growth slows down in China, Peru's main medium-size projects initiate (Corani, An- line with the global decline of the dollar. trading partner. Poverty is expected to de- tamina reposition, Taromocho enlarge- cline slightly since 2024, as growth im- ment phase 2). proves and labor income recovers. Risks are tilted to the downside. Domestic Peru would preserve its fiscal discipline risks include continued political uncertain- Outlook and the 2023 public deficit is expected to ty, which could undermine private invest- be anchored in the fiscal rule of 2.4 percent, ment and eventually exports. A slower fall After the first semester contraction, GDP despite lower revenues. Revenues would in inflation would delay the relaxation of growth is expected to be just below one per- rebound slightly in 2024-25, aided by the financial conditions and the recovery of cent in 2023. The second-half recovery expiration of temporary tax expenditures, domestic demand. A stronger El Niño would be driven by higher exports as min- supportive mining prices, administrative would affect agriculture and fishing and ing prices remain supportive and Quellave- measures implemented in recent years, might also attenuate the expected decline co ramps up output. However, weak busi- and domestic demand growth. This will al- in inflation and poverty. External risks in- ness confidence will keep private spending low for a fiscal consolidation with a mod- clude a faster-than-projected slowdown in sluggish. Public spending will be restricted erate effort on expenditure. Public debt is the global economy, declining commodity by lower revenues and capacity constraints. projected to remain stable at around 34 prices, higher food and energy prices, and Over the medium term, GDP is expected to percent of GDP. increased risks from climate change. TABLE 2 Peru / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -10.9 13.4 2.7 0.8 2.3 2.3 Private consumption -9.9 12.4 3.6 0.6 2.2 2.2 Government consumption 9.1 4.7 -1.1 3.7 2.7 2.5 Gross fixed capital investment -16.0 33.0 0.8 -1.3 2.0 2.4 Exports, goods and services -16.4 19.2 5.9 4.1 3.8 3.6 Imports, goods and services -15.4 26.3 4.2 3.0 3.4 3.5 Real GDP growth, at constant factor prices -10.8 13.1 2.5 0.8 2.3 2.3 Agriculture 1.0 5.3 3.0 0.1 1.5 2.0 Industry -13.0 17.1 1.3 1.5 2.0 2.0 Services -10.7 11.6 3.3 0.5 2.7 2.5 Inflation (consumer price index) 1.8 4.0 7.9 6.3 2.2 2.1 Current account balance (% of GDP) 1.1 -2.2 -4.0 -2.7 -2.5 -2.4 Net foreign direct investment inflow (% of GDP) -0.4 2.5 4.6 2.3 2.5 2.5 Fiscal balance (% of GDP) -8.9 -2.5 -1.7 -2.4 -2.0 -1.5 Revenues (% of GDP) 17.4 21.1 21.9 20.7 21.0 21.0 Debt (% of GDP) 34.6 35.9 33.8 33.5 34.2 34.1 Primary balance (% of GDP) -7.3 -1.0 -0.1 -1.0 -0.6 -0.2 a,b International poverty rate ($2.15 in 2017 PPP) 5.9 2.9 2.4 2.4 2.3 2.3 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 17.5 10.2 8.9 8.8 8.6 8.4 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 43.0 33.7 30.6 30.5 30.0 29.6 GHG emissions growth (mtCO2e) -4.8 0.6 -0.2 -0.5 -0.2 -0.1 Energy related GHG emissions (% of total) 25.5 25.5 25.1 24.6 24.3 24.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on SEDLAC harmonization, using 2021-ENAHO. Actual data: 2021. Nowcast: 2022. Forecasts are from 2023 to 2025. b/ Projections using microsimulation methodology. MPO 49 Oct 23 regime, especially in the tourism sector. Given the limited fiscal resources, prior- SAINT LUCIA Key conditions and itizing and efficiently implementing key investment projects will be critical. challenges Though liquidity in the banking sector remained sizable, the buildup of non- Table 1 2022 Saint Lucia is a small open island econ- performing loans and gaps in Anti-Mon- Population, million 0.2 omy, highly dependent on tourism. Fre- ey Laundering / Countering the Financ- GDP, current US$ billion 2.3 quent natural disasters and the effects of ing of Terrorism compliance impeded GDP per capita, current US$ 12723.5 climate change cause significant socioeco- credit intermediation. The pegged ex- a 5.1 International poverty rate ($2.15) nomic losses. Before the pandemic, eco- change rate under the Eastern Caribbean a 11.7 nomic growth had been volatile and rela- Currency Union helped maintain low Lower middle-income poverty rate ($3.65) a 25.3 tively low, averaging 1.4 percent between inflation before the pandemic and an- Upper middle-income poverty rate ($6.85) Gini index a 51.2 2010 and 2019. About 1 in 4 Saint Lucians chored price stability. School enrollment, primary (% gross) b 101.1 were poor in 2016 (the latest year with data b 71.1 available and using the $6.85 poverty line, Life expectancy at birth, years 2017 Purchasing Power Parity). The poor Total GHG emissions (mtCO2e) 0.8 and vulnerable groups include female- Recent developments Source: WDI, Macro Poverty Outlook, and official data. headed households with small children, a/ Most recent value (2016), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy the elderly, and people living in hazard- Economic growth accelerated in 2022, dri- (2021). prone communities. In line with the slow ven by a buoyant tourism and construction growth dynamics, no meaningful reduc- sector. Stayover tourism increased by 79.0 tions in poverty are expected in the period percent from 2021 to 2022 and 11.5 percent leading up to the pandemic. However, the in the first quarter of 2023, but it is still pandemic-related crisis and the subse- 16.0 percent below the 2019 level. Howev- quent surge in food/fuel prices are likely to er, the United Kingdom (UK) trade sus- After two years of a strong rebound, real have increased poverty. pension depressed banana and other agri- GDP growth is estimated to moderate in Pandemic-related spending, low rev- cultural exports. A labor market recovery, 2023. Inflation is estimated to have in- enues, and public investment projects to reflected in a decline in the official unem- creased in 2022 due to higher import support growth led to a rapid rise in pub- ployment rate from 23.0 percent in 2021 lic debt in 2020. Public debt has been de- (Q2) to 17.5 percent in Q2 of 2022, helped prices, likely slowing gains in poverty re- clining in terms of GDP. However, high bring down poverty. duction and raising the cost of pipeline debt services costs will limit the govern- The current account deficit continued to investment projects. Public finances re- ment’s capacity to provide public services narrow to 2.3 percent in terms of GDP in main concerning, given the high public and finance critical development projects 2022 as the recovery in tourism outpaced debt and large financing needs. Downside in the near term. The government has higher costs of food and fuel imports due committed to implementing several rev- to global inflationary pressures. Remit- risks remain high, including those related tances in 2022 are estimated to have fallen enue enhancement measures, but addi- to natural disasters. tional reforms should be explored to re- slightly from the peak in 2021 but re- duce inefficiencies in the tax incentive mained above their pre-pandemic level. FIGURE 1 Saint Lucia / Key macroeconomic variables FIGURE 2 Saint Lucia / Actual and projected poverty rates and real GDP per capita Percent Percent Poverty rate (%) Real GDP per capita (constant LCU) 25 100 35 35000 20 90 30 30000 15 80 10 70 25 25000 5 60 20 20000 0 50 -5 40 15 15000 -10 30 10 10000 -15 20 5 5000 -20 10 -25 0 0 0 2020 2021 2022 e 2023 e 2024f 2025f 2016 2018 2020 2022 2024 PPG debt-to-GDP (rhs) Primary Balance (% of GDP) International poverty rate Lower middle-income pov. rate Real GDP Growth Upper middle-income pov. rate Real GDP pc Source: World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 50 Oct 23 Foreign direct investment inflows are esti- sector gross financing needs declined to administration. Interest payments are pro- mated to have exceeded the 2019 level in around 22.0 percent of GDP in 2022, jected to remain stable at around 3.2 per- 2022, owing to the increased investment down from 35.0 percent in 2021, and were cent of GDP over the projection period, re- in tourism-related sectors. International re- financed by commercial, bilateral, and flected in the overall deficit, which aver- serves fell to 2.9 months of imports in 2022. multilateral creditors. ages 2.1 percent of GDP over the medium Inflation accelerated to an estimated 6.5 term. Public debt is projected to marginal- percent in 2022 as a result of the economic ly increase as the government issues new recovery and increased import prices, and debt to finance infrastructure projects. it started moderating in early 2023. High Outlook Risks are tilted to the downside and in- inflation has put pressure on living costs, clude: (i) delayed implementation of fiscal especially for the most vulnerable, with Real output growth is projected to mod- consolidation measures; (ii) more pro- negative impacts on food security. The erate to 3.6 percent in 2023 and will slow found economic deceleration in the main Caribbean COVID-19 Food Security & further over the medium term. Output tourism source countries; (iii) tightening Livelihoods Impact Survey shows that growth is expected to be supported by financial conditions; (iv) natural disasters; Saint Lucians experienced worsening food a further increase in tourist arrivals and and (v) climate change. The materializa- insecurity indicators in 2022 after facing investment in major construction projects tion of downside risks could hamper eco- successive crises and shocks over the last that are expected to peak in 2024, such nomic growth and poverty reduction. As few years. The financial sector showed as the airport renovation and construction a result, it will further constrain the gov- signs of growth in its deposits, nonethe- of several major hotels. Agriculture is ex- ernment’s ability to finance social pro- less, risks are elevated. pected to remain sluggish in the medium grams and investments for physical and The fiscal deficit narrowed in 2022, while term. Poverty is expected to continue the human capital accumulation. The govern- the primary balance displayed a surplus downward trend, although it will reduce ment should commit further to growth- for the first time since 2019. Higher tax its pace in the medium term. Inflationary enhancing structural reforms, resilience to revenues drove this improvement due to pressures are expected to ease over the natural disasters, and fiscal reforms, elevated commodity prices and the re- medium term. which should eventually support bring- bound in economic activity. Furthermore, The primary fiscal surplus is projected to ing down public debt. Furthermore, lin- the primary surplus and output growth be 1.7 percent of GDP in 2023, with an gering socioeconomic impacts from the lowered the public debt-to-GDP ratio sig- average of 1.1 percent over the medium pandemic, compounded by recent in- nificantly in 2022 to an estimated 74.4 term, as the government implements tax creases in living costs, call for continued percent from 83.3 percent in 2021. Public enhancement measures and improves tax efforts to improve safety nets. TABLE 2 Saint Lucia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f a Real GDP growth, at constant market prices -24.4 12.2 15.9 3.6 2.9 2.3 a Real GDP growth, at constant factor prices -24.6 11.5 14.5 3.6 2.9 2.3 Agriculture -12.5 -2.8 9.7 0.0 0.5 1.2 Industry -15.5 3.9 -1.2 3.0 5.0 2.0 Services -28.3 15.5 20.6 4.0 2.4 2.4 Inflation (consumer price index) -1.8 2.4 6.5 4.3 2.1 2.0 Current account balance (% of GDP) -15.3 -7.0 -2.3 -0.8 -0.6 -0.3 b Fiscal Balance (% of GDP) -12.2 -5.8 -1.3 -1.5 -2.5 -2.3 Revenues (% of GDP) 22.4 22.6 21.9 22.6 21.6 20.9 b Debt (% of GDP) 94.6 83.3 74.4 73.9 75.0 76.5 b Primary Balance (% of GDP) -8.2 -2.4 1.7 1.7 0.7 0.9 c,d International poverty rate ($2.15 in 2017 PPP) 7.5 6.6 5.0 4.7 4.6 4.6 c,d Lower middle-income poverty rate ($3.65 in 2017 PPP) 15.3 13.3 11.6 11.0 10.1 10.1 c,d Upper middle-income poverty rate ($6.85 in 2017 PPP) 31.8 28.7 24.5 22.9 22.5 21.2 GHG emissions growth (mtCO2e) -32.9 27.9 31.0 9.8 6.3 5.3 Energy related GHG emissions (% of total) 77.1 74.4 71.5 70.6 70.0 69.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Fiscal balances are reported in fiscal years (April 1st -March 31st). c/ Calculations based on SEDLAC harmonization, using 2016-SLC-HBS. Actual data: 2016. Nowcast: 2017-2022. Forecasts are from 2023 to 2025. d/ Projection using neutral distribution (2016) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 51 Oct 23 ST. VINCENT AND Key conditions and Recent developments challenges THEGRENADINES Tourism has rebounded after the pandem- ic-induced fall and is nearing 2019 levels. St. Vincent and the Grenadines (SVG) is a With tourism recovering and agriculture small island developing state particularly rebounding sharply post-volcanic erup- Table 1 2022 vulnerable to climate change, external eco- tions, growth reached 4.9 percent in 2022 Population, million 0.1 nomic shocks, and natural disasters. Prior and is expected to climb to 6.0 in 2023. GDP, current US$ billion 0.9 to the pandemic, SVG was upgrading es- The overall fiscal deficit widened to 7.1 GDP per capita, current US$ 9125.3 sential infrastructure to lay the foundation percent of GDP in 2022, largely in re- School enrollment, primary (% gross) a 112.8 for stronger growth and economic diversi- sponse to the fiscal demands imposed a 69.6 fication, including the completion of a new by the volcanic eruption and ongoing Life expectancy at birth, years international airport, modernization of the exceptional COVID-19-related expendi- Total GHG emissions (mtCO2e) 0.3 seaport, and construction of a new hospi- tures. Direct fiscal spending measures Source: WDI, Macro Poverty Outlook, and official data. tal. To ensure the sustainability of these in response to the volcano totaled 5.5 a/ WDI for School enrollment (2020); Life expectancy (2021). essential investments, fiscal consolidation percent of GDP. Furthermore, the gov- commenced, and primary fiscal surpluses ernment took several measures to cush- were achieved from 2016 through 2019. ion the impact of rising food and fu- However, the COVID-19 shock and the el prices, including the expansion of volcanic eruptions disrupted this fiscal re- existing social programs, subsidies on form agenda, and deficits and public debt electricity, the provision of social safety Growth resumed in 2022 and 2023 fol- have increased. The challenge will be to re- net payments to food-vulnerable house- lowing COVID-19 and volcanic disrup- duce fiscal deficits while directing limited holds, and agricultural incentives. Total tions in 2020 and 2021. Tourism is per- fiscal resources toward high-priority pub- support exceeded US$20 million (2.5 lic investment projects. percent of GDP). This posed challenges forming well. Still, poverty is expected to The volcanic eruption in April 2021, and several critical large investment have remained above its pre-pandemic which displaced about 20 percent of the projects were delayed/slowed to create level. After several years of primary sur- population, compounded the impact of the needed fiscal space. Fiscal rule tar- pluses, recent shocks have exerted pres- the COVID-19 shock. Heavy ashfall, crit- gets have been suspended given the dis- sure on public finances, further com- ical utility interruptions, increased food ruptions caused by the COVID-19 pan- insecurity, and subsequent flooding and demic and the volcanic eruption. pounded by ambitious public investment mudslides point to a significant impact on The current account deficit narrowed to plans. Natural disasters pose additional poverty and welfare measures, which are 19.5 percent of GDP in 2022, from 22.7 risk. Though public debt is sustainable, unlikely to have been fully reversed by percent in 2021, due largely to higher the risk of debt distress remains high. recent growth. Based on the latest avail- tourism arrivals, though imports for vol- able data from 2008 and using the nation- cano recovery efforts, port modernization, al poverty line, 30.2 percent of the popu- and higher food and fuel import costs, al- lation was poor. so rose. The CAD is financed largely by FIGURE 1 St. Vincent and the Grenadines / Overall and FIGURE 2 St. Vincent and the Grenadines / Public debt primary fiscal balances Percent of GDP Percent of GDP 4 100 90 2 80 0 70 60 -2 50 -4 40 -6 30 Overall Fiscal Balance 20 -8 Public Debt Primary Balance 10 Public External Debt -10 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sources: SVG Ministry of Finance and World Bank staff estimates. Sources: SVG Ministry of Finance and World Bank staff estimates. MPO 52 Oct 23 FDI, private flows (remittances), and bor- customs service charge; enhancing tax- rowing. International reserves remained payer compliance; and pension funding at over 5 months of imports. Outlook reform. Nonetheless, further fiscal con- Public debt was 87.8 percent of GDP at solidation is warranted as the fiscal end-2022, of which external debt was 64.2 Growth is expected to continue strong at deficit is forecast to be 6.2 percent of percent. As a result, SVG remains at a high 6.0 percent in 2023 and 4.8 percent in GDP in 2023 and then increase to 7.5 risk of debt distress. Debt is assessed as 2024 as tourism continues to rebound and percent in 2024 as port and hospital con- sustainable given the authorities’ fiscal surpass 2019 levels. Poverty is expected struction peak. A meaningful primary consolidation plans, which would ensure to follow a similar trajectory. Tourism surplus is expected by 2026 as the large that the public debt to GDP ratio would growth over the medium term is expected public investment pipeline declines. fall to under 60 percent of GDP by 2035, to be further facilitated by the new air- Nonetheless, limiting the deficit, given the Eastern Caribbean Currency Union’s port and new hotel and resort facilities. the uncertain global economic environ- regional goal. Government gross financing Inflation is expected to reach 3.6 percent ment, will require careful management needs are covered primarily by official ex- in 2023, after reaching 5.7 in 2022 fueled of the ambitious public investment pro- ternal financing and by some recourse to by food and fuel prices. It is expected to gram, and sound fiscal management, in- domestic financing through T-Bill and moderate to 2.3 percent in 2024 and re- cluding continued revenue mobilization bond issuances. turn to more typical rates around 2.0 per- measures. As the economy stabilizes and Annual inflation in June 2023 was 5.3 per- cent thereafter, as food and fuel prices returns to a more traditional growth cent, a slight increase from 5.2 percent in normalize and domestic agricultural pro- path, fiscal rule targets would need to June 2022. Food prices increased by 12.5 duction resumes post-volcano. be adjusted and the Fiscal Responsibility percent over this 12-month period and Authorities have taken several steps to re- Framework (FRF) fully operationalized. contributed the most to overall inflation. build fiscal buffers and the contingency Primary fiscal surpluses beginning in Food prices are likely to pose a greater fund is being replenished following its us- 2026 should facilitate a reduction in pub- strain on low-income households and in- age in response to the volcano. Fiscal con- lic debt levels over the medium term. crease the likelihood of food insecurity. As solidation measures include: prioritizing Forecasts are subject to considerable of May 2023, 30 percent of the population public investment by focusing on port downside risks given uncertainty in global was severely food insecure according to modernization and the new hospital while economic conditions, and the ever-present the Food Insecurity Experience Scale. scaling back other projects; increasing the risk of natural disasters. TABLE 2 St. Vincent and the Grenadines / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f a Real GDP growth, at constant market prices -3.7 0.8 4.9 6.0 4.8 3.7 a Real GDP growth, at constant factor prices -4.4 -1.6 6.2 6.1 4.8 3.7 Agriculture 1.6 -29.4 -6.1 7.6 2.5 2.0 Industry -7.3 6.1 11.9 6.5 3.7 2.1 Services -4.4 -0.1 6.0 5.9 5.2 4.2 Inflation (consumer price index) -0.6 1.6 5.7 3.6 2.3 2.0 Current account balance (% of GDP) -15.7 -22.7 -19.5 -18.0 -17.5 -14.1 b Fiscal Balance (% of GDP) -5.9 -6.4 -7.1 -6.2 -7.5 -4.0 Revenues (% of GDP) 30.5 32.9 28.7 29.5 29.7 29.9 b Debt (% of GDP) 81.2 89.9 87.8 86.3 88.8 88.2 b Primary Balance (% of GDP) -3.6 -3.8 -4.6 -3.8 -4.9 -1.3 GHG emissions growth (mtCO2e) -7.5 5.5 2.0 2.0 2.0 2.0 Energy related GHG emissions (% of total) 73.4 74.8 75.2 75.6 76.0 76.3 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Growth projections for 2021-23 remain sensitive to uncertainties surrounding the timing of the vaccine roll-out and the recovery in tourism. b/ Budget balances and public debt are for the central government. MPO 53 Oct 23 structural factors contributing to high lev- els of poverty. Deteriorating economic op- SURINAME Key conditions and portunities since 2015 and eroding pur- chasing power, coupled with high food challenges price inflation, are likely to have had a sub- stantial effect on poverty, elevating the risk Table 1 2022 Suriname is a small, natural-resource-rich, of continued social discontent and unrest. Population, million 0.6 upper-middle-income country. Mining ac- Suriname is also vulnerable to natural dis- GDP, current US$ billion 3.6 counts for about half of public sector rev- asters, in particular flooding, which has GDP per capita, current US$ 5858.4 enue, with gold comprising more than posed significant challenges recently. a 100.7 School enrollment, primary (% gross) three quarters of total exports. The govern- Newly found offshore oil may – if well a 70.3 ment redistributes revenues from the ex- managed – considerably improve Suri- Life expectancy at birth, years Total GHG emissions (mtCO2e) 14.0 tractive industries through public sector name’s fiscal prospects in the coming Source: WDI, Macro Poverty Outlook, and official data. employment, price subsidies, and income years. However, unlocking sustainable a/ Most recent WDI value (2021). support to vulnerable households. and inclusive economic growth will re- Suriname has made progress in unwind- quire resolving significant governance and ing severe macroeconomic imbalances – a institutional challenges, strengthening fis- legacy of years of economic mismanage- cal management, improving public ser- ment and the COVID-19 pandemic. In vices, and climate change adaptation. mid-2020, the current government adopted Suriname’s economic growth remains a program to address debt sustainability, anemic as high inflation burdens domes- improve monetary and exchange rate poli- tic consumption, fiscal consolidation cies, promote financial sector stability, and Recent developments curtails public sector demand, and pri- strengthen economic governance, support- ed by an IMF Extended Fund Facility Emerging from a two-year recession, Suri- vate investment remains weak in the (EFF). However, the program went off- name’s economy is estimated to have context of high uncertainty and sluggish track in mid-2022, as spending overruns grown at 2.4 percent in 2022. Services, par- export growth in the mining sector. fueled currency depreciation and high in- ticularly wholesale and retail trade, and in- High inflation and rapid currency de- flation. The government subsequently dustry (manufacturing and construction), reestablished fiscal and monetary disci- performed relatively well, compensating preciation constrain the purchasing pline under revised EFF program targets. for a decline in agricultural production. power of the most vulnerable. Suri- Recent poverty statistics are not available The monthly economic activity index de- name’s medium-term outlook looks more for Suriname. In 2013, the latest year with clined by around 2 percent in the first four promising given new oil and gas discov- available data, nearly half of the popula- months of 2023 (y-o-y) despite the good tion was unable to meet basic needs. Al- performance of the services sector. eries and progress on macroeconomic most a quarter could not afford the mini- The exchange rate fell by 35 percent in Au- stabilization and debt restructuring. mum necessary food basket. Low levels of gust 2023 (y-o-y). As import costs in- human capital, underachievement against creased, the current account surplus de- social assistance targets, and limited pri- clined to an estimated 2.0 percent of GDP vate sector opportunities are among the in 2022 and narrowed further in the first FIGURE 1 Suriname / Monthly economic activity index FIGURE 2 Suriname / Exchange rate and inflation 2015=100 Percent change, y/y SRD/USD Percent change, y/y 110 20 40 80 70 10 100 30 60 0 90 50 -10 20 40 80 30 -20 10 20 70 -30 10 60 -40 0 0 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Dec-22 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Index Annual growth rate (rhs) Exchange rate CPI (rhs) Source: Central Bank of Suriname. Source: Central Bank of Suriname. MPO 54 Oct 23 quarter of 2023. Nevertheless, gross inter- in the 2023 budget include a value-added Inflation is expected to remain elevated in national reserves increased by 20 percent tax, discontinuation of fuel subsidies, 2023, with negative implications for pur- to $1194.6 million in 2022, bolstered by the phasing out electricity subsidies, and con- chasing power and poverty. However, it EFF, multilateral financing, and increased taining public wages. To offset the impact should decline significantly over the medi- mining revenue. The currency deprecia- of the energy subsidy reforms on the poor- um term as the government tightens mon- tion and global price pressures kept infla- est Surinamese, the government expanded etary policy and as external inflationary tion high. In July 2023, the consumer price social assistance payments to households impulses subside. index grew by 56.6 percent (y-o-y). In- at the bottom of the income distribution The fiscal position is expected to improve as creases in the prices of food and nonalco- and reformed and expanded its social as- the government makes progress on fiscal re- holic beverages continued to exceed those sistance beneficiary database. forms and debt restructuring. A more grad- of the overall CPI suggesting continued Successful debt restructuring and imple- ual pace of fiscal adjustments in the context pressure on purchasing power, especially mentation of fiscal reforms under the EFF of the revised macroeconomic stabilization among the poorest households. Financial will help the country restore debt sus- program will create space to maintain social sector indicators highlight chronic vulner- tainability. Negotiations with most offi- spending and support growth-enhancing abilities in the banking system related to cial and private creditors have been com- infrastructure investments. capital adequacy and asset quality. pleted, while a staff-level agreement on The longer-term outlook is more positive Fiscal policy is focused on restoring debt the third review of the EFF was reached given the recent discovery of several off- sustainability while improving the effi- in August 2023. shore oil deposits. A Final Investment De- ciency of public spending and protecting cision by a major oil company is expected vulnerable persons through enhanced so- in 2024. Ensuring that anticipated oil rev- cial assistance. The government achieved enues translate into improved well-being significant fiscal consolidation in 2022 due Outlook and reduced poverty requires tackling to increased revenues from mining and governance and institutional challenges. non-mineral sectors. However, the prima- Real output growth in 2023 is projected at Moreover, increased reliance on the oil sec- ry surplus fell behind target due to over- 2 percent, gradually reaching 3 percent in tor raises Suriname’s vulnerability to com- spending on fuel subsidies and public sec- the medium term, as exports recover, and modity price shocks and has environmen- tor wages. The fiscal position is estimated investment in infrastructure-related con- tal consequences. Enhancing governance to improve in 2023 to meet the revised pri- struction in the oil and gas sector picks up. and human capital ahead of the oil wind- mary balance target of 1.7 percent (down Improvements in labor market prospects fall will be critical to alleviate risks and cre- from 3.5). Revenue generation and expen- and opportunities for poor Surinamese are ate a foundation for efficient and equitable diture containment measures introduced expected to be similarly gradual. management of oil revenues. TABLE 2 Suriname / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -16.0 -2.4 2.4 2.0 2.6 3.0 Real GDP growth, at constant factor prices -16.0 -2.4 2.4 2.0 2.6 3.0 Agriculture -10.3 -7.5 -1.6 0.3 1.4 1.9 Industry -17.5 -10.9 3.1 0.5 1.6 2.0 Services -16.0 2.2 2.7 2.8 3.1 3.5 Inflation (consumer price index) 34.9 59.1 52.4 52.3 34.4 18.3 Current account balance (% of GDP) 6.2 5.3 2.0 1.8 1.0 -0.1 Net foreign direct investment inflow (% of GDP) 0.0 -3.7 0.1 -0.3 0.3 1.3 a Fiscal Balance (% of GDP) -11.1 -7.0 -2.8 -0.9 -0.7 -0.7 Revenues (% of GDP) 18.2 25.2 27.3 25.8 24.7 23.0 a Debt (% of GDP) 142.4 113.3 118.8 106.7 93.1 80.9 a Primary Balance (% of GDP) -7.5 -1.2 1.1 1.7 3.5 3.5 GHG emissions growth (mtCO2e) 0.6 0.2 0.5 1.8 0.6 1.7 Energy related GHG emissions (% of total) 19.8 20.0 19.9 21.1 21.3 22.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Budget balances and public debt are for the central government. MPO 55 Oct 23 of selected Nationally Determined Con- tribution (NDC) targets. URUGUAY Key conditions and challenges Table 1 2022 Recent developments Uruguay stands out in the region for its Population, million 3.4 combination of stable democracy, high Real GDP expanded 4.9 percent in 2022, GDP, current US$ billion 71.2 income, egalitarian society, large middle lower than early estimates due to the ini- GDP per capita, current US$ 20795.0 class, and generous welfare state. Sound tial impacts of the drought in 2022Q4. a 0.1 International poverty rate ($2.15) macroeconomic management and favor- The expansion was driven by private con- a 0.8 able external conditions supported an sumption fueled by pent-up demand as Lower middle-income poverty rate ($3.65) a 6.7 economic expansion that has lasted for a result of the pandemic. Public and pri- Upper middle-income poverty rate ($6.85) Gini index a 40.8 two decades, except for the vate investment, including for a large pa- School enrollment, primary (% gross) b 104.2 COVID-19-induced recession in 2020. The per mill project that started operating in b 75.4 country experienced robust economic 2023H1, also supported growth. Exports Life expectancy at birth, years growth coming out of the pandemic and, continued to recover in 2022 but were Total GHG emissions (mtCO2e) 34.3 thanks to prudent fiscal management, outpaced by imports linked to consump- Source: WDI, Macro Poverty Outlook, and official data. currently enjoys the lowest sovereign tion and investment, in the context of a/ Most recent value (2021), 2017 PPPs. b/ WDI for School enrollment (2020); Life expectancy spreads in the region. high but declining terms of trade. (2021). Yet, important social and economic gaps The drought affected exports in 2023H1, persist, reinforced by long-standing chal- which fell by 18 percent (yoy) as a result lenges that prevent the country from fur- of lower beef and soybean sales. At ther closing development gaps. Lagging around US$16.3 billion as of July 2023, education outcomes, a weak integration in- gross reserves cover roughly 11 months to global trade, an insufficiently compet- of imports. The drought lingered into A historic summer drought affected the itive environment, shallow financial mar- 2023, significantly impacting economic ac- provision of drinking water, agricultural kets, and chronically high inflation rank tivity in 2023H1. production, and related activities, lower- among the most relevant. Inflation peaked at 9.9 percent in Sep- ing GDP growth and delaying fiscal A record drought that affected agri- tember 2022 fueled by surging food and cultural production and the provision oil prices but has since decreased to 4.8 consolidation prospects for 2023. Infla- of drinking water in the capital, Mon- percent by July 2023, the lowest level tion declined to a six-year low in re- tevideo underscores Uruguay’s reliance since 2005. The Central Bank started to sponse to tight monetary policy stance. on its natural capital and its exposure ease the monetary policy stance after a The related recovery in real wages and a to climate change. The country is pi- tightening cycle that raised its bench- continued improvement in labor market oneering financial instruments that re- mark rate from 4.5 percent in August ward climate action, such as the is- 2021 to 11.5 percent in December 2022. indicators are expected to help reduce High rates contributed to a strong peso, suance of a sustainability-linked bond in poverty in 2023. 2022, with concessional financial condi- which appreciated 8 percent in the year tions linked to the overaccomplishment ending in July 2023. FIGURE 1 Uruguay / Inflation and the inflation target range FIGURE 2 Uruguay / Actual and projected poverty rates and real GDP per capita Annual inflation (percent) Poverty rate (%) Real GDP per capita (constant LCU) 12 25 700000 11 600000 10 20 9 500000 8 15 400000 7 10 300000 6 Target 200000 5 range 5 4 100000 3 0 0 2 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 International poverty rate Lower middle-income pov. rate Annual Inflation Two-year ahead inflation expectation Upper middle-income pov. rate Real GDP pc Source: Central Bank of Uruguay. Source: World Bank. Notes: see Table 2. MPO 56 Oct 23 Aided by the fall in inflation, real wages pulp mill. Exports are projected to recover increased by 3.1 percent in 2023H1 (yoy), in 2024 from drought lows. Foreign direct after a 1 percent increase in 2022. The Outlook investment and external finance are pro- employment rate increased 0.3 percent jected to finance the current account deficit in the same period, a full percentage Economic activity is expected to pick up in in the forecast horizon. point above pre-pandemic levels. House- the second half of 2023, as drought condi- The gradual monetary easing process is ex- hold income also improved due to an tions recede heading into the 2023/24 agri- pected to continue going forward, while increase in cash transfers to pensioners cultural campaign in the face of a new El inflation is expected to end the year within and vulnerable populations in Montev- Niño season, for an overall 1.5 percent the 3-6 percent target range and remain ideo and Canelones, to offset the nega- GDP growth. Absent major meteorological there through 2025. The monetary author- tive effects of the drinking water deficit events or external shocks, growth is pro- ity is expected to commit to its anti-infla- (around USD 20 per person monthly). jected to recover to 3.2 percent in 2024 and tionary mandate and act accordingly in re- Temporary tax exemptions for bottled converge closer to potential in 2025. Simul- sponse to shocks. water were also implemented. taneous improvements in employment Economic deceleration and the fiscal costs Fiscal accounts improved in 2022, largely and real salaries have boosted household of the drought will slow down the fiscal due to an un-winding of COVID-19-re- per capita income which grew 7.9 percent consolidation process, with the primary lated programs and cyclical revenues but in Montevideo and 6 percent in the interi- fiscal balance expected to improve only in deteriorated in 2023H1 as a result of an or areas of the country in 2023H1 (y-o-y). 2023H2. Public debt is expected to decline increase in expenditures and the slow- In this context, the poverty rate at the up- from 57.7 percent of GDP in 2022 to 54.4 down in economic activity. The primary per middle-income countries poverty line percent of GDP in 2025. The long-term sus- deficit of the non-monetary public sector of US$6.85/day (2017 PPPs) is expected to tainability of fiscal accounts was under- increased from 0.6 percent in 2022 to 1.2 fall to 6.1 percent in 2023 down from 6.4 pinned by a pension reform that increased percent in the rolling year to June 2023. percent in 2022. the retirement age. Primary expenditures increased one per- The impact of the drought on exports of Downside risks to the outlook include low- centage point of GDP in the first half beef and soybeans is expected to widen er global demand from trading partners, a of 2023, led by pensions (tied to real the trade and current account balance in larger-than-expected decline in the terms wages), social expenditures, and public 2023, despite strong incoming tourism, ser- of trade, and extreme hydrometeorological investment linked to the new pulp mill. vice exports, and production from the new shocks in the face of the El Niño event. TABLE 2 Uruguay / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2020 2021 2022 2023e 2024f 2025f Real GDP growth, at constant market prices -6.3 5.3 4.9 1.5 3.2 2.6 Private consumption -6.8 2.9 6.1 2.2 2.5 2.2 Government consumption -7.2 8.6 1.3 0.7 0.3 0.6 Gross fixed capital investment 1.2 16.5 9.5 2.1 4.1 6.5 Exports, goods and services -16.3 11.7 11.1 0.5 5.9 1.0 Imports, goods and services -12.2 18.2 12.5 2.0 3.2 1.5 Real GDP growth, at constant factor prices -6.5 5.3 4.7 1.5 3.2 2.6 Agriculture -6.1 14.0 -2.9 -15.0 9.5 4.0 Industry -4.4 6.8 1.8 1.0 2.5 2.0 Services -7.1 4.0 6.4 3.3 2.9 2.7 Inflation (consumer price index) 9.8 7.7 9.1 6.0 5.6 5.3 Current account balance (% of GDP) -0.8 -2.5 -3.5 -3.6 -2.5 -2.2 Net foreign direct investment inflow (% of GDP) 1.9 2.9 4.7 1.3 1.3 1.2 a Fiscal Balance (% of GDP) -5.4 -3.1 -2.8 -3.0 -2.7 -2.7 Revenues (% of GDP) 29.6 28.9 29.2 28.8 28.9 29.3 Debt (% of GDP) 67.6 61.8 57.7 56.5 55.2 54.3 a Primary Balance (% of GDP) -2.7 -0.9 -0.6 -0.7 -0.3 -0.2 b,c International poverty rate ($2.15 in 2017 PPP) 0.2 0.1 0.2 0.1 0.2 0.2 b,c Lower middle-income poverty rate ($3.65 in 2017 PPP) 0.9 0.8 0.8 0.6 0.8 0.8 b,c Upper middle-income poverty rate ($6.85 in 2017 PPP) 7.2 6.7 6.4 6.1 6.1 6.0 GHG emissions growth (mtCO2e) -2.2 1.6 0.6 -0.8 2.1 0.8 Energy related GHG emissions (% of total) 18.0 18.4 19.0 19.1 18.7 18.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Non-Financial Public Sector. Excluding revenues associated with the "cincuentones". b/ Calculations based on SEDLAC harmonization, using 2022-ECH. Actual data: 2021 and 2022 (preliminary). Forecasts are from 2023 to 2025. c/ Projections using microsimulation methodology. MPO 57 Oct 23 Macro Poverty Outlook 10 / 2023