Challenges of maintaining expansionary fiscal policy to drive transformative recovery post-COVID-19

The coronavirus disease (COVID-19) pandemic unleashed the most severe economic and social crisis in the recent history of Latin America and the Caribbean. GDP is estimated to have declined by 7.7% in 2020, representing the largest contraction in the past 120 years (ECLAC, 2020b). Mutually reinforcing supply- and demand-side shocks had major negative effects on the production structure, employment, poverty and inequality. The widespread closure of businesses, particularly micro-, small and medium-sized enterprises (MSMEs), led to a sharp increase in the unemployment rate, which is estimated to have risen from 8.1% in 2019 to 10.7% in 2020 (ECLAC, 2020b). In turn, job losses and the concomitant decline in household incomes resulted in an unprecedented increase in poverty levels. The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that the poverty rate increased from 30.5% in 2019 to 33.7% in 2020, and that the extreme poverty rate increased from 11.3% to 12.5% (ECLAC, 2021a). Given the seriousness of the situation, the countries of the region took significant fiscal measures to mitigate the social, productive and economic impact of the pandemic (ECLAC, 2020d).

Sustainable Development Goals:

Good Health and Well-Being