SANTIAGO, Chile (CMC) — A new report by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has outlined a long road to post coronavirus (COVID-19) economic recovery for the region, saying that it will be slower than the return to productivity following the subprime mortgage crisis more than a decade ago.

“It will be essential to maintain and deepen active macroeconomic policies to achieve recovery, and economic and social transformation after the crisis unleashed by the coronavirus pandemic,” ECLAC noted in the report titled, “Economic Survey of Latin America and the Caribbean (LAC) 2020”.

The new edition of the survey, one of the main annual reports produced by ECLAC, presents an analysis of the economic effects caused by the pandemic in each country of the region and offers policy recommendations for addressing them, above all in relation to fiscal and monetary matters, while also highlighting the importance of international cooperation.

“The COVID-19 pandemic is having historic negative effects in economic, productive and social spheres, with lasting consequences and medium-term effects on growth and increased inequality, poverty and unemployment,” said ECLAC’s Executive Secretary, Alicia Bárcena, during a virtual press conference to release the report.

“That is why the process for economic activity — GDP — (gross domestic product) to return to its pre-crisis levels will be slower than what was observed during the subprime crisis (in 2007-2008),” she said.

According to the report, the region is experiencing its worst economic crisis in a century, with an estimated -9.1 per cent contraction in regional GDP.

As a result, by the end of 2020, the level of GDP per capita will be the same as it was in 2010 – “which means that there will have been a 10-year setback, with a sharp increase in inequality and poverty,” the report notes.

In addition, it states 2.7 million formal businesses are forecast to close in 2020, while unemployment is seen affecting 44 million people, with an increase of 18 million people versus the level seen in 2019, marking the largest surge since the global financial crisis.

Furthermore, poverty is seen reaching the same levels observed in 2005, meaning that it would suffer a 15-year backslide, affecting 231 million people; while extreme poverty is forecast to reach 1990 levels, entailing a 30-year setback and affecting 96 million people.

“In this scenario, active macroeconomic policies will be needed to resume growth and to promote an agenda for structural transformation,” Bárcena said.

“Public revenue must be strengthened, conventional and non-conventional expansionary monetary policies must be maintained, and macro-prudential regulation must be bolstered, along with the regulation of capital flows, to preserve macro-financial stability in the short and medium term. International cooperation is fundamental here to expand macroeconomic policy space,” she added.

With regard to fiscal policy, the Economic Survey 2020 indicates that countries have made diverse fiscal efforts to mitigate the pandemic’s effects, amounting to 4.1 per cent of GDP on average and accompanied by state credit guarantees of up to 10 per cent of GDP.

“These fiscal efforts — along with declines in public revenue — have contributed to a bigger fiscal deficit and increased public debt,” the report notes, adding that in this nexus, the challenge is to maintain an active fiscal policy in a context of greater indebtedness.

To achieve this, the report notes active fiscal policies are needed in a framework of fiscal sustainability that is centred on revenue.

The report urges LAC to increase its tax collection, which is currently 23.1 per cent of GDP on average for the region’s national governments, compared with the 34.3 per cent seen among countries of the Paris-based Organization for Economic Cooperation and Development.

“To do so, states must fight tax evasion and avoidance, which amounts to 6.1 percent of regional GDP; consolidate individual and corporate income taxes; broaden the scope of taxes on wealth and property; and establish taxes on the digital economy and corrective taxes, such as environmental levies and others related to public health.”

Bárcena said active fiscal policy must link the short term (emergency) with the medium and long term, “to shift the development model towards productive transformation with sustainability and equality”.