Fiscal policy key to overcoming pandemic's impact on LatAm: UN agency

SANTIAGO - Latin American countries must turn to effective fiscal policy to cushion the social and economic impact of the COVID-19 pandemic and reactivate local economies, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) said on Monday.

"Fiscal policy must play a central role in mitigating the social and economic impact arising from the COVID-19 pandemic while at the same time providing the needed impetus to achieve a reactivation of economic activity that would help steer the region towards sustainable and inclusive development in a post-COVID-19 world," the United Nations agency said in its latest report.

ECLAC's annual Fiscal Panorama of Latin America and the Caribbean 2020, published Monday on its website, "analyzes the fiscal response of the region's countries to the human and economic crisis prompted by COVID-19."

Countries are credited for swiftly adopting packages of fiscal measures "that represent, on average, 3.2 percent of the gross domestic product (GDP) of Latin American countries," including measures on public spending, tax relief and liquidity support backed by governments in the region.

However, countries need to do more given the region's "unfavorable and highly uncertain macroeconomic environment," the agency said.

Among other setbacks, "countries face a drop in tax revenue, linked to the pandemic, as a result of the contraction in economic activity and lower prices for commodities," the report added.

"Corporate income tax evasion in the region is especially acute," the agency said, adding that tackling tax evasion should be a priority, as the region lost $325 billion, or 6.1 percent of its GDP in 2018, due to tax noncompliance.

Fiscal measures already announced "represent a first step along what could be a long path towards recovery in the region," ECLAC said. "In the coming months, and in light of the eventual gradual lifting of confinement measures, countries must take important fiscal stimulus measures with the aim of contributing to the reactivation of economic activity, investment and quality job creation."

To achieve that, greater fiscal efforts will be needed, and the region will require adequate access to financing measures, the agency added.

In addition, the region should strengthen welfare programs and try to bridge the wealth gap, said ECLAC.

"The pandemic has exposed deficiencies in social protection systems, both in the labor market as well as in social security systems, and in the limited crucial provision of high-quality public goods and services," said ECLAC.

"Therefore, the region must accelerate the transition towards social welfare states that guarantee better living conditions for all and establish solid foundations for sustainable development by reducing inequality and strengthening social protection systems, including by adopting a universal basic income, and that provide quality education and health systems along with quality pension systems," said the report.

"Fiscal policy must contribute to achieving these goals through a progressive and efficient taxation system, and effective and equitable public spending," the report said.