Latin America and the Caribbean to Grow 1.9% in 2024, Says World Bank, Highlighting Need for Structural Reforms

“LAC has made significant progress in stabilizing its macroeconomic environment," said Carlos Felipe Jaramillo, World Bank Vice President for LAC.

The Latin America and Caribbean (LAC) region is projected to grow by 1.9% in 2024 and 2.6% in 2025, according to the World Bank’s latest report, "Taxing Wealth for Equity and Growth." Although an improvement from previous estimates, these are the lowest growth rates among global regions, underscoring the persistent structural bottlenecks that hinder long-term development.

The report emphasizes the need for the region to capitalize on the current global economic environment. The U.S. Federal Reserve's anticipated interest rate cuts, along with improved inflation management, provide a unique opportunity for LAC economies to attract investment and foster innovation. Countries like Brazil and Peru are expected to meet their inflation targets in 2024, and other major economies are on track to follow.

“LAC has made significant progress in stabilizing its macroeconomic environment," said Carlos Felipe Jaramillo, World Bank Vice President for LAC. "This is a crucial moment to leverage these achievements for sustainable development, innovation, and job creation."

However, despite the positive outlook, the report reveals that both public and private investments in the region remain low. Foreign direct investment (FDI) levels are still below those of 13 years ago, and LAC is not fully taking advantage of nearshoring opportunities, with greenfield investment announcements favoring other regions.

William Maloney, World Bank Chief Economist for LAC, highlighted the need for structural reforms. "This is the right time for LAC to rethink its tax systems to stimulate growth and equity while generating the revenue needed for development. The green transition and nearshoring present major opportunities for the region, but seizing them requires improving productivity and competitiveness."

Debt, Fiscal Space, and Wealth Taxes

The report also addresses LAC’s rising debt levels, with the debt-to-GDP ratio expected to reach 62.8% in 2024, up from 59.1% in 2019. High debt and servicing costs are limiting fiscal space, making it difficult for governments to invest in public spending and infrastructure. To close this gap, the report recommends improving tax administration and revenue collection, with a particular focus on wealth taxes.

Currently, LAC has one of the highest corporate tax rates globally, averaging 24.7%, yet the region collects only 2.7% of its revenues from wealth taxes. By comparison, North America collects 12.8%, and Europe collects 4.3%. The report suggests that better utilization of property taxes could significantly enhance fiscal capacity. In LAC, 80% of wealth is held in real estate, but property taxes account for only 2% of total tax revenue. Modernizing property valuation and collection could potentially contribute up to 3% of GDP.

Equity and Environmental Impact

Revisiting property taxes not only offers a fiscal solution but also an opportunity to improve equity. Subnational governments could benefit from empowered tax collection, which in turn could promote more productive and sustainable land use. However, the report cautions that reforms must be designed carefully to avoid disproportionate impacts on low-income property owners.

The report concludes that modernizing tax systems, boosting investments, and seizing opportunities presented by global trends like the green transition and nearshoring are essential for breaking the region's low-growth cycle and achieving long-term development.