CHAPTER THREE • OFID IN THE WORLD
Latin America and the Caribbean: Big boost for water and sanitation sector
Economic context
The economic recovery seen in Latin America and the Caribbean in 2017 lost momentum in 2018, with real growth slowing to around 1%. The slower pace of growth reflected different outcomes across the region. Central America expanded almost 4%, due to better terms of trade and improvements in consumer and business confidence. In comparison, growth in South America of less than 1% highlighted the impact of external headwinds such as higher oil prices, along with country-specific issues related to political uncertainty. Mean- while, activity in the Caribbean was supported by increased tourism owing to higher US growth. With the modest uptick in growth along with rising energy prices and some currencies appreciating against the US dollar, inflation accelerated to an annual average of nearly 7% for the region. In 2018, most economies in the region reduced their structural primary fiscal deficits, driven by an increase in revenues rather than a reduction in expenditures. However, many economies’ primary deficits remained above debt-stabilizing levels, which pushed up public debt stocks. Rising US interest rates and a stronger US dollar in 2018 had various effects: the region sustained a drop in net capital inflows, an increase in borrowing costs and a weakening in local currencies. Commodity exporters were net losers despite cheaper exports due to intensified trade tensions, while tourism-dependent economies experi- enced net gains. The overall effect of these developments was that the region’s current account deficit widened slightly to 1.6% of aggregate GDP.
Social context
The low economic growth environment and major demographic and labor market changes undermined poverty
and inequality reduction efforts, dispro- portionately affecting children, young people and women across the region. Social protection networks helped contain the situation, but their limited resources were insufficient to tackle extreme poverty. Following the near doubling of aggregate social spending in per capita terms between 2002 and 2016, growth was relatively lackluster in 2018. However, social inclusion indica- tors related to education, health and basic infrastructure improved, but large gaps in service access and quality persist. Moreover, levels of social expenditure are still very uneven between sub- regions and countries, with one result showing that insufficient funds for the education sector means that around one-third of the region’s children do not complete secondary school. Progress was made in terms of social and labor inclusion, but structural gaps persist, with a sharper impact on women and youth. Despite the progress made, there are still major social policy financing challenges to overcome, especially in countries with higher levels of poverty and other social development shortfalls. Unfortunately, many countries that are most in need of resources do not have the means to tackle poverty to ensure the 2030 SDGs are met.
OFID in Latin America and the Caribbean
During 2018, OFID approved $315.1m for development operations in Latin America and the Caribbean. In total, seven countries shared this amount, which represents 21% of total approvals for the year.
All OFID’s financing windows are set to contribute. However, the majority of approvals ($210m or circa 67%) was made via the public sector for energy,
During 2018, OFID approved $315.1m
for development operations in Latin America and the Caribbean
and water and sanitation operations. These approvals comprised: $75m to improve access to energy in the Dominican Republic; loans of $60m and $50m for Argentina to strengthen sanitation systems and improve water security; and $25m to Cuba to support water infrastructure.
OFID’s Private Sector and Trade Finance Facility approved $25m for a regional project in the financial sector and $80m was provided in trade finance for operations in El Salvador (two $15m loans), Panama ($30m) and Paraguay ($20m).
In addition, $0.1m was provided in emergency aid to support Guatemala following the eruption of the Fuego volcano.
For more information please visit:
http://www.ofid.org/COUNTRIES/ Latin-America-Caribbean
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