World Bank warns that scars left on economy and society as a result of COVID-19 run deep
NASSAU, BAHAMAS – The real gross domestic product (GDP) of the Bahamas is expected to grow 2% this year and 8% in 2021, according to World Bank estimates.
The World Bank, in its growth outlook for the Latin America and the Caribbean region, noted that after a real GDP contraction of 14.5% in 2020, the real GDP of this country is expected to increase by 2% this year, from 8% in 2022 and 4% in 2023.
The projections were included in a report titled “Recovering Growth: Rebuilding Dynamic Post-COVID-19 Economies Amid Fiscal Constraints”.
The report notes that for Latin America and the Caribbean (LAC), the economic recovery is “stronger than expected earlier in the year, but weaker than favorable winds would dictate.”
“The growth forecast for 2021 was revised upwards over the summer and regional growth is expected to reach 6.3% for 2021, almost covering the 6.7% losses of 2020,” the World Bank noted. .
“However, given the robust recovery of their major trading partners, low global borrowing rates and the prospect of another commodity supercycle, growth rates could be 1.5 percentage points higher. “
The report also noted that new evidence suggests that it is possible to increase revenue mobilization without having significant negative impacts on growth.
“Value added tax (VAT), for example, appears to have negative effects on growth for countries with already high tax burdens, but for countries with rates between 7.5% and 14%. , the negative effects are small and expansion is possible, ”the report said.
“However, because it weighs on consumption, VAT is regressive and potentially worsens inequalities.
“In contrast, income taxes can be designed to be more progressive, but they are estimated to have a larger negative impact on output in the LAC than, say, in the United States.
“Property taxes, as a percentage of the LAC region’s GDP, are generally less than 0.6% of GDP, while the level of the Organization for Economic Co-operation and Development (OECD) is 2% and offers another potential source of income which, again, would be more progressive.
“Taxes on tobacco, alcohol and sugary products generate health benefits and income.
“It was estimated that increasing excise taxes would increase tax-to-GDP ratios by 0.7% on average in low-income countries (LICs) and low-to-middle-income countries (LMICs) and, when health impacts are taken into account. account, the impact of the increase is gradual.
“The goal of reducing carbon emissions may also involve levying taxes, which would also increase income, although the magnitude and impacts on equity are not yet clear for the region. “
The World Bank has warned that the scars left on the economy and society as a result of COVID run deep.
“While the world grew 3.1%, CLA rose 2.2%, a rate too low to pull CLA populations into prosperity and calm social unrest – and that was before ‘arrival of COVID-19,’ the report notes.
“The poor performance was in part due to the erosion of commodity prices, the sensitivity of which only underscores how undiversified economies in the region remain.
“What is more concerning, given the strong favorable winds from external factors – still low global interest rates, strong recovery in major trading partners, a potential new commodities supercycle – is the recovery has been surprisingly weak, and growth forecasts for 2022 and 2023 are back to lackluster pre-COVID-19 rates. ”
Another particularly worrying outcome of the pandemic, according to the report, is the shortfall in human capital due to persistent school closures.
“Estimates suggest that the number of years of learning-adjusted schooling (LAYS) in CLA may have increased from 7.8 years to 6.4-6.7 years on average,” the report notes.
“These losses affect all countries and could represent a significant long-term drag on labor productivity growth.
“As they are more acute among lower social strata, they can also exacerbate existing inequalities and hamper upward mobility. “