Covid-19 has brought about the worst global recession ever since World War II. The economic turmoil has not spared any country, but the region which has been affected the most in Latin America and the Caribbean. Whereas the global decline in GDP last year was 3%, this region saw a decrease of 7% in its GDP. Thus, Latin America’s condition was the worst amongst all regions monitored by the IMF.

Although employment and businesses worldwide have been negatively affected due to halted operations, the population of Latin America is reported to have worked almost half the number of hours that residents of other regions worked even during the pandemic. One of the major reasons for their dreadful performance is poor public health. This region has seen the most excess deaths during Covid-19 as compared to other parts of the world.

Now that vaccinations are being administered across the globe to curb the spread of the pandemic, the President of Brazil, Jair Bolsonaro, whom many locals look up to, has adopted an unrealistic approach by refusing to get vaccinated, or even to wear a mask. Thus, it is no surprise that the death toll in the country is quite high (almost 2000/day).

Other countries in the Latin American region which were previously able to control the spread of Covid-19, have also started seeing a rise in the number of cases. Consequently, local governments have no other option but to impose a lockdown.

Did you know?
Due to the excessive number of cases, Latin America has been the most home-bound region of the year.

Besides the spread of the pandemic and the consequent lockdown, 2 additional factors that have played a role in the deteriorating economic condition of the region are:

  • Structure of local economies
  • Scale and design of fiscal stimulus

Structure of local economies:

Most countries within this region rely heavily on tourism. Therefore, lockdowns had a drastic impact on their economies. One such example is the Caribbean island of Aruba which saw a decline of 25% in its GDP during 2020.

Furthermore, research by IMF has revealed that most of the employment opportunities in this region exist in “contact-intensive sectors”, where it is difficult to work without being physically present around one another. 43% of the jobs exist in industries like public transport, shops, and restaurants, whereas only 30% of them exist in emerging markets.

Also, there is massive inequality between different sections of the region’s population. For this reason, hiring domestic staff is a common practice in Latin America and the Caribbean.

Not only does this practice cause interaction between two households, thus increasing the risk of transfer from one family to the other, but also most domestic workers are subject to inappropriate treatment at the hands of their employers. They are not provided with adequate protective equipment in most cases and no heed is paid to their rights.

Scale and design of fiscal stimulus

Any region’s fiscal policy can be one of the reasons behind its poor economic performance. To calculate whether the nation’s response to Covid-19 was sufficient enough, one would need to compare two parameters:

1) “change in overall budget deficit”, and

2) “lost output during the pandemic”

Most governments announced a fiscal stimulus policy, in response to the pandemic, according to which they tried increasing their spending by an amount equivalent to that of lost output. Rich nations like Australia and the US who could afford to do so even tried exceeding the lost output in terms of relief provided.

However, Latin America has been very stingy with its fiscal stimulus policy, even though it has shown greater generosity in previous recessions. With 28 cents worth of spending per every dollar of lost output, the region is offering far fewer benefits, not just compared to rich economies but also the emerging markets.

Not only the scale, but the design of fiscal stimulus adopted by Latin America is flawed. A successful approach would have been making the money available to the affected individuals so that they could have countered the effects of unemployment by paying for food and essential items. Rather, the region started investing in its largely underfunded healthcare system.

Although some countries like Brazil have not adopted this approach. Brazil almost matched its spending to the lost output which has helped prevent its population from falling into extreme poverty. However, the amount of aid provided by the Brazilian government has recently decreased.


Although the region will eventually rise back from the economic downfall, its expected GDP growth would be restricted to 3-4% for quite some time after the pandemic-related safety restrictions come to an end. This would be much lower than the US and other countries.