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Primer on Development Finance in Latin America and the Caribbean

Sustainable development and the achievement of the Sustainable Development Goals (SDGs) require securing adequate and reliable flows of external finance.1 According to the OECD, the SDG financing gap2 amounts to between US$5 -7 trillion per year, and the total amount of debt is now over 320% of global GDP.i These numbers translate into a funding challenge for low- and middle-income countries that remain off-target from the SDGs. The International Monetary Fund (IMF) estimates that meeting these development objectives would entail additional annual spending of up to 15% of their GDP.

At a regional level, it is worth noting that 28 out of the 33 countries in Latin America and the Caribbean are classified as middle-income, based on per capita income levels.iii This classification, however, must be contextualized given the region’s high levels of inequality that have increased over the last years,3 proving some indicators are not necessarily a straightforward reflection of the level of economic empowerment of the entire population.

Furthermore, the economic effects of the COVID-19 pandemic, shaped by crisis-response policies and changes in consumer behaviour, resulted in a 3% shrinking of the global economy after only the first year -2020- and global poverty increasing for the first time in a generation.iv Latin America and the Caribbean faced a 7% economic contraction in 2020, with some Caribbean countries reflecting an estimated economic decline of up to 15%, due to their tourism-based economies.v The challenge is vast. Real recovery will only be possible with an effective mobilization of domestic and international resources from public and private sources.

This primer will offer parliamentarians and other interested parties a brief overview of development finance, its implications for the capital flows and debt levels of a country, and innovative ways to achieve sustainable development.

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