Raising Productivity Growth in Central America, Panama and the Dominican Republic

• Despite successive shocks, the global economy has shown surprising resilience. The IMF’s latest update to the World Economic Outlook suggests global growth remains steady at 3.2%, and inflation is expected to continue falling, though at a slower pace.
• Central America, Panama, and the Dominican Republic are the exceptions. This year, they outperformed the rest of Latin America and other emerging markets with stronger growth and lower inflation. In the medium-term, the IMF projects growth in these countries to be about double that of the Latin American and Caribbean region (LAC) —more in line with other emerging market economies.
• In the medium-term, however, growth prospects have weakened. Growth in Latin America is projected to average just 2% over the next 5 years. This is much lower than those of peer economies across Europe and Asia.
• In light of the weakened growth prospects, IMF’s deputy managing director Kenji Okamura provided four recommendations for the LAC region:
• The first recommendation is to rebuild fiscal buffers to allow for investment in productivity-boosting areas like climate change and technology. Secondly, strengthen monetary policy frameworks to keep inflation within central bank targets.
• Thirdly, improve the governance and business climate, which is crucial for fostering competition and attracting both private and foreign investment. Focus on addressing crime, which impacts migration and economic stability.
• The final recommendation is to boost labour force participation. Since 2000, the labour force in Latin America has been growing at 0.5% per year. Now, the share of the working-age population in the region is peaking, posing additional challenges. Policies can help by encouraging more women to enter the workforce through training or by expanding childcare programs and parental leave benefits.

 (Sources: International Monetary Fund)