Since first launched in November 2007, the Latin American Economic Outlook (LEO) has systematically analysed critical aspects related to sustainable and inclusive development in Latin America and the Caribbean (LAC) region. Each year, the report identifies key trends and associated opportunities and challenges. Across diverse topics, it compares LAC’s performance with that of other regions, analyses main development challenges and puts forward policy recommendations, experiences and good practices.

Latin American and Caribbean (LAC) countries are at a critical juncture. Just as the region was looking forward to a rebound in growth and a more sustainable development path after the pandemic, the current inflationary pressures and stark geopolitical tensions are throwing spanners in the regional recovery works. In parallel, LAC faces the challenge of implementing ambitious adaptation and mitigation strategies to address the climate emergency, while at the same time accelerating the pace of social, economic and institutional progress, all within narrowing fiscal space.

Countries in Latin America and the Caribbean (LAC) face an ambitious agenda to ensure that the green transition is an opportunity to enhance development in the region. The global impacts of the COVID-19 pandemic and of Russia’s war against Ukraine have been a reminder of LAC’s weak resilience to shocks. This stems from its structural challenges: fragile social protection systems; low productivity; weak institutions; and an environmentally unsustainable development model. A systemic green and just transition could help the region overcome its development “traps” and strengthen its resilience while improving Latin Americans’ well-being. LAC is highly exposed to the effects of climate change and, as such, governments should seize the recovery as a strategic opportunity to launch broad and deep transformation.

Latin America and the Caribbean (LAC) faces an ambitious agenda to leverage the green transition as an opportunity to achieve a more just and sustainable development model. The recovery requires adopting a systemic approach to tackle the challenges and harness opportunities of the green transition to improve citizens’ well-being. The green transition is a once-in-a-generation social and economic opportunity. A green transition that is truly just should advance the transformation of LAC’s energy and productive matrices, and develop new and more sustainable economic sectors while also promoting quality jobs and supporting workers and households throughout the transition. Making this possible demands the mobilisation of high amounts of resources by rethinking fiscal systems and applying innovative financial solutions; reaching broad consensus across income groups, generations and territories by crafting a new sustainable social contract; and working to forge new active regional and international partnerships.

The COVID-19 recovery in Latin America and the Caribbean (LAC) is slowing down, reflecting low potential growth and an increasingly complex international context driven by Russia’s war against Ukraine and an economic slowdown in China. The socio-economic consequences of COVID-19 linger, with poverty and extreme poverty still high. With macroeconomic policy space being reduced, most LAC countries will face the multidimensional challenge of balancing recovery stimulus, financing the green transition, and protecting the most vulnerable, particularly from the impact of inflationary pressures. After analysing the global context, this chapter presents the economic performance and critical factors affecting the pace and shape of the recovery in LAC. The chapter then analyses the weight of climate change on fiscal accounts and explores some options to mobilise further resources to promote the green transition. Before concluding, the chapter discusses the deteriorated post-COVID-19 social conditions, particularly poverty and inequality, and the need to strengthen social protection systems.

A green transition that places citizens’ well-being at its centre could help Latin America and the Caribbean (LAC) move towards a more inclusive and sustainable development model. First, this chapter maps out where the region stands regarding environmental indicators. Second, it argues why the green transition is an opportunity for the post-COVID-19 recovery in the region. Third, it puts forward a multi-dimensional, systemic approach to advancing a green and just transition and focuses, in particular, on a territorial sustainable development model and policies needed to accelerate the transition towards sustainable transport and urban systems. Last, the chapter highlights main policy messages.

The recovery agenda in the LAC region calls for an integrated holistic approach that enables a green and just transition. This chapter presents three key building blocks to advance a more sustainable development model in LAC: energy, production and social protection. The chapter starts by analysing the current energy matrix and goes on to look at the possibilities industrial policies and the circular and the blue economy offer for enhancing current productive structures. Lastly, it reviews the potential impacts the green transition could have on the future of work, and the role social protection systems can play in protecting the most vulnerable during the transition.

To transition to net-zero emissions economies, the LAC region must mobilise substantial resources in a tight fiscal space. To do this, the region needs an effective financing strategy that involves the public and private sectors. This chapter analyses a sustainable fiscal policy that aims to invest more and better in the green transition, with a focus on the energy sector. It proposes ways in which the region can mobilise further resources, specifically through environmental taxes, innovative debt tools, and phasing out fossil fuel subsidies (without neglecting the most vulnerable). It stresses the need for sustainable financial strategies that channel public and private investment towards projects with greater environmental benefits. It focuses on the role of finance ministries and that of sub-national, national and international development finance institutions (DFIs) in helping mobilise resources for the green transition. It also suggests strategies to help the public sector mobilise private-sector investments towards sustainable projects. Finally, it looks at the importance of sustainable finance frameworks in developing and improving regulatory guidelines that facilitate private- and public-sector investments.

The recovery from COVID-19 represents a unique opportunity to advance towards a greener development model in LAC. Citizens in the region show a high level of concern for environmental issues, suggesting that the green transition should be at the centre of a new social contract that reconnects society and institutions. To make the green transition possible, new institutions and policies to support those that will be temporarily affected by this transition are needed. A just green transition requires mechanisms to foster inclusive dialogue across all stakeholders and to build consensus around reforms, paying particular attention to overcoming the complex political economy of such a broad reform agenda. It is equally important to ensure that public institutions can work strategically and in close co-ordination, with a coherent, long-term view of making the green agenda a centrepiece of national development strategies.

Regional and international co-operation is necessary to ensure the successful implementation of climate change mitigation and adaptation policies. Many countries in LAC are natural resource-intensive exporters with rich biodiversity, placing them as important actors in climate negotiations. However, they also face an export structure biased towards primary sectors, a condition that makes them vulnerable to new international environmental standards and regulations. This chapter argues that, to transition to a sustainable model of development, LAC governments need a strong convening power and to enhance a unified voice in multilateral environmental agendas. This will help to better illustrate the region’s particularities and improve alignment of national policies and internationally established environmental goals. In addition, the chapter looks at how governments will also have to face the green economy’s impact on trade. Policies will need to take into account the additional costs imposed on exports in the medium term, along with the effects of international environmental standards and regulations. Finally the chapter shows how regional co-ordination and further co-operation among LAC countries, and sub-regional grouping will be the way forward for advancing on renewable energies and green transition policies in the LAC region.