By: Staff Writer
November 11, 2025
The Organisation of Economic Cooperation and Development (OECD) said in their Latin American Economic Outlook 2025 that Latin American and Caribbean (LAC) countries need to transform their production structures to raise productivity and inclusion while meeting environmental goals.
The report, titled, “Promoting and Financing Production Transformation,” also said: “A systemic approach that recognises the interdependence of these challenges can foster coherent policies towards those objectives. Production transformation, the green transition and greater social inclusion are mutually reinforcing: advancing one dimension drives progress in the others.”
It added: “Well-designed productive development policies (PDPs) can boost productivity and diversification. In most LAC countries, however, implementation has been a challenge. Across the 33 countries in the region, 197 ministerial entities are involved in PDPs, with two-thirds of countries engaging five or six different ministries.
“Yet the presence of multisectoral ministries rarely translates into effective co-ordination or a unified strategic vision. LAC countries also face financing challenges: between 2021 and 2022, they allocated less than 0.5 percent of GDP to PDPs on average, far below the OECD average of 3 percent.”
The report also said: “Mobilising public and private resources is essential. LAC faces a sustainable development financing gap estimated at an average of USD 99 billion per year through 2030. Yet public spending is heavily concentrated on current expenditure rather than capital investment, constraining long-term growth.
“Tax revenues, at 21.3 percent of GDP in 2023, remain well below the OECD average (34 percent) and depend largely on value-added tax (VAT) (28.5 percent of total revenue) and corporate taxes (18.7 percent).
“Tax expenditures absorb significant resources – averaging 4.0 percent of GDP across 18 countries, with corporate income tax incentives alone at 0.9 percent. Reforming the design of these incentives can enhance their efficiency and effectiveness, and increase their impact on development and production transformation.
It will also be necessary to strengthen tax progressivity, redesign VAT to reduce regressivity, and bolster tax morale to foster compliance. National development finance institutions (DFIs), working in close co-ordination with multilateral development banks (MDBs) and bilateral DFIs, can play an important role in promoting investment aligned with PDPs.
“MDBs and bilateral DFIs can help by lowering borrowing costs, facilitating co-ordination with productive development policy strategies, providing technical expertise, and supporting sector-specific project pipelines to scale up investment.”