Bridging Latin America’s $99B Gap: Sustainable Finance + Policy Steps for Stronger Growth

Context and productivity constraints
LAC’s economic structure remains hindered by weak productivity growth: between 1991–2024, annual productivity rose only 0.9%—significantly lagging OECD’s 1.2% over the same period. Most jobs are informal (55.1% in 2023), which reduces tax base, social protection effectiveness and limits human capital development. Employment continues to cluster in low‐tech sectors, with only 2.1% in medium to high‐tech roles, undermining technology absorption and innovation. Environmental pressures are rising—GHG emissions across sectors increased between 1990 and 2022, and the incidence of climate‐related natural disasters doubled in 25 years—imposing long‐term costs.

Financing gaps and capital market limitations
The region faces a sizeable annual financing deficit of approximately USD 99 billion until 2030 to meet SDG‐linked priorities: social protection, education, food systems, climate and inclusive digitalization. Infrastructure investment averaged only 1.8% of GDP over past decade; closing the gap to required 3.12% of GDP means mobilizing additional investment equal to ~1.3% of GDP annually. Capital markets are shallow: equity market capitalization stood at 37.4% of GDP in 2024 vs. OECD’s 64.4%, constraining access to long‐term finance. Tax revenues are low (~21.3% of GDP vs. 34% in OECD); tax expenditures, including corporate tax incentives, consume nontrivial fiscal space.

Climate, green finance and international flows
GSSSB bond issuance has accelerated sharply: cumulative value reached USD 164.4 billion in 2024, with green bonds doubling over five years to USD 46.6 billion, and social/sustainability‐linked/blue bonds accounting for USD 117.8 billion. Sovereign issuers dominate, but key non‐sovereign sectors (financials, energy, construction) are growing rapidly. FDI inflows reached 2.8% of GDP in 2024 and constituted 12.6% of global FDI, reflecting robust interest—especially in renewables, digital infrastructure and medium‐high tech sectors—though re‐invested earnings account for over half.

Policy and institutional reform imperatives
Productive Development Policies (PDPs) in LAC are numerous and involve many ministries (≈197 across 33 countries), yet often lack coherent coordination, strategic vertical and horizontal integration, and real authority at coordination bodies. OECD average spending on PDPs is ~3% of GDP; in LAC it is under 0.5%, undermining effectiveness. Policymakers are encouraged to reform tax incentives, improve transparency and investor frameworks, involve civil society and subnational governments, and align policies with strategic sectors to promote inclusion, innovation and environmental sustainability.

Strategic implications for investors and governments
Governments that build credible multi‐year strategies in green tech, digital infrastructure, sustainable agriculture, and R&D will likely attract FDI and concessional financing. Deepening capital markets and implementing robust sustainable finance frameworks could unlock new pools of capital and improve cost of capital. International cooperation (ODA, blended finance) directed at skills, tech transfer and regional infrastructure integration (e.g., unified electricity grids) presents high payoff. Risk factors include political instability, fiscal constraints, volatility in global capital flows, climate shocks, and competition among countries for scarce global capital.