Household debt in region grew during COVID-19 pandemic
Household debt in the region grew during the COVID-19 pandemic, but remains relatively low compared to other larger economies around the world, a recent Inter-American Development Bank report reveals.
On average, household debt in the region is 22 percent and around 35 percent for emerging economies like The Bahamas, reveals the report, entitled “Dealing with Debt – Less Risk for More Growth in Latin America and the Caribbean”.
“Households borrow to buy durable goods (e.g., an appliance, a car, or a house), to finance health or other exceptional expenditures, or to smooth consumption. Household borrowing is around 77 percent of GDP in advanced economies, compared to just 35 percent in emerging economies. Since financial markets tend to be less developed in poorer economies and firms and households borrow less from formal sources, lower financial inclusion is not surprising,” the report states.
“Additionally, in emerging economies, households and firms face more restrictions to take out a loan, interest rates are higher, and household income is more uncertain. Promoting higher borrowing should go hand in hand with policies that better protect borrowers and lenders.”
The IDB report notes, however, the restrictive access to financing in the region, particularly for firms and further, those owned or ran by women. It points to a gap of $1.8 trillion between demand and supply for funds available for small and medium-sized enterprises (SMEs) in the region.
“New evidence from more than 1,153 firms in the Caribbean, based on the Firm Performance and Gender Survey (IFPG) for the Caribbean, suggests that credit rationing is more prevalent in firms where women play a key role in the strategic decisions of the company. Analysis using this data, collected during the pandemic in 13 Caribbean countries, reveals that female-managed companies are five percentage points more likely to identify access to finance as a major constraint for business than male-managed firms, even when accounting for size, age of the firm, economic activity, and location of the company,” the IDB report states.