A World Bank report estimates that 4.7 million people in Latin America and the Caribbean are no longer middle class.
The impact of the COVID-19 pandemic caused 4.7 million people from the middle class to move into vulnerability or poverty in Latin America and the Caribbean, according to a new report by the world Bank.
The impact would be more dramatic if the effect of a massive and temporary social transfer program in Brazil was not taken into account in the projections, since without it, 12 million people in the region would lose their place in the middle class in 2020.
Thus -in the year of the pandemic- the middle class was reduced to 37.3% of the population, the vulnerable class grew to 38.5% and the poor represented 21.8% of the population of Latin America and the Caribbean .
In 2019, the region’s middle class was 38% and the World Bank projections are that it now represents 37.3% with mitigation measures and 34.7% without them.
In Ecuador, the middle class is reduced from 33.3% to 30.4%. This World Bank estimate includes in this group the population with income per capita between $ 13 and $ 70 per day.
While the report’s poverty projections indicate that the country rose from 25.4% in 2019 to a range between 29.5% and 31.9% in 2020.
In Ecuador, more than 40% of households reported having adults who had to skip a meal in the last 30 days due to lack of money or other resources. And nearly half of Ecuadorian households reported running out of food in the past 30 days due to lack of money. Same as in Honduras.
High-frequency follow-up surveys from the World Bank also revealed that nearly half of household members in Ecuador and 41.5% of people in Peru needed but were unable to access medical services or treatment during quarantine. While in Guatemala and Honduras, approximately one in five household members could not access medical treatment.
High levels of remittances in some countries also saw dramatic drops, affecting poor and middle-class households. The expected decrease in remittances implies a reduction in non-labor income households and, therefore, an increase in poverty.
Colombia and Ecuador faced the largest drops in remittances: 20% and 19%, respectively. “But this probably had small effects, because only 1% of households in these countries receive remittances (although in that 1% the impact was quite negative),” the report indicates.
Remittances as a percentage of family income range from almost zero in Uruguay to 2.2% in El Salvador, although they can represent almost 21% of GDP in a country like El Salvador. In El Salvador as in Honduras, around 6% of households receive remittances (the highest in the region), but these can represent almost 30% of the income of that small percentage of households that receive them.
The vulnerable class is now the largest group in Latin America
At the regional level, there were 400,000 fewer poor people in 2020, but without the offsetting effect of Brazil, an estimated 20 million people fell into poverty in 2020, with a further increase of 1.4 million due to population growth, according to The report The slow rise and sudden decline of the middle class in Latin America and the Caribbean from the World Bank.
In the last two decades, the number of people living in poverty in the region has been cut in half. The middle class (income per capita between $ 13 and $ 70 a day) surpassed the vulnerable (income between $ 5.50 and $ 13 a day) and poor (below the poverty line of $ 5.50 a day), to move to be the largest group in 2018, but that growth stalled in recent years and the region was one of the most affected by the coronavirus pandemic in terms of health and economic costs.
Now the vulnerable class is the largest, as it grew to 38.5%, while the middle class fell to 37.3% of the population and the poor represented 21.8% of the population.
“The region is at a crossroads, the retreat of social conquests that cost so much runs the risk of becoming permanent unless energetic reforms are carried out,” says World Bank Vice President for Latin America and the Caribbean, Carlos Felipe Jaramillo .
“The emergency aid through cash transfers that helped mitigate the impact of the pandemic will not be sustainable for long; thus, the region must move forward with policies that ensure a firm recovery and lead to more sustainable, resilient and inclusive growth that combats persistent poverty and inequality ”, he adds.
A year of confinement that leaves an economy in a tailspin with numbers in the red
The World Bank believes that ensuring broad access to vaccines, putting in place efficient and effective systems to distribute and manage them, and strengthening health systems throughout the region will be key to recovery.
In addition, social protection programs must be re-evaluated to adjust their scope and incorporate new beneficiaries. Income transfers are useful, but they are temporary and may not be enough to prevent a sharp decline in the middle class.
“Those who were worse off from the start are likely to be the most affected, and this will exacerbate income inequality in an already very unequal region,” said Ximena Del Carpio, manager of the World Bank’s Poverty and Equity Practice.
More than half of workers are in the informal sector
54.4% of the region’s workers operate in the informal sector. Nine out of ten workers living in poverty are in the informal sector, and almost a third are self-employed.
For this reason, the agency considers that the crisis amplified the harmful effects of inequality in the region.
Other data revealed by the World Bank report is that less than one in four homes has adequate sanitation, 9% lack electricity and only 25% use the internet at home.
Funds allocated to mitigate the effects of the pandemic
The World Bank has committed more than $ 125,000 million to combat the health, economic and social impacts of the pandemic, the fastest and largest response in its history to a crisis, indicates the entity.
That funding went to more than 100 countries to help strengthen pandemic preparedness, protect the poor and secure jobs, and launch a climate-friendly recovery without delay.
The Bank is also providing $ 12 billion to help low- and middle-income countries purchase and distribute COVID-19 vaccines, tests, and treatments. (I)