Public debt comes at a cost to the public, as interest payments absorb government resources that could otherwise be used for additional public services. For instance, the cost of servicing the foreign debt in Latin America and the Caribbean amounted to 565.1 billion US dollars in 2021.
Coronavirus and the worsening of the sovereign debtLike most countries around the world, Latin American nations have seen their public debt inflate as a result of the economic cost of handling the COVID-19 pandemic. As the former led to a shrinking of the Latin American countries’ GDP, the relative burden of the public debt increased significantly. By 2022, two years after the outbreak of the pandemic, most countries in the region still had a sovereign debt which exceeded half their GDP. The debt held by Venezuela's public system represented 307 percent of the country's annual production, making it the most indebted economy in the region. Even countries with historically low level of indebtness, such as Chile, are expected to see their national debt soar in relation to gross domestic product.
A significant and increasing portion of the region's debt is external, that is, owned by foreign creditors, or held in foreign currency, like the case of Colombia. Consequently, the depreciation experienced by many Latin American currencies due to the pandemic implied an increase of the external debt burden. All things considered, the public debt-to-GDP ratio in the region is forecast to remain around 71 percent during the next years, while less than a decade ago it stood below 50 percent.