How to Improve State Effectiveness in Latin America and the Caribbean

When people ask us what we do for work, we often say: “We help governments be more efficient and effective.” But what does that mean? At the Inter-American Development Bank (IDB), it means helping governments design and implement policies effectively, enforce laws impartially, and deliver public services efficiently. State effectiveness touches every aspect of daily life. It affects everything from education and public health to essential infrastructure and digital transformation.

• Effective institutions shape development outcomes. That’s why the IDB’s new publication, How to Improve State Effectiveness in Latin America and the Caribbean, grounds these ideas in four concrete dimensions: strengthening the generation and allocation of resources, improving public sector management capacity, enhancing regulatory frameworks, and bolstering oversight, compliance and enforcement.

By making these concepts actionable, we aim to provide governments, the private sector, practitioners, and citizens with a practical roadmap for strengthening state effectiveness in Latin America and the Caribbean (LAC).

Strong institutions are central to tackling Latin America and the Caribbean’s biggest challenges—from economic growth and poverty reduction to climate resilience and trust in government. The region’s government effectiveness and rule of law have declined over the past decade, with wide variation between countries and persistent low trust in government. Without effective institutions, even the best policies and investments struggle to deliver real outcomes for people.

The IDB State Effectiveness Framework identified four interconnected dimensions that operate across the entire public sector, from central government “middle and back offices” to sectoral and subnational agencies that act as the “front office” that deliver services directly to citizens. Here’s a brief look at each:

1. Resource Generation and Allocation

This dimension refers to how governments mobilize and allocate resources, which is critical to fulfilling priorities and delivering outcomes. The region’s average tax-to-GDP ratio was 21.7% in 2021, below the OECD average of 34.2%. Despite rising expenditures, LAC countries face significant technical and allocative inefficiencies, estimated at 4.6% of GDP. Only 44% of governments reported that their centers of government (CoG) actively coordinate long-term planning across ministries. LAC faces weak resource generation, budget rigidities, and poor strategic management. Solutions include modernizing tax administration, improving spending efficiency, and integrating planning with budgeting and monitoring. 

2. Public Sector Management Capacity

It analyzes how governments manage and monitor the use of public resources — human, financial, data, technology, and infrastructure — to implement policies efficiently and effectively. Governments face persistent governance challenges and administrative capacity gaps across the civil service, procurement, infrastructure, data systems, and digital government. The Civil Service Development Index improved just 2 points over the past decade (from 38/100 in 2014 to 40 in 2024), compared to an 8-point increase from 2004–2014. Despite public procurement representing 17.4% of government expenditure and 6.6% of GDP in 2021, inefficiencies and corruption are estimated to cost at least 1.4% of GDP annually.

3. Regulatory Frameworks

These are government functions aimed at establishing clear, impartial rules that promote fair competition, protect citizens, and create a predictable environment for investment and innovation. These rules benefit not only citizens but are also fundamental for the private sector, facilitating investment, innovation, and public-private collaboration. The region’s average score on the World Bank Regulatory Quality Index fell from 56.8 (2013) to 51.8 (2023), far below the OECD average of 87. Country scores vary widely — from 11.8 in Bolivia to 76.9 in Chile. Most LAC countries also rank near the bottom in IMD’s Government Efficiency index, with only Chile in the top 50.

4. Oversight, Compliance, and Enforcement

How can we address these challenges? 

How to Improve State Effectiveness in Latin America and the Caribbean not only presents an evidence-diagnosis of the region’s problems, but it also maps out what works by looking at evidence on effective solutions. We also conducted an AI-powered review of 1,500 operations to get a deeper understanding of state effectiveness challenges across the different sectors and countries.

What sets this framework apart is its ability to make state effectiveness practical and useful. By grounding these concepts in clear, actionable dimensions, the framework moves beyond consensus in the literature to offer governments, the private sector, and practitioners a roadmap for real change. It’s not just about defining problems — it’s about identifying solutions and supporting implementation with evidence, tools, and strategic partnerships.

• Download How to Improve State Effectiveness in Latin America and the Caribbean.
• Explore the State Effectiveness Thematic Framework Document. 
• Join ImplementaLAC, the pioneering network in Latin America and the Caribbean dedicated to improving policy implementation. Connect with a community of innovative public servants and help shape the future of state effectiveness in the region.