Even before the COVID-19 pandemic hit, economists at the International Storage Facility, the IMF and credit standing firms warned that many Latin American countries were dealing with difficult fiscal demand conditions. The alert saw substantial growth in borrowing and the debt-to-GDP ratio, then economic growth strangely slowed down during 2012–19.
Once warned that the increasing burden of debt and passion would limit The ability of governments to respond to new shocks. Until there was rapid economic growth, fiscal restraint was necessary in almost all countries. Making significant and lasting structural reforms in executive spending And Profit streams are required.
However when the pandemic arrived, and to help the state of their economies and societies, most governments spent more despite falling revenues, causing the budget deficit to widen even further. This required additional borrowing, resulting in a heavy debt burden. Mixed regional fiscal deficit increased from 3.8% in 2019 to 8.3% of GDP in 2020, although a third of that increase stalled as the region’s GDP shrank 7%.
Fearful of jeopardizing their year-end access to global capital markets, most governments in Latin America and the Caribbean reduced spending as revenues and GDP improved and ran much smaller fiscal deficits in 2021 and 2022, on average. About 3.5% of GDP. At the end of 2022, it is forecast that fiscal decision-making will continue and thus, the budgetary imbalance will not increase again in 2023-24.
However, the region’s fiscal deficits rose again later in the year to 5.1% of GDP, and they will not shrink much this year, except in Argentina, where a damaging fiscal austerity experiment is underway. The regional decline was disproportionate to Brazil, where fiscal scarcity almost tripled to 7.9% in 2023. And there are some exceptions: in Colombia, rarity decreased significantly, and in Mexico, it remained unchanged.
As governments experience slower profit growth and face higher borrowing rates, there is a new influx of surprises in policy circles and monetary markets, as the prospects for this year’s fiscal results do not look great. The IMF’s credible forecast for the Latin United States is a compound fiscal deficit of 4.7% of GDP, with little to no change until later years, due primarily to expected growth in Brazil and possible deficit contraction in Argentina. There are 4 share points. Gross Domestic Product.
Fat Nation, Adequate Duty
In Argentina, the challenge for the federal government is to move from spending cuts and cost deferrals through government mandates to permanent spending cuts and revenue-raising measures licensed by Congress. Extremists have additional legitimacy and are likely to face a tougher end. There is also a need for reforms in financial, capital controls and exchange rate policies as well as regulation and alternative projects that can strengthen the investment climate.
The project in Brazil is to slow the expansion of government spending because its public debt, equivalent to 86% of GDP, is one of the highest burdens in emerging markets. Such restraint contradicts President Luiz Inácio Lula da Silva’s electoral guarantees to increase welfare spending and improve environmental conditions. Precisely during April-June, monetary markets raised alarm bells on the fiscal generosity of the society as it prevented inflation expectations from reaching the 3% target of central reserves, thus forcing it to book higher interest rates in other ways. forces for. Thankfully, Lula took a softer stance on the last years of this generation and confirmed some spending cuts, boosting beaten-down stocks, bonds and the currency.
Mexico’s President-elect Claudia Sheinbaum faces the unenviable process of matching marketing campaign promises to expanding social strategies compared to her predecessor’s election-year spending. The 2024 fiscal deficit is projected to reach 6% of GDP, up sharply from 4.3% in 2023 – the widest deficit since the early 1980s.
Government spending in Mexico recently stood at 30% of GDP, up from 25% pre-COVID. Spending on funding initiatives with low social returns, looming pension and passion bills, and indeed massive monetary transfers to the faltering state-owned oil company Pemex, is a growing concern. Since 2019, the outgoing leadership has supplied Pemex with more than $50 billion, equivalent to about 4% of average annual GDP. The company’s tax burden was reduced, and this year, the government is also paying for its massive outstanding loan payments.
alternative nations disappoint
Various medium-sized and smaller countries also have fiscal issues. The rate of economic growth in Andean countries has declined sharply: from 0.2% in 2023 to 2.1% in 2022 in Chile; in Colombia from 7.3% to 0.6%; in Ecuador from 6.2% to 2.3%; and in Peru from 2.7% to -0.6%. Those recessions reduced their governments’ profits, primarily due to investment-friendly insurance policies and/or political confusion, jeopardizing their fiscal results. There are no significant changes happening this year.
Panama, a relative fortunes story during 2000–2020, has become a concern as it risks succumbing to the financial problems that plague many other Latin American countries – including a fiscal crisis. Despite a fiscal deficit of 3% of GDP last year and government plans to worsen it this year, Panama faces the most pressing threats. As transportation has become obsolete due to drought, profits from the Panama Canal have declined, and so have the revenues from a large number of copper mines, leading to pressure to close without interruption. In March, Fitch Rankings stripped the federal government of its investment-grade ranking, although Moody’s and S&P have yet to adopt it.
intent
There are two primary explanations why fiscal problems are taking center stage in policymaking and monetary circles, a development that still applies to many high-income economies, where budgetary deficits and money owed to society are well below pre-pandemic projections. Now trending higher than. The explanation is the slowing pace of financial – and thus government profits – growth, and the upward leg up of domestic and global interest rates – and, as a consequence, rising borrowing prices.
The United States’ annual economic growth averaged 3% during 2006–15, although it fell to 0.5% between 2016–19 before a pandemic-related uptick from 2020 to 2022. The region’s GDP growth rate for 2023–25 is projected at a reasonable 2.3%, with executive profit growth at a slower pace than 2006–15. This justifies a separate major fiscal warning.
On the other hand, the compounding issue is the overhead cost of borrowing. It rose by several share points almost everywhere in the world in 2022-23 and is falling substantially this year. Additionally, it is likely that interest rates will not return to the extremely low levels they were before and during the pandemic in 2025-27. Many Latin American governments will likely need to pay meaningfully extra for their new scarce investments, whether in domestic or global markets. In countries such as Brazil and Mexico, where one-fifth of their indebtedness falls each year, upper rates are routinely locked in with each refinancing of short- or long-term debt.
With less favorable personal debt dynamics, particularly for the slowest-growing, highly indebted and/or deficit countries in Latin America, the United States, policymakers, and investors will need to pay greater attention to the region’s medium-term fiscal sustainability. Must remain focused.
Any evaluations expressed on this piece do not necessarily mirror these America Quarterly Or its publisher.
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