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Latin America Sovereigns Mostly Off Track for 2024 Fiscal Goals

Wed 21 Aug, 2024 - 4:47 AM ET

Related Content: Sovereigns Dashboard: Latin American Sovereigns Struggle to Meet 2024 Fiscal Goals

ֳ-New York-21 August 2024: Latin American (LatAm) sovereign are broadly off track to meet their fiscal consolidation goals in 2024, according to data from 1H24 for most regional countries besides Colombia and Bolivia, says ֳ.

Fiscal positions in LatAm began to broadly deteriorate in 2023, after surprisingly strong post-pandemic recoveries in 2021-2022. This deterioration has continued in 2024.

Spending pressures have been the principal source of fiscal slippage. Primary spending is rising due to indexation, which is still capturing the effects of higher past inflation, budget increases and counter-cyclical spending. Interest bills also continue to rise in most countries, as marginal borrowing costs have plateaued or begun to fall, but remain above the effective cost on existing debt stocks.



Balanced against expenditure growth has been generally firm revenue growth, which has increased in line with economic activity. There are exceptions, however, including Chile, Colombia and Peru, where economic slowdowns have resulted in revenue contraction this. In Panama, revenue underperformance relative to GDP has been a longstanding trend.

Most countries that have formal fiscal targets are not on track for compliance this year. Brazil, Chile and Colombia are pursuing spending cuts to narrow projected deviations from fiscal targets, but these may not be sufficient to meet fiscal targets. Uruguay projects it will miss its target. Peru already relaxed its target, Costa Rica has requested legislative authorization to do so and Panama is likely to do the same.

Idiosyncratic circumstances are driving fiscal improvement in some countries. Argentina and Ecuador are pursuing ambitious consolidation programs to avert economic crisis. Guatemala did not approve a 2024 budget until recently, forcing carry-over of the smaller 2024 budget, and thus spending austerity. Buoyant revenues and spending restraint are narrowing Paraguay’s deficit and widening Nicaragua’s surplus.

Contacts:

Todd Martinez
Senior Director, Sovereigns
+1 212 908 0897
todd.martinez@fitchratings.com

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Justin Patrie, CFA
Senior Director, ֳ Wire
+1 646 582 4964
justin.patrie@fitchratings.com





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