Latin America and the Caribbean face slower growth and persistent inflationary pressures as the global economy adjusts to major policy changes and persistent geopolitical tension, the International Monetary Fund (IMF) said on Friday in its Regional Economic Outlook.
The IMF announced Tuesday that it expects the region to grow 2.4% this year and 2.3% in 2026 as the post-pandemic recovery fades and global trade tensions weigh. Despite the slowdown in inflation, several countries are still expected to fall short of their targets.
In its World Economic Outlook, the IMF raised its global growth forecast for this year due to milder-than-expected effects of tariff shocks and more favorable financial conditions.
The IMF indicated that governments in the region should stabilize debt, coordinate fiscal and monetary policies and facilitate business growth. He warned that delays could make it difficult to meet even these modest growth forecasts.
Debt is again close to the highs reached during the Covid pandemic.
The IMF estimates that for Brazil, Chile, Colombia, Mexico, Paraguay, Peru and Uruguay, the region’s largest economies excluding Argentina, governments need to increase primary balances by about 1.5 percentage points of GDP compared to 2024 to prevent debt ratios from worsening.
“Whether it is spending or income, these factors matter in almost the entire region,” said Rodrigo Valdés, outgoing IMF director for the Western Hemisphere. “There are many deductions in the tax codes, the tax base is lower than it should be.”
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IMF demanded credible multi-year fiscal plans
The IMF demanded credible multi-year fiscal plans, better tax collection and more efficient spending. The goal, he said, should be to stabilize debt without cutting investment or basic social programs.
Valdés, who will take over as director of the IMF’s fiscal affairs department on October 27, noted that “it is always politically very difficult, but it is never too late to implement a plan that is credible.”
Such credibility, Valdés said, can help attract investment. “If you believe that the economy will grow faster in two or three years, invest today. The key point is how to create a package that is a sequence of measures that make it tangible or credible that this will happen,” he highlighted.
The IMF warned about the risk of contradictory signals from fiscal and monetary authorities.
He highlighted Brazil and Mexico as key countries where this could be relevant.
“Lack of coordination is a problem, like driving a car with two people at the wheel, one braking and the other accelerating. That’s not good,” Valdés said.
The IMF emphasized that central banks work best when public finances are stable. High debt and weak fiscal signals can limit the impact of interest rate fluctuations and undermine confidence in the policy mix.
The entity predicts that potential growth will stagnate at around 2.5%, much less than in other emerging markets. He pointed out low productivity, excessive bureaucracy and insufficient regional trade as problems.
With information from Reuters.
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