IMF Urges Latin America and the Caribbean to Prioritize Growth
A recent report by the International Monetary Fund (IMF) has urged countries in Latin America and the Caribbean to direct their economic policies towards enhancing potential growth. The IMF noted the inadequacy of the current reform agenda in these regions and warned that without significant changes, the anticipated slowdown in economic activity could lead to a cycle of low growth and social unrest.
The IMF's Regional Economic Outlook report forecasts a growth rate of 2.5% for the region next year, a slight increase from this year’s 2.1%. However, the LA7 group—comprising Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay—is expected to see its growth slow from 2.4% to 2.0% in 2024.
The IMF analysis, excluding Argentina and Venezuela, indicates that the medium-term growth in Latin America and the Caribbean will be approximately 2.5% annually over the next five years. This projection aligns with the region's low historical average growth rates. The IMF attributed the modest growth outlook to longstanding issues like insufficient investment, slow productivity growth, and demographic changes, including declining birth rates and an aging population.
The organization also highlighted rising debts in the region, emphasizing the need for fiscal consolidation reforms to pave the way for monetary policy normalization, anchor inflation expectations, and reduce country risk. Given the unfavorable interest rate-growth differential faced by these countries, the IMF stressed the need for more sustainable efforts to put debt on a downward trajectory.
To boost revenues, the IMF suggested focusing on increasing personal income tax collection, which is currently low across the region. The IMF recommended transitioning from cyclical to structural policies to enhance potential growth. These measures include promoting international trade, developing high-tech sectors, improving the efficiency of public investments, and encouraging labor market flexibility.
Additionally, the IMF noted that the region is well-positioned to benefit from the global green transition, given its abundant green mineral resources. To capitalize on this opportunity, the IMF proposed strengthening investment frameworks to attract capital and increasing natural resource revenues to support social and public investment needs.