Latin American fiscal deficits may prompt budget cuts

Subject

Latin America's fiscal challenges.

Significance

Most of the region's countries are on a reasonably sound fiscal footing to face another year of sluggish economic growth and weakening revenues from commodity exports, according to a report released by the UN Economic Commission for Latin America and the Caribbean (ECLAC) on March 9. They will, however, confront challenges in attempting to ensure a stable flow of commodity revenues without discouraging investment -- and while improving the limited effectiveness of tax systems in mitigating income inequality.

Impacts

• Some countries, including Argentina and Brazil, need to improve their primary fiscal balance by over 3% of GDP to stabilise public debt.
• Latin America's revenues from hydrocarbons could drop to below 5% of GDP this year, down from almost 7% in 2014.
• Despite progressive income tax rates of up to 40%, the effective rate for the richest tenth of Latin Americans averages 5.4%.