LA and the Caribbean must focus reforms towards growth: IMF

The International Monetary Fund (IMF) on Friday urged Latin American and Caribbean governments to address economic policies aimed at fostering potential growth, saying their reform agenda needs a boost while activity is expected to moderate in the key economies.

In their Regional economic outlookthe IMF projected that the region’s growth will accelerate from 2.1 percent this year to 2.5 percent in 2025. But the expansion of the so-called AL7 group, which includes Brazil, Chile, Colombia, Mexico, Paraguay, Peru and Uruguay, will slow from 2.4 percent in 2024 to 2.0 percent next year.

Growth estimates for the region were released earlier this week as part of the IMF’s global economic outlook.

Rodrigo Valdés, director of the IMF’s Western Hemisphere Department, said at a news conference that “the urgency of deepening reforms for growth really applies to almost all economies in the region,” as economic activity moderates and governments They have to deal with fiscal and social challenges.

Asked about the impacts of a possible tariff war following the outcome of the presidential elections in the United States at the beginning of next month, Valdés said that open trade is good for the region, and noted that, depending on how greater fragmentation occurs, Some countries in the region may benefit while others may suffer.

The IMF highlighted that medium-term growth in the Latin American and Caribbean region (excluding Argentina and Venezuela) is projected at around 2.5 percent annually over the next five years and will likely remain close to its historically low average.

This reflects persistent and unresolved challenges, such as low investment, slow productivity growth and demographic changes.

“It is worrying that the current reform agenda is weak and could lead to a vicious cycle of low growth, social unrest and populist policies,” the IMF said.

““Tepid growth”

The entity highlighted that a key factor behind the “tepid” growth prospects is the expected marked slowdown in labor force expansion due to falling birth rates and an aging population.

The IMF also warned that the region’s debt will continue to rise without fiscal consolidation reforms, which it said are necessary to create space for the normalization of monetary policy, reduce inflation expectations and reduce country risk.

“Greater and more lasting efforts would be needed to firmly put debt on a downward trajectory, given the unfavorable differential between interest rates and growth that the region faces,” the agency stated.

Among its recommendations, the IMF highlighted the need to mobilize revenue, particularly by increasing personal income tax collection, which remains low across the region.

“The focus of the authorities should shift from cyclical policies to structural policies aimed at raising potential growth,” he added, pointing to measures that could foster international trade, develop higher-tech sectors, improve the efficiency of public investment and promote a market more flexible work.

“With its rich endowment of green minerals, the region is uniquely positioned to reap the benefits of the green transformation, although this requires strengthening investment frameworks to attract capital and increase revenues from natural resources to meet the needs of the region.” social and public investment needs,” said the IMF.