Governments tighten the purse strings

The past month has seen governments across Latin America announce belt-tightening measures for 2017 as part of their continued efforts to repair balance sheets following the drop in commodity revenues. Mexico has unveiled another sizeable fiscal squeeze equivalent to around 1% of GDP for next year, and Colombia plans to make budget cuts of 0.5% of GDP. While the cuts to Mexico’s budget should be sufficient to keep its deficit in check, we suspect that Colombia has a bit more work to do to put its public debt ratio onto a sustainable path. Tighter fiscal policy in both countries reinforces our view that growth will be weaker than the consensus expects next year. Elsewhere, Brazil’s government has announced plans to sell concessions to build and operate roads, railways and airports. The privatisation plan is part of a broader fiscal reform package that is making its way (slowly) through Congress. The outlier in all this is Argentina. Buenos Aires this month revised up its primary deficit target in the 2017 budget and now expects to implement less aggressive spending cuts than initially anticipated. Progress in tackling the fiscal deficit had already been stalling and, with legislative elections scheduled for October next year, there is a risk of further fiscal slippage.