Fitch Ratings: Latin America Sovereign Actions Mixed Amid Growth, Fiscal Challenges

Sovereign rating actions in Latin America in 2024 have been mixed, with three upgrades and two downgrades, continuing the pattern seen in 2023, Fitch Ratings says. The Positive-to-Negative Outlook ratio has improved to 4:1, with Positive Outlooks on all Caribbean sovereigns, which have benefited from the post-pandemic tourism recovery and structural fiscal improvements.

Continuing growth and fiscal challenges remain important factors in Fitch’s sovereign ratings assessments. Most Latin American economies will grow in 2024, with only Argentina’s forecast to contract. But muted economic performance means Fitch forecasts regional growth will slow to 1.4%, from 2.2% in 2023 – the weakest forecast among all emerging market regions.

LatAm sovereigns’ projected median 2024 current account deficit is modest at 1.5% of GDP in 2024 (in 2023 it was 1.4%). External buffers and financing options are mostly sound, although Bolivia’s downgrade to ‘CCC’ in February means that four sovereigns are rated in this category or lower, indicating more acute financing constraints and international liquidity challenges.

Fiscal risks are rising as broadly weak 1H24 deficits imply that fiscal forecasts may deteriorate for 2024 and beyond. Overall, deficits will remain above debt-stabilizing levels in most countries. The fading post-pandemic fiscal recovery has exposed underlying fiscal weaknesses, notably the difficulty in reducing primary expenditure due to social spending pressures and indexation. Exceptions are mostly in Central America and the Caribbean, where fiscal positions are tighter.

Economic deceleration, a period of high inflation, and increased income inequality and poverty rates following the pandemic underpin risks to social and political stability. Periodic protests have been common in recent years and may remain so. Governability challenges from fragmented congresses and difficult executive-legislative relationships can delay reforms and fiscal consolidation.

“Latin America Sees Mixed Sovereign Actions as Growth, Fiscal Challenges Persist” is available at www.fitchratings.com,