OECD forecasts Latin America, Caribbean to reach pre-pandemic structural balance by 2025

OECD forecasts Latin America, Caribbean to reach pre-pandemic structural balance by 2025

By Natalia Siniawski

The Organization for Economic Cooperation and Development said on Wednesday it projects the average structural balance in Latin America and the Caribbean to reach pre-pandemic levels by 2025.

The regions are expected to see a steady improvement from 2022 to 2025, with forecasts indicating a return to -3.4% of potential GDP by 2025. This figure aligns with projections for OECD countries and mirrors the -3.4% recorded in 2019.

The structural or underlying fiscal balance is the difference between government revenue and expenditure, corrected for effects that could be attributed to the economic cycle and one-off events. It is used by the OECD to provide a clearer understanding of governments' fiscal positions.

The COVID pandemic exacerbated structural deficits in the Latin American and Caribbean (LAC) region and the OECD due to a decrease in government revenue and increased public spending.

As a result, the LAC's average structural balance deteriorated from -3.4% of potential GDP in 2019 to -4.7% in 2022, while the OECD's fell from -1.38% to -3.8% over the same period.

Forecasts suggest Suriname will lead the recovery with a 4.0 percentage point gain, followed by Colombia with 3.6 percentage points and Argentina with 2.9 percentage points. By 2025, only Suriname and Barbados are expected to post positive balances of 0.9% and 0.1% of potential GDP, respectively.

Major LAC economies, Argentina and Mexico, are predicted to better the LAC average by 2025, at -1.2% and -2.8% of potential GDP, respectively. However, Brazil is forecast at -5.4% of potential GDP.

The LAC region's average structural balance for 2024 is projected at -4.6% of potential GDP, indicating a larger imbalance compared with the OECD's average of -2.7%.