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At a time when Latin American economies are facing a series of external risks, it is even more imperative for governments to avoid self-inflicted damage by overspending and getting deeper into debt, according to analysts and investors. As the threats to economic growth and financial stability posed by high US interest rates and the trade policies of US President Donald Trump weigh heavily on markets, analysts say governments must focus on controlling what they can control. That means keeping budgetary spending in check, taking steps to ensure future fiscal discipline and fostering a more attractive environment for investment and therefore economic growth. “In order to grow more, the region needs more reforms, not less reforms,” World Bank Treasurer Jorge Familiar said at LatinFinance’s LatAm Capital Markets Summit 2025 this week. With inflation broadly declining, investors are once again turning their eye to countries’ fiscal outlooks, said Alberto Ramos, Goldman Sachs’ head of Latin America research. And they’d react positively if countries decided they don’t need to borrow as much, he said, flagging concerns about “eroding fiscal discipline” in certain countries. Latin American government’s have increased their debt-to-GDP ratios from about 44% in 2019 to 52% last year, according to the International Monetary Fund’s fiscal monitor report . The IMF projects that figure could top 57% by 2028, with Brazil’s growing to 73%, Mexico rising to 53% and Colombia surpassing 50%. Debt burdens in Chile and Peru would remain low at around 23% of GDP. High public debt is a global issue and investors aren’t fretting too much about the region’s debt pile for now. Credit spreads are still subdued, giving countries room to borrow relatively cheaply. But some investors are cautious and say hard-currency bonds don’t adequately reflect the risk that certain Latin American countries could run out of room to spend. “There is still some risk for spreads to go wider, because there is strong fiscal risk,” Clothilde Malaussène, a Paris-based emerging debt and FX senior portfolio manager at Ostrum Asset Management, said recently. AMPLE LIQUIDITY Those risks are particularly evident in Brazil, which last month faced a selloff in its currency , and in Mexico, where the country’s new president, Claudia Sheinbaum, is contending with elevated spending from her predecessor’s last year in office. But finance officials in both countries indicated at the LatinFinance summit they’re constantly taking the temperature of the bond market and that investor appetite remains strong. “We see a lot of liquidity out there,” said Marcelo Rodrigues Calil, deputy head of the international desk at the Brazilian Treasury. Narrow spreads make it a “good time” for issuers to be active in the bond market, he said, adding that investors should expect Brazil to issue roughly the same amount of international bonds as it did last year, when it sold $6.5 billion. Cesar Vives, Mexico’s general director of public debt, said the country has managed its finances responsibly in recent years, which has helped keep volatility low and given Mexico room to improve its funding profile when the opportunity to refinance has arisen. The country has tapped the cross-border market twice already this year, with $8.5 billion in US bonds and some $2.5 billion in euro-denominated notes , finding “good appetite” from investors on both occasions, Vives said. FISCAL ADJUSTMENT It helps that Latin America countries have adequate foreign currency reserves, are far away from conflicts elsewhere in the globe, and are rich in much-needed commodities and minerals, said Goldman Sachs’ Ramos. Nevertheless, with climate change set to drive up government spending in future, fiscal adjustments are needed. And they “can be done” without dragging down leaders’ popularity, he said, pointing to President Javier Milei’s success in turning around the public finances in Argentina, leading to the country’s first budget surplus in decades. Familiar, the World Bank treasurer, said the region’s growth is “inching up, but it’s simply not enough” to lower poverty levels and improve long-term prospects. While fiscal improvements are needed, they can be done in ways that “foster inclusivity and foster growth,” he said. “As these adjustments take place, protecting the poorest and taking into account inclusive growth and the future is fundamental,” Familiar added.
