While monetary policy in LatAm has been nothing short of prudent, both on the way up and down, LatAm’s post Covid and post elections fiscal consolidation has not, or not yet, gone sufficiently far enough. The situation appears most pressing and politically challenging in Brazil and Mexico as highlighted below.

In Brazil, President Lula’s early overhaul of the country’s fiscal framework has allowed fiscal spending to grow in real terms after a far more stringent stance under Bolsonaro. But it was the change in the fiscal targets earlier this year alongside very robust growth in spending (above the allowed ceiling) that has made markets uneasy about where things are heading -  the country needs a bulky primary surplus in order to stabilise its already high debt ratio. Thanks to Haddad’s relentless efforts the 2024 (official) primary deficit target looks within reach (0.00%+/-0.25) with far more challenges ahead. Moody’s generous credit rating revision - to only one notch below IG and a positive outlook - will boost the FinMin’s political capital and likely make him even more determined to anchor Brazil’s fiscal expectations with Lula’s goodwill in place for longer.

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