Moody's: Rigid spending and polarization hinder Latin American fiscal consolidation

A report by Moody's indicates that rigid spending and political polarization are hindering fiscal consolidation across Latin America and the Caribbean. Mandatory legal expenses, interest payments, salaries, subsidies, and transfers constitute a large and growing portion of regional expenditures, reducing budgetary flexibility and making it difficult to reduce deficits or stabilize debt.

Between 2019 and 2025, debt indicators rose in 14 of the 18 countries studied, with the median debt-to-GDP ratio increasing from 45% to 55%. Moody's notes that projected fiscal balances for 2026 remain weaker than necessary to stabilize debt in several nations, specifically citing Brazil, Mexico, and Colombia.

The agency warns that political polarization may limit the ability of governments to implement necessary legislative or constitutional reforms. To manage these challenges, governments may need to improve spending efficiency and achieve lasting improvements in primary results without relying excessively on cuts to growth-sustaining public investments.