Latin America and the Caribbean are facing slower growth and lingering inflation, according to the IMF’s latest Regional Economic Outlook.

The report urges governments to stabilize public debt, improve tax systems, and better coordinate fiscal and monetary policies to prevent economic setbacks. Regional growth is expected to slow to 2.4% in 2025 and 2.3% in 2026 as the post-pandemic rebound fades.

Debt levels in several major economies—Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay—are near pandemic highs, and the IMF estimates these countries need to raise their primary fiscal balances by about 1.5% of GDP to keep debt from worsening.

Outgoing IMF Western Hemisphere director Rodrigo Valdes said many countries have overly complex tax systems with too many deductions, shrinking the tax base.

The IMF called for credible multiyear fiscal plans that strengthen revenues and spending efficiency without cutting investment or social programs. Valdes said that political challenges make such reforms difficult but not impossible, stressing that credibility attracts investment by giving businesses confidence in future growth.

The report also warned about poor coordination between governments and central banks, particularly in Brazil and Mexico. When fiscal and monetary policies send mixed signals, the IMF said, it’s “like driving one car with two drivers, one braking and the other accelerating.” Stable public finances are needed for central banks to manage inflation effectively.

Overall, the fund sees potential growth in the region stuck around 2.5%, well below other emerging markets, due to low productivity, excessive bureaucracy, and weak regional trade integration.

Sources: Reuters, IMF.