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Fitch: Fiscal risk raises LatAm vulnerability ahead of global downturn

Rising fiscal pressures among several Latin American countries will weigh on governments' capacity to prepare for shocks and a global slowdown in 2020, Fitch Ratings said.

Weak growth and low commodity prices in recent years have resulted in larger government debt and deficits for a majority of Latin American countries, according to Fitch. A further slowdown in global growth in 2020 is expected to increase Latin America's exposure, especially with limited fiscal room to anchor growth in case of a larger-than-expected downturn, the rating agency added.

Among the countries in the region, Argentina and Ecuador are the most vulnerable due to high fiscal deficits and financing pressures, Fitch said. In addition, doubts remain around the countries' arrangements with the International Monetary Fund, particularly due to the recent shift in Argentina's government and a public backlash on subsidy cuts in Ecuador.

Rising public debt and large deficits also serve as major burdens for Bolivia, Brazil and Costa Rica, although these countries did not enter into any IMF program. Their local consolidation plans face implementation risks, and in Brazil, the passage of the pension reform serves as a necessary but not sufficient condition to stabilize rising public debt, Fitch said.

Policy credibility among higher-rated sovereigns such as Colombia, Panama and Uruguay has also been impacted by fiscal deterioration and difficulty in meeting initial fiscal targets, the rating agency noted. In Mexico, contingent liabilities related to oil company Pemex are a key fiscal factor.

Chile, Peru and Paraguay exhibit relatively stronger fiscal positions, although these have also seen varying levels of deterioration, Fitch said.

The depressed fiscal situation in the region has been a major driver of recent sovereign rating downgrades and the high number of negative outlooks, the rating agency noted.