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Fitch: Fiscal challenges remain for Chile, Peru, Colombia

Latin American neighbors Chile, Peru and Colombia have practiced improved fiscal discipline over the years, but they still face challenges in fiscal consolidation given lower commodity prices and a slower growth trend, Fitch Ratings said June 7.

Chile's fiscal rule, one of the most tested through economic cycles, has brought about discipline while bringing in significant funding for stabilization and pension liabilities, Fitch said. However, the country's debt burden has materially spiked over the last decade due to slow growth and a slump in copper prices.

Peru has also followed fiscal discipline for decades, supporting debt reduction and a savings buffer. The country used some fiscal space to address the mining price shock and flood-damaged infrastructure, while controlled savings have stemmed a rise in debt.

Colombia, whose economic performance has been hit by the sharp fall in oil prices, has used its fiscal deficit as a countercyclical buffer. The government began fiscal adjustment in 2017, but Fitch expects that the size of the needed adjustment to abide by Colombia's rule will become increasingly difficult to achieve beyond 2018.

Fitch noted that new presidential administrations in all three countries will test their adherence to their present fiscal rules. In Chile, the Piñera administration's plan to reduce the deficit is feasible, amid austerity measures and the cancellation of a planned corporate tax cut, the rating agency said.