Latin America And Caribbean States Must Prioritize Debt Reduction: IMF

• The International Monetary Fund (IMF) says countries in Latin America and the Caribbean must prioritize reducing debt as they look to improve growth.
• Anna Ivanova, Deputy Division Chief for the Western Hemisphere at the IMF, says while countries reduce debt, they must also formulate strategies to cater for the vulnerable.
• Fiscal policy should focus on rebuilding policy space to ensure fiscal sustainability and boost resilience against future shocks; while protecting key social spending needs. Despite a generally timely withdrawal of the pandemic fiscal support, public debt remains high and is projected to remain above that of peers out to 2028.
• Most countries in the region have plans to strengthen public finances and further reduce debt over the medium term, but this will require significant efforts and discipline. The pace of fiscal consolidation could, however, weigh on the strength of economic activity and the evolution of debt-servicing costs.
• Furthermore, in countries where debt is high, reducing the level of that debt "in the long run will help growth because this lower volatility and lower instability (resulting from debt reduction) will help to generate smoother growth in GDP and therefore will help growth."
• While some countries may look at using debt to finance growth, they must tread carefully, as "there is a balance to strike."
• "If the capacity to pay and the path to repay the debt are credible and supported by a history of credible policymaking, the investors may be willing to lend, but if there's doubt about the ability to pay, then it may be more costly to finance, and that is going to work against the countries that are trying to borrow," she said.

(Sources: RJR News & IMF)