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Latin America Faces Fiscal Cliff as Oil Revenues Plummet

Q: What is the impact of declining oil revenues on social programs in Latin America?

The article states that social programs in the region already absorb around 13% of GDP, well below OECD levels, and further revenue cuts would erode already fragile social protections. The prospective "fiscal cliff" could have severe consequences for the region's social stability.

14 Nov

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Summary

Oil revenues could fall by up to 25% of GDP in major Latin American producers
Carbon pricing unlikely to offset losses, risking social program cuts
Region needs to reform taxes, diversify revenue sources to achieve fiscal neutrality

Latin America Faces Fiscal Cliff as Oil Revenues Plummet

In the face of the global push for decarbonization, major oil-producing countries in Latin America are grappling with a significant fiscal challenge. According to a recent study, six key producers - Bolivia, Brazil, Colombia, Ecuador, Mexico, and Trinidad and Tobago - could see their hydrocarbon revenues fall by as much as a quarter of their GDP over the next three decades under a global net-zero emissions scenario.

Even if these countries adopt ambitious carbon taxes, the revenues generated would only reach less than 1% of GDP in most cases, rising to between 1.5% and 2% in Brazil and Mexico. This prospective "fiscal cliff" emerges in a region where social programs already absorb around 13% of GDP, well below OECD levels, while public investment has declined from 4% of GDP in 2013 to just 2% today. Further revenue cuts would erode already fragile social protections, while increased borrowing risks exacerbating debt vulnerabilities.