By Marcela Ayres and Rodrigo Campos
WASHINGTON (Reuters) -The International Monetary Fund on Friday urged governments in Latin America and the Caribbean (LAC) to target economic policies aimed at boosting potential growth, saying their reform agenda is currently "thin" while activity is expected to moderate in key economies.
In its Regional Economic Outlook, the IMF projected the region's growth to accelerate to 2.5% next year, up from 2.1% this year. But expansion for the so-called LA7 group which includes Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay, is set to slow to 2.0%, down from 2.4% in 2024.
The region's growth estimates were published earlier this week as part of the IMF's World Economic Outlook.
Speaking at a press conference, Rodrigo Valdes, director of the IMF Western Hemisphere Department, said the "urgency to deepen reforms for growth really applies to almost all economies in the region," as economic activity moderates and governments have to deal with fiscal and social challenges.
Asked about the impacts of a potential tariff war following the outcome of the U.S. presidential election early next month, Valdes said that open trade is good for the region, noting that depending on how further fragmentation presents, some countries from the region may benefit while others may suffer.
The IMF highlighted that medium-term growth in the LAC region — excluding Argentina and Venezuela — is projected at about 2.5% annually over the next five years and will likely remain near its low historical average. This reflects enduring, unresolved challenges such as low investment, sluggish productivity growth, and shifting demographics.
"Worrisomely, the ongoing reform agenda is thin and could lead to a vicious circle of low growth, social discontent, and populist policies," the IMF said.
According to the IMF, a key factor behind the "tepid" growth outlook is the sharp slowdown expected in labor force growth due to falling birth rates and an aging population.
The IMF also warned that the region's debt will continue rising without fiscal consolidation reforms, which it said are necessary to create room for monetary policy normalization, reduce inflation expectations, and lower country risk.
"Greater and more durable efforts would be needed to firmly put debt on a downward path given the unfavorable interest rate-growth differential that the region faces," the IMF stated.
Among its recommendations, the IMF emphasized the need for revenue mobilization, particularly by increasing personal income tax collection, which remains low across the region.
"Authorities’ focus should shift from cyclical to structural policies aimed at lifting potential growth," it added, pointing to measures that could foster international trade, develop higher-tech sectors, improve public investment efficiency, and promote a more flexible labor market.
"With its rich endowment of green minerals, the region is in a unique position to harness the benefits of global green transformation, although doing so requires strengthening investment frameworks to attract capital while raising natural-resource revenues to attend social and public investment needs," the IMF said.