Fiscal Policy is More Important than Ever for Addressing External Shocks and Promoting Higher, More Inclusive and Sustainable Growth

The XXXVIII Regional Seminar on Fiscal Policy concluded this Wednesday at the headquarters of the Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile, with a call by participating authorities and experts to strengthen fiscal policy to address increasingly frequent external shocks and promote more productive, inclusive and sustainable development. The authorities stressed the importance of fiscal policy playing a more active role, backed by robust institutions and prudent debt management, as a precondition for strengthening the region's economic and social resilience.

The participants agreed that fiscal policy is a key tool for promoting macroeconomic stability and driving sustainable development. The seminar - organized by ECLAC with the sponsorship of the Spanish Agency for International Development Cooperation (AECID) and support from the Inter-American Development Bank (IDB), the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) - has brought together authorities, specialists, civil society and academia for more than three decades to discuss the fiscal policy challenges facing the region's countries.

As ECLAC's Executive Secretary, José Manuel Salazar-Xirinachs, noted at the event's opening session on Monday, May 4, the region is facing a highly volatile external environment, which has caused significant shocks to prices, inflation, and domestic and international financial market conditions. "Shocks, such as those stemming from the conflict in the Middle East, have become increasingly frequent, with negative implications that are economic and also social in nature," he explained.

"At the same time, the region is mired in three development traps: one of low capacity for growth and transformation; another of high inequality, low social mobility and weak social cohesion; and a third trap of low institutional capacity and weak governance," the senior United Nations official emphasized.

"These traps are not isolated from the external environment. On the contrary, international shocks deepen them and make them harder to overcome. And that is precisely where fiscal policy must play a central role: as a stabilization mechanism against external shocks, and as a strategic tool for driving development," he added.

Spain's Ambassador to Chile, Laura Oroz, also spoke at the seminar's opening segment, highlighting that fiscal policy is not a mere technical tool but instead an essential instrument for social cohesion, for reducing inequalities, and for strengthening the social contract and democratic legitimacy. "Spain firmly believes that only through broad partnerships, based on complementarity and cooperation, will it be possible to advance fiscal reforms that are technically sound, socially legitimate and politically sustainable. ECLAC's 38th Regional Seminar on Fiscal Policy is a privileged space for reinforcing this approach, sharing experiences and continuing to build joint solutions," she underscored.

During the meeting, ECLAC's Executive Secretary presented the Fiscal Panorama of Latin America and the Caribbean 2026, an annual publication in which the United Nations regional organization examines issues relevant to the regional debate on fiscal policy.

According to the report, Latin America continues to have limited fiscal space in a context of higher financing costs. Public debt increased, reaching 52.3% of GDP compared with 51.9% in 2024. While this level represents a reduction from the rise recorded in 2020, it remains high, around the levels reached in the early 2000s, when the region confronted a series of economic and financial crises.

Latin America (16 countries): Central Government Gross Public Debt, 2000-2025

(Percentages of GDP)

Source: Fiscal Panorama of Latin America and the Caribbean 2026.

"Given the limited fiscal space, it is of the utmost importance to advance strategies to strengthen public finances, underpinned by a resilient fiscal institutional framework that includes shock-absorbing instruments and innovative financing mechanisms to protect investment priorities and social spending," José Manuel Salazar-Xirinachs indicated during the presentation of the report.

In addition to analyzing the evolution of key fiscal variables during the prior year (2025), this year's report explores two highly relevant topics: non-compliance with personal income tax and tax expenditures for social objectives.

The report estimates a non-compliance gap for personal income tax of between 0.33% and 0.93% of GDP, using a harmonized methodology across a sample of five countries in the region. It also proposes a package of measures to address this problem, combining the use of new auditing technologies with the development of mechanisms that facilitate voluntary compliance by taxpayers, and complementing those efforts with regulatory reforms to close loopholes for tax evasion.

Regarding tax expenditures, the report presents a novel methodology for analyzing tax expenditures for social purposes in 12 countries of the region, revealing considerable differences in the use and magnitude of these instruments, along with a scarcity of information on their effectiveness and distributional impact. As the report argues, moving towards more comprehensive and transparent management of such expenditures, based on objective evaluations, is essential to improving the quality of fiscal policy and strengthening the legitimacy of tax reforms.

In five highly technical sessions, the participants in the seminar addressed fiscal challenges in a context of low growth and high uncertainty; public spending and investment to bridge structural gaps; challenges facing subnational public finances; challenges for public revenue policies and options for strengthening tax systems; and financing for sustainable development.

Throughout the discussions, it was emphasized that the fiscal challenges facing the region transcend national borders and require a coordinated response on a global scale. "These should not be isolated national efforts, since they are part of broader work being done at the international level. In that regard, the Sevilla Commitment represents an important milestone in the agenda for reforming the fiscal, financial and institutional architecture in order to make it more equitable, stable and predictable. Likewise, the United Nations Framework Convention on International Tax Cooperation offers a historic opportunity for all countries, on equal footing, to participate in defining the rules of the game in tax matters at the global level," José Manuel Salazar-Xirinachs stated.

Another report was presented at the 38th Regional Seminar on Fiscal Policy: Revenue Statistics in Latin America and the Caribbean 2026, a joint publication prepared each year by ECLAC, the OECD Centre for Tax Policy and Administration, the OECD Development Centre, the Inter-American Center of Tax Administrations (CIAT) and the IDB Group.

That report indicates tax revenues increased in more than half of the countries in Latin America and the Caribbean in 2024. The regional average reached 21.7% of GDP, representing an increase of 0.2 percentage points of GDP compared with the level seen in 2023. This increase is mainly due to higher revenues from taxes on goods and services, which offset a decline in income tax collection (see this special press release).

The seminar also served as a platform to present two reports prepared in the framework of activities for the "Productive, Ecological and Socially Just Economic Transformation in Latin America and the Caribbean" project, which is part of the cooperation program between ECLAC and the German Agency for Technical Cooperation (GIZ) and Germany's Federal Ministry for Economic Cooperation and Development (BMZ).

The first document, entitled "Estrategias fiscales orientadas a la atención del cambio climático y la protección ambiental en los países de América Latina y el Caribe " (Fiscal Strategies Aimed at Addressing Climate Change and Environmental Protection in Latin American and Caribbean Countries), provides a comprehensive approach to how fiscal policy can contribute to addressing major environmental challenges and facilitate the transition towards more sustainable development models in Latin American and Caribbean countries.

Meanwhile, the report "Incentivos tributarios relacionados con la sostenibilidad ambiental en América Latina y el Caribe: contexto regional, experiencias recientes y perspectivas" (Tax Incentives Related to Environmental Sustainability in Latin America and the Caribbean: Regional Context, Recent Experiences and Perspectives) focuses more specifically on analyzing these instruments as a mechanism to promote environmental sustainability in the region through a set of dynamic driving sectors identified by ECLAC.

In short, both documents provide key evidence for designing fiscal policies that integrate environmental objectives with the priorities of strengthening public revenues and strategically allocating public spending.

At the event's closing session, Noel Pérez Benítez, Officer-in-Charge of the Economic Development Division, spoke on behalf of ECLAC's Executive Secretary, reiterating the relevance of this seminar as the region's most significant forum for discussing fiscal policy. "The technical exchanges we have had over the last three days demonstrate the interest in analyzing regional fiscal challenges and the fiscal management challenges that arise in a complex macroeconomic context. In this regard, the further strengthening of fiscal resilience is a common agenda in the region, which involves expanding fiscal space from a revenue and public spending perspective," he said.