Industry Trend Analysis - Further Subsidy Rollbacks Facing Headwinds - APR 2017
BMI View: Multi-year efforts to reduce fuel price subsidies will falter in 2017. Stronger commodity prices and a weakened consumer base will pressure governments to limit reforms, capping further price increases.
The strong economic downturn of the past two years has forced Latin American governments to pullback spending. Sharp declines in commodity prices reduced the value of key exports across the region, calling into question the expenditure-led growth model of the past. This has driven some of the region's largest markets, including Brazil, Argentina, Mexico and even Venezuela, to reduce government support, withdrawing from a policy which maintained lower refined fuel prices over a multi-year period.
We expect the majority of Latin American markets will employ more prudent fiscal policies in 2017 in an effort to pullback widening budget deficits. This will have a positive impact on sovereign credentials and will improve investor sentiment in a number of the region's largest markets ( see 'Fiscal Prudence To Catalyse Deficit Narrowing ' , February 2).
|Regional Deficits Will Narrow|
|Latin America - Budget Balance, % Of GDP|
|e/f = BMI estimate/forecast. Source: National Sources, BMI|