Fiscal Panorama of Latin America and the Caribbean 2024 : Fiscal Policy for Addressing the Challenges of Climate Change

Fiscal strains in Latin America and the Caribbean are evident amid falling commodity prices, weak demand, and surging public debt with rising interest burdens. In a climate of low growth, the debate centers on using carbon taxation to fund essential investments for sustainable, inclusive development.

In 2023, the fiscal environment in Latin America and the Caribbean reflected deteriorating global and regional microfinancial conditions. Fiscal deficits widened in Latin America as tax collection weakened owing to lower aggregate demand and falling international commodity prices. In the Caribbean, primary surpluses increased on the back of primary spending cutbacks. Public debt in the region remained high and the rise in interest payments is exerting more pressure on fiscal accounts. Given the context of low economic growth and the increasing recognition of the key role that the public sector must play in driving productive, sustainable and inclusive development, it is essential to analyse the role of fiscal policy in addressing the challenges of climate change. This edition of the Fiscal Panorama of Latin America and the Caribbean explores how a carbon tax can be used as an instrument to finance the major climate investments needed. It also analyses progress made in the quantification of public sector climate spending.