The Fiscal Puzzle of the Ukraine War for Latin America and the Caribbean

April 28, 2022  

By Emilio Pineda, Oscar Valencia, Romina Nicaretta and Matheo Arellano M. 

The war in Ukraine has produced a significant increase in energy costs that will likely delay the fiscal consolidation efforts already put in place by several governments in the region. This supply shock is also likely to fuel inflation and higher interest rates, adding further pressure on governments trying to service their debts. Higher domestic and global inflation has already led the Fed to increase its interest rates and reduce its balance sheet, for example. That, in turn, could generate capital outflows from the region and worsen financing conditions. 

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