By Ulrika Lomas, Tax-News.com, Brussels

With economic recovery being reported in Latin American and Caribbean states, a new World Bank report says governments must now look to fiscal policy to reduce their deficits.

In “Fiscal Adjustment in Latin America and the Caribbean: Short-Run Pain, Long-Run Gain?,” the World Bank said “fiscal adjustments during good times are important to build fiscal space.”

“Several countries, like Ecuador, Uruguay, México, Colombia, Argentina, El Salvador, and Panama, have started gradual fiscal adjustments,” the report said. “Now is the time to speed up the pace of fiscal and structural reforms and strengthen or implement fiscal rules, as needed.”

It recommended that Latin American and Caribbean states look to tax policies that will not hinder growth rates and said: “The challenge is finding the sweet spot for just how much fiscal adjustment is needed. One crucial issue to consider in deciding on an appropriate amount public debt reduction and other fiscal reforms is the levels needed to achieve an investment grade.” This is important to cut debt servicing costs and fund welfare and infrastructure enhancements, it said.

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IMAGE: Kiplinger