2022 Perspectives for the Public Sector

Citi Perspectives for the Public Sector 35 Conclusion Many Latin American countries faced significant investment shortfalls in critical sectors of their economies even before COVID-19; these challenges have only been exacerbated by the increased spending required over the past 18 months and declining tax revenues. To overcome these challenges, governments across the region need to think beyond the traditional sources of funding. Further borrowing in the domestic and international markets is unviable for many sovereigns. Tax increases are both politically difficult and economically risky, given the nascent recovery. Instead, governments could shift their focus to balance sheet optimization and consider asset monetization structures to maximize intertemporal revenues, boost productivity and growth, which will potentially provide additional access to funds while retaining ownership of assets. Securitization or other monetization structures offer the potential to bridge current financing gaps without giving up potentially valuable long-term revenue streams that can be used for future investment in the economy. In addition, this approach does not have the political baggage associated with privatization of state-owned assets or companies and is therefore easier (and quicker) to enact. Consequently, as immediate steps, Latin American sovereigns should work to identify mature assets that are suitable for monetization and scrutinize current legislation to identify appropriate financial structures for such initiatives. Then governments and their advisors need to carefully consider the political constraints and public sensitivities associated with various revenue generating public sector assets in order to ensure that any monetization strategy is both financially and socially acceptable to citizens. Finally, to contribute to the strengthening of fiscal accounts, discipline mechanisms should be in place to ensure resources from asset monetization structures are used for investment purposes and not on current expenditures.