WASHINGTON AND MEXICO CITY—When Latin America’s governments finalized their 2026 economic budgets last year, they did so based on assumptions about their countries’ economic growth and the price of important commodities such as oil. But many of those assumptions no longer hold. And with four new administrations having taken office this year—Chile’s in March, Costa Rica’s in May, Peru’s in July, and Colombia’s in August—and Brazilian President Luiz Inácio Lula da Silva having just won reelection, leaders across the region are now defending full-year budget requests while facing weaker-than-expected growth, higher energy prices, and steeper financing costs.
Oil prices today have fallen from the spikes recorded in April, when Brent crude averaged more than $117 a barrel, but they still average well above the levels assumed in several national budgets. For example, Brazil assumed $64.93 a barrel; Chile, $63; Mexico, $62.70; and Argentina, $61. Colombia, Costa Rica, and Peru printed no oil price in their 2026 budget bills. When Brazil, Chile, Mexico, and Argentina drafted their budgets in August and September 2025, Brent averaged about $68 a barrel, and it eased to about $63 by December. The war in Iran overturned those assumptions by disrupting shipping through the Strait of Hormuz in March. From January through August, Brent averaged $90.66 a barrel and West Texas Intermediate $83.73, according to the US Energy Information Administration. That is a third to a half above the four countries’ budget assumptions. In October, the agency raised its forecast for Brent in the fourth quarter to $105 a barrel, $14 above its September outlook.
The price increase has not affected every country in the same way. Net energy exporters, such as Colombia, Brazil, and Argentina, benefit from higher oil prices, which increase royalties and taxes and, therefore, government revenues. Meanwhile, net energy importers, such as Chile, Peru, and Costa Rica, face higher costs, which fall on consumers and businesses unless the government cushions them. Chile, for example, has chosen to cushion less. At the end of March, it adjusted its fuel-price stabilization mechanism so that higher international prices reached local prices, saving an estimated $1.2 billion by May, or 0.3 percent of its gross domestic product (GDP).
Mexico has experienced both net importer and exporter effects. The government benefits from higher oil-related revenue, but it also uses fuel-tax relief to limit the impact on consumers. That means some of the fiscal benefit from higher oil prices is offset by the cost of keeping fuel prices down. Mexico also hedges its oil revenue every year against falling crude prices and keeps a budget-revenue stabilization fund, which held about $7.8 billion at the end of June. Both help cushion government revenue shortfalls, but neither directly shields consumers or public finances from the costs of high fuel prices.
Even so, most countries examined have lowered their growth forecasts for 2026. The only exceptions thus far are Costa Rica, which stood by its earlier forecast, and Peru, which raised its estimate. Argentina made the largest downward revision, cutting its forecast from 5 percent to 3 percent, followed by those of Mexico and Chile. Not every downgrade is about oil: when Brazil cut its forecast in September, the government also cited weaker services and industrial activity and a slower decline in interest rates.
That weaker growth can leave governments with less fiscal room than planned. Higher oil prices can partly offset pressure for oil exporters because they raise what an exporter’s government collects in royalties and taxes, even without a corresponding increase in production. But those gains may not be enough to compensate for weaker tax revenues elsewhere in the economy or higher government spending, particularly when inflation and weaker consumer spending weigh on the broader economy. Nor do higher prices add to exporters’ growth, because gross domestic product counts how many barrels a country produces, not what each one sells for.
A stronger dollar adds another pressure
Higher oil prices are not the only source of fiscal pressure. On September 16, the US Federal Reserve raised interest rates by twenty-five basis points. In the week that followed, the dollar strengthened against many Latin American currencies, compounding the pressure of higher crude prices. Because crude is priced in dollars, currency depreciation raises its local-currency cost for importers. For exporters, it increases the local-currency value of oil revenue but also makes imported goods and dollar-denominated debt payments more expensive.
For instance, in the week following the Federal Reserve’s September decision, Colombia’s peso lost 5 percent against the dollar, increasing the peso value of both oil revenues and dollar-denominated obligations. Costa Rica’s colón depreciated by 1 percent over the same period, adding that much to the local-currency cost of fuel bought in dollars.
Higher US borrowing costs present a separate challenge. By early October, yields on ten-year US Treasury bonds reached their highest level since 2002. Higher US Treasury yields can push up new borrowing costs for Latin American governments, as investors demand greater returns on their debt. For governments already facing slower growth or higher fuel costs, that leaves even less room to meet other spending commitments. Borrowing to cover a shortfall today could also mean spending more on interest payments in the years ahead.
What to watch in 2027
The assumptions behind this year’s budgets have changed. Governments are now deciding how to absorb the difference. For instance, Chile’s new government has already cut planned 2026 spending by the equivalent of 0.4 percent of its GDP. Mexico, meanwhile, is planning for lower oil revenue, with a 2027 budget assuming $61.80 a barrel for its export blend, down from the $78.40 it expected this year.
Those decisions offer an early glimpse of the tradeoffs ahead for governments.
Three indicators will be particularly revealing in the 2027 budgets: the oil-price assumptions underpinning revenue forecasts, the amount governments allocate to fuel relief, and their plans for deficit financing. With the US Energy Information Administration expecting Brent to average $84 next year, well above even the 2026 budget assumptions, the gaps between assumptions and prices may remain significant across the board.
This piece is part of “Economic Pulse of the Americas,” a series of explainers about the overlooked economic and trade trends in Latin America and the Caribbean, written by the Atlantic Council’s Adrienne Arsht Latin America Center. To get notified about future editions and other related work on the region, sign up here.