Mexico and Brazil face the risk of policy reversals that could weaken fiscal consolidation and structural reform efforts, amid the popularity of candidates in forthcoming elections who oppose current government policies, Moody's said in a report.
The rating agency noted that ahead of Mexico's and Brazil's 2018 presidential votes, unconventional candidates are gaining attention with policies that are significantly different from those advocated by traditional political parties.
"A number of candidates up for election in 2018 have campaigned to reverse policies aimed at economic or fiscal reform, or at least to slow the implementation of approved reform," Moody's said in its report.
"This will lower policy predictability, adversely affecting business and consumer sentiment, as well as investment spending," the rating agency noted.
Scenarios involving radical change in policy priorities and objectives "can materially undermine sovereign creditworthiness," Moody's added.
Moody's also warned that the possibility of more market-friendly candidates winning on a weak mandate could also hurt the implementation of fiscal reforms.
Meanwhile, in Colombia, independent candidates and political outsiders have also risen ahead of the presidential election. However, Moody's is expecting a high degree of policy continuity due to the country's strong institutions and leading presidential candidates' support for market-oriented policies.
Still, the next Colombian president will face challenges to fiscal consolidation, amid a weaker growth environment and the country's new political dynamics, Moody's said.
