New York – The outlook for the credit quality of the sovereign governments of Latin America and the Caribbean in 2018 is stable and reflects an improvement in credit conditions, although there is also evidence of increasing levels of indebtedness and uncertainty surrounding the elections that will take place in several countries this year, says Moody’s Investors Service in a new report.
By 2018, 19 of the 29 Latin American sovereign governments rated by Moody’s (66%) have a stable outlook, two (7%) have a positive outlook, six (21%) have a negative outlook and two (7%) are in review for a possible low rating The largest economies in the region, Brazil (negative Ba2), Mexico (negative A3) and Chile (negative Aa3), are included among the countries with a negative outlook.
The economic growth momentum that began in 2017 will probably continue in 2018. Favorable external conditions, including growth above the potential in the United States and higher growth in China, will boost the region’s average growth to 2.7%, well above the annual rate of 1.9% registered in 2017 and 1.4% in 2016. “However, the region will face the challenge of high levels of debt that will continue to rise”, says Ariane Ortiz-Bollin, Assistant Vice President of Moody’s.
Central banks are expected to maintain accommodative monetary policies, since inflationary pressures will remain contained in most countries. Domestic political factors could boost volatility in financial markets.
The regional perspective incorporates Moody’s opinion that the risk of United States policy for the region is concentrated, in the short term, on the renegotiations of NAFTA. On the other hand, the recent presidential elections in Ecuador, Chile and Honduras, and the upcoming elections in Colombia, Mexico and Brazil will represent challenges for the new governments related to greater social demands and less availability of fiscal resources. The report indicates that governments’ high indebtedness rates are not expected to be reduced, given the fall in government revenues and the rigidity of public spending. Additionally, political restrictions related to a tight electoral agenda will likely hamper fiscal consolidation efforts. However, Moody’s expects debt indicators to rise only moderately for most governments.