2024 election supercycle heightens risks to debt stabilisation, growth: Moody's
Mar 14, 2024
New Delhi [India], March 14 : The large of number scheduled elections in various countries in 2024 increases risks of shifts in policy and policy effectiveness, asserted Moody's, arguing that the election supercycle heightens risks to debt stabilisation and economic growth.
Along with the US elections in November 2024, several European countries and several large emerging markets like India, Mexico, South Africa, and Russia, will hold national elections this year.
In its latest credit outlook report, global rating agency Moody's argued while elections rarely immediately affect sovereign credit ratings, they can result in credit positive or negative developments - like changes in the policymaking process and legislative composition - which according to it ultimately alter a sovereign's economic and fiscal trajectories.
"Elections come at a critical time when most sovereigns are just beginning to stabilize debt burdens," Moody's said in the report.
Elections usually limit the political appetite or will for new taxes and any reduction in spending.
According to Moody's, risks to fiscal consolidation are particularly high this year given high-interest rates, weak growth forecast and societal and geopolitical pressures on spending.
"Because most sovereigns are just beginning to stabilize their debt burdens, a durable easing in fiscal discipline could have a big impact on debt trajectories. High-interest rates, even after central banks start cutting them, mean additional borrowing will quickly erode debt affordability," Moody's said.
It asserted that economic policies, immigration, and security will influence election outcomes and policy design.
"Immigration will be a key campaign issue in many elections, with wide-ranging pledges to limit it. A policy shift's credit effect would take time to materialize and largely be through the lower availability of labour and slower GDP growth as a result."
Further, it argued governments in poll-bound countries will continue to use industrial policies to support growth, but the potential benefits depend on their effective implementation.
"Growing security concerns could exacerbate economic fragmentation and polarization, and have a direct fiscal cost through higher defence spending, " said Moody's in an apparent reference to the ongoing geopolitical conflicts.
