Peru loses credit reputation: the cost of living at risk of becoming more expensive

The Peruvian economy has received a slap on the wrist from Standard & Poor’s and Fitch Ratings, and is one step away from losing investment grade and returning to speculative grade, which would be harmful to the recovery of GDP. The constant instability, fragmentation and unpopularity of the Congress of the Republic and the Government of Dina Boluarte explain the deterioration of the rating.

According to S&P Global Ratings, the Peruvian rating went from BBB to BBB-—but with a stable outlook—and, for Fitch, we remain at BBB but the outlook is now negative.

Despite the political fragility, they highlight the macroeconomic strengths although they point out that they are being “tested.” Fitch, for example, considers that a greater easing of political uncertainty is needed, but sees it as unlikely to happen until 2026, and therefore, in the medium term it estimates that GDP will oscillate between 2% to 2.5%—rates that are not sufficient to close gaps such as poverty, according to the Minister of Economy, José Arista.

In the opinion of both rating agencies, President Dina Boluarte has a “weak mandate” and has remained in office thanks to the “support of right-wing parties,” but the lack of consensus and timely decisions endangers fiscal stability. Among these “populist measures” is the authorization of a seventh withdrawal of AFP savings for up to 4 UIT (S/20,600).

Do we all lose?

If the investment grade is lost by not making the changes proposed by the agencies, there will be an increase in the cost of credit, the fiscal deficit and a slowdown in GDP, according to the economist and former head of the SBS Juan José Marthans.

Given this “warning voice”, Marthans considers it prudent to draw up a social pact in favor of the development of infrastructure and investment, and thus, beyond the political overtone of the authorities, a good signal would be given to the rating agencies.

Furthermore, he maintains that if Fitch and S&P have already updated their reading on Peru downwards, we have to wait and see what Moody’s – which has a Baa1 (BBB+) criterion and a negative outlook – will do.

The director of Phase Consultores, Juan Carlos Odar assures that the market has interpreted that Peru is not going in the right direction, and another of its tangible effects would be the rise in the exchange rate due to the deterioration of expectations. and in order for companies to cover their assets. This increase in the dollar would translate into higher import prices and prevent the reduction in inflation from being consolidated.

Alfonso Bustamante, president of Confiep, considers that in the face of credit downgrades, an independent Fiscal Council and an Executive Branch and Congress that act “consciously” of the consequences of their decisions are required. He asked the MEF to speak out when public finances are in danger.

optimistic MEF

Minister Arista assured that, after the messages from S&P and Fitch, his portfolio will apply “necessary adjustments” and despite the warning, they have highlighted macro stability and discipline. He insisted along with Premier Adrianzén about stopping the political noise, but they did not recognize that Dina Boluarte is involved in this negative result.

They transfer S/500 million to the Gore

The president of the Council of Ministers of Peru, Gustavo Adrianzén, reported that in the next few hours a supreme decree would be published to establish support for local governments and mitigate the contraction of economic activity. The total amount amounts to approximately 500 million, but could increase.

José arista del MEF explained that as an effect of the lower collection in the first quarter there was an impact on the Foncomunwhich feeds transfers to around 1,900 municipalities.

Likewise, he explained that the DS – which would be published on Monday in El Peruano – would allow the mayors to already have the resource in their respective accounts on Thursday and be able to finance not only current expenses but also capital expenses.