Fitch downgrades Peru’s risk rating to BBB

The risk rating agency Ficht Ratings decided to downgrade Peru’s credit rating for its foreign currency debt from BBB + to BBB. Nevertheless, revised its outlook from negative to stable.

Fitch Ratings explained that the rating adjustment to ‘BBB’ is due to a gradual erosion of fiscal strength, which was exacerbated by the pandemic.

“The government debt ratio is substantially higher than in 2013 when we raised Peru to BBB + and liquid fiscal buffers have been depleted, eroding the strength of Peru’s government balance sheet relative to its peers. Economic growth has been in decline during this period and Fitch believes that economic prospects and medium-term investment in Peru have weakened as a result of political volatility in recent years, “says the rating agency.

It is important to mention that the BBB rating reflects a public indebtedness that is still moderate in relation to its peers, the product of a long history of prudent fiscal policy with a fiscal rule and an anchor of debt.

The Agency also points to a lower growth expectation of the Peruvian economy and the challenges that the public administration could face when challenged by the social demands generated after the pandemic. It should be noted that in December 2020 Fitch had already lowered the rating of the foreign currency debt from BBB + to BBB, but after an appeal process it adjusted the debt to a negative outlook.

In this regard, the Minister of Economy and Finance, Pedro Francke, added that “the pandemic has eroded the fiscal accounts of all the countries of the world and in the case of Peru the current fiscal accounts are much better than we had last year when Fitch and S&P ratified our credit rating, there has definitely been a overreaction to the political issue that has happily stabilized, which is why we see a continuous moderation of the exchange rate, the recovery of the stock market, a rebound in confidence indicators and the rally in the bond market. I have full confidence in the solid fundamentals of external and internal Peru and we will work hard to improve Peru’s credit rating in the coming months, we have the conditions to achieve it. Despite everything, we remain the second country with the best credit rating in the region ”.