The debt rating in Peru’s long-term foreign currency was downgraded this Friday by Standard & Poor’s Global Ratings (S&P) from ‘BBB+’ to ‘BBB’, the second lowest rating in investment grade. The rating outlook is changed to stable from negative.
“On March 18, 2022, S&P Global Ratings lowered Peru’s long-term foreign currency sovereign credit rating to ‘BBB’ from ‘BBB+’ and its long-term local currency rating to ‘BBB+’ from ‘A-‘. The outlook on our long-term ratings is stable. At the same time, we affirm our short-term local and foreign currency sovereign credit ratings of ‘A-2’. We also revised down our transfer and convertibility assessment to ‘A-‘ from ‘A’”, he says in a statement.
S&P explained that the persistent political gridlock in Peru is undermining efforts to maintain strong investor confidence and limiting growth prospects.
Pension withdrawals and reliance on external financing have led to a more vulnerable debt composition, the agency added.
The stable outlook incorporates S&P’s expectation of continued fiscal tightening that keeps the general government’s net debt burden below 30% of GDP for the next two to three years. “We also expect monetary flexibility and a strong external position to be maintained, favorable for metal exporters such as Peru.”, added the agency.
With today’s decision, the three major risk rating agencies have downgraded Peru’s credit rating in recent months. The first to do it was Moody’s, who made this decision in September 2021, which meant the first downgrade of Peru’s credit rating in 20 years.
then did the same Fitch Ratings in October 2021, while in the same month S&P decided to maintain the rating, but changed its outlook from stable to negative, which suggested a downgrade in the following months, something that finally materialized today.
S&P warned today that it could lower the ratings over the next two years if it sees worsening fiscal outcomes and debt metrics due to spending pressures or lower-than-expected economic growth due to further disruptions in the political system or negative external events. .
On the other hand, the agency could upgrade the ratings over the same period if stable and predictable policymaking and effective economic management sustain a change in investor confidence and materially improve Peru’s growth prospects, along with with a less vulnerable debt composition.