International rating agency Fitch Ratings said Monday that Peru’s creditworthiness is supported by its robust external and fiscal balance sheets and manageable debt repayment profile, which provide a buffer against confidence shocks.
Moreover, the incoming Humala administration has pledged broad macroeconomic policy continuity.
In a special report, Fitch affirmed Peru’s ‘BBB-‘ Long-term foreign currency Issuer Default Rating (IDR) with a Positive Outlook on July 27.
Peru’s fiscal and external credit metrics, as well as the country’s macroeconomic performance, compare favorably to ‘BBB’ rated peers. Gross government debt declined to 24% of GDP, comfortably below the ‘BBB’ median, in 2010, and the government increased the fiscal stabilization fund (FEF) to 3.3% of GDP in 2011.
Improved external liquidity, through the accumulation of USD11 billion international reserves in 2010, partly mitigates significant commodity dependence and still high financial dollarization. Moreover, the sovereign remains among the strongest net sovereign external creditors in the ‘BBB’ category.
Finally, the economy recovered rapidly in 2010 as growth reached 8.8%, increasing the country’s five-year average growth to 7.2%, double the median for the ‘BBB’ category. Although inflationary pressures have increased, price stability still compares favorably with regional and investment-grade peers.
The election of Ollanta Humala as Peru’s new President has given rise to uncertainty about the measures that may be implemented by his administration to deliver on his electoral promises, which include increased social spending and higher fiscal contribution from the mining sector.
At this point, Fitch considers that the new president intends broadly to continue with policies implemented since the 1990s that have delivered macroeconomic stability, high growth, rising investment and strong fiscal accounts.
Fitch will monitor how the policy framework evolves under the new government with respect to maintenance of macroeconomic stability, favorable foreign investment prospects and fiscal prudence. Policies that improve confidence in the sustainability of the favorable economic and financial trends of recent years will improve Peru’s creditworthiness.
However, policy choices that increase macroeconomic volatility, reduce growth prospects, and erode public and external credit metrics would be negative.
International rating agency Fitch Ratings said Monday that Peru’s creditworthiness is supported by its robust external and fiscal balance sheets and manageable debt repayment profile.