affirmed its ‘BBB+’ long-term foreign currency and ‘A-‘ long-term local currency sovereign credit ratings on Peru. Besides, the outlook remains stable.
“We also affirmed our ‘A-2’ short-term foreign and local currency sovereign credit ratings on Peru. Our transfer and convertibility assessment remains ‘A’,” it said in a release.
“Since the last presidential election in 2016, the political environment has been marked by frictions between the government and the fragmented Congress. So far, political volatility has not materially weakened the country’s economic fundamentals, in our opinion,” it expressed.
S&P added that “our sovereign credit ratings on Peru reflect policy continuity across administrations that have favored a predictable (and) pragmatic macroeconomic framework. Nevertheless, Congress’ extreme fragmentation has eroded political stability in recent years.”
“The country has narrow fiscal and external imbalances and a low debt burden that placed its economy on a stronger footing to weather economic disruptions. We weigh these strengths against low GDP per capita and more limited economic diversification than many of the country’s more highly developed peers. Following a decade of rapid gains in per capita GDP, Peru’s socioeconomic indicators have improved substantially, but infrastructure shortages and informality remain economic and social challenges,” it said.
S&P noted that it could lower its ratings on Peru over the next two years if prolonged political instability reduces predictability, erodes investor confidence, and makes fiscal consolidation following the pandemic harder to tackle.
“We could also lower the ratings if the economic recovery is much weaker than we expect after the COVID-19 shock dissipates, straining the sovereign’s budgetary position. The combination of weaker economic growth prospects and larger fiscal deficits in the medium term could lead us to lower the sovereign ratings,” it warned.
“Although unlikely over the next two years, we could raise the ratings if we see stronger policymaking predictability and the government’s ability to execute capital spending and implement reforms that would result in a sustained improvement in Peru’s growth prospect,” S&P concluded.
Editor’s note: Information provided by S&P Global Ratings.