Fitch affirms Peru's ratings at BBB+, Outlook Stable

00:00 | New York (U.S.), Mar. 29.

Fitch Ratings has affirmed Peru's Long-Term Foreign Currency Issuer Default Rating (IDR) stands at 'BBB+' with a Stable Outlook.

"Peru's ratings reflect its strong public and external balance sheets and its credible and consistent macro policies, which have entrenched macroeconomic and financial stability," it expressed.  

These strengths balance vulnerabilities from high commodity dependence, financial dollarization, and a low government revenue base, as well as lower income per capita and governance indicators (including government effectiveness) than the current 'BBB' median.

Likewise, Fitch expects copper projects and progress on a handful of airport, metro, and port infrastructure investments to underpin average annual growth of 3.7% in 2019-2020. 

However, the economic outlook is sensitive global demand for copper, the pace of retendering Odebrecht-related projects, the severity of El Niño weather conditions, and U.S. monetary policy revisions that would affect the timing of the central bank's rollback of the current monetary stimulus.

Growth potential is likely to remain 3.5%-4%, absent substantial economic reforms that would boost investment and productivity such as improvement in infrastructure or labor market reform.

Fitch assumes the political environment would prevent the implementation of such reforms over our forecast period. Real GDP growth has decelerated below the current 'BBB' median, with a five-year average growth rate of 3.2% versus 3.6% for peers. 

New copper investments are increasing export and economic concentration in the metal (Peru is now the world's second-largest supplier) and intensifying its exposure to the commodity cycle.

"Inflation is low and stable with public expectations well anchored," the credit rating agency said. 

Furthermore, inflation averaged 1.3% in 2018 amid economic slack and an absence of food price and external shocks. It is expected to pick up to the mid-point of the central bank's target band of 2%+/-1% in 2019-2020 as private consumption and non-mining investment rise moderately. 

Firmer copper prices and a small projected surplus of the current account balance plus FDI are expected to keep the Sol-U.S. dollar exchange rate relatively stable during 2019-2020, limiting import-price-inflation pass-through.

Editor's note: Based on information provided by Fitch Ratings.


Published: 3/29/2019
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