Andina

Fitch: Fiscal rules in LatAm can improve discipline but set challenging path

Fitch Ratings

Fitch Ratings

12:01 | New York (U.S.), Jun. 19.

Fiscal rules in Chile, Colombia, and Peru have focused on improving fiscal discipline and building savings to counter a relatively high degree of dependence on revenues derived from commodities, both direct and indirect (due to the impact on economic growth), Fitch Ratings affirms.

However, commodity prices —well below previous peaks— and a slowdown in trend growth have created challenges to address the fiscal consolidation path in each of the countries as stipulated by their fiscal rules, it notes.

A sovereign's fiscal performance is a key component of Fitch Ratings' sovereign analysis. Quantitative measures of fiscal performance, the general government balance, as well as the interest and debt burdens, are captured in the sovereign rating model.

Fitch takes into account the fiscal component of institutional framework —including fiscal rules and credibility of fiscal policy— in its qualitative overlay. 

Peru's adherence to fiscal rules has anchored fiscal discipline for nearly two decades and supported debt reduction, as well as the accumulation of a small savings buffer.

"Peru has used some fiscal space to smooth the economic transition after the mining price shock and to rebuild flood-damaged infrastructure. The drawdown of savings and current spending caps have helped limit its debt increase," Fitch underlines.

A new presidential administration will test its commitment to the current fiscal rules, it adds.

(END) NDP/JAA/MVB

Published: 6/19/2018