Moody's affirms Peru's A3 ratings, stable outlook

"Concurrently, the Government of Peru's foreign-currency and local-currency senior unsecured ratings have been affirmed at A3, and its foreign currency senior unsecured shelf programs were also affirmed at (P) A3. The outlook remains stable," the credit rating agency said.

The affirmation of Peru's A3 ratings balances the following key rating drivers:

1) Peru's moderate economic strength, underpinned by favorable medium-term growth prospects and demonstrated resilience to shocks in recent years.

2) The government's very high fiscal strength, bolstered by stable low debt and fiscal outperformance in recent years.

3) And the country's moderate institutional strength, reflecting structural limitations related to institutional quality and the high level of corruption.

The stable outlook on the rating reflects Moody's view that upside and downside risks to Peru's credit profile remain balanced.

Economic growth will continue to by supportive of creditworthiness, perhaps enhanced somewhat by planned micro-economic reforms, fiscal performance will remain sound and debt ratios will remain relatively stable, even as institutional strength challenges that hinder the efficient allocation of resources in the economy remain.

Peru's long-term and short-term foreign-currency bond and deposit ceilings remain unchanged at A1/P-1 and A3/P-2, respectively. The local-currency bond and deposit ceilings remain unchanged at A1.

Peru's moderate economic strength reflects benign growth dynamics and favorable medium-term economic prospects, counterbalanced by relatively low national income levels. The country's investment-fueled growth model over the past decade has produced average annual growth of 4.4% in 2009-18, facilitated by Peru's stable and predictable macroeconomic environment.

Despite multiple recent adverse shocks including the commodity price shock of 2014-16, the Coastal El Niño floods from 2017 and the ongoing various corruptions scandals since 2017, the economy's demonstrated resilience has supported Moody's assessment of the country's economic strength.

The country's real GDP growth accelerated to 4% in 2018 from 2.5% in 2017, as the shock from the 2017 floods dissipated.

Peru's average real GDP growth rate between 2014-18 of 3.2% is in line with the 'A'-rated median of 3.4%.

The strong recovery in domestic demand that began in 2018 has helped the economy resume progress on various social and development indicators, such as reducing poverty and absorbing a larger amount of new entrants and existing workers into the formal economy given Peru's favorable demographic profile.

Moody's forecasts that the Peruvian economy will continue to grow near its current potential rate of 3.7% through 2022, supported by a recovery of private investment that will underpin a faster rate of capital formation and, in turn, a marginal improvement in potential growth to 3.9% by 2022.

Also supporting these favorable medium-term prospects are the planned microeconomic reforms tied to the national competitiveness and productivity plan, which —if implemented— could increase potential growth above 4%.

(END) NDP/MVB