Markets have welcomed the Peruvian Government's decision to raise public debt from 23.8% of GDP (2016) to 26.2% (2021), as evidenced by ongoing investment flows into Peru, Moody's Investors Service affirmed.
"The government's financing cost is still low [as reflected in the lower yield of local and international bonds], which means markets are comfortable with Peru's macro-fiscal conditions," Moody's Sovereign Risk Group Vice-President Jaime Reusche told El Peruano official gazette.
Based on this, he said the Government is able to focus on "Coastal El Niño" post-disaster
reconstruction, as well as the execution of policies to address national challenges.
Fiscal deficit
The senior analyst estimated Peru's fiscal deficit will probably hit 3.5% in 2018, which will be largely funded by fiscal savings.
While this means the government "will no longer rely on such resources in the event of another external shock," using them now —rather than taking up more debt— is a "prudent" move.
In this sense, the expert noted said fiscal stimulus is not likely to affect Peru's investment-grade credit rating (A3).
However, he warned the next administration "will have to replenish fiscal savings" in order to create fiscal space for future shocks, which will "inevitably strike in the medium- and long- term."
Projected growth
Lastly, Reusche addressed Peru's
growth forecast for 2017, currently at 2.0%-3.5%.
"We project
3% growth for this year, but downside risks persist," he observed.
Nevertheless, medium-term prospects remain promising in the wake of a significant rebound expected in 2018.
(END) DOP/CNA/DHT/MVB