Standard & Poor's Global Ratings changed Peru's long-term foreign currency rating from BBB+ to BBB and the domestic currency rating from A- to BBB+. The agency also revised its outlook from negative to stable. Nonetheless, Peru remains the country with the second best credit rating in the region, based on its sound fiscal accounts and macroeconomic strengths.
The rapid recovery of Peruvian economy was favored by the Government's comprehensive and effective response, the greater progress of the COVID-19 vaccination process, and the rapid recovery of investments.
Prudent management
The rating agency states that its outlook for the following years is that Peru remains with a prudent fiscal management, as well as a sound position of its external accounts.
Likewise, Standard & Poor's specifies that events in the political sphere are one of the main factors which led to the modification of the rating, in addition to withdrawals from pension funds and greater dependence on external financing.
Despite the adjustment to the credit rating, it is important to note that Peru remains a resilient economy with the greatest reduction in fiscal deficit last year, going from 8.9% of GDP in 2020 to 2.6% of GDP in 2021 —in a context of significant economic recovery.
Within the framework of prudent fiscal management, liquid fiscal savings have been accumulated in the Secondary Liquidity Reserve and in the Fiscal Stabilization Fund for a total amount of nearly 2.2% of GDP in 2021.
Furthermore, Peru's public debt (36.2% of GDP in 2021) remains one of the lowest rates among emerging economies (64.3% of GDP) and Latin American countries (73% of GDP).
These sound fiscal accounts provide the country with macroeconomic resilience against future adverse scenarios and constitute one of the South American country's main strengths.
Outlooks
Thanks to prudent and pragmatic policy implementation and a strong fiscal position, the outlook for the
Republic of Peru is more favorable and robust than what had been expected 6 months ago.
Furthermore, the recovery of copper price, which stands currently above US$4.5 per pound (above the US$3.9 per pound projected in the Multi-Year Macroeconomic Framework), will support the performance of fiscal accounts and economic growth.
In this regard, the MEF asserted that the favorable fiscal results in 2021 provide a positive outlook for the following years, since they make a gradual reduction in the fiscal deficit more feasible.
This will allow an orderly withdrawal of the fiscal impulse launched to face the COVID-19 pandemic, as well as maintaining the sustainability of fiscal accounts. These results were even more favorable than what Standard & Poor's had expected in its October 2021 report.
Going forward, a prudent fiscal policy will continue to strengthen the fiscal accounts and thus create the conditions to improve the country's credit rating.
Finally, it is important to highlight that the main economic institutions remain solid and have been strengthened by the current Government.
Besides, there is a firm commitment from the Government to reach OECD standards.
On the political side, it is essential to seek consensus between the Executive and Legislative Branches, as the Head of State has recently pointed out. Good macroeconomics and fiscal soundness are not enough if political consensus is not reached.
The Government of Peru reiterates its total commitment to continue prioritizing macroeconomic and financial stability, as well as fiscal discipline, while implementing an agenda to close social gaps so as to increase citizens' well-being.
Similarly, a call is made for political consensus and to avoid generating measures that deteriorate the pension system and incur a high cost for the country.