Effects of the Political Crisis on the Economy

Standard & Poor's has reduced Guatemala's debt rating from BB to BB-, arguing that political instability and weakness in government institutions are affecting economic growth prospects.

Thursday, October 19, 2017

A series of events that began earlier this year, when President Jimmy Morales declared the Commissioner of the International Commission against Impunity in Guatemala, Iván Velasquez a persona non grata, and which continued with the "Corruption Pact" made by 107 deputies to approve a reform of the Penal Code to favor politicians implicated in illicit financing and to extend commutative penalties is the main reason behind the reduction in the debt rating.

The agency Standard & Poor's says that the political situation is already affecting the country's economic prospects, and it does not see any improvement in the already delicate situation of public finances in the short term.

S & P also points out that failure to resolve the corruption cases that came to light is affecting the business sector's ability and intent to invest in the country.

See related articles: " Corruption, Impunity and Politics", "Guatemala: Setback for President Morales" and "Will the President of Guatemala Be Spared?"

From a statement issued by Standard & Poor's: 

OVERVIEW
 
Recurrent political instability and weak government institutions are affecting Guatemala's economic growth prospects.  
Consistently low general government revenues and uncovered corruption cases constrain the government and the private sector's ability and willingness to invest.
 
As a result, we are lowering our long-term foreign currency sovereign credit rating on Guatemala to 'BB-' from 'BB' and our long-term local currency sovereign credit rating to 'BB' from 'BB+'.

The outlook is stable, balancing the economic and political challenges with forecasted low fiscal and external deficits and the country's sound monetary policy.
 
RATING ACTION
On Oct. 18, 2017, S&P Global Ratings lowered its long-term foreign currency sovereign credit rating on the Republic of Guatemala to 'BB-' from 'BB' and its long-term local currency sovereign credit rating to 'BB' from 'BB+'. The outlook is stable. We also affirmed our 'B' short-term foreign and local currency sovereign credit ratings on Guatemala. At the same time, we lowered the transfer and convertibility assessment to 'BB+' from 'BBB-'.

OUTLOOK
The stable outlook balances the economic and political challenges of the country with our expectation of low fiscal and low external deficits, stable debt level, and the country's sound monetary policy.

We could lower the ratings over the next 12-24 months if political conflict escalates to a degree that it further affects not only economic growth prospects but also sustainable public finances. Our debt assessment could worsen and affect the ratings if interest payments surpass 15% of general government revenues.

Over the same period, we could raise the ratings if the government is able to propose and implement a reform agenda that strengthens Guatemala's governability and public institutions, increases its revenue, and bolsters its GDP growth prospects.

More on this topic

Nicaragua's Debt Rating Downgraded

July 2018

S & P has downgraded the debt rating from B + to B, arguing that the escalation of the internal conflict has weakened governance, and the rating could be reduced again in the next 12 months if the violence continues to rise.

From a press release by Standard & Poor´s:

S&P Confirms Nicaragua's Debt Rating

February 2018

Standard & Poor's has maintained the rating of B+ for long-term sovereign debt, arguing that economic growth is stable and the burden of public debt remains moderate.

From a statement issued by Standard & Poor's:

On Feb. 16, 2018, S&P Global Ratings affirmed its 'B+' long-term local and foreign currency sovereign credit ratings on the Republic of Nicaragua.

Guatemala As Seen by Standard & Poor's in November 2015

November 2015

Despite the fact the government has acknowledged that it does not have sufficient resources to pay interest on foreign debt, the agency announced that the country´s risk rating remains unchanged, with a stable outlook.

From a press release issued by Standard & Poor's:

In our view, political instability related to corruption cases will not significantly hurt Guatemala's stable macroeconomic performance this year and in 2016.

Moody's: Negative outlook for Guatemala

May 2015

The rating agency has changed the outlook on the rating of foreign debt from stable to negative due to the political crisis in the Guatemalan nation.

From a press release issued by Moody's:

New York, May 26, 2015 -- Moody's Investors Service has today revised the outlook on Guatemala's government bond ratings to negative from stable.

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