Fitch Ratings Affirms Rating of BB + for Guatemala

The agency has affirmed the international rating of Guatemala as 'BB +' with Stable Outlook.

Thursday, August 2, 2012

From a statement by Fitch Ratings:

Fitch Ratings-New York-31 July 2012: Fitch Ratings has affirmed the issuer default rating (IDR) and the Country Ceiling for Guatemala as follows:

-- Foreign currency IDR at 'BB+';
-- Local currency IDR at 'BB+';
-- Foreign currency short-term IDR at 'B';
-- Country ceiling at 'BBB-'.
The Rating Outlook remains Stable.

Guatemala's 'BB+' ratings are supported by the country's sustained macroeconomic stability, solid debt repayment record and its lower public and external debt burdens relative to those of 'BB'-rated peers. However, creditworthiness is constrained by structural factors such as weak social development and governance indicators, high crime and inequality and low savings and investment rates that constrain long term potential growth. Fiscal rigidity and a low revenue base limit the sovereign's ability to address the structural shortcomings.

Growth has been resilient but slow through the global financial crisis. Protracted sluggish growth in the U.S., Guatemala's main trading partner and the origin of 90% of remittances, will likely cap average growth in Guatemala to 3.3% between 2012 and 2014 but keep inflation stable at an average 5% over the period. Downside risks stem from a renewed weakness in the U.S. and an escalation of the eurozone debt crisis.

President Perez Molina's administration early success in passing a tax reform that is expected to yield 1.5% of GDP by 2015 would facilitate fiscal consolidation. However, due to fiscal rigidities and a still low revenue base, the tax reform may prove insufficient to address structural issues facing the economy. Tax revenues estimates for 2015, incorporating the reform, are 12.6% of GDP, well below the 'BB' median of 30.5%. In this context, expanding the government revenue base and making fiscal management more flexible will remain among Guatemala's key credit challenges.

Guatemala's government debt burden of 24.3% of GDP is low relative to the 'BB' median of 40% of GDP as a result of a track record of conservative fiscal management. Fitch expects public debt to stabilize below 26% of GDP as the fiscal deficit drops to negative 1.9% of GDP in 2014 from negative 3.3% of GDP in 2010. Guatemala's financing needs remain modest at 3.2% of GDP and lower than its peers. In addition, the sovereign's ample access to multilateral financing and the recent successful placement of USD700million in the international capital markets support financing flexibility.

President Perez Molina's administration intends to address the country's structural shortcomings in a comprehensive way aided by a battery of legislative reforms. The credit's structural weaknesses weigh on the country's investment and growth dynamics. Reform efforts will possibly be limited due to the highly divided Congress, fluid political affiliation and cumbersome legislative rules.

In addition, low fiscal flexibility will test the president's ability in fully implementing his campaign agenda. Nonetheless, Fitch believes that broad political and macroeconomic stability will be preserved over the next two years.

External solvency and liquidity indicators are credit strengths. Low public and external debt burdens, a favorable debt profile and an adequate level of international reserves translate in a strong external liquidity ratio relative to peers. Moreover, big structural trade deficits tend to be offset by family remittances, which results in a stable foreign exchange market.

Guatemala's credit ratings could be negatively affected by its continued macroeconomic under-performance compared with its rating peers. Lack of progress in key structural areas that hinder private investments and growth prospects will place downward pressure on the rating. On the other hand, implementation of reforms that strengthen public finances and growth prospects and help arrest the relative decline of its economic standing would be consistent with maintaining ratings at current levels. Significant progress in addressing structural weaknesses will be critical for achieving an upgrade.

More on this topic

El Salvador's Debt Rating Downgraded Again

February 2017

In line with recent warnings issued by other credit rating agencies regarding the country's bleak fiscal outlook, Fitch has reduced the debt rating from B + to B, and changed the outlook to negative.

From a press release issued by Fitch Ratings:

Fitch Ratings-New York-01 February 2017: Fitch Ratings has downgraded El Salvador's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B' from 'B+'.

Guatemala: Fitch Maintains Debt Rating

June 2015

Noting uncertainty and political instability in the country as the main risk factor for the economy, the rating remains at BB with a stable outlook.

From the press release by Fitch Ratings:

Fitch Ratings-New York-19 June 2015: Fitch Ratings has affirmed Guatemala's long-term foreign- and local-currency Issuer Default Ratings (IDRs) at 'BB' with a Stable Outlook.

Fitch Lowers Rating Outlook for El Salvador

July 2012

Fitch Ratings has downgraded the economic perspective of the rating, making it negative outlook BB.

From the press release by Fitch Ratings:

Fitch Ratings - New York - July 24, 2012: Fitch Ratings affirms its ratings for El Salvador as follows:
- Long-Term Ratings (IDR) in foreign currency and local currency 'BB';

Fitch has affirmed Guatemala's IDRs at BB+

July 2009

Fitch Ratings has affirmed Guatemala's local and foreign currency Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlooks on both ratings are Stable.

Guatemala's track record of macroeconomic stability, low public and external debt burdens, as well as the government's solid commercial debt repayment history continue to support the sovereign's ratings.

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