Nicaragua's Debt Rating Downgraded

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.

Wednesday, July 25, 2018

From a press release by Standard & Poor´s:

Heightened domestic conflict and ongoing violence have weakened governability and impaired the predictability and effectiveness of policy implementation in Nicaragua, in our view.

We expect the hit to growth this year to have negative repercussions in 2019-2020 amid a prolonged weaker investment climate. We are therefore lowering our long-term foreign and local currency sovereign credit ratings on Nicaragua to 'B' from 'B+'. The negative outlook reflects the risks of escalation of the domestic conflict that could further impair governability, soundness of the banking system, fiscal performance, and access to external financing.

RATING ACTION
On July 23, 2018, S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on Nicaragua to 'B' from 'B+'. The outlook is negative. At the same time, we affirmed the 'B' short-term sovereign credit ratings. We also lowered our transfer and convertibility (T&C) assessment to 'B+' from 'BB-'.

OUTLOOK
The outlook is negative given risks of escalation of the domestic conflict and further knock-on effects for fiscal indicators amid weaker growth, the banking system, and availability of external financing. Deposits in the banking system have already declined by 15%. Nicaragua relies on financing predominately from official creditors; hampered access to multilateral lending, or local banks, would further weaken its financial and external profiles.

We could lower the ratings over the next 12 months if domestic violence and polarization deepen further. In this scenario, the negative impact on growth and access to financing would likely be more acute than we currently expect. A downgrade could follow amid signs of increased stress in Nicaragua's financial sector, or if external liquidity deteriorates significantly, for example, as a result of reduced official lending or a suspension in aid disbursements. This would weaken the government's fiscal flexibility and ability to meet its financial obligations.

Conversely, a negotiated solution and stabilization of the conflict could contain economic and fiscal deterioration. That, along with other steps that reduce divisions between the government and the private sector and reestablish investor confidence in key economic policies, could sustain the country's medium-term growth prospects and lessen financial pressures. We could revise the outlook to stable in this instance over the coming 12 months.

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Standard & Poor's downgraded the foreign debt rating from B+ to B with a negative outlook, arguing that there is uncertainty due to the lack of flexibility of the Alvarado administration in implementing fiscal policy in the country.

The negative perspective in the new risk note, anticipates that there is a possibility that in the next 12 months the rating will be degraded again, if the authorities adopt policies that damage the country's financial profile.

Nicaragua: Risk Rating Continues So Far

November 2019

Standard & Poor's warned that if in the coming months the political environment worsens or access to local and external financing deteriorates again, the debt note could suffer further deterioration.

In November 2018, the agency reduced from B to B the rating of Nicaragua's foreign currency debt with a negative outlook, arguing that the country's fiscal and financial profiles have weakened at that time.

S&P Downgrades Nicaragua

November 2018

Arguing that the country's fiscal and financial profiles have weakened, Standard & Poor´s downgraded from B to B- the negative outlook for Nicaragua's foreign currency debt.

The negative outlook reflects a greater than one of every three probabilities of a downgrade in the next 12 months because of possible additional pressure on the balance of payments or the domestic financial system in dollar terms, given the government's limited foreign exchange financing options.

Fitch Downgrades Nicaragua to 'B'

June 2018

The downgrade and Outlook change reflect increasing political instability and the corresponding deterioration of Nicaragua's investment, economic growth, and public finance outlook

From a statement issued by Fitch Ratings:

Fitch Ratings-New York-22 June 2018: Fitch Ratings has downgraded Nicaragua's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B' from 'B+'. The Outlook is Negative. 

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