Arguing that economic strength has weakened as a result of social tensions and is likely to leave a lasting negative impact, the rating agency reduced the country's credit risk rating from B2 to B3.
"The risk of reduced access to official external credit is creating financing challenges and restricting the authorities' ability to support economic activity," the agency's report explains.
The latest risk ratings for the issuance of long-term debt of Central American economies identify Panama as the most attractive country to invest in.
On March 8, Moody's decided to raise its long-term issuer rating in foreign currency from Baa2 to Baa1, arguing that the outlook remains more favorable in the medium term.
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.
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:
Heightened domestic conflict and ongoing violence have weakened governability and impaired the predictability and effectiveness of policy implementation in Nicaragua, in our view.
Fiscal stability and the expectation that the necessary measures will be taken to mitigate the impact of eventual external shocks, was the justification given by Moody's when deciding to raise the outlook for the debt rating from stable to positive.
From a report by Moody´s:
Global Credit Research - 20 Jul 2017
New York, July 20, 2017 -- Moody's Investors Service has today affirmed the government of Nicaragua's B2 foreign and local currency issuer ratings and changed the outlook to positive from stable.
The sovereign rating B + with stable outlook is based on the "economic performance, low debt burden of the government, political stability and partnership between government and the private sector through dialogue".
From a statement issued by the Central Bank of Nicaragua:
The Republic of Nicaragua has low per capita income, monetary policy rigidities, and vulnerability to external shocks.
Fitch notes that the relatively favorable external environment will not be enough for Central American countries to improve their credit ratings, which could remain stable despite fiscal problems.
From the press release by Fitch Ratings:
Fitch Ratings-New York-22 October 2015: External tailwinds are unlikely to lead to a significant uplift in Central America's creditworthiness, says Fitch Ratings in a new special report.
The U.S. could be facing a possible reduction in their risk rating, due to levels of national debt and government deficit.
Democrats and Republicans have been debating in the United States Congress trying to reach an agreement that will raise the debt ceiling and secure public finances for the future, avoiding a potential cessation of payments or a reduction in the country’s risk rating.