The rating agency affirmed the Central American Country’s Long-Term Foreign Currency Issuer Default rating at "B-" and reviewed the rating outlook to stable from negative.
Nicaragua's ratings are constrained by the lowest average World Bank Governance Indicators score in the Americas rated by Fitch, low per capita income, political stability risks, and international sanctions that limit future external financing, the rating agency's analysis highlights.
For Fitch, the delay in vaccination campaigns constitutes a latent risk of a prolonged pandemic, which would delay the recovery of the region's economies and would cause negative pressures on the risk ratings to be issued in the coming months.
Fitch Ratings issued a bulletin for Mexico, Central America and the Caribbean on May 25, in which it warned that given the deep economic contractions in the region and the moderate recovery outlook, there are threats of negative rating pressures.
Fitch Ratings agreed to change the perspective of the region's banks from stable to negative, arguing that the current health crisis will affect financial institutions in all countries.
Considering the measures that countries have adopted in the last 15 days in economic matters, following the spread of covid-19, Fitch expects that there will be a decrease in the issuance of loans.
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.
According to Fitch Ratings, banks in Nicaragua will continue to be pressured by the remaining effects of an economic contraction for the second consecutive year, a situation derived from the political crisis affecting the country.
Fitch Ratings decided to keep the country's risk rating at B, but changed the outlook from negative to stable, arguing that there are some signs of stabilization of Central Bank reserves and commercial bank deposits.
The revision of the outlook reflects the stabilization of central bank reserves and commercial bank deposits, a significant fiscal adjustment and social security reform that have reduced domestic financing needs and a pronounced external rebalancing that has facilitated the external financing requirement, the rating agency reported.
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.
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.
The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.
Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.
Justifying a larger-than-expected economic contraction, a growing fiscal deficit and a greater risk of internal and external financial constraints, the rating agency lowered the rating from B to B-.
This is Fitch Ratings' second downgrade so far this year. In the first quarter, the rating was B+ with a solid outlook, in the second quarter the rating agency downgraded it to B with a negative outlook, and now it downgraded it to B-, and kept the negative outlook.
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.
Moody's has changed the rating outlook from positive to stable, citing the economic impact of the rupture of the consensus model for a national dialogue.
From a statement issued by Moody's:
New York, June 13, 2018 -- Moody's Investors Service ("Moody's") has today changed Nicaragua's rating outlook to stable from positive and affirmed its B2 long-term issuer ratings.
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.
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