Moving On Up: Peru Sees Its Moody’s Credit Rating Improve
On Wednesday, the credit rating agency Moody´s upgraded Peru’s investment grade rating by two levels. The upgrade was based on the expected growth of the Peruvian economy, the strengthening of its fiscal position, and structural changes that could improve its potential economic expansion.
Moody’s increased the rating from Baa2 to A3 with a positive economic outlook, making it the first agency to grant an “A” rating to an important producer of raw materials, such as Peru.
“Generally speaking, when the rating increases, it usually increases by one level. In this case, we sent a message on how we have seen the necessary strengthening of the government’s financial accounts and credit profile to merit this type of increase,” Moody’s Peru analyst, Jaime Reusche, told Reuters. The agency further reported in a statement that “despite the the cyclical slowdown of economic activity and the fall in key commodity export prices (raw materials), the diversification of tax revenue has contributed to the strengthening of the country’s fiscal health.”
Moody’s new rating for Peru in the investment grade category places the country at the same level as Mexico, and only below Chile among Latin-American countries. The improvement comes at a time when the Peruvian economy, a big producer of raw materials, is slowing down due to a smaller demand of minerals from huge consumers like China.
However, one of Peru’s greatest limitations continues to be the weakness of its institutions, a challenge that it must confront for it to continue to improve its ratings, said Reusche. “There is a strong disconnect in Peru between economic institutions, which are top-tier, and political institutions, the weakness of judiciary power, and the matter of corruption,” said the analyst.