Moody's: Peru among countries with most fiscal space in LatAm

(Andina)
Chile, Paraguay, and Peru remain the sovereigns with the most fiscal space in the region, followed closely by Mexico, Moody's Investors Service has reported.

Some, including Argentina, Costa Rica and Ecuador, experienced a material reduction in fiscal space during the last five years, it said.

According to the credit rating agency, Colombia and Uruguay saw large increases in their debt burdens, although debt affordability remains sufficiently high. Panama similarly saw an increase in debt in 2019.

"We do not foresee LatAm sovereigns making material progress in rebuilding lost fiscal space. We anticipate continued, albeit modest, deterioration in government debt metrics, i.e., higher debt ratios and interest burdens," Moody's forecast.

Weak fiscal profiles leave governments with limited ability to manage shocks through countercyclical fiscal policies, it warned.

Furthermore, across the region, most sovereigns have improved their debt structures by extending maturities and —more importantly— reducing their share of foreign-currency-denominated debt. This mitigates liquidity (rollover) risk and balance sheet risk because of reduced exposure to currency fluctuations.

In this sense, "Peru and Uruguay materially reduced the share of foreign-currency debt in their debt burdens."