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."

Moody's: Peru has fiscal space to boost public investment

(Andina)
Peru has fiscal space to implement the countercyclical measures aimed at boosting the economy in the short term, Moody's Investors Service Vice-President Jaime Reusche affirmed on Thursday.

In this sense, the officer indicated it is possible to use part of the fiscal space gained so far, although he warned against falling into fiscal overspending.

Last April, Peru's fiscal deficit reached 1.7% of GDP, whereas it stood at 1.5% of GDP in May.

"It could be easily expanded to 2% this year and then continue with the reduction. However, it (Peru) must do everything possible to reach 1% of GDP by 2021," he told El Peruano official gazette.

Evolution

"In recent months, there has been a fiscal revenue recovery that has reduced the deficit gap, but there is still work to do with the purpose of achieving the goals," Reusche expressed.


"Leaving behind the path towards the reduction of deficit to 1% of GDP would be a serious mistake that would destroy Peru's so important fiscal credibility, which anchors the favorable vision of foreign investors," he stressed.

Likewise, the Moody's representative pointed out public expenditure is inefficient and spending without clear objectives —of what is being purchased with those resources— could be dangerous and irresponsible.

Trade war

On the other hand, the senior analyst informed the trade war —between the United States and China— has still a small impact on the Inca country, but an escalation could highly affect its economic growth.

Furthermore, the officer stated mining investment is still stable, and the cash cost of exploiting minerals in Peru is one of the lowest in the world. Thus, even if metal prices drop, this will remain as a competitive sector.