MercoPress. South Atlantic News Agency

Uruguay’s debt rated “positive” and edging on investment grade, says DBRS

But Uruguay needs ‘space’ to implement anti-cyclical fiscal policies

Canadian credit rating agency DBRS maintained Uruguay’s debt at BB (two steps below investment grade) but elevated prospect from stable to positive. The latest release from DBRS means Uruguay in the next 6 to 12 months could advance to one step below investment grade if “current fiscal discipline is sustained and levels of debt continue the descending trend”.

The change in prospects is supported by the clear improvements in the public debt calendar and prospects of strong economic growth in the mid term, added the release.

DBRS points out that for Uruguay to achieve “in the medium term” an upgrade in its rating to investment grade needs “significant progress in the strengthening of monetary policy, besides a significant reduction in public debt levels which could thus offer greater space for anti-cyclical fiscal policies”.

The Canadian agency further adds that although public debt “continues to be high and exposed to foreign exchange risks, the persistence of primary surpluses and the proactive performance of debt have improved debt’s profile”.

According to the latest Central Bank available information, 30 September 2010, Uruguay’s public debt was equivalent to 58.6% of GDP.

Last December credit risk agency Moody’s elevated Uruguay’s rating two steps from Ba3 to Ba1, just one below the investment grade the country lost 14 February 2002, ahead of that year’s financial and banking crisis, a spill over from neighbouring Argentina’s massive default.

“Rating agencies are having a more positive and fair attitude towards Uruguay and its economic fundamentals. Having investment grade as Colombia, Chile and Brazil, means the Uruguayan government can issue debt papers at lower rates than currently”, said Uruguayan Vice-president Danilo Astori and former Economy minister.

All other agencies (Standard & Poor’s, Fitch and R&I) rate Uruguay’s debt two steps below investment grade.