Uruguay's Economy Minister Danilo Astori Sunday said he was surprised at last week's decision by the Fitch agency to maintain Uruguay's investment grade as it lowered the outlook down to BBB- and pointed out that this report “contrasts openly with those of other risk rating agencies and with the market itself.”
Astori added that the market today is showing signs of high Uruguayan debt rating, bond debt remains very strong.
The international rating agency Fitch Ratings maintained the note of Uruguayan foreign currency debt at BBB-, this is the first step within the investment grade, and with a stable outlook. The rating agency expects a positive GDP growth in Brazil and Argentina in 2018 and 2019, which will help Uruguay.
Astori also recalled that Uruguay went through a similar situation two years ago when the rating was lowered and then the government managed to reverse it with actions that allowed the situation to improve and said he was firmly determined to increase the fiscal sustainability of the country.
Fitch argued that Uruguay's ratings are backed by strong structural characteristics in terms of social and institutional development, a healthy external balance and a favourable maturity profile of public debt, which are balanced by a weak record of compliance with fiscal and regulatory objectives.
The agency placed the spotlight on inflation, which weighs on the credibility of policies, the relatively high and dollarized public debt, and the rigidity of the high budget.
Fitch also highlighted the rebound of the local GDP, which grew to 2.7% in 2017, although this growth rate is somewhat below the BBB pairs but reflecting the continued resistance to volatile and slow regional growth, according to the agency, which also underlined the drop in investment and protests in the agricultural sector.
Regarding the fiscal deficit, the government's main macroeconomic concern, Fitch projects an improvement expecting it to fall to 3.4% of GDP by the end of 2018 - in the 12 months to March it stood at 3.5% of GDP. However, it does not expect the official goal of reducing the deficit to reach 2.5% of GDP in 2019.
The risk factors identified by Fitch, which could trigger a negative rating for Uruguay in the future, are a faster increase in the trend in the burden of public debt, a deterioration in the outlook for growth and an erosion of the cushion of external liquidity.
In contrast, the components that could raise the country's credit rating would be a fiscal consolidation consistent with the stabilization of the trajectory of the public debt and the de-dollarization of the debt balance, a sustained reduction in inflation and a better anchorage of the inflation expectations, and the evidence of investments or productivity gains that raise the growth prospects in the medium term .