Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and Country
Ceiling for Peru as follows:
--Foreign currency IDR at 'BBB-';
--Local currency IDR at 'BBB';
--Foreign currency short-term IDR at 'F3';
--Country ceiling at 'BBB'.
The Rating Outlook remains Positive.
Peru's investment-grade rating and Positive Outlook are supported by the
sovereign's robust external and fiscal balance sheets, a record of
prudent policies and macroeconomic stability and manageable debt
repayment profile. These strengths sufficiently counterbalance the
country's key credit weaknesses, including high commodity dependence,
weaker social and governance indicators relative to similarly rated
peers and still high financial dollarisation.
The election of Ollanta Humala as Peru's new President has given rise to
uncertainty about the measures that may be implemented by his
administration to deliver on his electoral promises, which include
increased social spending and higher fiscal contribution from the mining
sector. At this point, Fitch considers that the President-elect intends
broadly to continue with policies implemented since the 1990s that have
delivered macroeconomic stability, high growth, rising investment and
strong fiscal accounts.
'While the background and credibility of officials recently appointed to
head the Ministry of Finance and Central Bank also support the new
President's pledge to policy continuity, Fitch will wait for greater
clarity on the incoming administration's policy priorities and the
measures it implements to achieve them,' said Erich Arispe, Director in
Fitch's Sovereign's Group.
Authorities have effectively withdrawn the policy stimulus implemented
in response to the global financial crisis. Public finances returned to
compliance with the Fiscal Responsibility Law a year before schedule,
recording a deficit of 0.5% of GDP in 2010. Gross government debt
declined to 24% of GDP, comfortably below the 'BBB' median. Moreover,
the government increased the fiscal stabilisation fund (FEF) to 3.3% of
GDP in 2011 from 1.4% at end-2010.
Peru has also continued to build its resilience to external and
confidence shocks by prepaying external debt and bolstering the external
liquidity cushion through the accumulation of USD11 billion in
international reserves in 2010. Improved external liquidity partly
mitigates significant commodity dependence and still high financial
dollarisation. Moreover, the sovereign remains among the strongest net
sovereign external creditors in the 'BBB' category, and FDI continues to
be the main external financing source of the country's current account
'A relatively low government debt level, adequate international
reserves, modest financing requirements and the increase in the
sovereign's FEF provide a buffer against confidence shocks,' added
Peru's macroeconomic performance continues to surpass that of rating
peers. The economy recovered rapidly in 2010 as growth reached 8.8%,
increasing the country's five-year average growth to 7.2%, double the
median for the 'BBB' category (sovereigns rated 'BBB+', 'BBB' and
'BBB-'). Although inflationary pressures have increased, price stability
still compares favourably with regional and investment-grade peers.
Fitch will monitor how the policy framework evolves under the new
government with respect to maintenance of macroeconomic stability,
favourable foreign investment prospects and fiscal prudence.
Implementation of policies by the incoming Humala administration that
improves confidence in the sustainability of favorable economic and
financial trends observed in recent years will improve Peru's
creditworthiness. On the contrary, policy choices that result in
increased macroeconomic volatility, reduced growth prospects and
sustained deterioration in public and external credit metrics would be
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Sovereign Rating Methodology' (Aug. 13, 2010).
Applicable Criteria and Related Research:
Sovereign Rating Methodology
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