S&P Cuts Peru Rating as Political Turmoil Weighs on Growth

(Bloomberg) -- Peru was downgraded by S&P Global Ratings as political turmoil weighs on investor sentiment, curbing the growth outlook and constraining the nation’s capacity to rebuild fiscal buffers.

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S&P cut the score by one notch to BBB- on Thursday, the lowest investment-grade rating and on par with Hungary and Romania. The outlook is stable. S&P last downgraded the nation in 2022.

“We expect Peru’s complex political landscape will persist in the run-up to the next presidential and congressional elections,” analysts including Constanza Perez Aquino said in a statement. “This in turn limits the government’s capacity to implement more timely policies to boost the investment and economic growth outlook.”

Peru’s economy was among the worst performers in emerging markets last year, as political turmoil and severe weather hit a country that was Latin America’s star performer until recently. The nation is grasping for political stability after cycling through seven presidencies in eight years and the current leader Dina Boluarte, one of the world’s most unpopular leaders, faced an investigation into illegal enrichment.

Moderate Recovery

S&P sees moderate economic recovery in Peru from 2024 to 2025 after a GDP contraction last year. Even with more favorable copper prices, political challenges will likely continue to constrain Peru’s capacity to restore growth and investor confidence and to “rebuild fiscal space”.

Fiscal deficits will gradually narrow as the economy recovers, although spending will remain pressured, S&P said. Peru’s external indicators are expected to remain solid, it added.

S&P economic forecasts:

  • Growth may recover to 2.7% in 2024, while inflation should be back to within the central bank’s 1%-3% target range

  • General government deficit will gradually narrow to roughly 2% of GDP by 2027, after increasing to 2.8% of GDP in 2023

--With assistance from Dale Quinn.

(Updates with S&P comments from third paragraph, economic forecasts in the last paragraph)

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