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Friday, June 2, 2023

S&P warns of new credit risk

From the print edition

By Mariano Andrade | AFP

NEW YORK – Several Central American countries face growing credit risk due to external debt, according to a report issued Monday by ratings agency Standard and Poor’s (S&P).

The report did note improvements by South American countries Bolivia, Paraguay and Suriname. Other countries that did not fare as well were Costa Rica, Guatemala and El Salvador.

Six Central American countries have a rating of “BB,” which ranks them below the minimum investment grade of “BBB-,” but according to S&P, the situation varies from country to country. 

“Central America’s sovereign debt “is faced with growing credit risks,” the report noted. 

“We have a negative perspective with our ranking of ‘BB’ for Guatemala, and we have downgraded El Salvador’s ranking two levels in the past three years. These countries are attempting to avoid increasing their credit risk,” the report said.

Costa Rica, El Salvador and Guatemala have seen their already-fragile public finances “worsen due to public deficits and government debt,” a consequence of slower-than-expected economic recovery following the global financial crisis of 2008.

S&P emphasized the impact of struggling U.S. and European economies on those of Central American nations, which have proven less resilient than their South American neighbors. South American economies are performing relatively well, thanks to high prices on raw materials and consolidated public finances. 

In spite of the complex situation, S&P noted that Costa Rica, El Salvador and Guatemala “have maintained relatively strong public institutions and have continued predictable market-oriented policies,” which has enabled them to shield themselves from economic vulnerability.

However, the short-term future in Central America is “more of a situation of challenges than of opportunities,” the ratings agency said, recommending more progress on fiscal consolidation and new support measures to improve the economic outlook.

Despite difficulties in the global economy, particularly the crisis in Europe and the slow recovery in the United States, many Latin American countries have strengthening economies and are managing to stem chronic problems of external debt. Last week S&P upgraded sovereign debt ratings of Ecuador and Honduras, from “C” to “B,” and from “B” to “B+,” respectively. 

In early April, Uruguay obtained a minimum investment grade, joining six other Latin American countries – Chile, Mexico, Brazil, Peru, Panama and Colombia. Uruguay’s sovereign debt ranking improved from “BB+” to “BBB-,” S&P reported.


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