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Fitch keeps Uruguay’s rating unchanged and stable — MercoPress
Fitch keeps Uruguay’s rating unchanged and stable
Wednesday, June 5th 2024 – 09:54 UTC
The international credit rating agency Fitch announced Tuesday that it was keeping Uruguay’s BBB grade unchanged and with a stable outlook given the South American country’s relatively high GDP, strong governance indexes, and sound external finances.
The agency also noted that Uruguay’s rating was ”constrained by weak medium-term economic growth prospects affected by competitiveness challenges, a public debt burden sensitive to exchange rate movements, a long history of high (albeit improving) inflation, and policy flexibility limited by dollarization, indexation, and shallow finances.
This year’s elections in October will also play a part in a country where income inequality, corruption, criminality, and education are being discussed. In any case, Fitch foresaw that a radical policy change is unlikely, regardless of the outcome. The incoming authorities will have to face the challenge of complying with the fiscal rule in force amid budgetary rigidities and pressures to meet increasing complaints about income inequality, corruption, insecurity, and education.”
For the rating agency, there is a risk regarding the plebiscite promoted by the labor PIT-CNT grouping, social organizations, and parts of the opposition Broad Front (Frente Amplio – FA) regarding social security. However, Fitch forecasts it will fail because it has little political support. Part of the FA not backing the initiative would prove a basic political consensus around the continuity of state policies, Fitch underlined.
In June 2023, Uruguay had been upgraded from BBB- to BBB, one notch above the minimum. The BBB rating is the highest rating granted by Fitch to Uruguay since it first began gauging the country in Jan. 1995. Fitch had upped Uruguay’s grade to BBB- in March 2013.
Investor grade status is an important endorsement when seeking financing in the capital markets and allows access to loans with lower borrowing costs for the government and companies. Cheaper borrowing implies a lower debt interest burden and frees up resources for other purposes such as public social spending or investment. It is also a means to continue improving the external perception of the country as an attractive destination for foreign direct investment and employment generation.
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