On October 15, 2021, Fitch Ratings downgraded Peru's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BBB' from 'BBB+', and maintained its stable outlook.
The downgrade, via the removal of the former positive notch for macro and fiscal policy credibility, reflects the steady erosion over time of Peru's sovereign balance sheet and other key rating metrics. This came on the back of a series of shocks, which has accelerated since 2020 due to the pandemic-related recession and fiscal response.
The government’s debt ratio is materially higher than in 2013 when Fitch upgraded Peru to 'BBB+'. Furthermore liquid fiscal buffers have been depleted, eroding the strength of Peru's government balance sheet relative to peers.
The trend in economic growth has been declining and Fitch believes that Peru's medium-term investment and economic outlook has weakened as a result of political volatility in recent years.
This downgrade of the sovereign could trigger a similar one-notch downgrade of corporates such as Scotiabank Peru whose operations are significantly impacted by the operating environment.
