Moody’s downgrades Peru’s rating outlook to negative due to protests and political crisis

Risk Rating Agency Moody’s changed Peru’s risk rating outlook (Baa1), both in local and long-term foreign currencies, stable to negative. The reason is that social conflicts have exacerbated a threat to governance and its economic power.

In a report released on Tuesday, the agency noted that the change in the outlook to negative on Baa1 reflects the position Moody’s regarding the fact that “social and political risks have increased threats in the coming years of deterioration in the institutional cohesion, governance, policy effectiveness and economic strength of the next governments.”

He also added that the rating Baa1 reflects the position Moody’s that sovereign solvency continues to depend on the soundness of the government’s financial statements and the expectation that Peruvian institutions and policies in general will contain fiscal erosion and economic strength, despite the pressures of the political and social environment.

As you know, in September 2021, the agency Moody’s corrected peru credit rating from A3 with a negative outlook to Baa1 with a stable outlook.

In turn, the credit exposure assessment is moderately negative, showing moderate exposure to environmental risks, highly negative exposure to social risks, and limited exposure to governance risks as a result of strong economic resilience.

Inequality and social conflicts

Years later he claimed Moody’s in your report, large regional disparities led to permanent social conflicts. The poor quality of basic services, including health care, education, and health care, masks risks.

He added that there are segments of the population that demand better public services, which encourages populist policies in the absence of improvements in these services.

However, the company pointed out that regional disparities are fertile ground for social discontent, which eventually led to protests in the south of the country in late 2022, negatively affecting the management and management of the economy in Peru.

Economic growth, according to Moody’s

Recall that, according to a Moody’s Analytics report, the Peruvian economy will grow by only 1.9% in 2023.

“At Moody’s Analytics, we forecast 1.9% growth for Peruvian economy in 2023 with a 0.4% increase in private consumption and a 1.5% decline in fixed investment,” Jesse Rogers, deputy chief economist at Moody’s Analytics, told Gestión.

The current forecast does not take into account the recent impact of the latest demonstrations, so it will be revised down next month, meaning the Peruvian economy could grow by less than 1.9% this year.

(According to EFE and RPP)