What does it mean that Moody’s downgraded Peru’s rating outlook to negative?

Last Tuesday, January 31, it became known that the risk rating agency Moody’s changed the risk rating outlook for Peru (Baa1) in both local and foreign currencies from stable To negative.

In his report agency pointed out that the change in point of view on negativein the Baa1 rating, 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.”

A few days after hearing about the report Moody, former Economy and Finance Minister Kurt Burneo explained in Saturday Focus the implications of a change in risk rating outlook for a country that was plunged into a social crisis for almost two months, triggering strikes and roadblocks.

He is also a former director Central Reserve Bank of Peru (BCRP) stressed that qualifications capricious need to add an assessment of a prestigious magazine Economistwho described Peru as a “hybrid regime”.

For Burneo foreign perception in a country context can affect international investment.

“Moody’s downgraded the outlook on Peru, this [validación de The Economist] it is the equivalent in terms of political stability. It is no longer a question of what the opponents of the authorities say, now it is about the international media, absolutely objective, which observe how things are going,” he specified.

“If they say so from the outside, then it is obvious that investors will take this into account, because we are talking about objective opinions. What should appear as a challenge is how to flip this qualification, this view from the outside, ”he added.

Kurt Burneo said he current government should ensure that the political crisis “does not affect the economic institutions” of the country, reverse this situation, in addition to complying fiscal goal. Thus, he was confident that the current head of the MEF, Alex Contreras, would be able to reverse the negative rating.

“I am very convinced that the current minister will do everything necessary to lead the economy in this direction,” he said.

What happens if we go below investment grade?

The former minister noted that our rating outlook is still at investment gradebut, he warned, the scenario would have been different if it had sunk to the so-called “speculative degree” or high risk level.

“We are at the penultimate level of investment grade. It will be very bad for the country if our rating is lowered,” he said.

As an example, burneo He said: “This greater risk means that a higher yield must be offered to place a bond, and the costs are higher both from the point of view of the state, when we are talking about sovereign bonds, and from the point of view of a private company.”

It should be noted that in September 2021, the agency Moody’s revised Peru’s credit rating from A3 with a negative outlook to Baa1 with a stable outlook.