The risk rating agency Fitch Ratings, through a new report on the expectation of Peru, pointed out that the events of social upheaval in the country this year would have a prolonged period of political uncertaintywhich will weaken the growth prospects and you can test the fiscal resilience.
One death was the balance of the clashes between protesters and police in Apurímac
Last Thursday there was a national strike in Lima, called by the CGTP, where there were clashes between the demonstrators and the Police; and in Puno there were 23 wounded. The shortage of food, medicine, water and fuel continues in several southern regions due to the blockade of the roads.
“This year’s fiscal starting point is stronger than we anticipated, but the economic disturbance by policy paralysis and the social discontent It is becoming more evident,” the US rating agency said.
According to Fitch Ratings, the fact that Congress did not approve, in early February, the bill of President Dina Boluarte to hold elections this year means that it is not yet clear how the last one will be resolved political crisis from Peru.
Court will dictate resolution on preventive detention against ‘comrade Cusi’ this Wednesday 15
The Prosecutor’s Office accuses Rocío Leandro Melgar, president of Fredepa de Ayacucho, for the alleged crime against public tranquility in the form of belonging to a terrorist organization such as Sendero Luminoso.
The agency believes that Congress has yet to fully ratify a proposal to advance the elections to April 2024, and the date is still subject to political debate.
The holding of elections this year is a key demand from supporters of Boluarte’s predecessor, Pedro Castillo, who was ousted from his post in December 2022 after trying to dissolve congress and rule by decree.
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Furthermore, Fitch Ratings considered that the governance challenges deeply rooted and the stagnation between the Executive and the Legislative they were impeding political initiatives before Castillo’s removal.
“A deterioration in the political stability and the government effectiveness and the resulting risks to investment and growth were key factors in our review of the Peru ‘BBB’ Rating Outlook to Negative from Stable in October 2022”, specifies the firm’s report.
In addition, Fitch Ratings maintained that recent events are consistent with its view that this deterioration will be difficult to reverse during the forecast period to the end of 2024.
In this sense, the agency specified that the Boluarte administration faces the same challenge as Castillo’s in the conduct of legislation through a fragmented congress. In addition, he points out that more than 70% of Peruvians want him to resign, according to a recent survey.
“The attorney general’s office announced a research on protest handling that have periodically interrupted the transportation infrastructure and affected economic activity,” he said.
The Fitch report noted that the public debt moderate is a rating strength. He fiscal deficit of Peru in 2022 was reduced to 1.6% of the GDP0.9 percentage points less than in 2021, according to the Ministry of Economya, mainly due to a 12.7% increase in general government current revenues as a result of high nominal growth and strong commodity prices. Health spending related to the pandemic was written off.
“The 2022 deficit was less than Fitch’s initial 2% expectation, and is consistent with the fact that the public debt/GDP it remained well below the median for the ‘BBB’ category (2022: 55.8%), although it is still higher than before the pandemic.
Fitch also mentioned that the recent rebound in the copper price would support the tax performance if it is maintained, and Economy Minister Alex Contreras has said that existing fiscal targets will be respected. However, the crisis has increased the tax uncertainty.
In the agency’s view, this situation may hinder capex execution, but could prompt a shift towards a expansive spending. So far, close to half of the economic reactivation measures have been approved for a total of 1.2% of the GDP (part of the initial government response to the protests).
The analysis also indicated that the risks to revenue will increase as the crisis exacts a cheap priceespecially if the mining activity it looks more interrupted.
The data of the INEI show that the economy grew by 2.7% in 2022 (Fitch forecast: 2.5%), with a deceleration year-on-year growth to 0.9% in December from 1.7% in November, although activity in the mining and hydrocarbons sector grew 9.3% year-on-year in December.
“The protests are seriously affecting the tourism and add to the periodic interruption of the sector miner. Disruption of the road network has increased the food priceskeeping inflation close to its recent highs (the annual CPI was 8.9% in January 2023), which will weigh on consumption,” he said.
Finally, Fitch said that the economic prospects and of weakened investmentif sustained through 2023-2024 as anticipated, could undermine the macro trajectory and Peru prosecutor relative to their ‘BBB’ peers.
“The risk of populist economic measures, like more pension withdrawals, has increased. The previous five rounds of withdrawals have reduced the ability of funding in the domestic marketwhile the interest rates they have risen (the central bank kept its reference rate unchanged this month for the first time since 2H21, at 7.75%),” he said.
Fitch indicated that it will update its macroeconomic and fiscal forecasts next March in its publication Sovereign Data Comparator.
