Moody's revises Guatemala's credit outlook to negative from stable

Moody's revises Guatemala's credit outlook to negative from stable

Debt Capital Markets Corporate & Sovereign Strategy Economy & Policy Fixed Income Funds Guatemala Central America

Moody's Investors Service late on Tuesday revised downward its sovereign credit rating outlook on Guatemala to negative from stable, citing the impact of the pandemic and its limited revenue base.

The firm, in a statement, said the decision was taken as its debt obligations versus the downturn in the economy resulted in a deterioration in its financial metrics. In addition, Moody's said it doe not think the government had the ability to reverse the deterioration in the nation's credit profile and bring it back up to a level in line with its peers.

"The credit impact of the pandemic-related deterioration in debt metrics which is exacerbated by Guatemala's limited revenue base," the firm said.

However, the long-term sovereign foreign currency credit rating of Ba1, which is one notch below investment grade, was affirmed.

"Moody's estimates the fiscal deficit will reach 5.6% of GDP this year, a result of both increased pandemic-related spending and lower revenue intake amid an economic slowdown, with GDP set to shrink 2% this year. In 2021, Moody's expects the economy to recover and post 4% annual growth, which is above Guatemala's historical trend growth of 3.5%. Still, the fiscal deficit will narrow only modestly to 4.8% of GDP next year," the firm said.

Wider fiscal deficits are now expected to push government debt, as a percentage of gross domestic product from 2019's 27% to 34% in 2021.

"The government's interest burden is set to rise with interest payments representing 17.4% of revenue in 2021, much higher than the 12.8% median for Ba1 and Ba2-rated peers," the firm said.