Fitch revises Dominican Republic credit outlook to negative from stable

Fitch revises Dominican Republic credit outlook to negative from stable

Debt Economy & Policy Fixed Income Dominican Republic Coronavirus Caribbean

Fitch Ratings on Friday revised its credit outlook for the Dominican Republic’s long-term foreign-currency sovereign credit rating to negative from stable citing the negative impact on tourism and remittances due to the coronavirus pandemic.

The current credit rating of BB-, which lies three levels below investment grade, was affirmed, Fitch said in a statement. The drop in economic activity is putting pressure on the Caribbean nation’s balance of payments.

“The fiscal and monetary response will exacerbate pre-existing public-finance and monetary-policy weaknesses and lead to a deterioration of the government balance sheet,” Fitch said.

July elections for both the presidency and congressional seats is likely to result in stalled reforms of public finances, central bank recapitalization, and electricity utility losses.

“Downside risks to the economy and our forecasts are considerable given the uncertainty about the pandemic,” Fitch said.

The Dominican Republic’s economy, Fitch expects, will contract by 3.5% in 2020, down from the “high 6.1% year-on-year average in the preceding five years. We expect a 5.6% rebound in 2021.”

“Fitch estimates an external financing gap of $2.03 billion for 2020 (2.6% of GDP) that we expect will largely rely on multilateral financing. Absent the coronavirus shock, the $2.5 billion January issuance would have covered the external market needs this year, including the government's external market debt service,” the firm said.

In January, it sold $1 billion worth of 4.5% 2030 notes and $1.5 billion worth of 5.875% 2060 notes after total orders reached $8.42 billion for both series. The 2030 notes were more than three times oversubscribed, while the 2060 were four times oversubscribed, said a source involved in the deal.

The 2030 notes priced at 99.205 to yield 4.6%, while the 2060 notes priced at 98.86 to yield 5.95%, the source added. The Dominican Republic is scheduled to settle the notes on January 30. BNP Paribas and JPMorgan were the bookrunners on the deal.