Peru piles on debt to fight coronavirus

Peru piles on debt to fight coronavirus

Coronavirus Economy & Policy Corporate & Sovereign Strategy Bonds Debt Capital Markets Fixed Income Regulation Peru Andean Latin America US

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Peru will likely increase the deficit to 5.5% of GDP by the end of year, compared to 1.4% at the end of 2019, as it relaxes its fiscal rules and boosts spending to contain the coronavirus outbreak, S&P Global said on Tuesday.

To finance Reactiva Perú, a stimulus package unveiled last month that includes loan guarantees worth roughly 12% of GDP, the government will reallocate resources from other areas, draw from a $5 billion rainy day fund and issue more debt in the local and international capital markets, S&P said in a report.

"In addition, the government has solid relationships with various multilateral institutions and access to credit lines," S&P said.

The Ministry of Economy and Finance, or MEF, received permission last week to sell up to $4 billion in cross-border bonds, according to an emergency decree issued on April 30, less than a month after the government raised $3 billion through a two-part deal with $1 billion in five-year notes and $2 billion in 10-year notes.

Following the record-breaking debt offering in mid-April, which garnered more than $25 billion in orders, Peru had raised $13 billion, or more than 6% of GDP, for its response to COVID-19, according to José Olivares, head of the treasury department at MEF.

The increased spending is a temporary measure, however, and Peru is expected to lower the fiscal deficit from 2021 to 2023 in a stronger economy, S&P said.

"Successive Peruvian administrations have demonstrated a commitment to fiscal responsibility, and we expect future governments to maintain this engagement," S&P said.

GDP in Peru is expected to fall around 3% this year as mining exports, construction and tourism take an especially hard hit from the coronavirus. For the next three years, however, Peru's economy will likely grow an average of 4% per year, S&P said.