LatAm ratings bear the brunt during pandemic

LatAm ratings bear the brunt during pandemic

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Economies in Latin America and the Caribbean have taken a harder hit from the COVID-19 pandemic than in other regions and sovereign credit ratings have suffered as a result, analysts from S&P Global Ratings said in a webinar on Tuesday.

"The region has been harder hit than the rest of the world," said Joydeep Mukherji, team leader for sovereign ratings in Latin America and the Caribbean. "Not just by the pandemic, but by the ratings since the pandemic started."

A total of 62% of sovereign ratings in Latin America and the Caribbean have been affected negatively since the beginning of the COVID-19 crisis in mid-March, compared 42% in the rest of the world, according to S&P.

"Most of the rating actions have been in emerging markets, so that's most of Latin America and the Caribbean. And the second is the bulk of the actions have taken place in non-investment grade," Mukherji said. 

Of the 29 countries that S&P rates in Latin America, 17 are not investment grade.

Peru, Colombia and Chile, three countries with relatively stable economies in the region, were performing worse than the rest of the world before the crisis and have experienced a steep drop-off in growth since the start of the pandemic, according to S&P.

"Growth is an important factor in our rating and this is a structural weakness for the Andean region, but even more so for Latin America as a whole," Mukherji said.

High external debt levels, a good predictor of default in Latin America, has doubled in Peru to 30% of current account receipts in 2020 from 15% in 2019, while it has shot up to 80% from 55% in Chile and grown to 120% from 118% in Colombia, according to S&P.

Chile has the highest rating in the region with an A+, thanks to stable fiscal reserves and credible monetary policy, but S&P gives it a negative outlook on "a combination of national and international developments that have raised some concerns about the country's future growth rate," Mukherji said. 

Chile's financial indicators have weakened in recent years, and that weakness may persist even after an economic recovery, according to S&P.

Peru, rated BBB+, leans heavily on commodity exports and has taken a hit from falling demand in China and a drop in prices, but S&P gives it a stable outlook because it will likely be the first country in the region to recover from the pandemic. It also had a low debt burden and rainy-day funds when the pandemic began, according to S&P.

S&P gives Colombia a BBB- rating, which reflects the government's cautious macroeconomic management over the years, but the fall in oil prices has effected the country's current account deficits and increased the vulnerability of its foreign debt.