NEW YORK — Elections across Central America in 2014 and 2015 are unlikely to materially affect sovereign creditworthiness, said Fitch Ratings in a recently published report. El Salvador and Costa Rica have already held elections earlier this year. Panama's elections are scheduled for May 4, while Guatemala's elections will take place in September 2015.
'Elections will provide the countries with an opportunity to re-focus policies to address their credit challenges,' said Lucila Broide, Director in Fitch Ratings' Sovereign Group.
The Central American region is confronting a mixed external environment. Expected stronger growth in the U.S. should boost external demand conditions. However, the region will be exposed to changing external financing conditions as the global liquidity cycle turns. In recent years, Central America has benefitted from the favorable international low interest rate environment by tapping external capital markets.
Regionally, low government revenue bases hamper fiscal flexibility. Improving low GDP growth potential will be important for El Salvador and Guatemala in the context of their lagging GDP per capita and development indicators. Sustaining growth momentum while making room for faster fiscal consolidation will be supportive of creditworthiness for the more diverse and dynamic Costa Rica and Panama.
Panama is currently the only Central American country with an investment grade rating ('BBB'/Stable Outlook). Reining in fiscal spending in a context of slowing growth will be its key challenge.
Costa Rica's ('BB+'/Stable Outlook) high structural fiscal deficits represent a key credit weakness. Guatemala's rating ('BB+'/Negative Outlook) reflects the country's structural shortcomings that, in the absence of an aggressive reform agenda, have begun to weigh on its creditworthiness. El Salvador is the lowest rated country in the region ('BB-'/Negative Outlook) reflecting subpar growth and investment rate and high fiscal deficits and debt.
The full report 'Implication of the Political Cycle in Central America' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Implications of the Electoral Cycle in Central America
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747125
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
'Elections will provide the countries with an opportunity to re-focus policies to address their credit challenges,' said Lucila Broide, Director in Fitch Ratings' Sovereign Group.
The Central American region is confronting a mixed external environment. Expected stronger growth in the U.S. should boost external demand conditions. However, the region will be exposed to changing external financing conditions as the global liquidity cycle turns. In recent years, Central America has benefitted from the favorable international low interest rate environment by tapping external capital markets.
Regionally, low government revenue bases hamper fiscal flexibility. Improving low GDP growth potential will be important for El Salvador and Guatemala in the context of their lagging GDP per capita and development indicators. Sustaining growth momentum while making room for faster fiscal consolidation will be supportive of creditworthiness for the more diverse and dynamic Costa Rica and Panama.
Panama is currently the only Central American country with an investment grade rating ('BBB'/Stable Outlook). Reining in fiscal spending in a context of slowing growth will be its key challenge.
Costa Rica's ('BB+'/Stable Outlook) high structural fiscal deficits represent a key credit weakness. Guatemala's rating ('BB+'/Negative Outlook) reflects the country's structural shortcomings that, in the absence of an aggressive reform agenda, have begun to weigh on its creditworthiness. El Salvador is the lowest rated country in the region ('BB-'/Negative Outlook) reflecting subpar growth and investment rate and high fiscal deficits and debt.
The full report 'Implication of the Political Cycle in Central America' is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Implications of the Electoral Cycle in Central America
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747125
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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