S&P has upgraded Guatemala’s credit rating to ‘BB’ from ‘BB-‘ with a stable outlook, saying the Central American country has a “resilient” economy and macroeconomic management will be “cautious” over the next year and a half.

According to the rating agency, neither the elections that will take place at the end of June nor the unfavorable global conditions will have an impact on the Guatemalan economy, which will maintain a low fiscal deficit and stable debt dynamics.

However, the country needs to take additional measures to promote long-term growth and address high social needs or reduce high levels of poverty. In this sense, political fragmentation and the weakness of public institutions are an obstacle to developing structural reforms.

The International Monetary Fund (IMF) recently made a statement along the same lines during its visit to the country to prepare Article IV. The agency pointed out that Guatemala shows signs of “strength” in its economic evolution, but encouraged the authorities to “intensify” the approval of reforms that look at the medium term to achieve development goals.

On the other hand, Guatemala’s solid external position should continue to be a rating strength in the coming years, with a current account that has posted surpluses for the past seven years. Modest public debt or “solid” monetary policy are also credit strengths for S&P.

Regarding the banking sector, Guatemala’s financial system is “resilient” to shocks and shows strong capitalization, liquidity and profitability indices.

Growth and political tension

A worse than expected economic performance or unexpected political tensions before, after and during the elections could be sufficient reasons for the rating agency to reduce Guatemala’s solvency note.

“Such events could undermine Guatemala’s long-term Gross Domestic Product (GDP) growth trajectory,” the S&P statement said. The country is expected to grow 3 % in 2023.

Conversely, the rating could be raised if political and economic performance increases investor confidence in the country, which would result in higher-than-expected growth. In addition, the strength of the rule of law or the improvement of the regulatory and legal framework would also encourage the agency to increase the note.

Source: dpa

(Reference image source: Guatemalan Tourism Institute, Europa Press)

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