Latin America does not have a positive outlook after the first half of 2017. There were more negative than positive sovereign rating actions made by Fitch Ratings for the region in the first six months of the year, the agency said earlier this week.
Brazil, Chile, Ecuador and Mexico have negative outlooks, while Costa Rica and Suriname were downgraded one notch and two notches, respectively. El Salvador defaulted on local debt. No Latin American sovereigns are on a positive outlook in Fitch’s 2017 Mid-Year Sovereign Review and Outlook. The only positive move was Colombia, going from negative to stable due to a tax reform and “sharp falls in the current account deficit and inflation.”
“Sovereign credit pressures in the region generally stem from the challenging macroeconomic backdrop, the difficulty of fiscal consolidation, and sometimes volatile or polarized politics,” said Fitch. “All of these factors will see important developments in the second half of 2017 and 2018 as countries present their 2018 budgets and several elections take place.”
Some countries are doing their best to improve public debt. “Chile and Mexico are seeing benefits from earlier tax reforms, and Colombia and Uruguay have enacted tax increases in the past year,” added Fitch.
For a sovereign rating to change, the reasons may have to come from the citizens of the country. Fitch cites nine elections in the next year and a half as a key factor to a country’s rating. “Political deadlock was a major factor in our negative rating actions on Costa Rica and El Salvador, which have elections scheduled in [the first quarter of 2018],” said Fitch.
– Michael Miller, editorial associate