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Uruguay's outlook cut to 'negative' by Moody's

Bnamericas Published: Friday, June 24, 2016
Uruguay's outlook cut to 'negative' by Moody's

Rating agency Moody's affirmed the Uruguayan government's issuer and government bond ratings at 'Baa2', but lowered the outlook to 'negative' from 'stable'.

The 'negative' outlook is the result of macroeconomic weaknesses that could challenge the fiscal consolidation measures proposed by the government aiming at reducing the fiscal deficit by 1% of GDP and the larger-than-expected regional spillovers, mainly due to the weak economic prospects in Brazil.

Uruguay's fiscal deficit reached 2.8% of GDP in 2015 compared to 2.3% in 2014, and Moody's expects it to rise to 3.3% in 2016.

In addition, GDP growth was projected by Moody's to reach 0.5% in 2016, down from 1.0% in 2015 and 3.2% in 2014, while inflation is forecast to be well above the target: "despite sluggish economic activity, inflation and inflation expectations are likely to remain entrenched, coming well above the central bank's target. Twelve-month inflation through May rose to 11%, the highest level since November 2003."

Spillovers from Brazil's economic crisis and a fiscal consolidation program to be enacted in 2017 "leaves little room for slippage in the event of unanticipated adverse shocks."

"Were these risks to materialize, it is unlikely Uruguay's debt ratio would peak in 2017. Instead, it could continue increasing well above the 42% of GDP 'Baa' category median."

Uruguay's sovereign rating was maintained at 'Baa2', taking into account "moderate government financing needs and a favorable debt maturity profile, large external and financial buffers," among other considerations.

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