The credit rating of Uruguay This 2024 is going through a new challenge, after the main credit agencies improved the country’s grade last year, granting recognition to the fiscal policy of the government.
After having left behind the drought in 2023, this year the focus will be on the campaign prior to the elections 2024 and the PIT-CNT plebiscite by social security reform, two events that the rating agencies will follow closely.
In that scenario, Moody’s, which rose in 2023 the outlook for public debt to positive, a review is pending that could take place this year or wait until 2025, once the vote has been taken and with a new government.
The expectation regarding this decision is high, since the vice president and senior credit officer of the international entity, Jaime Reusche, assessed “certain fiscal strengths” in Uruguay and said that he is “on the heels” of Peru, second in the ranking in the region.
What do economists think about the rating in an election year?
This situation does not go unnoticed in the world of finance and that is why some economists began to reflect on the possible improvement of the credit rating. Through their X account, the member of the Fiscal Advisory Council (CFA), Ignacio Umpiérrez, He noted that “it is possible to think about an upgrade” from Moody’s when assessing “the adherence to the fiscal framework and the improvements in monetary/inflation policy, in line with what the sovereign spread suggests.”
For Umpiérrez, the election year should not have a significant influence and he believes that the new government, regardless of its political character, should “aim for the A-/A3 strengthening the fiscal framework, signaling an objective of inflation lower and deeper still dedollarization of the debt”, by warning about “the costs of reversing or weakening the fiscal framework.”
However, there were other, more cautious views. It is the case of Rodrigo Saráchaga, from Personal Sherpa, who recalled that Moody’s has up to 24 months to issue it, so the review “may be left until 2025” due to the elections.
Although he appreciated that “it helps that S&P already has Uruguay a notch above, which may give greater comfort to resolve,” he warned: “I believe that the uncertainty about who will administer the country from 2025 will weigh on the rating agencies, which prefer to wait for events rather than give votes of confidence.”
Meanwhile, the independent analyst and consultant Jose Licandro He validated this theory by considering that “electoral uncertainty plays in favor of being cautious” and compared: “We must remember that with the opposition in government, our structural deficit pointed to a growth in debt and inflation was higher. And we almost lost the investor grade thus”.
The plebiscite for social security reform, another key axis
On the other hand, the plebiscite for which the PIT-CNT joins signatures to annul the social security reform, which will be voted on this year, is another of the tests to be overcome, since the agencies validated that law as an institutional commitment.
In this regard, the economist Aldo Lema He stated that the rating agencies will observe “the eventual plebiscite for social security and its result,” as well as “calibrate strengthening of the fiscal rule and institutionality.”
It is worth remembering that Constanza Pérez Aquino, Standard & Poor’s analyst, He stated months ago in dialogue with the weekly Busqueda that “the rating of Uruguay “It incorporates our view that social security reform reflects the institutional and political commitment to containing further pressures on the budget.” In a similar vein, Fitch warned that “the country’s fiscal framework faces a test in the run-up to the 2024 elections.”
Given this panorama, with the election year having already begun, the question arises as to what path the country will take in the coming months and how much it will affect the rating agencies’ analysis of the fiscal framework.
Source: Ambito
