The international risk rating agency Moody's Ratings today raised the rating of the Government of Paraguay to Baa3 and changed its outlook to stable from positive.
Although it was announced by its president, Santiago Peña around noon, it was confirmed this afternoon that Moody's Ratings has improved the issuer and long-term senior unsecured bond ratings of the Government of Paraguay to Baa3 from Ba1 and has changed the outlook to stable from positive.
"We have also upgraded the senior secured bond rating of Bioceanico Sovereign Certificate Limited, a government-related entity, to Baa3 from Ba1 and changed the outlook to stable from positive," the entity said in a statement.
The principal remaining credit risk related to Bioceánico arises from the credit quality of the government of Paraguay, which is ultimately responsible for making payments on the bonds that the entity acquired.
"The upgrade of Paraguay's ratings reflects a combination of factors, including strong and sustained economic growth and our expectations that the economy has become more resilient to shocks, and a history of institutional reforms that has improved our assessment of the institutional and governance strength," highlighted the rating agency.
In its analysis, Moody's described how successive governments have pursued a strategy of economic diversification and public investment in infrastructure, while preserving Paraguay's fiscal strength and increasing and diversifying the sovereign's access to market financing.
Infrastructure investment is easing Paraguay's transportation bottlenecks, which will support a strong and continued flow of private investment in the non-traditional sector, including light industry, forestry and clean energy.
"The stable outlook reflects our expectations that economic growth will remain strong, supported by public and private investment in key infrastructure projects, mitigating risks related to Paraguay's exposure to commodity prices and shocks related to the climate," the statement stated.
On credit, Moody's expects the government to preserve Paraguay's fiscal strength, while efforts to reduce the proportion of debt in foreign currency will reduce exposure to currency risk, "although the majority of government debt will likely remain in foreign currency." in the foreseeable future," he said.
LOCAL REACTION
“By obtaining investment grade, opportunities are opened for large global investment funds
"They can invest in sovereign bonds, as well as in bonds of Paraguayan banks and companies abroad," explained economist César Barreto, on ABC Color .
He explained that previously, the country already had access to this financing, but at high costs. This improvement in qualification will reduce these costs, facilitating the completion of larger projects.
Regarding the impact on citizens, he highlighted that the investments translate into greater employment opportunities, indirectly benefiting Paraguayans. “More investment projects translate into more employment opportunities,” he added.
Barreto noted that, although Moody's is the first of the three large rating agencies to grant this rating, Fitch Ratings could be the next to consider an upgrade for Paraguay.
However, Standard & Poor's could take more time to adjust its assessment. “If two rating agencies give us this rating, it will be an important ratification for the country,” he stressed.
“It is essential that the country's economy be managed by experts to sustain what has been achieved in recent years.
years,” he stated, highlighting the importance of economic management by trained professionals, Barrueto emphasized.
ECONOMIC DIVERSIFICATION
Returning to Moody's rating, the entity highlights in a statement that, during the last decade, Paraguay's economy has followed a path of economic diversification, which has increased its resilience to shocks, "materially reducing the volatility of growth." economic and GDP, factors that have led to improving our assessment of economic strength.
The agency maintains that the agriculture and hydroelectric power generation sectors continue to play a key role in economic activity, but Paraguay has been diversifying its economy and attracting investment in non-traditional sectors, as the processing and value added of Agricultural production has increased and the light manufacturing sector has grown rapidly.
"We expect average GDP growth of around 3.5% in the coming years, in line with Paraguay's potential growth. However, there is still upside growth potential once large FDI projects, such as those in forestry and green fertilizers, generate positive indirect effects beyond their own construction and operations," the report concludes.
