Peru a safer prospect than Brazil, with Mexico and Colombia in its sights

Peru is unusual among the top five LatAm countries for resisting the score declines affecting Chile, Colombia, Mexico and Brazil in Euromoney’s country risk survey so far this year.

Peru’s score of 59.1 points from a maximum 100 is a point higher compared with the spring of 2014. The sovereign is almost six points better off compared with its score in 2010, when Brazil was 5.3 points above, but is now 3.8 points below.

Whereas other nations have been downgraded thanks to a combination of political, economic and structural risk concerns, Peruvian experts have taken the region’s dimmer economic outlook in their stride – this, despite the importance of mining for Peru’s economy and the difficulties posed by lower commodity prices.

Peru does have its share of problems, mind: a current-account deficit of around 4% of GDP resulted last year; growth of 2.4% was measly compared with its recent history; and the budget deficit is rising.

Peru’s strengths stem from its favourable starting position, on debt especially, which has given the government some wriggle-room for stimulus measures to support the economy, assisted by low borrowing rates with inflationary pressure subsiding.

The deficit will rise, but only to around 2% of GDP in 2015, ensuring the debt ratio remains close to 20% of GDP compared with 90% in the 1990s.

BBVA Research – which contributes to Euromoney’s survey – admits that political grandstanding and disappointments on the economic front could see its outlook downgraded, but the firm is sticking to a 4.8% real GDP growth forecast for 2015.

BBVA foresees “an uptick in primary sectors, the fall in the oil price, work starting on major infrastructure projects, and the tax measures announced at the end of last year [boosting growth]”.

For 2016 and 2017, BBVA notes two substantial copper mining projects – Las Bambas and the enlargement of Cerro Verde – are in their final construction phase, providing a boost to the economy when starting up operations.

“Thanks to these two projects, together with the return-to-normal operations at Antamina and full operations at Toromocho, we estimate that Peru will double its copper production in 2017 over its 2014 level,” BBVA economists state.

However, they also caution: “This acceleration will be temporary, so it will only be possible to sustain GDP expansion at above 5.0% if productivity and competitiveness reforms are introduced.”

The IMF, meanwhile, has stronger growth in Peru pencilled in for 2015 and 2016 compared with Chile, Colombia, Mexico and Brazil – with the latter contracting this year – and for that matter Bolivia, Ecuador and Uruguay.

No wonder that for three of its five surveyed economic indicators – the economic-GNP outlook, monetary policy/currency stability and government finances – Peru scores seven points or more out of 10, and is higher on each count than Brazil or Mexico.

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