UPDATE 2-Fitch upgrades Peru rating to BBB-plus; outlook stable

Wed Oct 23, 2013 12:54pm EDT

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NEW YORK Oct 23 (Reuters) - Fitch Ratings on Wednesday upgraded Peru's credit rating one notch higher into investment-grade territory, crediting the country's fiscal balance sheets and its record of growth and economic stability.

Fitch raised Peru's long-term foreign issuer default ratings to BBB-plus from BBB, citing "continued pragmatism" under President Ollanta Humala's government and his "steady progress on reforms."

"Peru's upgrade is underpinned by the strength of the sovereign's external and fiscal balance sheets, continued growth outperformance in relation to 'BBB' peers and a long track record of macroeconomic and financial stability," the ratings agency said in a statement.

The outlook is stable.

Fitch also upgraded the country ceiling to A-minus from BBB-plus and the long-term local currency to A-minus from BBB-plus.

Fitch's new rating for Peru, following an upgrade from Standard & Poor's to BBB-plus in August, places the Andean country above Mexico and Brazil and only below Chile in the region.

Moody's rates the country Baa2 with a positive outlook.

Peru, a top producer of copper, gold and silver, has over the past decade enjoyed an average annual economic expansion of 6.5 percent as exports have soared on China's growth and domestic demand surged with the rise of the middle class.

Humala, a former military officer and one-time radical elected two years ago on promises to make sure the poor benefit from the country's growth, has pleased investors by extending the free-market economic policies embraced by consecutive Peruvian presidents since the 1990s.

Last year the economy expanded by 6.3 percent, one of the fastest rates of growth in the region.

This year, however, the central bank expects GDP to expand by about 5.5 percent as softer demand from major buyers like China and weaker mineral prices have dampened the pace of growth and set the stage for Peru's first trade deficit in more than a decade.

Peru's potential growth rate, the pace at which the economy can expand without stoking high inflation, is usually seen between 6 percent and 6.5 percent.

"Despite the slowdown ... in 2013, Peru's economic growth performance will be one of the strongest" among peers through 2015, Fitch said. "The general government is on track to record its third consecutive fiscal surplus (0.4 percent of GDP) in 2013."

The Humala administration has vowed to keep cutting red tape to boost mining output while also carrying out controversial structural reforms to education and the civil service.

Finance Minister Luis Miguel Castilla has also tweaked fiscal rules to help the Andean country handle unexpected revenue swings related to its dependence on mineral exports.

Fitch said its upgrade assumes Peru will double its copper production by 2016 as expected, China's economy will grow by an average 7.2 percent through 2015 and that commodities will avoid a slide into a lower price range.

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