Fitch Raises Paraguay’s Rating to Positive

Fitch has raised Paraguay’s rating to “positive” as the South American country reported 14% GDP growth for 2013.  The ratings agency has also cited the country’s improving business environment and sustained growth for its decision.

Paraguay’s agriculture sector is the main driver of growth, but analysts say even the non-agriculture sector has picked up speed, growing at an average of 5% in the past five years.

Fitch has affirmed its long-term foreign and local currency issuer default ratings at “BB-.” Fitch’s new view does not lift Paraguay out of the “junk” status, because the current rating (BB–) is still three notches down into the junk level.

Home to about 6.6 million people, Paraguay is one of the smallest countries in South America and is heavily dependent on soya and beef exports to boost its economy.  Paraguay also generates abundant power from its hydel power stations and sells electricity to Argentina and Brazil.

Analysts question whether Paraguay can maintain its growth rate. Its future growth is threatened by the fact that both of its principal business partners, Argentina and Brazil, are still not fully out of the economic doldrums.

Yet analysts say 14% GDP growth is the fastest growth anywhere in the world. The year 2012 was the worst year for Paraguay’s economy, as many agriculture fields lay idle due to drought.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), Paraguay  showed the largest increases in export values in 2013 (33%), largely due to considerable export growth in soybean and meat exports.

Last year it created a new ICT Ministry in order to supervise its advancement in the IT services and software sector, which grew by 15% in 2012.

The ratings agency has praised the country’s approval of a law designed to reduce infrastructure bottlenecks. Less investment on infrastructure projects is a matter of concern everywhere in Latin America, but Paraguay seems to have made a headway to deal with this issue.

Paraguay recently passed a fiscal responsibility law aiming to limit the size of the public deficit to 1.5% of GDP. The South American country is planning to put a cap on expenditure, something Fitch lauded in its report.