Credit rating agency Moody’s has raised Peru’s sovereign rating by two notches –from Baa2 to to A3 – saying it believes the country’s recent economic reforms will bring in more investment and strengthen the government’s balance sheet.
“Despite a cyclical slowdown in economic activity and a decrease in prices of key commodity exports, diversification of tax revenues has helped underpin fiscal health,” said the ratings agency in a statement.
Moody’s has also changed its economic outlook for the Andean country from “positive” to “stable.”
The ratings agency said it took into consideration the country’s “continuing momentum” for structural reform. In addition to changes to the government’s fiscal framework, Peru has recently enacted several laws to increase productivity and economic growth.
These measures include changes to the tax system, labor market reform, cutting red tape, and enhancing transparency in public sector procurement. Moody’s believes that these measures will enhance potential output and private-sector investment, while they also address concerns in the business community about red tape that have negatively affected economic sentiment.
“As a result of these reforms and continued public infrastructure investment, we incorporate an expectation that GDP growth in Peru will accelerate to around 6% in 2015 and 2016 from a bit over 5% in 2014,” Moody’s said.
Peru’s economy is partly driven by the Chinese demand for its minerals, especially copper, but the nation’s expanding middle class has raised its economic prospects.
Peru has distributed its wealth among its citizens more equitably than many other countries in the region and the country has continued to embrace the free-market economy to create jobs. Moreover, it has used its mineral export earnings to pay back debt rather than to finance welfare programs. Therefore, analysts say, Peru is less vulnerable to external shocks such as a drop in export revenue.