FitchRatings on Oct. 5 affirmed the sovereign ratings of Uruguay, noting that thecountry faces weak growth prospects amid fiscal deficit issues.
Fitchmaintained the country's long-term foreign and local currency issuer default ratingsat BBB-, with a stable outlook. The rating agency also kept the country ceilingat BBB+ and the short-term foreign and local currency issuer default ratings atF3.
Uruguay'sratings are constrained by persistently high inflation, high public debt and arigid spending profile which raised fiscal deficits above targets in recentyears, Fitch said. However, these are balanced by strongstructural features in terms of social and institutional development,established external liquidity buffers and low fiscal financing risks.
The ratingagency expects Uruguay to post a 0.3% growth in 2016 on the back ofcontractions in key sectors and a continued rise in unemployment. However, theeconomy is expected to modestly rise to 0.7% in 2017, as an income tax hikebalances a more favorable external environment.
While thecountry's revenues have been resilient to the economic downturn, inertialgrowth in social spending and higher interest costs could push the centralgovernment deficit to 3.6% of GDP this year, Fitch estimates. In comparison, thedeficit reached 2.8% of GDP in 2015 and 1.5% on average in the 2010-2014period.
However,Fitch noted that a proposed package of consolidation measures worth 0.9% of GDPcould support the government's headline goal of a 2.5% deficit by 2019."In Fitch's view, the proposed fiscal adjustment, while relatively modest,improves the credibility of the consolidation goal," the agency said."Nevertheless, the authorities' commitment to consolidation could befurther tested should sluggish growth and current spending pressures persist."