S&P Global Ratings lowered Nicaragua's long-term foreign- and local-currency sovereign credit ratings to B- from B with a negative outlook, marking the country's second downgrade from the rating agency in about four months.

S&P said the downgrade is based on Nicaragua's deteriorating fiscal and financial profiles against a backdrop of rising budget deficits, stability risks in the banking sector, an economic recession and continued political tensions in the country.

The rating agency expects Nicaragua's fiscal deficits to increase in 2018 and 2019 due to the recession and lower tax revenues. Nicaragua's net general government debt is expected to rise to 36% of GDP in 2018 and to continue to increase over the next three years.

Nicaragua's GDP is expected to contract by 4% in 2018 amid decreasing consumption and falling investment, and by another 2.5% in 2019 on declining private-sector confidence and reduced access to banking credit.

S&P said the country's international reserves are expected to remain under pressure because of limited access to official lending, higher current account deficits, smaller foreign direct investment inflows and significant deposit withdrawals from the private banking system. The country's international reserves fell to $2.3 billion in September from $2.8 billion in December 2017.

S&P said continued economic contraction and increased difficulties in securing foreign exchange financing could result in a further deterioration in the country's fiscal and debt profiles.

The rating agency said it could lower the ratings further in the next 12 months if the government fails to stem the loss of dollar liquidity in the economy. It said the country's international reserves could decline more than projected if the loss of foreign currency financing flows is not reversed.

S&P affirmed Nicaragua's short-term sovereign credit ratings at B.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global. This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.