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Fitch affirms Paraguay on policy prudence, resilience to external shocks

Fitch Ratings on Dec. 16 affirmed its sovereign ratings on Paraguay, citing the country's long track record of macro policy prudence, low fiscal deficits and debt levels, and its increased resilience to external shocks.

Fitch affirmed Paraguay's long-term foreign and local currency issuer default ratings at BB, with a stable outlook, country ceiling at BB+, and short-term foreign and local currency issuer default ratings at B.

However, the rating agency noted that the country faces some constraining factors on creditworthiness, including high output volatility due to weather-related shocks and relatively weaker governance and social development indicators.

"Paraguay's economy is becoming increasingly resilient to external shocks given an adequate level of international reserves, increased exchange rate flexibility and improved credibility of monetary policy," Fitch said.

The agency expects real GDP growth to be 4% in 2016, 3.5% in 2017 and 3.8% in 2018. It noted that there are signs of economic diversification into higher value-added activities, which could reduce output volatility over time.

Fitch also expects Paraguay's government to meet its 1.5% of GDP deficit target in 2016 due to buoyant revenue growth and current expenditure restraint. However, the central government deficit is expected to rise to 2% of GDP in 2017 as a result of a rise in government spending on wages.