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Fitch: Structural issues mar upside ratings potential of Central American sovereigns

Fitch Ratingssaid that Central American sovereigns have limited upside ratings potential as theyface structural challenges that hinder economic growth.

The DominicanRepublic, which has a positive outlook, is included by Fitch as part of the regionand is the only one that currently has upside potential, according to the ratingagency.

While low oiland other commodity prices - as well as continued U.S. labor market strength – arefactors that have helped reduce inflation and current account deficits in CentralAmerican economies, growth is hampered by structural issues for almost all of thecountries in the region, with the possible exception of Costa Rica, Fitch said ina statement.

"Fitchbelieves progress in resolving structural challenges will be crucial, as severalcountries have deep-rooted competitiveness problems, partly due to low human capitaland difficult business environments," the rating agency stated.

Possible credit-positivefactors include structural reforms that boost growth prospects by raising investment,improving education and boosting productivity, Fitch said. Efforts to strengthenthe business environment, diversify exports and move up the value-added chain wouldalso be crucial, the agency added.

The passageand implementation of fiscal reforms that raise revenues for improving security,infrastructure and health and educational spending could also improve creditworthiness,although Fitch noted that progress to date has been slow.