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Fitch downgrades Chile, but raises outlook to stable

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Fitch downgrades Chile, but raises outlook to stable

Fitch Ratings downgraded Chile's long-term foreign-currency issuer default rating to A from A+ and revised the country's outlook to stable from negative, while also lowering the ratings on senior unsecured foreign bonds to A from A+.

The rating agency said the downgrade reflects Chile's prolonged period of weak economic growth and lower copper prices, although the country's strong governance and credible policy framework have preserved macroeconomic stability, supporting the revised rating outlook.

Chile's economic growth rate will ease to 1.4% in 2017 amid stagnant mining output, Fitch said, but will recover to 2.4% in 2018 and 2.8% in 2019 due to improved external conditions.

Fitch said Chile's central government deficit will rise to 2.9% of GDP in 2017 and 2018, when public finances are expected to get a final revenue boost from 2014 tax reform efforts. Government debt will also increase to 25% of GDP in 2017 and around 30% by 2019.

Chile could be downgraded again if the economy underperforms, or if government debt burden increases faster than expected, Fitch warned.

As part of the latest rating action, Fitch also downgraded Chile's country ceiling to AA from AA+, and the short-term foreign- and local-currency issuer default ratings to F1 from F1+.