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Fitch - Sovereign Rating Pressures Persist into 2021

LATAM
  • Fiscal consolidation challenges and rising debt burdens may continue to put downward pressure on LatAm sovereign ratings in 2021. Nearly half of Fitch's Latin American sovereign ratings are on Negative Outlook, following several downgrades in 2020.
  • They forecast the region's GDP to expand by 4.1% in 2021, supported by external recoveries, global monetary stimulus and moderately higher commodity prices. Strength of recoveries will depend upon ability to further contain the pandemic and being able to re-open domestic economies and rollout vaccines.
  • Higher debt, estimated to rise by an average of 15% of GDP this year, will be a key legacy of the pandemic. GDP growth and the withdrawal of support measures means they forecast fiscal consolidation for most countries. But fiscal rules are mostly suspended and consolidation faces challenges from continued spending pressures and uncertain appetite for public finance reforms.
  • Higher unemployment and greater inequality and poverty stemming from the pandemic could hamper policy adjustments by increasing social and political tensions. Upcoming elections may shift focus to the next administrations' priorities. Meaningful discussion of revenue-enhancing reforms in Chile, Mexico and Peru is unlikely before next year's elections, for example.
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