Fitch Upgrades Uruguay

Fitch has upgraded Uruguay’s foreign currency sovereign issuer default rating to BB minus (stable) minus from B+. “The rating upgrade reflects Uruguay’s lower financing needs and its improving public debt dynamics as a result of higher economic growth, conservative fiscal policies, and deft liability management,” says Fitch. “The reduced financing needs of the Uruguayan government due to the full repayment of its IMF obligations and stretching of external bond maturities through liability management transactions make the country more resilient to external shocks,” says Shelly Shetty, senior director in Fitch’s sovereign group. Fitch estimates that the general government’s financing needs for 2007 have declined to 5.4% of GDP, compared to last year’s estimate of 10.6%. It also sees robust FDI flows, which are expected to reach 5.1% of GDP in 2007. Negatives in the Uruguay story include weaknesses in external solvency and liquidity indicators, as well as the level and composition of public debt. In 2006, public sector debt equaled 72% of GDP and net external debt reached 112% of broad external receipts, both above the BB median. “Improvements in currency composition of public debt as well as faster reduction in public and external indebtedness would be positive for Uruguay’s credit profile,” says Fitch.