The advance withdrawal of funds from the various affiliates of the AFPapproved by the Executive Branch and the Congress of the Republic during the COVID-19 pandemic, influenced the downgrading of Peru’s long-term foreign currency debt by Standard & Poor’s Global Ratings (S&P), from ‘BBB+’ to ‘BBB’, the second lowest investment grade rating.
“Partly as a side effect of pandemic-related pension withdrawals, increased reliance on external financing in 2020 and 2021 caused changes in the composition of Peru’s debt, leading to a currently more vulnerable debt profile.”, reads the S&P Global Rating statement.
In this regard, the former Minister of Economy, David Tuesta, explained that in addition to the political crisis, in the rating agency’s decision, which affects all Peruvians, the fact that withdrawals of AFP funds are allowed weighed heavily.
SIGHT: Anahí Durand on Francisco Sagasti’s proposal to advance elections: “I wouldn’t change anything”
“Between 2020 and 2021, Parliament and the Executive approved five withdrawals of funds from AFP affiliates for S/ 65,923 million, equivalent to 8.1 of the Gross Domestic Product (GDP). This has caused that great savings to be spent, so now lending money to Peru is perceived as more risky”, detailed.
In that sense, Tuesta mentioned that this measure will affect all Peruvians because “credits are getting more expensive”. He added that if Congress remains stubborn about approving more withdrawals, “A very complicated economic scenario awaits us”.
With this latest decision by S&P Global Rating, the three major rating agencies have lowered their credit rating for our country in the last six months.
In September of last year, Moody’s made the decision to do so, which meant the first credit rating downgrade for Peru in 20 years.
Shortly after, in October 2021, Ficht Ratings followed suit by downgrading Peru’s foreign currency debt rating due to the gradual erosion of fiscal strength, political tensions, and lower growth expectations for the economy.
