Fitch Affirms Nicaragua at ‘B- ‘; Outlook Revised to Negative

Wed 17 Jun, 2020 – 11:00 AM ET

Fitch Ratings – New York – 17 Jun 2020: Fitch Ratings has afrmed Nicaragua’s
ratings, including the Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘B-‘,
and revised the Outlook to Negative from Stable.
In accordance with Fitch’s policies, the issuer appealed and provided additional
information to Fitch that resulted in a rating action that is different than the original
rating committee outcome.

KEY RATING DRIVERS
The Negative Outlook reflects increased financing risks amid a revenue shock
caused by the coronavirus pandemic, rising spending pressures, and constraints
posed by a small local market and international sanctions. The government is likely
to draw on its deposits to finance the 2020 and 2021 deficits. Nicaragua’s crawling
peg limits its monetary financing options, and Fitch thinks sanctions will complicate
access to large-scale financing from the IMF and some other multilateral
institutions.

Local financing conditions for the government are showing signs of stress. Since
March 2020, the government has been unable to issue in local currency and sold
only bonds payable in USD, an instrument introduced in October 2019. So far in
2020, the government has sold 0.3% of GDP in local bonds, 72% of this amount has
been in USD with a weighted average interest of 10.6%. The general government has
local maturities worth 1.2% of GDP in 2020, and Fitch assumes these local currency
maturities will be rolled over in USD. Local banks may be reluctant to increase their
exposure to the sovereign given heightened political risk and weak growth
prospects

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