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Related Issuers
Rating Action:

Moody's affirms Nicaragua's rating at B3 with a stable outlook

Global Credit Research - 18 Apr 2013

New York, April 18, 2013 -- Moody's Investors Service today affirmed Nicaragua's B3 local and foreign currency government bond ratings, and maintained the stable outlook. The rating affirmation reflects Moody's view that the country continues to face significant external vulnerabilities, including a large structural current account deficit and reliance upon Venezuela for external financing. Moody's will publish its updated annual credit analysis on Nicaragua in the coming weeks.

RATINGS RATIONALE

Nicaragua's economy is very small at $10.5 billion, it remains one of the poorest countries in the region, and is among the poorest within Moody's rating universe. Per capita GDP (PPP basis) in 2012 was $3,800, compared with a 'B' median of $4,800. Real GDP growth has averaged 4.7% over the past three years, above the 4% potential growth rate estimated by the IMF, and higher than regional peers Guatemala (Ba1), Honduras (B2), and El Salvador (Ba3).

Nicaragua ranks low according to the World Bank's governance indicators, which are used by Moody's as proxies for policy consensus and predictability. Corruption allegations during electoral processes have been frequent and are one of the reasons for which there has been a reduction in financing from international donors. Despite poor scores on international surveys and election inconsistencies, there are positive aspects to highlight in the realm of institutional strength during the current Ortega administration. Among these are an ongoing relationship with the IMF, as well as a strategic alliance between the government and the private sector which has helped the authorities pass two fiscal reforms and attract more foreign investment into the country.

Nicaragua has benefited from a cumulative amount of nearly $7 billion in debt forgiveness from bilateral, multilateral, and commercial creditors since 2000, helping bring government debt down to around 31% of GDP in 2012 from nearly 100% of GDP in 2000. At present, Nicaragua is still negotiating with some non-Paris Club bilateral creditors for pending debt relief under the HIPC initiative.

Debt affordability metrics are strong, with interest payments amounting to 4.5% of government revenues last year, given that the bulk of the debt is on concessional terms.

The general government typically posts small deficits, which become small surpluses after external grants are included. While traditional grant sources (mostly European countries) have declined, they have been replaced by a combination of grants from non-traditional sources (e.g., Russia) and concessional loans, mostly from Venezuela, which has become Nicaragua's single largest creditor.

Economic event risk is high owing to sizeable current account deficits, which have averaged 12% of GDP over the past three years. On average, net foreign direct investment has covered nearly two-thirds of the current account deficit over that time horizon. There is a risk that the current account deficit could widen further in 2013-14, owing to weaker coffee exports because of the outbreak of leaf rust disease -- coffee is Nicaragua's largest non-maquila export product.

In general, event risk is high, stemming in large part from the country's high dependence on Venezuela, as Nicaragua imports 90% of its oil and derivatives from Venezuela and the Petrocaribe program provides Nicaragua with concessional loans that help finance the current account deficit and support off-budget social programs and transfers. In the event that political changes in Venezuela lead to a reduction in this form of support, the government's capacity to maintain social spending could be significantly impaired, resulting in social unrest.

As part of this rating action, the local currency bond ceiling was lowered to B2 from Ba2 and the local currency deposit ceiling was lowered to B2 from Ba3. Nicaragua's foreign currency long-term bond and deposit ceilings remained unchanged at B2 and Caa1, respectively, while the foreign currency short-term bond and deposit ceilings remained unchanged at NP.

The principal methodology used in this rating was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sarah E Glendon
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Nicaragua's rating at B3 with a stable outlook
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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