New York, December 02, 2021 -- Moody's Investors Service ("Moody's") has assigned Baa2 ratings to the
senior unsecured yen-denominated bonds issued by the Government
of Uruguay. The bonds have maturities ranging from 3-15
years.
According to the terms and conditions available to Moody's, the
notes to be issued by the government will constitute direct, unconditional
and unsecured obligations of the Government of Uruguay (the issuer),
and will rank pari passu among themselves and equally with all other unsecured
and unsubordinated obligations of the government.
The proceeds of the bonds to be issued are intended to finance the budget
deficit and for general purposes of the Government of Uruguay, including
to partially fund its coronavirus-related relief and recovery efforts.
The ratings mirror the Government of Uruguay's long-term issuer
rating of Baa2 with a stable outlook.
RATINGS RATIONALE
Uruguay's Baa2 rating is supported by a strong institutional framework
and moderate credibility and effectiveness of policymaking. The
credit profile is also supported by the government's ample financial
buffers, as well as a favorable debt maturity profile and moderate
government financing needs. Credit challenges include the economy's
modest medium-term growth prospects, structural rigidities
in the composition of government spending and a still-high share
of foreign currency-denominated public debt.
Moody's considers that in the context of the pandemic, the government's
policy response has allowed it to provide support to the affected population
and economy amid challenging health and economic conditions while also
limiting the worsening of debt metrics. The government established
a "coronavirus fund" to encapsulate pandemic-related social programs
that amounted to 1.1% of GDP in 2020 and will amount to
1.7% of GDP in 2021. This strategy will allow the
authorities to phase out the additional spending once the health emergency
subsides.
Moody's expects that the Uruguayan economy will recover gradually in 2021-23,
with average growth of 3%, after contracting 5.9%
in 2020. Although Uruguay experienced its first wave of the pandemic
in 2021, Moody's considers that the strong progress of the government's
vaccination program will support the economic recovery this year.
Even during the pandemic, the government made progress in passing
legislation and advancing other measures that support its structural reform
agenda. Many of these initiatives were included in the "Urgent
Law" bill that was passed in mid-2020. Moody's considers
that as these measures are implemented over the coming years, they
will bolster fiscal and monetary policy effectiveness and credibility.
The stable outlook reflects a balance between the structural economic
and fiscal challenges that Uruguay faced prior to the pandemic with Moody's
expectation that as the government implements its reform agenda and policies,
it will effectively address these issues. In the years preceding
the pandemic, Uruguay's economic performance lagged that of rating
peers in part because of declining levels of investment and a significant
loss of jobs. While the construction of the country's third largest
pulp mill plant by Finnish company UPM-Kymmene will change the
trend in terms of investment, Moody's expects that additional measures
undertaken by the government to incentivize private investment and employment
will support a broader recovery.
On the fiscal front, although government spending has a relatively
rigid structure, the authorities identified savings and efficiency
gains last year and Moody's expects that the government will remain compliant
with the spending limits set by the new fiscal rule. Over the long
term, a pension reform will also help address some of these issues.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental risks is a neutral-to-low consideration for
Uruguay's credit profile. The country's large coastline is
not susceptible to major flooding, and extreme weather events are
rare in the region. The main risk is disruptive weather effects
like excessive rains or droughts, which would affect the agricultural
sector.
Social risks is a neutral-to-low consideration for Uruguay's
credit profile. The country's aging population, coupled with
the population's predilection for social expenditure, will weigh
on public finances in the coming years. A deterioration in the
labor market, for the younger population, also poses social
risks. However, an adequate provision of social services
and a mature political system that develops policy on a consensus-basis
help mitigate social risks.
Governance considerations are relevant for Uruguay. The country
has a long history of sustainable macroeconomic policies, strong
institutions and a broad societal consensus on retaining the country's
institutional arrangements.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward credit pressure could result from (1) continued progress on the
government's reform agenda, in particular vis-à-vis
compliance with the new fiscal rule and monetary policy framework that
result in improving macroeconomic outcomes; (2) a material strengthening
in the government's balance sheet, for example, through a
reduction in the sovereign's debt and interest burdens and continued improvements
in the debt structure; and, (3) a reduction in structural rigidities
of Uruguay's credit profile such as those associated with low and declining
productivity, which affects potential growth, as well as the
relatively rigid government spending structure.
Downward credit pressure would emerge if Moody's were to conclude that
structural fiscal and economic challenges were unlikely to be addressed,
denoting a weakening in policy responsiveness, and likely leading
to economic growth underperforming and fiscal strength deteriorating further
in the medium term, with a continued increase in debt ratios and/or
a sustained, material erosion in external and financial buffers.
This credit rating and any associated review or outlook has been assigned
on an anticipated/subsequent basis. Please see the most recent
credit rating announcement posted on the issuer's page on www.moodys.com,
under the research tab, for related economic statistics included
in rating announcements published after June 3, 2013.
This credit rating and any associated review or outlook has been assigned
on an anticipated/subsequent basis. Please see the most recent
credit rating announcement posted on the issuer's page on www.moodys.com,
under the research tab, for related summary rating committee minutes
included in rating announcements published after June 3, 2013.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
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.
Renzo Merino
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
