Reuters logo
Fitch: Southern Cone Welfare States Face Leaner Times
March 23, 2017 / 4:49 PM / 9 months ago

Fitch: Southern Cone Welfare States Face Leaner Times

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Southern Cone Welfare States Face Leaner Times here NEW YORK, March 23 (Fitch) Credit ratings in the Southern Cone will hinge upon how successful policymakers are in managing fiscal consolidation goals amid high pressure on social welfare budgets, says Fitch Ratings in a new special report. Sovereign ratings in the region are widely spread between speculative- and investment-grade, but rising public debt burdens are a commonality of all, representing key drivers behind the Negative Outlooks for Brazil ('BB') and Chile ('A+'). Fitch currently has Stable Outlooks for Argentina ('B') and Uruguay ('BBB-') but has acknowledged their high deficits and rising debt as credit constraints. Paraguay ('BB'/Stable) is better positioned, with a low and moderately rising debt burden. High growth rates and commodity prices in the decade through 2014 provided a favourable context for the Southern Cone countries to deepen their welfare states, via reforms that increased spending on education, pensions and healthcare. However, these reforms were not fully funded by revenue measures in most cases. As a result, current high deficits in these countries mostly reflect structural spending pressures rather than a revenue shock, in contrast to other commodity-exporting regions. A recovery in growth to a less favourable "new normal" will present a fiscal challenge everywhere, but Southern Cone sovereigns will face several further challenges, in particular: 1) high tax burdens and/or tax competitiveness concerns; 2) rigid indexation schemes in some cases; 3) already slim capital spending buffers; 4) shifting demographics; and 5) political pledges and social demands, especially as electoral cycles ramp up. Most countries have already initiated fiscal consolidation plans, but differ in terms of the strategy they are taking (ie revenue versus spending measures) and where they are at in the process. In most cases, Fitch believes that concrete consolidation measures beyond those already announced will be needed to achieve debt stabilisation, especially in the context of a more subdued growth outlook. While Chile is the only country to consistently pre-fund social reforms with revenue measures, a structural fall in copper revenues has widened the deficit nonetheless. It will be up to the next administration after elections in November 2017 to decide how consolidation will be achieved. Uruguay enacted tax increases in 2016 after years of structural fiscal slippage, but meaningful deficit reduction will likely require additional measures given pre-existing budget pressures from past reforms and indexation, as well as continuing pledges for new social spending hikes. Policymakers in Brazil and Argentina are focused on spending cuts to achieve fiscal consolidation, as already high tax burdens are cited as key competitiveness constraints in both countries. Only Brazil is putting its social programmes at the centre of its consolidation strategy through a pension reform bill currently in the Congress, but public debt dynamics face continued risk. Argentina has introduced major cuts to energy subsidies, but has also lifted pensions. Its medium-term strategy for meaningful deficit reduction could become clearer after late 2017 midterm congressional elections. Paraguay is the exception in the region, with its lower deficit and small welfare state, but it faces the challenge of containing salary pressures so that social and investment outlays do not bear the brunt of fiscal prudence. The recent veto by the executive of the proposed 2017 budget in response to Congress's inclusion of sizeable salary hikes highlights institutional challenges for implementing policies to reduce social and infrastructure gaps. The full special report, "Southern Cone Welfare States Face Leaner Times", provides more detailed analysis and is available at Contact: Todd Martinez Director +1 212 908 0897 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Shelly Shetty Senior Director +1 212 908 0324 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below