Outperforming Honduras Cut to Congo by Moody’s on Deficit

Honduras’s credit rating was cut by Moody’s Investors Service after the Central American nation’s deficit surged last year and the government boosted sales of short-term domestic debt.

Moody’s lowered Honduras’s credit rating to B3 from B2 today, putting the $18.4 billion economy in the same category as the Democratic Republic of Congo and Argentina. The move comes about one month after President Juan Orlando Hernandez took office vowing to tackle the deficit and as his finance minister seeks an accord with the International Monetary Fund. Hernandez’s efforts have helped make the country’s dollar bonds the best performing in emerging markets this year after Belize, according to JPMorgan Chase & Co.’s EMBIG index.

“Despite the government’s original plans to consolidate public finances in 2013, the fiscal deficit widened to 7.7% of GDP in 2013 from 5.9% in 2012,” Moody’s said in a statement. “Since 2009, the government has issued significantly more debt in the domestic market, and this debt has an average maturity of just 2.6 years.”

Honduras’s dollar bonds have returned 9 percent this year, below the 9.1 percent of Belize and compared to 1.4 percent for emerging markets, according to JPMorgan. Hernandez, who took office last month, is benefiting from a fiscal package passed in December that is meant to help narrow the budget deficit, said Franco Uccelli, a Latin America and Caribbean analyst at JPMorgan in Miami.

‘Still Concern’

“If you look at the fundamentals there’s still concern over this credit,” Uccelli said in a Feb. 26 interview from Miami. “The debt burden has doubled over the past five years or so, the fiscal deficit has gotten a bit out of hand, but at least there’s some hope that they’ll tackle the issue.”

Honduras, Central America’s biggest producer of Arabica coffee, is seeking to sign an accord with the IMF by the end of June after an earlier accord expired in 2012, Finance Minister Wilfredo Cerrato told newspaper El Heraldo this month. Last month, Congress passed laws permitting private sector investment in the two largest state-owned enterprises, the telecommunications company Hondutel and the electricity company ENEE.

“We’ve been bullish on Honduras since the election results and it’s been our top pick for the past several months”, Stuart Culverhouse, an analyst at brokerage Exotix in London, said on a Feb. 26 interview. “The new guy is seen as credible and strong.”

To contact the reporter on this story: Isabella Cota in San Jose, Costa Rica at icota@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net; Brendan Walsh at bwalsh8@bloomberg.net

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