Aug. 7 (Bloomberg) -- Honduras’s credit rating was lowered by Standard & Poor’s as the Central American country is saddled with a rising debt burden and a limited ability to fund deficit spending.
The credit rating was cut to B from B+ as the country’s ratio of debt-to-gross domestic product is forecast to rise to 27 percent this year from 21 percent last year, S&P said in a report today. The central government deficit remains near 6 percent of GDP, S&P said. The downgrade comes 14 months after S&P raised Honduras’s credit rating to B+, citing moderate fiscal deficits and greater political stability.
“The downgrade reflects the government’s diminished fiscal flexibility and rising debt burden, which increases Honduras’s vulnerability to external shocks or negative political developments,” S&P said. “Honduras’s shallow domestic capital markets limit the government’s ability to fund fiscal deficits.”
Honduras’s dollar bonds due in 2024 have lost 17 percent since being sold in March, compared with a 0.7 percent return for Central American and Caribbean debt, according to data compiled by Bloomberg and JPMorgan Chase & Co. The bonds yield 10.4 percent, up from 7.1 percent in March.
S&P said that Honduras’s outlook remains stable on the expectation that political uncertainty will diminish after the November presidential elections and that the new administration will take steps to halt the erosion of public finances. Credit ratings could be lowered further should political uncertainty persist after the elections, S&P said.
The new B rating, five levels below investment grade, puts Honduras in the same category as Ghana and Venezuela.
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