Central America’s Biggest Economy Sees Rating Cut on Slow Growth

Guatemala’s credit rating was cut one level as Central America’s biggest economy struggles to broaden its tax base and boost growth, Fitch Ratings said.

Fitch cut Guatemala’s long-term foreign- and local-currency rating to BB from BB+ today, putting the country of 14 million people two levels below investment grade and in the same category as Nigeria and Tunisia.

“Guatemala has not been able to make sufficient progress to materially enhance its growth prospects, widen its revenue base and improve its fiscal flexibility,” Fitch said in a statement. The country’s five-year average growth of 2.8 percent lags behind the BB median of 3.7 percent in 2013, according to Fitch.

President Otto Perez Molina vowed to improve tax collection and cut spending after taking office two years ago, moves Fitch said have been muted because of deductions and administrative hurdles. Economic activity rose 4.5 percent in April from a year earlier while the nation’s trade deficit narrowed to $568 million from $721 million a year earlier.

The country has benefited from a recovery in the U.S. and may see a boost from a $7.6 billion pipeline of public-private infrastructure projects through 2019, Fitch said.

The country’s bonds have returned 9.5 percent so far this year, more than the 8.5 percent average for emerging markets, according to JPMorgan Chase & Co.’s EMBIG index. The yield on Guatemala’s dollar bonds due in 2022 fell one basis point to 4.54 percent at 10:13 a.m. New York time.

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