Standard & Poor’s Ratings Services has assigned its ‘BB-‘ as a long-term foreign-currency senior unsecured debt rating to the projected US$600-million 10-year bond due January 2013. This is three notches into speculative territory.
“The stable outlook balances the country’s relatively high-growth and debt-to-GDP ratio with its low external liquidity and relatively weak government institutions,” said sovereign analyst Richard Francis. “However, the recent passage of the Monetary and Financial Code, which strengthens banks? supervision and regulation and gives more independence to the Central Bank, underpins the ratings and signals the government?s efforts to improve its institutions,? he added.
Francis noted that the ratings are constrained by a low level of
international reserves, making the country vulnerable to external shocks. “Even after the planned issuance, its reserve position will remain weak,” Francis said. “The limited amount of reserves is especially problematic because the Central Bank intervenes in the foreign exchange market to prevent volatility that could cause higher inflation, as it did in 2002,” he concluded.
Standard & Poor’s said that the government intends to use the proceeds of the bonds to cover debt service and boost its international reserves.
