Citing a deterioration on Peru’s macroeconomics metrics and political volatility, Fitch Ratings downgraded the nation’s sovereign debt to “BBB” from “BBB+”, adding a growing trend of concerns about the outlook for the South American nation.

“The downgrade via the removal of the former positive notch for macro and fiscal policy credibility reflects the steady erosion over time of Peru’s sovereign balance sheet and other key rating metrics,” the credit rating company said in a public statement.

“The government debt ratio is materially higher than in 2013 when we upgraded Peru to ‘BBB+’ and liquid fiscal buffers have been depleted, eroding the strength of Peru’s government balance sheet relative to peers. Trend economic growth has been in decline over this period and Fitch believes that Peru’s medium-term investment and economic outlook has weakened as a result of political volatility in recent years,” according to the statement.

The new “BBB” rating reflects still-moderate public indebtedness relative to peers, the product of a long-standing record of prudent fiscal policy with a fiscal rule and a debt anchor, Fitch said.

The rating company believes that the macro-policy framework is in line with ‘BBB’ peers, given the steady deterioration of Peru’s growth prospects and fiscal metrics since 2013. “Peru’s income per capita, social and governance indicators are below the current ‘BBB’ medians. High commodity export dependence and a low government revenue base are additional rating constraints,” the company added.

Fitch Ratings projects Peru’s economy will rebound by 11.9% in this year, faster than the 9% previously expected and following an 11% contraction in 2020. “However, Fitch expects economic growth to decelerate next year due to the political climate and industry-level policy uncertainties, stimulus withdrawal and a lower base effect. Labor market softness persists, with 9.5% unemployment, diminished real wages and increased informality,” the company said.

Peru’s government deficit will fall to 4.1% of gross domestic product this year, according to Fitch Ratings, below the 5.9% forecast in December, amid higher copper prices and production and strengthening economic activity, and to 3.4% of GDP in 2022 as pandemic spending phases out.