Peru’s Investment-Grade Credit Rating at Risk from Strong El Nino, Credicorp Warns
Peru · Economy
Key Facts
—S&P Downgrade S&P Global Ratings cut Peru’s sovereign rating to BBB- in April 2024, the lowest level still considered investment grade, increasing investor sensitivity to new economic shocks.
—Climate Risk to Rating Credicorp Capital analyst Jonathan Gutiérrez warned that a severe El Niño could hurt Peru’s sovereign credit quality if it causes prolonged pressure on inflation, the fiscal deficit, and public debt.
—Historical Impact Historical strong El Niño events in Peru were associated with 70 percent lower fisheries production, 11 percent lower agricultural output, and a primary fiscal balance deterioration of about 2 percent of GDP, according to the IMF.
—Debt Threshold The risk to Peru’s rating rises if the fiscal deficit stays elevated for several years and public debt remains sustainably above 30 percent of GDP or grows faster than the economy, Gutiérrez cautioned.
—Credicorp Link Peru’s sovereign rating directly influences Credicorp’s credit fundamentals, and a downgrade of the country could trigger a similar rating action on the financial holding company.
A strong El Niño climate pattern could threaten Peru’s investment-grade credit rating by creating prolonged pressure on public finances, according to an analysis from Credicorp Capital.
Rating Already at the Lowest Investment-Grade Level
Peru’s sovereign credit rating was cut by S&P Global Ratings from BBB to BBB- on April 26, 2024. That left the Andean nation at the lowest level still considered investment grade, narrowly avoiding a move into speculative territory.
Other major agencies kept higher assessments at the time. Moody’s affirmed Peru’s Baa1 rating in September 2024, and Fitch affirmed its BBB rating with a stable outlook in November 2024, according to Credicorp’s 2024 annual report.
How a Severe El Niño Could Worsen the Fiscal Picture
Credicorp Capital analyst Jonathan Gutiérrez said a severe El Niño could affect Peru’s sovereign credit quality if it generates prolonged pressure on inflation, the fiscal deficit, and public debt. He added that the risk would rise specifically if the fiscal deficit stayed elevated for several years and if public debt remained sustainably above 30 percent of GDP or grew faster than the economy.
The IMF has documented the fiscal cost of past events in detail. In its Peru Article IV report, the fund estimated that historical strong to very strong El Niño Costero events were associated, on average, with a deterioration of the primary fiscal balance of about 2 percent of GDP within a year of onset, alongside a 70 percent drop in fisheries production and an 11 percent contraction in agricultural output.
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Credicorp Ltd., together with its subsidiaries, provides various banking services and products in Peru, Bermuda, Colombia, Bolivia, Panama, Chile, the United States, the Cayman Islands, and Mexico. It operates through Universal Banking; Insurance, Medical Services, and Pensions; Microfinance; and Investment Management and Advisory segments. The company…
Net income rose to S/6.9 bn in 2025, from S/4.9 bn in 2023.
The Direct Link to Peru’s Largest Financial Group
Peru’s sovereign rating has a direct pipeline to corporate borrowing costs. Credicorp’s rating note states clearly that the country’s sovereign rating directly influences Credicorp’s credit fundamentals, and that a downgrade of Peru could trigger a similar action on the holding company.
Domestic financial entities have so far kept credit and operating losses moderate during El Niño conditions, Credicorp noted. However, a deeper, more sustained fiscal shock would test that resilience and potentially raise financing costs across the banking sector.
Deficit and Debt Already Under Pressure
Peru’s fiscal position was already strained before factoring in new climate shocks. The country’s fiscal deficit reached 2.8 percent of GDP in 2023, above the government’s fiscal rule target of 2.4 percent of GDP, the IMF reported.
Looking forward, the IMF’s 2026 Article IV mission statement projected that under current policies the fiscal deficit would reach 2 percent of GDP in 2026, with public debt stabilizing around 32 percent of GDP. That level sits just above the 30 percent threshold flagged by Credicorp Capital as a sensitivity point for the sovereign rating.
Why This Matters for Investors and Residents
For foreign investors holding Peruvian sovereign or corporate bonds, a loss of investment-grade status would force some institutional funds to sell, potentially raising the government’s borrowing costs and weakening the sol. For residents, higher public debt-service costs can crowd out spending on infrastructure and social programs.
The analysis underscores that climate patterns are no longer just an environmental concern but a material factor in sovereign credit assessments. With Peru already perched at the lowest rung of investment grade, one severe El Niño season could become the catalyst that tips the rating into non-investment grade territory, changing the country’s access to global capital markets.
Moderate Losses So Far, But Caution Ahead
Credicorp acknowledged that domestic financial entities have kept credit and operating losses moderate during past El Niño episodes. The IMF similarly described the inflation impact of strong El Niño Costero events as typically temporary, affecting food and overall prices.
Still, the fiscal channel remains the core worry. A temporary inflation spike is manageable, but a multi-year stretch of elevated deficits and rising debt ratios would directly hit the metrics that rating agencies watch most closely when deciding whether to strip away Peru’s remaining investment-grade status.
Frequently Asked Questions
What is Peru’s current sovereign credit rating?
S&P Global Ratings downgraded Peru to BBB- in April 2024, the lowest level still considered investment grade. Moody’s affirmed a Baa1 rating in September 2024, and Fitch affirmed a BBB rating with a stable outlook in November 2024.
How could a strong El Niño cause a credit rating downgrade?
A severe El Niño could put prolonged pressure on inflation, the fiscal deficit, and public debt by slashing agricultural and fisheries output. If the fiscal deficit remains elevated for several years and public debt stays above 30 percent of GDP, Peru’s credit quality would deteriorate, potentially triggering a downgrade.
Why does Peru’s sovereign rating matter for Credicorp?
Credicorp’s rating note explicitly states that Peru’s sovereign rating directly influences its own credit fundamentals. A downgrade of the country could trigger a similar action on Credicorp, affecting its financing costs and investor perception.
Sources: Credicorp Analyst Warns El Niño Puts Peru’s Investment Grade at Risk, IMF Peru Selected Issues Paper on El Niño Impacts, IMF Peru 2024 Article IV Report, IMF Peru 2026 Article IV Mission Concluding Statement, Credicorp Annual and Sustainability Report 2024
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