What Moody’s Told Peru About Its Baa1 Rating and the Next Government
Peru has not recovered the “A” credit rating it lost after years of institutional weakening. Moody’s downgraded the sovereign from A3 to Baa1 in 2021, and the rating has remained there since. At the Moody’s Inside LatAm 2026 event, Renzo Merino, vice president of the agency’s Sovereign Risk Group, said the new government is taking over a “robust” fiscal position that creates room to focus on structural measures.
Merino said the central question for Peru is how to move beyond diagnosis and implement solutions to structural problems. He described the political context as a significant challenge, noting that the deterioration in the balance of powers in recent years cost Peru one rating notch and remains a structural weakness rather than a temporary setback.
Despite the heavy public spending expected from the El Niño weather phenomenon, Moody’s expects Peru to maintain a relatively solid fiscal position alongside economic growth. Merino added that the agency’s next growth estimate for Peru is close to 3.5%, and he described the resilience of domestic demand as a “surprise”, with consumption holding up and private investment confidence improving after a long period of weakness.
Moody’s is scheduled to review Peru’s credit rating in September 2026, following its last outlook adjustment in September 2024. Merino said many risks have fallen since then, including earlier intentions to change the economic model, but the agency is still watching fiscal-rule adjustments linked to El Niño spending, as well as measures involving Petroperú and the Municipality of Metropolitan Lima.
Why Peru’s Fiscal Strength Alone Won’t Win Back an ‘A’ Rating
Why the Baa1 rating has been sticky since 2021
Moody’s view is that Peru’s rating problem is not primarily fiscal. The one-notch downgrade to Baa1 was driven by institutional deterioration since 2016, including the weakening balance of powers. Merino pointed to legislative and executive institutions, the judiciary, civil society and corruption as areas that need improvement, and said Peru lags peers in respect for the law. His argument links high insecurity to non-compliance with laws and rising illegality, which then contaminates the political sphere.
What a “robust” fiscal inheritance can and cannot do
The incoming government has fiscal room that many regional peers would welcome, and Moody’s expects that position to remain relatively solid despite El Niño spending. But Merino was explicit that this is “not sufficient” on its own. The agency’s logic is that fiscal discipline is already a demonstrated strength; the binding constraint is institutional quality. That is why possible fiscal-rule adjustments are not the main concern, while the government’s handling of Petroperú and Lima’s municipal finances remains on the watchlist.
The September 2026 review will test reform follow-through, not just growth
A near-3.5% growth estimate, resilient consumption and an improvement in private investment confidence all help Peru’s economic story. Moody’s has also noted that risks have fallen since the September 2024 outlook adjustment, including earlier proposals to change the economic model. The decisive variable for the next review, however, will be evidence that the government can implement structural institutional changes in a difficult political context. Without that, the rating is likely to remain stable even if fiscal and growth data stay solid.
What Peru’s September 2026 Review Means for Policymakers and Investors
For Peruvian policymakers: Moody’s has made the upgrade prerequisite explicit: judicial reform, anti-corruption enforcement, stronger legislative-executive institutions and improvements in rule of law. These are the structural measures Merino says the new government now has fiscal room to pursue.
- Before September 2026: Focus on visible institutional changes, not just fiscal performance; Moody’s has said robust fiscal metrics alone will not improve the credit profile.
- On El Niño spending: Moody’s is not treating higher spending as a major threat to the fiscal trajectory because Peru has shown it can correct course, but Petroperú and Metropolitan Lima’s municipal finances remain specific watchlist items.
- For investors in Peruvian assets: The agency’s near-3.5% growth estimate and improved private investment confidence are positive, but a rating or outlook upgrade will require evidence that political and institutional risks have fallen further.
Risk & Opportunity Assessment
| Commercial Risk | Medium | Moody’s links insecurity to increased illegality and non-compliance with laws, which can raise operating and investment risks for businesses even as growth nears 3.5%. |
| Competitive Risk | Medium | Peru lags regional peers on respect for the rule of law, a credit weakness Moody’s identifies as making the sovereign less attractive relative to better-institutionalized investment-grade countries. |
| Regulatory Risk | Medium | A possible adjustment of fiscal rules to fund the El Niño response is on the agenda, and Moody’s is watching Petroperú and Lima municipal finances, though it says Peru has shown it can correct fiscal slippage. |
| Reputation Risk | High | Institutional weakening since 2016 has already cost Peru one rating notch and left it at Baa1; corruption, judicial weakness and political balance-of-power concerns are the main reputational drags. |
| Technology Disruption | Low | The article identifies no technology-related driver of the rating review; the constraints are institutional, political and fiscal. |
| Commercial Opportunity | Medium | A credible structural reform push could improve the credit profile and unlock further private investment confidence, which Moody’s says has already improved. |
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