Fitch rates Paraguay BB-

Fitch Ratings said it initiated the sovereign coverage of the Republic of Paraguay and has assigned long-term foreign- and local-currency issuer default ratings of BB-.

The outlook is stable.

Fitch also said it assigned a short-term foreign-currency rating of B and a country ceiling of BB.

The agency said the ratings balance the strength of the sovereign's fiscal and external balance sheets, low financing risks and prudent macroeconomic policies against high commodity dependence, volatile macroeconomic performance, a low government revenue base and structural constraints, such as low income per capita and comparatively weak institutional framework.

The economy is estimated to have contracted in 2012 by 1.2% due to the severe drought, sanitary bans on beef exports and weaker economic activity among the main trade partners, Fitch said.

Global economic uncertainty and the economic sluggishness in Brazil and Argentina pose additional downside risks to the agency's economic projections for Paraguay, the agency added.

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