NEW YORK, USA (CMC) — International ratings agency Fitch says the Dominican Republic Government’s transaction to redeem debt with Venezuela’s State-owned company (PDVSA) will have a positive impact on the country’s debt and budget finances.

On Wednesday, Fitch Ratings said the deal reduces the country’s public debt burden, lowers its interest costs and extends its average maturity.

“This is the first transaction under the new public debt law approved by congress last November, which grants the fiscal authorities greater flexibility to tap international bond markets and conduct liability management operations,” Fitch Ratings said.

It said the Dominican Republic used US$1.9 billion of the proceeds of its US$2.5 billion global bond issuance on January 20 to redeem US$4 billion in outstanding debt accumulated with PDVSA under the PetroCaribe agreement from 2005-2014.

According to the ratings agency, the transaction had a principal haircut of 52 per cent and a discount rate of 9.5 per cent, which reduced it by US$550 million in net present value.

It said the significant discount led to a decrease of 3.3 per cent of Gross Domestic Product (GDP) in public debt and reduced annual debt-servicing costs by US$100 million.

Despite these benefits, Fitch expects the Government’s debt to approach 37 per cent of GDP and interest burdens to reach three per cent of GDP by 2016 “as increased external borrowing to fund investments in the electricity sector and mandatory interest payments to recapitalise the central bank develop”.

Fitch said the Dominican Republic’s capacity to access international capital markets at favourable terms facilitated the transaction.

Fitch upgraded Dominican Republic’s ratings to “B+” in November 2014.