The Colombia’s credit reputation has not had a good year. This is evident after several of the most important risk rating agencies lower their perspective for the country in its most recent update.
In the case of Moody’s, this she kept in ‘Baa2’, however, her outlook is now negative. On the other hand, Fitch Rating, rated the country with a ‘BB+’ with a stable outlook for December of last year. Finally, S&P also assigned the country a ‘BB+’, but changing the stable to negative outlook.
(More: The Latin American cities with the highest cost of living in 2024).
“These ratings are the result of the management that the government has been carrying out at the level of macroeconomic indicators. Fortunately, with the strength that the institutions have shown, the country has maintained itself, but situations such as the lack of funding of the budget and the ability to comply with the fiscal rule have caused the rating agencies to view the country in this way.“, he explained to Portafolio Pablo Corredor, financial analyst for Terrazan.
EFE
As he explains, this is due to the “macroeconomic situation that the country is going through with low growth, a high cost of borrowing and therefore with a low collection rate adding a decrease in tax collection management”.
(Read: IMF lowers US growth forecast to 2.6% for this year).
He also mentions that with this rating, it will be very likely that the country will be further degraded in the short term, “which ultimately is a risk of loss of investment grade”.
Fabio Castro, CEO of Capital Investment Partnersgoes along the same lines: “The interpretation is clear, the rating agencies are observing an economic slowdown, minimal GDP growth and there is uncertainty in the legal security of investments, which implies a low level of investment and, therefore, the capacity for short-medium growth. long term”.
Fitch Ratings.
He added that this can be interpreted as a warning for the National Government “take measures that contribute to the growth and optimization of resources that come from debt”.
(More: ‘Real interest rate is two points away from the ideal’).
The same way, The rating agency reaffirmed that the country’s macroeconomic conditions have led it to expect a fiscal deficit above 5% of gross domestic product..
According to Castro, the short and medium term effects would occur if the country continues in an economic slowdown, as well as a “weak” GDP growth, which “forces the Government to take on a higher borrowing quota. In this scenario, it becomes a much higher interest burden on the debt.”.
On the other hand, Corredor says that among the effects that can be seen in the short, medium and long term can be the fall in investment, the increase in country risk and the devaluation of the Colombian peso in the foreign exchange market. Furthermore, he assures that the path to reversing this rating “It is a very long term task.”.
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