Moody’s highlights the strength of the economy in the face of the new government

Within the framework of the “Inside LatAm Colombia 2022” event, the risk rating agency Moodys presented an analysis of the current situation in Colombia vis-à-vis the region, and of the challenges that the incoming government will face.

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Renzo Merino, Moody’s senior analyst for Colombia’s sovereign risk, highlighted how the country has maintained its Baa2 rating since 2021, which places it above investment grade, despite the social tensions experienced last year.

“Taking into account what the pandemic shock implied in 2020, our analysis led us to conclude that the credit profile continued to be aligned between Baa1 and Baa3. We believe that Colombia’s credit profile was aligned with economic resilience in the context of post-pandemic recovery. What is observed is that Colombia, among the Baa, is one of those that has grown the most, that shows us the recovery capacity of the Colombian economy”, assured the economist.

Merino also referred to the challenges of the new president, Gustavo Petro, and said that it will be necessary to “find a balance between different factors.” First of all, he emphasized that growth will be very important, not only in terms of sovereign rating, but also to help the country’s fiscal and debt sustainability.

“For this, the investment will play an important growth level to maintain a growth level close to 3.5% and 4% in the medium term”, and mentioned that the incoming government will have to work on confidence for investors.

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A second point is the fiscal reform that Colombia requires. In relation to the tax reform, Merino acknowledged that there are several possible scenarios: “The neutral scenario is the one most associated with the stable perspective, we believe that a reform would help maintain social spending, and could lead to continue recovering the greatest advances in terms of to the fiscal deficit, in line with the fiscal rule”.

Merino said that Colombia shows an economy that “will clearly do better than the average for the region”, but that it will face challenges, such as responding to current challenges, but he said that medium-term challenges will also be taken into account, “ and that the proposals find a balance between economic growth, fiscal consolidation, and social issues.”

“The key is to reach consensus, talk to all possible agents before something is presented, to build trust. Proposals during the campaign are one thing, policy proposals are another, and what really happens is another. You have to take into account the counterweights in Congress,” Merino pointed out.

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