The risk rating agency Moody’s maintains Colombia’s credit rating at Baa2, but with a negative outlookthis is due to the challenging macroeconomic conditions that the country faces and that would impact fiscal consolidation, the growth trend and the cost of debt.
This is in addition to the ratings from S&P Global Ratings and Fitch Ratings, which in recent months also changed their outlook from stable to negative, due to lower-than-expected economic growth.
But how does it affect the country and why is this rating and the new perspective that Colombia has for the risk rating agency so important? We tell you.
(More: Moody’s lowered the outlook on Colombia to ‘negative’ in its most recent rating).
The three rating agencies that are in charge of monitoring Colombia’s economic progress
In addition to Moody’s, there are two other rating agencies in charge of monitoring Colombia’s economic progress: Fitch Ratings and Standard & Poor’s, which establish a grade (taking into account factors such as inflation, GDP, debt, among others) with which investors can measure the degree of risk and thus begin to analyze whether or not it is convenient to invest.
Since the implementation of this rating model, risk rating agencies have played an important role in the transparency of information, which has led to the arrival of more investors, confident in the good practices that Colombia is carrying out in economic matters.
(Read: Prosecutor’s Office investigates Dian officials for alleged low tax collection).
Soif the country’s credit rating drops and the investment grade is lost, the national economy could be in dangerThis is because the conditions would be more adverse and, therefore, the probability of non-compliance with obligations increases.
To understand how credit scores are read, it is important to keep in mind that they have two parts: the grade and an outlook. As for the grade, this is the country’s rating, and the outlook is about the changes that this rating could have in the future, which is generally 12 months.
(See:
Portfolio File.
Although each rating agency has different scales, the usual thing is that A is the highest, B is good and satisfactory and C and E do not qualify for investment.
Therefore, a BBB means that it is above a BBB- or a BB+, but below a BBB+ or AA+.
For a rating to change, situations such as a country’s current account deficit, macro aspects, international conditions, tax reforms, etc. interfere. among other topics.
What does the negative outlook on Colombia’s credit rating mean?
According to information from the Bank of the Republic, “the negative outlook from Moody’s
indicates that this could revise the rating downwards in the medium term“, which represents a possible drop in the rating awarded in the future.
(More: These are the national taxes that will expire in July 2024).
In this way, with the new perspective, the country could move away from the return it had already taken towards investment grade.
Despite the change in perspective, Moody’s highlighted the ability that the National Government has demonstrated to make spending cuts in order to comply with the fiscal rule and keep debt levels under control, in line with its peers.
In this regard, Ricardo Bonilla, Minister of Finance, said that “The risk rating agency has placed a vote of confidence in the country, highlighting the decisive decisions to cut spending in order to maintain fiscal and macroeconomic sustainability that President Petro’s government has taken.“.
BRIEFCASE
Add Comment