Colombia's approved peace deal strengthens fiscal reform chances

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Thursday, December 1, 2016

After Colombia's congress unanimously approved a revised peace agreement with the nation's main rebel group Farc late Wednesday, the chances that a key fiscal reform gets greenlighted by the legislative body have increased significantly.

The public referendum defeat of the initial peace deal in October was seen as weakening President Juan Manuel Santos' hand in negotiating the fiscal reform package, currently being debated in congress. Likewise, the congress' 130-0 vote in favor of the revised deal would seem to strengthen the prospects of the reform being passed before the end of the year.

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The fiscal reform, according to the OECD Global Economic Outlook report, is crucial to raise fiscal revenues, boost economic growth and deal with social challenges.

"The economic slowdown and the fall in oil prices have cut revenues, while peso depreciation has pushed up debt and interest spending. Revenues are projected to decrease further in the medium term as temporary taxes expire," it said.

Samer Maziad, a senior sovereign analyst at Moody's, said, "Concluding a peace accord removes an element of uncertainty from Colombia's outlook and should be viewed as credit positive, even after related fiscal costs are taken into account.

"We expect the authorities to pass a tax reform this year. The reform will strengthen Colombia's fiscal profile, allowing the government to accommodate the costs of peace-related programs."

The approved peace deal starts the process of demobilizing and disarming Farc rebels. President Santos said that, 150 days from now, all of the guerrilla group's weapons will be in the hands of the United Nations.