Why growth won’t cut it for Colombia
Although ratings agency Moody’s expects Colombia’s GDP to grow 7% this year, it is maintaining a negative outlook.
The expected growth exceeds estimates for other countries, yet the unstable fiscal scenario represents a roadblock.
“We’ve seen a deterioration before the pandemic regarding [Colombia’s] fiscal strength,” Moody’s VP senior analyst Renzo Merino said during a credit outlook webinar.
The scenario became more tense due to an unpopular tax reform bill, which was withdrawn in late April and sparked mass protests.
Last week, the finance ministry submitted a new draft to congress. The proposal would generate an additional US$3.9bn in public income through higher corporate taxes, elimination of tax exemptions, and austerity measures.
The bill is more likely to pass but meeting its goals will depend on the changes it undergoes while in congress, according to Moody’s.
Yet, “Colombia has a track record of reaching consensus to draft policies to allow the country to surpass macroeconomic shocks,” Merino said.
Structural issues in the fiscal framework will have to be addressed by the next government and if it tackles the key issues, the rating could change, according to Merino.
Moody’s Colombia rating is 'Baa2', while S&P and Fitch downgraded the country below investment grade following the protests and the withdrawal of the original bill.
Last year, the debt to GDP ratio surpassed 60%, twenty percentage points higher than in 2014 when Moody's assigned investment grade.
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