Fitch Ratings has downgraded Colombia’s rating outlook to negative, maintaining a BB score, due to concerns over its fiscal balance. The central government fiscal deficit reached 6.8% of GDP, exceeding expectations. The government struggles to meet fiscal targets amid a rising debt-to-GDP ratio, now at 60%. Minister Guevara projects a deficit of 5.1% for this year, though investor skepticism remains regarding the government’s fiscal management.
Fitch Ratings has downgraded Colombia’s rating outlook from stable to negative due to a worsening fiscal balance and uncertainty surrounding corrective measures. The credit score remains at BB, but concerns persist as the country reported a central government fiscal deficit of 6.8% of GDP last year, surpassing Fitch’s estimate of 5.6%. According to Fitch, fiscal risks are predominantly negative as the government is likely to struggle to achieve its fiscal targets, while the debt-to-GDP ratio will continue to rise over the forecast period.
Finance Minister Diego Guevara informed investors that Colombia is adhering to its fiscal rule, despite an expanding budget deficit. He projected that the deficit would decrease to 5.1% of GDP this year. However, investors express skepticism regarding President Gustavo Petro’s capability to manage these deficits, especially in the context of low fiscal revenue and sluggish economic growth. Hence, the government anticipates a significant budget suspension of 12 trillion pesos in 2025, which is deemed inadequate for meeting deficit goals.
The debt-to-GDP ratio increased by 6.2 percentage points last year, reaching 60%, and is predicted to stabilize at 60.6% in 2025, based on the finance ministry’s estimates. Fitch indicated that fulfilling the revised fiscal rule target for this year is improbable due to excessively optimistic forecasts made by the tax administration agency, which aims to generate an additional 1.4% in revenues. The agency now projects the central government’s budget deficit to be 6.2% of GDP in 2025 and 5.8% in 2026, a notable change from previous estimates of 5.1% and 4.7%, respectively.
Fitch commented that it anticipates further downside fiscal risks stemming from ongoing revenue shortfalls and the Petro administration’s reluctance to adjust its spending priorities in response to these challenges.
In conclusion, Fitch Ratings’ decision to lower Colombia’s outlook to negative highlights significant concerns regarding the nation’s fiscal management and deficit projections. The country faces ongoing challenges in adhering to fiscal targets, with the debt-to-GDP ratio poised to increase. Minister Guevara’s reassurances of compliance with fiscal rules come under scrutiny amid investor doubts, which could impact Colombia’s economic stability going forward.
Original Source: www.livemint.com
