Fitch Ratings has downgraded Colombia’s outlook to negative due to fiscal concerns, maintaining a BB credit score. The fiscal deficit reached 6.8% of GDP and is projected to remain high in coming years. Concerns about President Petro’s fiscal management and growing debt levels exacerbate uncertainties surrounding Colombia’s economic stability.
Recently, Fitch Ratings has downgraded Colombia’s rating outlook to negative, moving it from a stable status due to growing concerns over the country’s fiscal balance and the uncertain potential for corrective actions in the near future. The credit score remains affirmed at BB following this adjustment. Last year, Colombia’s central government reported a fiscal deficit of 6.8% of GDP, surpassing Fitch’s anticipated 5.6% gap, which raised alarms regarding the nation’s fiscal viability.
Colombia’s Finance Minister, Diego Guevara, reassured investors last month about compliance with fiscal rules despite an increasing budget deficit, projecting a reduction to 5.1% of GDP in the upcoming year. Investor confidence is wavering regarding President Gustavo Petro’s capacity to effectively manage deficits in light of sluggish economic growth and falling fiscal revenues. Furthermore, the government is contending with a significant budget shortfall of 12 trillion pesos, deemed insufficient by fiscal oversight committees to achieve deficit targets.
The debt-to-GDP ratio increased significantly, climbing 6.2 percentage points to reach 60% last year, with expectations to hold steady at approximately 60.6% in 2025 as indicated by the finance ministry. Fitch has expressed skepticism about Colombia’s ability to meet revised fiscal targets, suggesting the tax agency’s revenue projections may be unrealistically optimistic. Revised estimates now indicate the central government’s budget deficit will remain at 6.2% of GDP in 2025 and decrease slightly to 5.8% by 2026, in contrast to previous estimates of 5.1% and 4.7%.
Fitch anticipates further downside risks to its newly revised projections, attributing this to the ongoing underperformance in revenue and the current administration’s commitment to its spending agenda, despite fiscal pressures.
This recent development highlights the pressing need for Colombia to re-evaluate its fiscal strategies and implement necessary reforms to stabilize its economic standing in the face of these growing challenges.
In summary, Fitch Ratings’ shift to a negative outlook for Colombia reflects serious fiscal concerns, including increasing deficits and rising debt levels. The inability of the government to meet fiscal targets amid economic sluggishness intensifies uncertainty regarding Colombia’s financial stability. To ensure a stronger fiscal future, decisive measures will be needed from Colombia’s leadership.
Original Source: www.livemint.com
