Standard and Poor’s Global Ratings has maintained Colombia’s credit rating at BB+ but has shifted its 2024 outlook from stable to “negative” based on potential challenges in the country’s economic landscape.
S&P’s decision to revise its long-term ratings outlook stems from its assessment of Colombia’s fiscal and monetary policies within the context of a stable political environment. The agency affirmed the long-term sovereign credit ratings, providing BB+ in foreign currency and BBB- in local currency for Colombia. Additionally, short-term ratings were confirmed at B in foreign currency and A-3 in local currency.
While acknowledging the nation’s stable democracy and political institutions, which have navigated through various economic shocks, S&P emphasized that potential weak and persistent investor confidence could pose risks to Colombia’s GDP.
The agency expressed concerns about a potentially fragile investment climate affecting private sector investment, which could hinder economic recovery. S&P highlighted the need for a broader and more diverse export sector in Colombia, identifying it as a key factor to reduce external vulnerability and strengthen economic resilience. The creditor also recommended that a larger export base could play a crucial role in stabilizing the country’s credit rating.
The negative outlook also took into account the significant drop in Colombia’s current account deficit projected for 2023 at 3% – 4% of GDP (compared to 6.3% in 2022). This adjustment was attributed to a lower trade deficit resulting from a decline in GDP growth, leading to a substantial reduction in imports. S&P anticipates that this decline will contain Colombia’s external vulnerabilities in the short term. T
The availability of a flexible credit line of US$9.8 billion from the International Monetary Fund (IMF), set to begin amortization in 2024, was noted as a supporting factor for Colombia’s external liquidity.
In response to the negative ranking, Colombian Finance Minister Ricardo Bonilla outlined the Petro government’s strategy to mitigate potential economic challenges. He stressed the importance of maintaining fiscal stability, with the government projecting deficits to be stable but high, hovering around 4% of GDP in 2024 and 2025. The minister reiterated the government’s commitment to addressing issues related to investor confidence and private sector investment.
The S&P report also drew attention to institutional weaknesses and political challenges in Colombia, citing delays in numerous infrastructure projects, as well as managing the transition from hydrocarbon production to renewable energy.
As Colombia grapples with the challenges highlighted by S&P Global Ratings, concerns persist that the leftist government is engaging in excessive spending, expanding bureaucracy, and using social media narratives to deflect public opinion and intensify tensions on the international stage.
In a geopolitical landscape post-Davos, President Petro is under increasing pressure to strike a balance between his ideological positions and pragmatic governance. The next 12 to 24 months will also be critical for Minister Bonilla to reevaluate reforms aligned within the “fiscal rule.” Failure to do so may not only jeopardize the South American nation’s credit rating further, but risks plunging the country’s reputation for sound macro-economic management into a deep and prolonged crisis among the Colombian electorate.
