Colombia’s Long-Term Foreign-Currency and Local Currency Issuer Default Ratings (IDR) have been downgraded to BB+ from BBB- by Fitch. The downgrade was based on the deterioration of public finances with large fiscal deficits in 2020-2022, rising government debt levels, and reduced confidence in the capacity to decrease government debt in the next few years. Colombia’s outlook was revised to Stable from Negative. This comes just over a month of S&P downgrading the Latin American nation to BB+, making it a fallen angel
Fitch forecasts gross general government debt (GGGD) to GDP to reach 60.8% in 2021, more than double the 30% level when Colombia was upgraded to the BBB category in 2011. Fitch also expects rising debt levels through 2022 and does not predict significant debt reduction in the medium-term. Significant risk is seen to the government’s fiscal consolidation plan, considering the reliance on tax administration efforts and the uncertainty of the impact of the outstanding tax reform. Fitch predicts GGGD to GDP to reach 64.4% by 2023, with debt potentially stabilizing at around 64% by 2024. However, further fiscal consolidation initiatives would most likely be necessary to reduce the debt level. The GDP growth forecast has been increased to 6.3% in 2021, up from the previous forecast of 4.9%.
The government introduced a tax reform in late April 2021 that introduced an extension to the base for personal income taxes and a broadening to the VAT base in a move to commence a fiscal adjustment and to extend social programs, including cash transfers to vulnerable communities and unemployment benefits. This proposal provoked a nation-wide backlash resulting in violent protests and a large national strike. The tax reform proposal was consequently withdrawn, demonstrating insufficient support in the Congress of Colombia.
Colombia´s USD bonds were down with its 3.875 2027s down .87 to 106.239, yielding 2.66% and its 4.125 2051s down .27 to 94.614, yielding 4.45%.
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