The US rating agency Standard & Poor’s Global Ratings (S&P) maintains Colombia’s credit rating at BB+, but has downgraded its outlook from “stable” to “negative”. The agency’s decision reflects doubts about the country’s future economic growth and financial strength, despite the fact that just today it was announced that during the month of November the Gross Domestic Product (GDP) grew by 2.3%, breaking the downward trend of the third quarter (July-September).
This position of S&P shows the low confidence of investors, putting at risk private investments and generating doubt about the return to economic growth at 3%, as foreseen by the government. According to official data, Colombia’s GDP grew by 1% during the first eleven months of 2023. The risk of downgrading the rating remains in the air for the next two years, and will depend on the country’s economic progress and political and economic decisions during that time.
More expensive external debt
With these data from the rating agency, Colombia’s external indebtedness will continue to be expensive in the coming months, as higher payment rates will be demanded than those of other countries with greater credit solvency. They will not only affect the State’s public debt, but will also result in the country’s companies finding it more difficult to access foreign credit and, in any case, this will be more expensive, due to Colombia’s risk level.
“We expect a broad continuity of fiscal and monetary policies in a stable political environment,” states the agency’s report. In this sense, and as a positive aspect, the rating agency highlights the stability of the country’s democratic system. S&P also take into account the pragmatism in the government’s economic policy, reflected in the processing of the 2022 tax reform, the increase in gasoline prices that has contributed to reduce the fiscal cost of this subsidy and the increase in toll rates for 2024.
In fact two of the measures that have generated the most controversy in Colombia, the increase in gasoline prices and the increase in tolls, are two of the three positive aspects for S&P. It is worth remembering that the government’s decision to stop subsidizing gasoline, as was the case until 2022, has meant a gradual increase of 50% in the price of this fuel. Similarly, the price of tolls, which remained frozen during 2023, have increased this January by 13.12%, the CPI of the previous year, and is expected to rise another 9.28%, the CPI of 2023, in the middle of 2024.
Government highlights growth rebound
The Minister of Finance, Ricardo Bonilla, highlighted that “in November 2023 the Economic Monitoring Indicator rebounded 2.3%, which contributes to improve the economic growth outlook for 2024″. He also said that “together with the economic reactivation plans being designed by the National Government, the country’s credit profile will be improved and the optimal performance of the economic policy will continue”.
From the Davos summit, and a day before these economic data were released, the minister wanted to highlight the importance of the private sector for the economy. In this context, Bonilla proposed to reduce the nominal income tax rate for companies.
Finally, with the new tax reform that the government is studying for 2024, Colombia hopes to recoup what the justice system overturned in the 2022 law, in order to provide the State with sufficient resources to finance its ambitious social programs. In a year of important decisions on these reforms, the economic outlook remains uncertain, as the good unemployment situation and the stabilization of the currency are coupled with a still very weak economic growth and a limited debt capacity.
With a rating of BB+, the speculative grade remains very high, with good expectations in the short term, but greater uncertainty in the medium and long term. This situation will undoubtedly influence the government’s policy decisions during the year.