Introduction to Colombia’s Credit Rating and Its Current Status
Standard & Poor’s (S&P) Global Ratings has downgraded Colombia’s long-term foreign currency sovereign debt rating from BB+ to BB, with a negative outlook. This decision, following Moody’s recent downgrade, reinforces concerns about Colombia’s fiscal sustainability.
Key Factors Behind the Rating Downgrade
S&P identified four main factors contributing to the rating cut:
- Growing fiscal imbalance
- Sustained increase in public debt
- Increasing burden of debt servicing on the national budget
- Absence of a firm fiscal rule for the past three years
S&P emphasized that the prolonged suspension of the fiscal rule has increased uncertainty about the government’s ability to implement necessary adjustments. The negative outlook indicates a potential further downgrade within the next 18 months if appropriate and effective measures aren’t taken to stabilize Colombia’s fiscal accounts and debt levels.
Implications of the Downgrade
The downgrade places Colombia in the second-worst category on S&P’s rating scale. Only a lower rating, within the “B” series, would place Colombia in the highly vulnerable category with very limited access to capital markets.
Expert Opinions on the Downgrade
José Ignacio López, president of the Anif economic research center, stated that while the rating reduction was expected, the negative outlook was surprising. He warned that this situation “could trigger outflows from foreign funds in the market.”
Andrés Pardo, former deputy minister of finance, anticipated the downgrade and highlighted that S&P’s action could have additional effects on global portfolios.
César Pabón, director of economic research at Corficolombiana, noted that S&P’s downgrade and negative outlook signal a potential fiscal deterioration extending over several years, worsened by growing security issues. He warned that Colombia remains on the brink of a fiscal precipice unless serious adjustments are made.
Bruce Mac Master, president of the Colombian National Employers Association (ANDI), expressed concern over the government’s neglect of public finances, leading to increasing debt and interest payments.
Government Response
Shortly after the announcement, Colombia’s Ministry of Finance issued a statement acknowledging the gravity of the double downgrade but insisting that “the economic fundamentals remain strong.” The government highlighted S&P’s recognition of the credibility of the Bank of the Republic, its inflation targeting scheme, and the use of floating exchange rates as stabilization mechanisms.
Impact on Colombia’s Financing Costs
A BB rating does not mean Colombia cannot meet its commitments, but it does indicate a higher level of risk. In practical terms, this raises the cost of external financing for the country.
