Fitch Lowers Colombia’s Outlook to Negative Amid Fiscal Concerns

Fitch Ratings has downgraded Colombia’s outlook to negative due to fiscal concerns, retaining the credit rating at BB. Colombia’s fiscal deficit reached 6.8% of GDP, surpassing predictions. The debt-to-GDP ratio is projected to rise further, raising investor concerns regarding fiscal management under President Gustavo Petro.

Fitch Ratings has downgraded Colombia’s rating outlook from stable to negative, citing concerns over the nation’s fiscal situation and insufficient corrective measures anticipated in the short term. The credit rating remains affirmed at BB, despite the government reporting a fiscal deficit of 6.8% of GDP last year, surpassing Fitch’s earlier prediction of a 5.6% deficit. The agency expressed that fiscal risks are skewed negatively, estimating continual struggles to achieve fiscal targets while debt levels are expected to rise.

Finance Minister Diego Guevara stated that despite the widening deficit, Colombia adhered to its fiscal rule and projected a decrease in the deficit to 5.1% of GDP this year. However, investor confidence has declined regarding President Gustavo Petro’s capacity to control deficits amid lower fiscal revenues and sluggish economic growth. This concern is exacerbated by the government’s budget suspension of 12 trillion pesos for 2025, deemed inadequate by the fiscal rule oversight committee.

The debt-to-GDP ratio increased by 6.2 percentage points last year, reaching 60%. Projections indicate it will stabilize slightly at 60.6% in 2025, as per the finance ministry. Fitch underscored the challenges the government faces in meeting the revised fiscal rule target due to optimistic revenue expectations, which foresee an additional revenue increase of 1.4% that seems unrealistic.

Revised forecasts now expect a central government budget deficit of 6.2% of GDP in 2025 and 5.8% in 2026, compared to earlier predictions of 5.1% and 4.7%, respectively. Fitch warns that downside fiscal risks persist, stemming from ongoing revenue underperformance and the reluctance of the Petro administration to adjust spending priorities appropriately.

In summary, Fitch Ratings has expressed significant concern regarding Colombia’s fiscal outlook, leading to a downgrade from stable to negative. The central government’s challenge in curbing the fiscal deficit, coupled with lackluster economic growth and increasing debt, raises alarms about the country’s financial stability. Investors remain apprehensive about the government’s ability to adhere to fiscal targets amidst escalating deficits.

Original Source: www.livemint.com