Fitch Affirms BB+ Rating for Colombia as Country’s Future Prospects Stabilize

Big three credit rating agency Fitch Ratings reaffirmed the country’s credit rating at BB+, expecting a stable future situation and outlook for businesses in the country even as uncertainty reigns regarding how Colombian President Gustavo Petro will pass new policies after the disintegration of his coalition.

The report from the agency, issued in late June, notes that the current administration of President Gustavo Petro has found itself in a disadvantageous position due to the higher-than-normal inflation numbers in the country, which is expected to go up to 9% by the end of 2023 and 5% by 2024, well above the 3% inflation target that the country’s central bank has. 

The high inflation numbers plaguing the country, which reached a monthly high of 13% on May, caused the country’s central bank to aggressively raise interest rates starting in 2022 to 13.25%, which the credit agency sees as the terminal rate for this hiking cycle before cuts start to materialize.

A significant GDP slowdown in the country is also expected by the credit agency, largely credited to the aggressive monetary tightening of the central bank as well as slower global growth which could potentially impact the exports of Colombia, including oil. It’s believed to slow down to 1.5% in 2023 and 1.2% in 2024. 

Analysis which bodes better on Colombia’s front is the decrease in debt-to-GDP ratio as well as the decreasing of the current account deficits. The debt-to-GDP ratio is currently resting at 54.1% of the GDP by the end of the year and is expected to remain close to that percentage for the rest of the year. Meanwhile, the deficit is expected to 4.0% of the GDP in 2023 and 3.5% of the GDP.

Fitch also believes that the strong foreign direct investment happening to the country as well as its strong exports-focused approach and trade, will bode well for Colombia’s ability to mitigate any potential future economic shake-ups that may lie ahead.

Petro’s administration will be able to maintain a strong independent central bank that can keep Colombia’s fiscal and monetary policy within international standards, acting independent of the government’s whims for now, according to Fitch.

Finally, the report notes that Petro’s early successes have been undermined by the collapse of his coalition due to the controversial healthcare reform bill that he submitted to Congress early this year, and that there is a lingering question of how the President can continue to push for policy changes in the future without his coalition backing him.