Colombia’s Economy Slowing, But Corporate Credit Quality Not At Risk

Based on statistics available through March of 2015, Colombia’s industrial sector has experienced a negative annualized growth rate through the previous four quarters, led downward by the petroleum sector. This has resulted in decreased tax revenues for municipal and state governments, causing a budget crunch and pressures on government budgets throughout the country, says Fitch Ratings, in a recently published brief titled Colombian Subnationals’ Tax-Collection Dashboard.

Fitch Senior Director Carlos Ramirez

Colombia’s anti-smuggling law and tax reform measures passed by the national government should have a positive, mitigating effect, Fitch Senior Director Carlos Vicente Ramirez told Finance Colombia, but the national government faces resistance by the departments (provinces) in its desire to eliminate departmental government owned monopolies in liquor and lottery sales, to make Colombia more attractive as it attempts to accede into the OECD. Though this would be wise from a macroeconomic and competitiveness standpoint, many departments rely on these monopolies for a significant portion of their budgets.

Construction continues to be the bright spot in the Colombian economy, with considerable building taking place, but also the country’s 4G highway modernization project, port expansions on both the Atlantic and Pacific coasts, and a regional airport modernization program already underway, that seeks to improve capacity and modernize the airports in Colombia’s second and third tier cities.  Long term, this may also have the benefit of spurring national and international tourism, as many of these airports serve pacified areas that in past decades were too unsafe and lacked infrastructure for leisure travel.

Fitch calls the credit quality of Colombian enterprises as “resilent” overall, despite the significant currency depreciation ignited by the drop in petroleum prices.  Colombian Utilities continue to perform well, and Medellin’s EPM continues to expand internationally.

“Fitch’s international-rated portfolio is performing well despite challenging economic conditions. Only Pacific Rubiales and Avianca have negative ratings biases,” according to Fitch director Jorge Yanes. “Downgrades are projected to outpace upgrades by a very narrow margin in the next 12 months.”