facebook
linkedin
twitter
About Us
  • BFSI
  • Energy
  • Infocom
  • Mining
  • Venture
  • Industry
  • Travel
  • Civic
  • Food, Health, Ag
  • Real Estate
  • Responsibility
  • Economy
  • Law & Justice
  • Interview
  • Analysis
Photo: Iván Duque Márquez, president of Colombia, briefs reporters during the U.N. General Assembly. (Photo credit: UN Photo/Loey Felipe)

Fitch Ratings Not Impressed With Colombian Government’s Fiscal Strategy

Posted On February 11, 2020
By : Loren Moss
Comment: 0
Tag: banco de la republica, bbb+, economic growth act, ecopetrol, farc, fitch, fitch ratings, insurgency, IVA, Iván Duque, ley de financiamiento, peace process, Tax Reform, vat

Fitch Ratings released an analysis on Colombia’s tax reforms, stating they will likely signify revenue losses in 2020, underscoring the view that meeting this year’s fiscal deficit target will be challenging and reliant on extraordinary revenues, the ratings firm says. Structural deficit reduction may be hampered by social and political considerations.

The Ivan Duque Administration’s recently released 2020 Financing Plan targets a central government deficit of 2.2% of GDP, down from 2.5% last year. However, Fitch believes this is based on optimistic assumptions for GDP growth (3.7%, versus Fitch’s 3.3% forecast) and tax revenues, which the plan sees remaining stable at 14.3% of GDP.

The Economic Growth Act approved by Colombia’s congress late last year contained a number of tax measures. Some, such as corporate tax rate cuts and tax credits for VAT on capital imports, were retained from the 2018 Financing Law that the Constitutional Court had declared unconstitutional on procedural grounds. Others, including VAT tax holidays on three days of the year and VAT rebates for the poorest 20% of the population, were late additions to the act and will further undermine fiscal performance.

“Frequent revisions to fiscal targets and reliance on one-off extraordinary measures have reduced policy credibility.”

Even without these additions, the tax credits would have made meeting the 2020 deficit target difficult. Fitch estimates that the act could result in lost revenue worth as much as 1% of GDP with the additional measures. Efforts to improve tax administration could mitigate, but will not fully offset, these losses. Revenues from divestments and higher dividends from Ecopetrol and the Central Bank will likely help contain fiscal underperformance again this year. However, the gains would not be permanent, and the revenue impact of further corporate tax cuts will be felt from 2021 and 2022.

Last year’s central government revised deficit target of 2.7% of GDP was met, and the deficit still narrowed from 3.1% in 2018. Tax revenues rose 9.8% to yield an additional 0.4% of GDP, where we had expected 0.6%, but the government boosted revenues with one-off measures, using “excess reserves” at state-owned Ecopetrol for an additional dividend worth 0.3% of GDP.

The Colombian authorities’ record of prudent and consistent macroeconomic policies has underpinned macroeconomic and financial stability. However, frequent revisions to fiscal targets and reliance on one-off extraordinary measures have reduced policy credibility and contributed to Fitch’s revision of the Rating Outlook on the country’s ‘BBB’ sovereign rating to Negative in May 2019.

General government debt/GDP has steadily risen over the past six years to an estimated 44.7% in 2019 (versus the ‘BBB’ median of 41.1%) from 29.9% in 2013, although this has partly been driven by the recognition of contingent liabilities as well as the weaker peso. Debt to GDP is expected to rise modestly again in 2020, due in part to a weaker peso.

Structural improvements in public finances, for example through measures that permanently increase revenues, could face political and popular opposition. The additional VAT holidays and rebates were added to the act after large protests in November and December against rumored pension cuts, inequality and the slow implementation of policies agreed in the 2016 peace deal that ended the FARC insurgency.

An uptick in cyclical economic growth has supported revenues. Fitch estimates that real GDP growth accelerated to 3.2% in 2019 from 2.6% the previous year, and domestic demand will keep growth broadly stable this year. The VAT rebates will support consumption, while VAT credits and lower corporate taxes should boost private investment. Strong consumption has contributed to a widening current account. This has been largely financed by robust FDI, but a sustained rise in external debt could put additional pressure on the sovereign rating.

DON'T MISS OUT: The only English-language Colombia news that's strictly business, markets, & investment!
Join global executives & investors by subscribing to our FREE weekly updates
I agree to have my personal information transferred to MailChimp ( more information ) DISCLAIMER: Protección de Datos Personales Artículo 15 de la Constitución Política de Colombia, ley 1581 de 2012 y decreto 1377 de 2013.
We will never spam you or share your email address ¡Nunca Jamás!

Share the news!

  • Facebook
  • Twitter
  • Print
  • WhatsApp
  • LinkedIn
  • Skype

Related

Share your thoughts:

comments

About the Author
Loren Moss is the founder and publisher of Finance Colombia. He has over 20 years of international business experience, including over a decade of experience in securities, insurance, and commercial real estate, at the institutional and international level.
  • google-share
Previous Story

Fitch: LatAm Sovereigns Vulnerable To Next Downturn

Next Story

Coronavirus A Threat To Colombia, Latam Economies, Even Without Infections Says Fitch

Related Posts

0

Ireland’s Tánaiste Visits Colombia To Strengthen Bilateral Ties

Posted On April 6, 2022
, By Loren Moss
0

Spy Scandal Deepens, Colombian Colonel Targeted By Russian Spymaster

Posted On April 6, 2022
, By Loren Moss
0

What Jumps Out: Inflation & Rates

Posted On April 6, 2022
, By Rupert Stebbings

You must log in to post a comment.

This site uses Akismet to reduce spam. Learn how your comment data is processed.





Search

RECENT

POPULAR

COMMENTS

The World’s 50 Best Restaurants today reveals Leonor Espinosa of Leo, Bogotá, as the 2022 winner of The World’s Best Female Chef Award, sponsored by Nude Glass

Colombian Leonor Espinosa Named "World's Best Female Chef"

Posted On May 18, 2022
Grand Bahamas photo © Loren Moss

Bahamas Seeks Air Connectivity With Colombia

Posted On May 18, 2022
Roberto Kriete, avianca's main shareholder and chairman of the Board of Directors.

Shareholders Of Viva, Avianca & Gol Announce The Creation Of Abra Group To Dominate South American Skies

Posted On May 11, 2022
Colombia’s attorney general charged Russian national Sergein Vagin and six other people

Alleged Russian Spy Charged…With Running A Gambling Mafia

Posted On April 12, 2022

Viva Launches Nonstop Routes To Buenos Aires, Argentina From Medellín & Bogotá, Colombia

Posted On April 12, 2022

Romanian Cybercriminal Mihai Ionut Paunescu Captured In Colombia

Posted On June 29, 2021
Photo montage courtesy EPM

EPM’s Board of Directors Resign En Masse, Creating Crisis For Mayor Daniel Quintero

Posted On August 17, 2020

Court Blocks Colombia’s $370 Million USD Emergency Loan To Bankrupt Avianca Airlines

Posted On September 12, 2020

Deadly Riots & Protests Against Police Brutality Break Out Across Colombia

Posted On September 10, 2020

AVIANCA IS BANKRUPT

Posted On May 10, 2020

[…] damn what she said. She and...

Posted On April 4, 2022

[…] by short sellers seeking to...

Posted On March 22, 2022

[…] no longer travel freely...

Posted On March 8, 2022

[…] Duque’s administration will...

Posted On March 8, 2022

[…] See also: 13 Police Injured In...

Posted On March 3, 2022

Watch This!

Consider Advertising With Us

Click here to visit Expat Group's English site

Subscribe Free

don't forget to include "http://"
* = required field
Your Background / Function








unsubscribe from list

RECENT

POPULAR

COMMENTS

The World’s 50 Best Restaurants today reveals Leonor Espinosa of Leo, Bogotá, as the 2022 winner of The World’s Best Female Chef Award, sponsored by Nude Glass

Colombian Leonor Espinosa Named "World's Best Female Chef"

Posted On May 18, 2022
Grand Bahamas photo © Loren Moss

Bahamas Seeks Air Connectivity With Colombia

Posted On May 18, 2022
Roberto Kriete, avianca's main shareholder and chairman of the Board of Directors.

Shareholders Of Viva, Avianca & Gol Announce The Creation Of Abra Group To Dominate South American Skies

Posted On May 11, 2022

Romanian Cybercriminal Mihai Ionut Paunescu Captured In Colombia

Posted On June 29, 2021
Photo montage courtesy EPM

EPM’s Board of Directors Resign En Masse, Creating Crisis For Mayor Daniel Quintero

Posted On August 17, 2020

Deadly Riots & Protests Against Police Brutality Break Out Across Colombia

Posted On September 10, 2020

[…] damn what she said. She and...

Posted On April 4, 2022

[…] by short sellers seeking to...

Posted On March 22, 2022

[…] no longer travel freely...

Posted On March 8, 2022

Watch This!

Contact Us (Click the image):

Pages

  • About Us
  • Colombia Events, Conferences, Festivals and Important Dates
  • Contact Us
  • main
  • Media Partnerships
  • Privacy Policy
  • Search Results
  • Whatsapp test page
Copyright 2014-2020 Finance Colombia All Rights Reserved. We may earn commissions from qualifying purchases.
Posting....
WhatsApp us