Fitch Says Colombia’s Proposed Decree on Budget Allocations Could Heighten PPP Repayment Risk

A proposed decree by the Colombian government to reschedule future budget allocations (FBAs) for public-private partnership (PPP) projects could increase repayment risk, according to an analysis by Fitch Ratings. The measure, if broadly applied, could disrupt the predictable cash flows that are critical for timely debt servicing.

The proposed decree formalizes prior statements from public officials concerning the inflexibility of FBAs in projects experiencing delays, particularly amid growing fiscal pressure. The document outlines specific technical, legal, and financial conditions required to validate the rescheduling of FBAs. Its stated aim is to ensure sufficient funds remain available to meet PPP obligations.

Potential Impact on Credit Quality and Investor Perception

Fitch’s assessment indicates that PPPs in Colombia are typically structured with debt amortization schedules that align with multiyear budgets for FBAs and other revenue sources. The rescheduling of these allocations could disrupt this alignment.

The draft decree also introduces uncertainty regarding the Agencia Nacional de Infraestructura (ANI), a government agency, and its ability to honor its commitments for FBAs and other forms of public support for PPPs. This could negatively affect the perceived credit quality of the ANI’s obligations under concession agreements, potentially raising investor risk perception and dampening appetite for future infrastructure investments in Colombia.

Limited Immediate Impact on Rated Toll Roads

Despite these concerns, Fitch does not anticipate a material impact on the credit ratings of the Colombian toll roads it currently rates. The agency believes the decree’s scope is likely to target projects that have experienced significant delays in contractual execution. Most of the public-initiative toll roads rated by Fitch have either completed construction or are nearing completion. The agency noted that these projects would be less affected by a measure focused on addressing execution delays.

Fitch Ratings building Photo credit: Shashank457 licensed under the Creative Commons Attribution-Share Alike 4.0 International license.