What Jumps Out: Time To Look Forward

Last Tuesday President Duque finally signed the long-awaited tax reform into law – it is estimated to raise $15.2 trillion ($4billion USD), in a blend of increased taxes and lower spending.

Clearly this came too late to save the Investment Grade at S&P or Fitch due to the previous structure of the bill – a disaster for the country in both economic and social terms as Colombia ripped itself apart on the streets. But that is now in the past and Colombia needs to look forward. As Finance Minister Restrepo points out, the priority right now is for the country to regain its financial credibility which previous to the pandemic was one of the most admired across Latin America. The “line in the sand” fiscal rule has now gone but due to the measures taken there is the hope that the deficit will drop from the anticipated 8.6% in 2021 to 2.7% in 2026.

The hope now is that the country can put the tax reform, and the protests that accompanied them, behind it – it is a long shot that the ratings agencies will do anything in the near future, trust needs to be built and ahead of what will be a bitterly fought election – that will be tough.

The country’s recovery will depend on all manner of factors going forward. Life is firmly into the ‘new normal’ mode as we continue to adapt to COVID. There are still issues with vaccine supply and also the usual hard core who fear that the WHO is injecting 5G chips into their bodies but one of the biggest issues that remains is not ‘injection reluctance’ but ‘office reluctance’. Bogota remains a relative ghost town when the mom & pop businesses that sit on every street corner need the offices full in order for them to survive.

We saw consumer confidence disappoint last week; the hope is that Duque’s signature yesterday will help that situation. The propensity number to purchase housing, consumer durables and vehicles is still struggling however at least in that last category we are seeing some recovery. Through August a total of 53,852 vehicles were sold, an increase of 54% YoY and only down 5% versus 2019.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

These are still small acorns, but there is big pickup in electric and hybrid vehicles. Over 5,000  vehicles were sold during the first half of this year The government also appears set to remove the quota on how many such cars are subject  to the 5% import tariff as opposed to the standard 35%. Thus far there is a preference for hybrid due to the ongoing lack of electric infrastructure however this is slowly improving.

Another area which is still spluttering into life is internal tourism. According to the DANE in Q2 8.1% of the populous undertook a trip, in 2019 (2020 really isn’t a comparison) that number stood at 17.9%. To many this will be a surprise given that the airlines internally have seen one of the fastest recoveries in domestic travel.

The big dog as ever when it comes to the Peso, which continues to struggle despite inflows into the bond markets from overseas in August, is oil. Production is struggling to recover – in July it stood at 731,255 boepd , up 5.3% MoM however still down 0.5% from 12 months ago. This is something of a lost opportunity with Brent prices cresting $70 again with the oil bulls again speculating about $100 oil. This week we even saw the return of an oil scourge, the dynamiting of overland pipelines by terrorists. Ecopetrol doesn’t anticipate any severe disruption, but a very unwelcome development.

Still much to do…

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

 My regards to all,

 Roops