BOGOTA (Reuters) – Colombia received mixed messages from rating agencies on Thursday, with Moody’s revising the country’s sovereign outlook from stable to negative, while Fitch went the other way and adjusted the outlook from stable to negative.
Moody’s said a recovery in the economy and the government’s fiscal consolidation efforts prompted its improvement in the country’s sovereign outlook.
Fitch said risks to fiscal consolidation and the trajectory of public debt, weakening fiscal policy credibility and growing risk of external imbalances in Latin America’s fourth-largest economy have driven the shift.
The rating agency comments came a week after the government said the economy grew 2.8% in the first quarter, a figure that disappointed markets and the central bank which had forecast growth of 3, 2% for the period.
Following Moody’s and Fitch’s outlook decisions, Finance Minister Alberto Carrasquilla said in a statement that the government is committed to policies that allow the economy to improve, reduce the budget deficit, stabilize public debt and maintain an environment conducive to investment.
“International financial markets have confidence in the Colombian economy which is already showing recovery results,” he said.
Moody’s said in a statement it saw an improvement in the economy after a slowdown caused by falling oil prices and reduced investment.
“The stable outlook reflects Moody’s view that the downside and upside risks are broadly balanced, now that the medium-term growth outlook and commitment to fiscal consolidation will prevent an erosion of the economy. the country’s fiscal strength. The latter was a major concern for the decision to assign a negative outlook in February 2018, ”he said.
The economy is expected to recover from 2019 to 2021 with growth in the range of 3.0% to 3.5%, converging to Colombia’s potential growth rate of 3.5%, Moody’s said.
Moody’s also said it expects the government to meet its 2019 budget deficit target of 2.7 percent of GDP. An increase in government revenues after last year’s tax reform and a spending freeze in part of the 2019 budget will support this goal, he said.
Fitch, however, said the revenue losses due to the budget bill will hamper fiscal consolidation and will be difficult to offset just with planned tax administration and anti-avoidance efforts.
“Ratings are constrained by high dependence on commodities, limited fiscal flexibility and structural weaknesses in terms of low GDP per capita and weaker governance indicators relative to peers,” said Fitch.
Moody’s rates Colombia’s long-term external debt at Baa2. Fitch rates its long-term foreign debt at BBB.
Reporting by Helen Murphy; Editing by Phil Berlowitz