Fitch Lowers Colombia’s Outlook to Negative Amid Fiscal Concerns

Fitch Ratings has downgraded Colombia’s outlook to negative due to fiscal concerns, maintaining a credit rating of BB. The country reported a fiscal deficit of 6.8% of GDP last year, exceeding expectations, and anticipates ongoing difficulties in meeting fiscal targets. The predicted debt-to-GDP ratio is stable, yet doubts exist regarding the administration’s financial management moving forward.

Fitch Ratings has revised Colombia’s rating outlook to negative from stable, primarily due to a declining fiscal balance and uncertainty regarding effective corrective measures in the near future. Despite retaining the credit score at BB, Fitch highlighted a central government fiscal deficit of 6.8% of GDP last year, which surpasses the anticipated 5.6%. The agency expressed concerns that fiscal risks are predominantly negative, predicting that Colombia will face challenges in achieving fiscal targets while the debt-to-GDP ratio continues to rise.

Finance Minister Diego Guevara assured investors that the government adhered to its fiscal rule, projecting a reduction in the deficit to 5.1% of GDP for the current year, despite recent fiscal slippage. Nevertheless, concerns have escalated regarding President Gustavo Petro’s capacity to manage budgetary deficits amidst stagnant fiscal revenues and economic sluggishness. The administration initiated 2025 with a budget shortfall of 12 trillion pesos, deemed inadequate to fulfill deficit obligations.

In the last year, the debt-to-GDP ratio has increased by 6.2 percentage points to 60%, with expectations of minor fluctuations leading to a projected 60.6% by 2025, according to finance ministry analysis. Fitch has indicated serious doubts about the likelihood of Colombia meeting its revised fiscal rule targets this year, as the tax agency’s revenue projections are considered overly ambitious.

The updated estimates from Fitch now anticipate a central government deficit of 6.2% of GDP for 2025 and 5.8% for 2026, significantly higher than earlier projections of 5.1% and 4.7% respectively. “Fitch sees downside fiscal risks to even its revised forecasts from continued revenue underperformance as well as the reluctance of the Petro administration to sacrifice its spending priorities,” the agency reported.

In conclusion, Fitch Ratings’ decision to downgrade Colombia’s outlook to negative reflects significant concerns over the country’s fiscal health and revenue generation. Despite the government’s assertions of fiscal compliance, persistent deficits and a rising debt-to-GDP ratio suggest ongoing fiscal challenges. The forthcoming years will be critical in determining whether Colombia can stabilize its financial trajectory amidst these pressures and revised forecasts.

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