By Nelson Bocanegra
BOGOTA (Reuters) -If a planned fiscal consolidation in Colombia fails to stabilize public debt and comply with fiscal rules, it could lead to a ratings downgrade for the Andean nation, a top Moody’s analyst said on Tuesday.
Colombia’s economy is seen growing 2.5% this year, Renzo Merino, a sovereign risk analyst at the ratings agency, said at an event hosted by Moody’s in Bogota.
Colombia holds a Baa2 rating from Moody’s, and in June of last year, the ratings agency lowered its outlook for the country to “negative” from “stable” on economic conditions that complicate fiscal management.
“The main risk we observe is that, relative to other countries, there has been an important fiscal deterioration, and Colombia’s credit policy may have weakened, which may lead to a slightly lower outlook,” said Merino.
He said that, once Colombia publishes its medium-term fiscal framework in June, Moody’s will re-evaluate Colombia’s sovereign rating.
“It’s important that the government be transparent and publishes credible estimates, while also showing where adjustments will be made,” he said.
Colombia’s current rating from Moody’s is two rungs higher than those from Fitch and S&P.
“The problem for Colombia is that, in relative terms, it spends much more than what it brings in,” Merino said, adding spending cuts already carried out had not been enough.
With presidential elections set to take place next year, a key issue will be whether the incoming administration can reverse a deterioration of public finances, Merino said.
Colombia’s finance ministry targets a fiscal deficit of 5.1% of gross domestic product (GDP), which analysts view as unlikely to be met.
The deterioration in Colombia’s public finances has been a key factor in the central bank slowing the pace of cuts to the benchmark interest rate.
In April, the central bank reduced the rate by 25 basis points to 9.25%.
Pressure on the country’s treasury means limited margin to operate and the government being forced to take on high-cost debt, Merino said.
(Reporting by Nelson Bocanegra; Writing by Rafael Escalera Montoto; Editing by Aida Pelaez-Fernandez, Andrea Ricci and David Gregorio)
