–Foreign currency IDR at ‘BBB-‘;
–Local currency IDR at ‘BBB’;
–Foreign currency short-term IDR at ‘F3’;
–Country ceiling at ‘BBB’.
The Rating Outlook is Stable.
Colombia’s ratings are underpinned by its track record of prudent economic
policies, solid debt repayment record and strong macroeconomic performance in
relation to peers. These credit strengths are balanced by the government’s
narrow revenue base, and structural constraints such as low income per capita
levels and high commodity dependence.
One year after Fitch upgraded Colombia to investment grade status, the
sovereign’s credit metrics continue to improve. However, increased risk aversion
and uncertainty regarding the outlook of the global economy create downside
risks to Colombia’s growth, exports and fiscal accounts, thereby constraining
the sovereign’s positive rating momentum.
Nevertheless, ‘Colombia’s strengthened policy framework, exchange rate
flexibility, contingent multilateral support and improved international reserve
levels mitigate risk to macroeconomic stability and balance of payments,’ said
Erich Arispe, Director in Fitch Ratings sovereign group.
Colombia’s five-year average growth reached 4.4% in 2011, thus outpacing ‘BBB’
peers. Fitch expects growth to average close to 5% over the next two years
assuming no further deterioration in the external environment. Greater
infrastructure investment could provide a boost for Colombia’s growth trajectory
and overall competitiveness.
Inflation averaged 3.4% in 2011. With inflation expectations firmly anchored
within the inflation target range, monetary authorities continue to build their
credibility and inflation fighting credentials.
Growth in credit to the private sector has maintained a brisk pace in 2012 after
two years of rapid expansion. This could be a potential source for macroeconomic
vulnerability. While authorities have taken measures to reduce potential risks
to the health of the financial system, Fitch will continue to monitor the
evolution of credit growth and quality of assets in the domestic banking sector.
The central government deficit declined by more than a full percentage point, to
2.8% of GDP in 2011. The deficit could fall further to 2.4% in 2012 boosted by
the positive economic cycle, revenue measures adopted in late 2010 and fiscal
prudence. While general government debt, at 39.7% of GDP, remains slightly above
the ‘BBB’ median, Colombia’s government debt levels could fall below peers over
the next two years in the event of continued favorable growth dynamics, low
financing costs and fiscal consolidation.
Fitch notes that Colombia has strengthened its fiscal policy framework through
reforms such as the Fiscal Sustainability Law and the introduction of a fiscal
rule. Nevertheless, ‘a low revenue base, a relatively rigid expenditure profile
and the fiscal accounts’ vulnerability to growth and commodity shocks pose
challenges for the authorities to achieve a sustained fiscal consolidation and
to generate savings at the central government level,’ added Arispe.
While external liquidity has strengthened in recent years, the sovereign remains
a net external debtor in contrast to the net external creditor position of the
‘BBB’ median and most IG commodity-exporters. This balance sheet weakness is
mitigated by the manageable sovereign external debt amortization profile,
improved external liquidity position and access to the IMF’s USD6 billion
Flexible Credit Facility (FCL).
In the event that a more stable global environment develops, Colombia’s ratings
could benefit from a favorable growth trajectory, further strengthening of the
external balance sheet and continued improvement of fiscal credit metrics. While
not Fitch’s base case, persistent fiscal deterioration leading to negative debt
dynamics would be negative for the ratings.
Additional information is available at ‘www.fitchratings.com’. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
–‘Sovereign Rating Methodology’ (Aug. 13, 2011).
Applicable Criteria and Related Research:
Sovereign Rating Methodology