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Colombia's Credit Score Slashed Again by S&P
9 Apr
Summary
- S&P downgraded Colombia's foreign currency rating to BB-.
- Persistent fiscal deficit and debt burden cited as reasons.
- Policy predictability concerns grew since the 2020 recession.
S&P Global Ratings has lowered Colombia's foreign currency credit rating to BB- with a stable outlook, marking the second downgrade in under a year. The firm cited concerns regarding a persistent fiscal deficit and a substantial national debt burden.
S&P noted that Colombia's policy framework has become less predictable since the pandemic-related recession in 2020. A further downgrade could occur if fiscal deficits exceed expectations, leading to significant external outflows and increased debt, heightening vulnerability to external shocks.
Fiscal worries have escalated since the suspension of a legal cap on government spending. President Gustavo Petro's administration has grappled with a ballooning deficit and liquidity issues, with limited incentive to curb spending before upcoming elections.
To alleviate financial pressure, the Finance Ministry has pursued alternative financing, including eurobonds and local debt placements. While these strategies have reduced borrowing costs and deferred payments, they carry risks of increasing the debt burden long-term.
