Fitch Ratings has projected Colombia's economy to grow by 1.5% in 2024, a figure that, while avoiding a feared economic contraction, is insufficient to improve the country's credit rating in the near future. Richard Francis, Fitch's lead analyst for Colombia's sovereign ratings, highlighted that a rating upgrade necessitates more robust wealth generation and enhanced debt management.
This outlook has raised alarms among finance experts, as a poor credit rating can impose additional financial burdens. The principle of Ricardian equivalence indicates that today's debt could translate into future tax liabilities.
Historically, Colombia's economic growth has averaged around 4% in recent years. However, the forecast for this year is significantly lower, with expectations of a rebound to 2.8% in 2025. Francis cautioned that growth below 2% could adversely affect the country's credit rating, especially as private investment has plummeted by up to 33.5% in 2023, which is vital for future economic productivity.
Inflation remains a pressing issue, impacting purchasing power and consumption levels. Currently, Colombia's inflation rate exceeds that of its Latin American neighbors, with expectations for the next 12 months remaining above the central bank's target of 3%. The fiscal deficit is projected to reach 5.6% in 2024, further complicating the economic landscape.
Francis also commented on the implications of the recently approved pension reform on public finances, estimating a significant impact of 0.3% of GDP given the existing deficit. He warned that increased government spending without new revenue sources could lead to a larger, unsustainable deficit in the medium term.
Alexánder Ríos, an analyst at Inverxia, added that Colombia's sovereign rating is also contingent on its funding sources, noting that the government's diminishing confidence in fossil fuel investments, while environmentally favorable, is impractical for a country grappling with a deficit. He emphasized the critical nature of adhering to the fiscal rule, cautioning that relaxing its ceiling amidst spending pressures could further degrade Colombia's credit rating.