Fitch expected Baa3/BBB-/BBB-/BBB (low) rated Colombia, which has been investment grade since June 2011, to become a net sovereign external creditor in 2013 thanks to the continued accumulation of international reserves. Economic growth and fiscal consolidation are expected to push down the government debt burden. The rating agency said that it expects Colombia to become a net sovereign external creditor during 2013.
“General government debt, at an estimated 36.3% of GDP in 2012, is in line with the BBB median,” said Fitch. “Lower interest burden, increased capital spending are reflecting improving trend in the composition of public spending, while the recent passage of the tax reform highlights the commitment of the government to make progress on the structural aspects of the cumbersome tax code.”
Colombia announced in February that it would reduce its external debt issuance by $1bn in 2013 in an attempt to control a rally in Colombian pesos. A domestic debt exchange on February 8 reduced Colombia’s borrowing costs, cost of treasury operations and 2013 debt maturities by $1bn, allowing the sovereign to cut its funding needs. Colombia last tapped the international markets on January 22, paying 88bp over Treasuries for $1bn of 10-year money.
The government has also asked state-owned oil company Ecopetrol to issue peso rather than dollar denominated debt as it attempts to control the flow of dollars into the country.
Colombia has a solid debt repayment record, says Fitch, but its ratings are constrained by low income per capita and its high dependence on commodities.
GDP growth in Colombia slowed to 3.6% in 2012 from 5.9% in 2011 as softer industrial production hit the economy. However, according to a February 26 presentation from JP Morgan, Colombia bucked last year’s trend in Latin America by improving its fiscal balance — from a deficit of 2% in 2011 to 0.8% in 2012.
Colombia is in peace negotiations with guerrilla group the Farc, with finance minister Mauricio Cárdenas predicting that a resolution to the conflict could add 1%-2% to annual GDP growth.
Standard & Poor’s assigned Colombia a positive outlook in August 2011, while DBRS did the same 12 months ago. Moody’s maintains its Baa3 rating of the borrower on a stable outlook.