Colombia’s government could return to the bond market by the end of this year, after tapping private investors less than a month ago.
Finance minister Mauricio Cárdenas said the country needed $3bn in bond issues to cover funding for 2016 and got halfway there with a $1.5bn issuance in September. A new bond, this one possibly euro-denominated, could come before the end of the year.
“We may do the remaining $1.5bn in euros. We are discussing this with banks and the earlier we do it the better, because we think it is better to come to the markets before the Fed raises its rates,” said Cárdenas.
The impending US Federal Reserve rate increase is one of the reasons Colombia was ranked in a September report by Standard & Poor’s as one of the top five countries facing adverse global trends.
The report also looked at two other issues, the risk of deleveraging and changes in Chinese demand. The primary reason for Colombia is high dependence on commodities.
Minister Cárdenas said that there is “no denying that these are challenging times” because of the decline in oil revenue, but he also believes that the government has implemented the necessary policies that will make the economy more resilient.
The government has allowed the exchange rate to float freely, with the Colombian peso depreciating much faster than most countries. The peso has depreciated 31% in the past 12 months.
Cárdenas’ office has also cut expenditures and raised revenue with a corporate income tax package in 2014. Congress will vote on the 2016 budget on Monday.
The government has cut spending on investment, payroll and general services, shaving off the equivalent of 1% of GDP. Congressional committees have already approved the budget and the full legislature is expected to go along.
PEACE DIVIDEND
The minister is also confident that a peace deal between the government and left-wing insurgents will happen soon, ending more than 50 years of conflict. Peace is expected to allow Colombia to add a full point to potential growth.
The economy is, nonetheless, cooling and will expand in 2015 by its slowest pace this decade. Growth was 2.9% for the first half of the year and Cárdenas said the 3.3% target for the year will be met. The initial forecast was 4.4%, subsequently lowered to 3.6%.
He sees growth next year at 3.5%. He is almost alone in the forecast for this year. The central bank now estimates growth at 2.8% for the year.
Authorities are closely watching inflation, which reached 4.47% in August.
The central bank increased the benchmark interest rate 25bp to 4.75% with a goal of anchoring inflation below the 3% target. Inflation is running at its highest level since 2009.
The other concern is unemployment, which increased for the first time this year in August. The jobless rate was 9.1%, slightly above the previous year and the first time that the rate has increased this year.
“Unemployment was falling monthly until last month. At 3% GDP growth unemployment will remain stable,” said Cárdenas.