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Financial News: COLOMBIA: Slower Economic Growth Could Undermine Credit Ou

COLOMBIA: Slower Economic Growth Could Undermine Credit Outlook - Fitch

07/11/2017 - 19:52:00 (RTTNews)

(RTTNews) - A lower-than-expected economic growth and larger fiscal deficits could undermine Colombia's creditworthiness and the country's efforts to stabilize and gradually reduce the government's debt burden, said Fitch Ratings in a report.

The medium-term fiscal framework recently released by the Colombian government foresees a lower Gross Domestic Product (GDP) and a slower reduction in the fiscal deficit to 3.1% of GDP in 2018, compared to an estimated 2.7% ratio a year earlier. As a result, Fitch expects the debt to GDP ratio to stabilize in 2018 instead of beginning to fall, as expected in the 2016 report.

"The changed fiscal targets do not jeopardize the overall trend toward reducing the debt burden in the medium term, but they do highlight risks of fiscal slippage," Fitch Ratings said.

The 2019 target will remain unchanged at a deficit of 2.2% of GDP, turning into a structural budget deficit of 1% of GDP by 2022. The adjustment of almost 1% of GDP needed to achieve the 2019 target is ambitious, according to Fitch, and relies on additional spending cuts and anti-tax evasion measures earned by beefing up the tax authority's capacities.

Finally, Fitch Ratings said it recently revised its growth forecast for 2017 to 2%, down from 2.3%, but said that the estimate for 2018 remains unchanged at 3.2%. "Monetary easing currently underway will likely boost domestic demand, infrastructure bottlenecks are likely to be resolved beginning in 2H17, and oil production should stabilize," Fitch said in its report.

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