Hopes that the incoming Colombian president will be able to implement much-needed structural overhauls along with resilient private consumption is creating a more optimistic outlook for the country’s sovereign credit, Bank of America Merrill Lynch said.
In a note to clients, the firm upgraded its 2010 gross domestic product growth estimate to 4% from 3.4%. The analysts had previously called for the Colombian economy to lag behind regional peers this year having outperformed in the previous year.
Economic growth expectations for 2011 were unchanged at 3.8%.
The bank’s upgrade comes as investors and analysts, including ratings agencies, have become more optimistic about the Latin American country after the victory of President-elect Juan Manuel Santos.
BofAML expects Santos, who takes office Aug. 7, to start the distribution of royalties from the oil and mining interests and enact structural overhauls of health care to enhance the contribution base. They also expect a implementation of a fiscal rule to establish a primary surplus.
In addition, “optimism about the Santos administration’s ability to reduce debt ratios, together with the one-year $3.5 billion flexible credit line with the International Monetary Fund and reduced vulnerability to external shocks, suggests that ratings upgrades are in Colombia’s future,” the bank said.
The analysts also adjusted their exchange-rate forcast targeting a rate of 1,850 pesos to the dollar by the end of the third quarter and COP1,900 on the dollar by the end of the year. The earlier estimates were for COP2,120 and COP2,020, respectively. (Kejal Vyas / Dow Jones)
