Moody’s Investors Service moved toward a possible investment-grade upgrade on Colombia, as it lifted the nation’s outlook to positive on improved prospects for structural fiscal consolidation as a result of proposed legislation aimed at accelerating debt reduction.
The ratings agency also touted favorable medium-term prospects in oil production that mitigate concerns of sluggish growth relative to peers. Aggressive investment in the oil sector has resulted in higher output as foreign direct investment now comprising close to 80% of the spending in the space, compared with less than 5% in 2000.
Moody’s — which has Columbia at Ba1, its highest speculative-range grade — said it sees oil output expanding significantly over the next few years, thus providing an important impetus to economic growth.
Meanwhile, the South American nation’s new administration has made fiscal responsibility a policy priority and has proposed legislation that would establish structural balances and reduce central government debt to below 30% of gross domestic product by 2020. In addition, it is anticipated revenue windfall from the impending oil boom will be used to pay down debt.
Still, Colombia’s debt consolidation has been slow, even in the years of high economic growth preceding the global crisis, with central government debt remaining at about 40% of GDP the past decade. Expenditure rigidity and a low tax burden have resulted in persistent deficits, said Moody’s.
Thursday’s ratings outlook increase to positive also recognizes that the global crisis didn’t lead to meaningful deterioration of Colombia’s key debt indicators.
Further, difficult trade relations with neighboring Venezuela, a key trading partner and the recipient of a substantial share of Colombia’s non-traditional exports, have not led to a significant worsening of Colombia’s overall balance of payments. Total exports have continued to grow as oil exports volume and prices have compensated for the loss. Moody’s said the situation with Venezuela has forced Colombia to diversify its export destinations, a positive development for the longer term.
A number of South American nations — including Brazil, Chile and Peru — have been praised by ratings agencies in recent months as they were less affected by the global economic slowdown than nations with more developed economies. (John Kell / Dow Jones Newswires)
