In an interview with news organization Primera Pagina, Joydeep Mukherji, head analyst for Colombia at the ratings agency Standard and Poor’s (S&P), explained how Juan Manuel Santos’ incoming administration can attain an investment-grade foreign currency rating.
In a copy of the interview, published by La Republica Thursday Mukherji listed “12 commandments” which Colombia will need to fulfil in order to reach the prestigious label.
One of the most important requirements is fiscal reform. “Colombia’s tax system continues to be dogged by many exceptions, generous deductions, scattered tax rates (there are nine different types of sales tax),” the analyst stressed. He added that the government could save approximately 1.5 per cent of its GDP by tightening different loop-holes in income tax.
Other pre-conditions included continued economic growth at a rate of 4-5 per cent of GDP in the coming years, improvements in infrastructure, investments in health and education and an ongoing focus on security.
The economist’s assessment of the status of the Colombian economy was positive. He quelled fears that the Andean state was vulnerable to “Dutch Disease,” a phenomenon which sees a decline in a countries’ manufacturing sector when there is high exploitation of raw materials. For the moment, revenue from the sale of natural resources is not high enough to trigger this phenomenon, he argued.
Primera Pagina’s report follows S&P’s upgrading of Colombia’s foreign currency rating, the measure of a state’s ability to repay debts in a foreign currency, earlier this month. The ratings agency improved its outlook from “positive” to “stable.” While its current credit assessment is BB+, the S&P is optimistic that it will be able to give Colombia a BBB- label, which would put the state in the prestigious investment-grade category.
“We could raise the foreign currency rating to BBB-, if the incoming Santos government maintains recent progress in security and takes measures to increase state revenue in order to contain fiscal pressures (such as an increase in healthcare spending),” Mukherji said.