S&P downgrades Colombia to junk after government withdraws reform proposal

S&P Global Ratings on May 19 downgraded Colombia's long-term foreign currency sovereign credit rating to BB+ from BBB- after protests forced the country's government to withdraw a fiscal reform proposal that aimed to finance transitory and structural higher spending.

"We believe Colombia's fiscal adjustment will prove to be more protracted and gradual than previously expected, diminishing the likelihood of reversing the recent deterioration in public finance," the rating agency said.

Given Colombia's high external vulnerability and moderate economic profile, the sovereign's debt levels and relatively large fiscal deficits are no longer consistent with an investment-grade foreign currency rating, Ratings added.

READ MORE: Colombian banks fret about credit risk, but not a potential sovereign downgrade

The outlook on the long-term ratings is stable, reflecting the rating agency's view that an economic recovery, coupled with certain fiscal measures, will stabilize the government's recently worsened debt burden over the coming two to three years.

Although Colombia's rating fundamentals remain weaker than those of similarly rated peers, the country's flexible credit line with the International Monetary Fund and expectations of adequate access to international debt markets continue to mitigate external risks and support Colombia's creditworthiness.

Ratings also lowered the country's short-term foreign currency rating to B from A-3 and short-term local currency rating to A-3 from A-2. Its transfer and convertibility assessment, meanwhile, was revised down to BBB.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.