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Fitch: Fiscal risks in Colombia persist, despite good H1 data

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Fitch: Fiscal risks in Colombia persist, despite good H1 data

While Colombia is likely to meet its 2019 fiscal target of 2.4% of GDP, as reflected in its data from the first half of the year, the country will face challenges meeting the target for 2020, Fitch Ratings said.

According to the rating agency, the risks to fiscal consolidation and to stabilizing public debt dynamics persist, while "optimistic assumptions underlying the 2020 budget that the government announced last month point to next year's deficit being higher than the budget without additional midyear adjustments."

The 2020 budget projects for 4% GDP expansion and currency appreciation, whereas Fitch expects real GDP growth to be 3.2% and for the currency to depreciate.

The rating agency also believes that U.S.-China trade tensions pose a risk to economic growth and a decline in major global growth drivers is probable.

In Fitch's opinion, even if Colombia meets the 2019 deficit target, the general government debt to GDP ratio will increase to 43.7% in 2019 from 42.3% in 2018, partly because of the recognition of contingent liabilities — which include pension costs, healthcare related and judicial sentences — as well as currency devaluation.

Moreover, the 2018 tax reform, which consists of personal income tax increases and other tax incentives but lowered corporate income taxes, will boost revenues in 2019 but result in a significant loss of revenues in 2020 when the lower corporate tax rates and incentives for capital investments start to take effect.