Moody's revised its outlook on Colombia's ratings to negative from stable, citing expectations of a slower pace of fiscal consolidation and uncertainties relating to the mandate of the new government.
Moody's said that weaker growth and lower fiscal revenue may result in a slower pace of fiscal consolidation than previously expected. The agency expects the country's fiscal deficit to decline to 3.3% of GDP in 2018 from 3.6% in 2017.
However, achieving the fiscal deficit target of 2.1% of GDP in 2019 will be "challenging given Colombia's rigid spending structure," Moody's said. It added that investment cuts may not be possible, given already low levels of central government investment and considering the impact of such cuts on growth prospects.
Government debt is estimated to peak around 48% of GDP in 2018 and remain at this level for the next two to three years, the rating agency said.
Moody's also cited uncertainties surrounding the incoming government's ability to pass fiscal reforms.
It added that enacting spending and revenue policy measures to cut Colombia's fiscal deficit could be "challenging" due to "political polarization." Colombia is set to hold its presidential elections in May.
Moody's warned that a ratings upgrade is "unlikely in the near future." The rating agency, however, may change the outlook back to stable if it sees "comprehensive" fiscal measures that will trim the country's fiscal deficit.