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Fitch: Repeal of Colombia's financing law to have little impact on growth

Fitch Ratings does not expect the revocation of Colombia's 2018 financing law to have a marked negative impact on the country's growth and fiscal deficit over the medium term.

Colombia's constitutional court, which repealed the law due to procedural reasons, said the measure would still be effective until the end of 2019. This would give the government an opportunity to carry out alternative measures, including resubmitting the law to Congress, Fitch said.

Given the law's validity until the end of the year, Fitch believes that the expected revenues of 0.7% of GDP from the law will remain in place. The rating agency views the law as revenue positive for this year and expects it to help in achieving the government's fiscal deficit target of 2.4% of GDP.

Although Fitch believes that the law would not be significant in achieving the country's structural deficit target of 1% of GDP, the agency noted that it introduced tax administration standards that would aid in addressing tax evasion and achieving efficiencies.

The corporate tax rate cuts and incentives under the law would have boosted investment, but Fitch considers the measures more limited than the government's estimates, so the effect would only be "marginally negative for growth."

Despite the revocation raising doubts on Colombia's judicial security and economic policymaking, it does not fundamentally change the country's fiscal and economic trajectory or policy credibility, hence it has no effect on its credit profile, Fitch said.