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Moody's, Fitch revise Colombia's outlooks in completely opposing moves

Moody's and Fitch Ratings on May 23 carried out contradicting outlook revisions on Colombia, although both highlighted a need for stronger fiscal consolidation amid the country's higher spending needs and lower revenue expectations.

Moody's changed Colombia's outlook to stable from negative, citing the country's recovering economic activity and the administration's fiscal consolidation efforts that will likely ease the government's debt burden. The rating agency believes that Colombia's credit profile is still aligned with its similarly rated peers despite the erosion in its economy following the oil price shock about five years ago.

However, on the same day, Fitch revised Colombia's outlook to negative from stable as it noted a deterioration in the country's external metrics due to a higher current account deficit, lower external liquidity and rising net external debt. Constant budgetary changes, the watering down of tax revenue-saving measures in Congress amid high spending needs and relatively low fiscal cushions also reduce the predictability and credibility of medium-term fiscal policy, Fitch said.

In Fitch's view, cuts in the government's tax revenues starting 2020 and rigid spending commitments call for more stable fiscal adjustments and a gradual reduction in debt.

Moody's mirrored that view, noting that numerous tax cuts "will challenge additional fiscal consolidation" in line with its fiscal rule targets by 2020. "However," it added, "initiatives related to reducing tax evasion, and efforts to contain the growth in expenditure categories such as subsidies, will support a gradual decline in fiscal deficits."

Moody's affirmed Colombia's long-term local and foreign-currency issuer, senior unsecured debt ratings and foreign-currency shelf senior unsecured ratings at Baa2. Fitch affirmed the country's BBB long-term foreign-currency issuer default rating.