In what really is a continuation of the poor outlook held internationally upon LatAm’s economic future, the two most important credit rating agencies, Moody’s and Fitch Ratings, have lowered Colombia’s rating. The move should be a considerable, although not earth-shattering, hit on the Colombian economy, since its these rating that determine investor confidence and loan terms.
Last week, Fitch Ratings expressed its disbelief by rating Colombian government bonds at a BBB rating, down from BBB+.
According to Fitch, a BBB rating “indicates that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.”
Although the rating is not completely negative, it is a step back in Colombia’s long road to financial credibility, an area where the government’s political approaches to ending the internal conflict should’ve had a positive impact.
On the other hand, Moody’s Investors Service changed its outlook for Colombia’s economy from “stable” to “negative”. Their evaluation is considerably bleaker, as they argue that banks are currently lacking active capital, as debtors struggle to pay back due to a variety of external factors.
Its these external factors that caused such a notorious shakeup in creditor trust. Mainly, as a problem that hit LatAm economies indiscriminately, is the continued slump in the price of oil an essential indicator of performance for extraction economies such as Colombia. It is not just oil, however, prices are low across the board for commodities, which means it is not a surprise that investor trust has faltered.
Additionally, the looming threat of inflation and the devaluation of the peso difficult successful business deals abroad.
The Colombian Post | Pedro Bernal