This upward trend began two weeks ago, when it was learned that the government of Iván Duque had withdrawn the tax reform due to pressure from the Colombian population, and that the former Minister of Finance, Alberto Carrasquilla, had resigned.
The international rating firm, Standard & Poor’s, reported Wednesday which lowered Colombia’s “long-term foreign currency rating” from ‘BBB-‘ to ‘BB +’ and its “long-term local currency rating” from ‘BBB’ to ‘BBB-‘, which means that it has already it is not ‘investment’ grade.
Analysts highlighted the need for a fiscal adjustment in the country, and explain that their decision is due to the fact that this “will be longer and more gradual than previously anticipated, which reduces the probability of reversing the recent deterioration in public finances” caused for the pandemic.
“The downgrades occur after the withdrawal of a tax reform presented to Congress, which in a context of high spending pressures, results in a significantly lower probability that Colombia will improve its fiscal position,” the specialists added.
Although the outlook for the new rating is ‘stable’, which means that there is a good outlook to stabilize the situation within two to three years, accompanied by necessary tax measures, S&P also indicated that there are reasons why the rating could change again.
The rating agencies and international banks had warned about the effects of not advancing a tax reform, and the high price of the dollar is one of the consequences.