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S&P May Raise Colombia Credit Rating as Growth Buoys Revenue

Aug. 15 (Bloomberg) -- Colombia’s foreign debt rating may be raised by Standard & Poor’s as economic growth in the Andean country increases revenue and leads to lower debt levels.

S&P rates Colombia BBB-, the lowest level of investment grade. The outlook on Colombia’s credit rating was moved to positive from stable, the agency said in a statement today.

“A gradually declining debt burden, combined with continuity in key economic policies in coming years, could sustain GDP growth, strengthen the resilience of the Colombian economy, and reduce its vulnerability to external shocks, leading to a higher rating,” Joydeep Mukherji, an S&P analyst, said in the statement.

Colombia won an investment-grade credit rating last year for the first time since 1999 as improved security bolstered economic growth and attracted record foreign investment. Congress in 2011 passed legislation, known as the fiscal rule, allowing the nation to save part of the windfall it receives during times of rising commodity prices.

Colombia’s budget deficit may narrow to 1 percent of gross domestic product this year, below the government’s 1.2 percent target, Finance Minister Juan Carlos Echeverry said yesterday. Foreign direct investment in Colombia will likely rise to a record $17 billion this year, Echeverry said earlier this month.

Moody’s Investors Service and Fitch Ratings also rate Colombia’s foreign debt at the lowest level of investment grade and both have a stable outlook on the rating.

Extra Yield

The extra yield investors demand to hold Colombia dollar bonds instead of U.S. Treasuries fell 7 basis points to 118 basis points, according to JPMorgan Chase & Co.’s EMBIG index.

“Colombia’s fiscal performance has been improving at an impressive pace,” Bret Rosen, a Latin America strategist at Standard Chartered Bank in New York, said in a phone interview. “Colombia is a positive story and this shines light on its achievements.”

Colombia’s central bank on July 27 reversed course and unexpectedly cut borrowing costs for the first time since 2010 to buoy growth as the European debt crisis hurts export revenue. The bank also lowered its 2012 economic growth forecast to 3 percent to 5 percent from 4 percent to 6 percent.

The cost of insuring Colombian debt against non-payment for five years stood at 113.64 today, below that of Brazil at 127.06 and above Mexico at 111.46, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.

S&P rates both Brazil and Mexico BBB, which is one level above Colombia’s BBB-.

“The market has confidence in the government,” said Rosen. Colombia’s CDS nearing Mexico and trading below Brazil, “shows the market was already pricing in the move.”

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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