Colombia’s narrowing fiscal and current account deficits may improve the country’s credit risk even if it fails to reach a peace deal with Marxist rebels, Fitch Ratings said.
“Even without a lasting peace agreement, the credit fundamentals are improving,” Erich Arispe, Director of Sovereign Ratings at Fitch said. “We see good prospects for continued fiscal consolidation, sustainable growth, low inflation, and improvement in the external accounts.”
A lasting agreement between the government and guerrillas of the Revolutionary Armed Forces of Colombia, or FARC, won’t lead to any immediate benefit for Colombia’s credit risk, since the gains to the economy could take years to materialize, Arispe said yesterday in a telephone interview from New York. Colombia last year earned its first investment-grade ratings since 1999.
The yield on Colombia’s dollar bonds maturing in 2021 fell to 2.315 percent yesterday, down from 3.44 percent at the start of the year. Fitch rates Colombia BBB- with a stable outlook.
“The fundamentals of Colombia wouldn’t change in the short term,” Arispe said. “Looking at credit, specifically, we will have to wait and see how this plays out, in a very positive context, regardless, for Colombia.”
Colombian government negotiators are meeting with FARC rebels in Havana to try to reach a deal to end half a century of civil conflict. Colombian President Juan Manuel Santos said Nov. 2 that the peace talks will end no later than November next year. The guerrillas have been fighting since 1964 for a Cuban-style revolution in Colombia.
A deal with the FARC would boost confidence, increase investment and improve the fiscal accounts by allowing the government to reduce spending on security, Arispe said. At the same time, some guerrilla fighters might refuse to disarm, and form new criminal bands, while the rehabilitation of former rebels would be an additional cost for the government, he added.
Attacks on oil pipelines almost tripled to 142 in the first ten months of the year, from 52 in the same period in 2011, according to Defense Ministry statistics.
Colombia’s budget deficit narrowed to 2.1 percent of gross domestic product last year, from 3.5 percent in 2010.