Colombia Rating Outlook Revised to Negative as S&P Cites Oil

  • South American country's BBB foreign-currency rating affirmed
  • S&P says tumble in oil is dimming prospects for growth

The outlook on Colombia’s credit rating was cut to negative by Standard & Poor’s, which cited deteriorating growth prospects amid the tumble in oil prices and said the country is in need of fiscal reform.

The foreign-currency rating was affirmed at BBB, two levels above junk, S&P said in a statement Tuesday. Colombia has had an investment-grade rating from S&P since March 2011. Moody’s Investors Service and Fitch Ratings have equivalent ratings on the country with a stable outlook.

Economic growth is forecast to slow for a third consecutive year in 2016 as the country copes with a plunge in crude prices that has sapped government revenue, weakened the currency and spurred forecasts for the widest current-account deficit in at least three decades. The state-controlled oil company and the government have both said they intend to slash spending this year to cope with the reduction in revenue from energy production.

“S&P’s outlook obliges us to remain very firm on the path of fiscal adjustment and the reduction in the current-account deficit,” Finance Minister Mauricio Cardenas said in a post on Twitter.

Cardenas has said that Colombia should pass tax changes in the second half of the year, disappointing investors who had expected a plan to boost revenue would be presented in March. President Juan Manuel Santos’s government has instead prioritized peace negotiations with the country’s main guerrilla group, the Revolutionary Armed Forces of Colombia, which are set to conclude next month. Any delay to a peace accord may make it harder for the government to pass tax reforms, S&P said.

“If, contrary to our expectations, the peace process suffers marked setbacks, the government may find it more challenging to take timely and adequate fiscal steps, especially in a context of a decelerating economy,” S&P said in the statement. “The negative outlook reflects the risk that Colombia’s fiscal and external positions could deteriorate further, beyond our base-case expectations, should the government be unable to advance this year with fiscal measures that would help stabilize its recently rising debt burden and reduce economic imbalances.”

The Colcap stock index dropped 0.8 percent after earlier gaining as much as 1.1 percent. The benchmark 2024 local peso bonds fell 0.9 centavo to 105.155 centavos per peso, according to the stock exchange.

The risk of owning Colombia’s bonds, as measured by five-year credit-default swaps, has more than doubled over the past year, the worst performance among 19 emerging-market economies tracked by Bloomberg.

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