(Reuters) -Ratings agencies S&P and Moody’s downgraded Colombia’s debt rating by one notch on Thursday, with both citing weaker fiscal performance.
S&P lowered the rating to “BB”, two notches below investment grade, and Moody’s to “Baa3”, its lowest investment-grade rating, with a stable outlook.
S&P, however, assigned a negative outlook on Colombia’s rating, indicating the risk of a further downgrade over the next 18 months.
Latin America’s fourth-largest economy is facing deteriorating fiscal accounts amid lower tax revenues, high public debt and difficulties in reducing spending.
The Colombian government last week suspended compliance with its so-called fiscal rule, to allow it to increase its deficit target for 2025 to 7.1% of gross domestic product from 5.1% of GDP. It said the goal was to boost the economy, especially agriculture and manufacturing.
“Colombia’s fiscal dynamics have worsened more than we expected,” Moody’s said in a release.
“The overestimation of revenue for the 2024 and 2025 budgets has raised fiscal pressures that have not been compensated by spending measures.”
S&P said the combination of large fiscal deficits and weak economic performance had worsened Colombia’s public finances and increased its vulnerability to external shocks.
“Fiscal policy has also become less predictable, as highlighted by the government’s recent decision to suspend the country’s fiscal rule for three years,” the agency said.
S&P warned that steady fiscal deterioration could persist over several years, along with the country’s heightened security challenges, further worsening its credit profile.
Colombia is weighing boosting its external and domestic debt by several billion dollars this year to cover a deepening fiscal deficit, Reuters reported earlier this month, citing three market sources with knowledge of the matter.
(Reporting by Devika Nair in Bengaluru; Additional reporting by Kevin Buckland; Editing by Jacqueline Wong and Kate Mayberry)
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