Fitch Ratings has affirmed Colombia's ratings as follows:
-- Foreign Currency Issuer Default Ratings (IDR) at 'BB+';
-- Local Currency IDR at 'BBB-';
-- Country Ceiling at 'BBB-';
-- Short-term IDR at 'B'.
Fitch has revised the Rating Outlook to Positive from Stable.
The Outlook revision to Positive reflects Colombia's economic resilience and improved macroeconomic performance in relation to its peers. Colombia's expected increase in oil and mining production will likely benefit overall economic activity and export receipts, in turn supporting improvements in external solvency and liquidity metrics. Fiscal measures that are currently being discussed in Congress also augur well for further strengthening of Colombia's fiscal capacity and policy credibility.
Colombia's creditworthiness continues to be underpinned by its track record on macroeconomic stability, modest external debt, deft liability management, an unblemished debt service record and greater institutional strength in comparison to peers. These credit strengths partly balance comparatively weaker external and fiscal solvency ratios, as well as structural weaknesses present in public finances.
Colombia's economic growth and external accounts proved resilient to the severe dual shock of the global financial crisis and the 'sudden stop' of trade with Venezuela, its second largest trading partner. In spite of comparatively slow recovery by regional standards, Colombia's five-year average growth, reaching 4.4% in 2009 and 4.3% in 2010, is expected to outperform the 'BB' median of 3.5% and 3.1%, respectively.
Moreover, inflation is likely to remain under control and at historically low levels, thus supporting a macroeconomic performance in line with higher-rated sovereigns. Fitch notes that the central bank has been prudent to use the opportunity of lower inflation to permanently reduce its inflation target.
'Continued healthy growth, underpinned by increasing domestic demand and positive developments in the mining sector could support fiscal consolidation and debt reduction in the coming years,' said Erich Arispe, Director in Fitch's sovereign group.
The sovereign's manageable debt amortizations profile, a favorable debt composition and a demonstrated high debt tolerance partly mitigate risks associated with high revenue volatility and a rigid expenditure profile. Fitch forecasts the general government (consolidated central government, regional and local governments and social security) deficit to increase to 3.4% of GDP in 2010, while general government debt could reach 40.9% of GDP, slightly above the 'BB' median of 39.3%. However, Fitch notes that spending pressures related to health care, social expenditure, and regional transfers will remain and require skillful management to deliver continued fiscal consolidation.
The transition to the Santos administration has been smooth and augurs well for policy continuity and a renewed reform momentum. The new government has put forward an ambitious reform agenda designed to entrench macroeconomic stability, increase the country's growth trajectory and strengthen the credibility of fiscal policy. Fiscal initiatives such as embedding fiscal responsibility as a constitutional principle, the implementation of a fiscal rule, and the reform to the royalty regime could provide a credible path for sustainable fiscal consolidation as well as increase the government's capacity to implement counter-cyclical fiscal policies.
Colombia's external accounts demonstrated greater-than-expected resilience to lower external demand, a terms-of-trade shock and the closure of the Venezuelan market in the second half of 2009. Colombia's external liquidity rose to 211% in 2010, comfortably above the 'BB' category median of 176%. While a higher liquidity position is desirable due to increasing importance of commodities in external receipts and the status of the sovereign as a net external debtor (at 15% of CXR), Fitch considers that the modest external leverage of the private sector, manageable external financing requirements, limited portfolio inflows and absence of dollarization in the financial system limit the extent of potential FX needs.
Moreover, external solvency and liquidity metrics could strengthen going forward due to increasing commodity exports (driven by higher production), progress in diversification of non-commodity exports in terms of markets, as well as continued FDI inflows. 'Reduced trade exposure to Venezuela, as well as progress in diversification of Colombian non-traditional export markets benefit the growth prospects for current external receipts and economic activity,' added Arispe.
Sustained macroeconomic stability, further improvement in the fiscal stance and a steady strengthening of external credit metrics would be viewed positively. Greater clarity on the effect of rising oil and mining production on fiscal and external accounts as well as reforms that strengthen Colombia's fiscal policy framework would also be positive for creditworthiness. On the other hand, sustained fiscal deterioration leading to negative debt dynamics could undermine Colombia's positive ratings trajectory.
Fitch Ratings will host a teleconference tomorrow at 11:00 am ET to further discuss the rationale behind today's rating action as well as the prospects for the credit to reach Investment Grade. The call-in details are as follows:
-- Date & Time: Friday, Oct. 15, 11:00 am ET
-- Dial-In Info: +1-877-233-9813 (U.S./Canada) or +1-706- 679-8437 (International)
-- Conference ID: #18722700
-- Call Leader: Erich Arispe
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Sovereign Rating Methodology', dated Aug. 13, 2010.
Applicable Criteria and Related Research:
Sovereign Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547765
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Contacts:
Fitch Ratings
Primary Analyst
Erich Arispe, +1-212-908-9165
Director
Fitch
Inc.
One State Street Plaza
New York, NY 10004
or
Secondary
Analyst
Shelly Shetty, +1-212-908-0324
Senior Director
or
Committee
Chairperson
David Riley, +44-20-7417-6338
Group Managing
Director
or
Media Relations:
Brian Bertsch,
+1-212-908-0549
Email: brian.bertsch@fitchratings.com