The risk rating agency Moody’s maintains Colombia’s credit rating at Baa2, but with a negative outlookThis is due to the challenging macroeconomic conditions that the country is facing, which would impact fiscal consolidation, the growth trend and the cost of borrowing.
This is in addition to the ratings of S&P Global Ratings and Fitch Ratings, which in recent months also changed their outlook from stable to negative, due to lower-than-expected economic growth.
But how does this rating affect the country and why is this rating and the new perspective that Colombia has so important for the risk rating agency? We tell you.
(More: Moody’s lowered the outlook on Colombia to ‘negative’ in its most recent rating).
The three rating agencies that are in charge of monitoring Colombia’s economic progress
In addition to Moody’s, there are two other rating agencies in charge of monitoring Colombia’s economic progress: Fitch Ratings and Standard & Poor’s, which establish a grade (taking into account factors such as inflation, GDP, debt, among others) with which investors can measure the degree of risk and thus begin to analyze whether or not it is convenient to invest.
Since the implementation of this rating model, risk rating agencies have played an important role in the transparency of information, which has led to the arrival of more investors, confident in the good practices that Colombia advances in economic matters.
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Soif the country’s credit rating drops and the investment grade is lost, the national economy could be in dangerThis is because the conditions would be more adverse and, therefore, the probability of non-compliance with obligations increases.
To understand how credit ratings are read, it is important to note that they have two parts: the rating and an outlook. The rating is the country’s rating, and the outlook is how this rating could change in the future, which is usually 12 months.
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Portfolio File.
Although each rating agency has different scales, the usual thing is that A is the highest, B is good and satisfactory and C and E do not qualify for investment.
Therefore, a BBB means that it is above a BBB- or a BB+, but below a BBB+ or AA+.
For a rating to change, situations such as a country’s current account deficit, macro aspects, international conditions, tax reforms, etc. interfere. among other topics.
What does the negative outlook on Colombia’s credit rating mean?
According to information from the Bank of the Republic, “the negative outlook from Moody’s
indicates that it could revise the rating downwards in the medium term“, which represents a possible drop in the rating awarded in the future.
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In this way, with the new perspective the country could move away from the return it had already taken towards investment grade.
Despite the change in perspective, Moody’s highlighted the capacity that the National Government has demonstrated to make spending cuts in order to comply with the fiscal rule and keep debt levels under control, in line with its peers.
In this regard, Ricardo Bonilla, Minister of Finance, pointed out that “The risk rating agency has placed a vote of confidence in the country, highlighting the forceful decisions to cut spending in order to maintain fiscal and macroeconomic sustainability that the Government of President Petro has taken.“.
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