November 20, 2014 / 3:47 PM / 3 years ago

Fitch Affirms Colombia's FC IDR at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, November 20 (Fitch) Fitch Ratings has affirmed Colombia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and 'BBB+', respectively. The issue ratings on Colombia's senior unsecured foreign and local currency bonds are also affirmed at 'BBB' and 'BBB+', respectively. The Rating Outlooks on the Long-term IDRs are Stable. The Country Ceiling is affirmed at 'BBB+' and the Short-term foreign currency IDR at 'F2'. KEY RATING DRIVERS Colombia's IDRs reflect the following key factors: Colombia's ratings reflect the sovereign's coherent and consistent macroeconomic policy framework that provides it with the capacity to withstand external shocks and implement counter-cyclical policies, improved external buffers and stronger macroeconomic performance in terms of growth and inflation in relation to peers. These credit strengths balance Colombia's high commodity dependence, limited trade openness, low revenue base and structural constraints in terms of low GDP per capita and weak institutional quality. Sustained accumulation of international reserves notwithstanding increased external volatility has strengthened Colombia's external buffers. The sovereign is a net external creditor, and its external liquidity ratio, expected to rise to 209% in 2015, comfortably surpasses the BBB median. Access to the International Monetary Fund's Flexible Credit Line (FCL) further buttresses Colombia's shock absorption capacity. Colombia outperforms BBB peers through faster growth in the context of macroeconomic and financial stability. Fitch forecasts growth to reach 4.7% in 2014 while inflation is expected to end up close to the central bank's target of 3%. Colombia's medium-term growth prospects are broadly favorable and will depend on the execution of an ambitious infrastructure program (6.2% of GDP) and the impact of external and internal factors on the oil sector. Colombia's general government debt is expected to decline to 38.9% of GDP in 2014, below the BBB median, and maintain a slow downward trajectory underpinned by continued growth and modest deficits, averaging 2.4% in 2014-2016. Fiscal accounts, though, are vulnerable to lower growth and oil price declines. Faster fiscal consolidation and flexibility are constrained by a narrow revenue base and a rigid expenditure profile. The government has put forward a tax proposal to keep central government revenues close to 17% of GDP, as lower oil revenues and expiring taxes would have increased the challenges for compliance with the country's Fiscal Rule. However, further decline international prices, the successful culmination of the Peace Process or additional social expenditure pressures could prompt authorities to make further fiscal policy adjustments. Weaker export prices and the sustained healthy pace of domestic demand could maintain current account deficits close to 4% in 2015-2016, but continued FDI inflows, access to international markets and multilateral support should provide adequate financing. While sustained decline in oil prices would negatively impact exports, a flexible exchange rate, an eventual reduction in the income account deficit and a reduction in imports due to slower domestic growth would prevent destabilizing BOP dynamics. The successful implementation of a peace agreement could provide medium to long-term benefits for the Colombian economy. In the near term, though, Colombia's growth potential is unlikely to improve significantly. Moreover, investment in the development of conflict areas (rural), combatants' demobilization, victims' reparations and institutional development are likely to require significant resources. RATING SENSITIVITIES The Stable Outlook reflects Fitch's view that upside and downside risks to the rating are evenly balanced. The main risk factors that, individually or collectively, could trigger a rating action are: Positive: --Significant strengthening of Colombia's external and fiscal balance sheets; --A higher growth trajectory that supports faster debt reduction and reduces Colombia's income gap with higher-rated sovereigns. Negative: --Material and sustained fiscal deterioration that leads to negative debt dynamics; --Sustained deterioration of external credit metrics; --Sharp reduction in the country's growth and investment prospects. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to a number of assumptions. --Fitch assumes that oil prices will reach USD87 and USD90 (brent) in 2015-2016. --Fitch assumes that authorities will undertake policy measures consistent with fiscal prudence and sustainable debt dynamics in the event of a revenue shock or greater-than-anticipated expenditure commitments. --Fitch assumes that the internal conflict in Colombia does not jeopardize the country's investment and growth prospects. Contact: Primary Analyst Erich Arispe Director +1-212-908-9165 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Shelly Shetty Senior Director +1-212-908-0324 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on Applicable Criteria and Related Research: --'Sovereign Rating Criteria' (August 2014); --'Country Ceilings' (August 2014). Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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