Fitch: Colombia’s prospects with Gustavo Petro’s government

Gustavo Petro’s presidency officially began, and being the first progressive government in the country, there are several doubts regarding economic and fiscal matters. In this regard, the financial corporation Fitch Rating made an X-ray of what the country can expect during this four-year term.

The report was made by the firm’s analysts, Richard Francis and Shelly Shetty, who highlight issues such as economic perspectives, the president’s governance, and the gas and oil sector, which would be one of the flagship elements of the new government.

In economic matters, the first scenario that Fitch foresees is that after reaching 6% in 2022 “driven by continued strong consumption and better terms of trade”, this growth will decelerate, ending with 2.4% in 2023.

When will this effect be seen? Analysts point out that the slowdown will begin during the second half of the year, with the impact of inflation on household consumption. In addition, the lags left by the international situation in oil prices.

“Political and policy uncertainties may contribute to part of the peso’s depreciation and volatility, from Fitch’s point of view. We believe Colombia’s medium-term trend growth rate is around 3.3%. However, there is much uncertainty as Colombia’s savings and investment rates have fallen over the last decade, and it is unclear whether the pandemic has had a lasting impact on the labor market,” the company commented.

Regarding challenges, Fitch notes that the country will face significant fiscal adjustment, higher taxes, and lower pandemic-related spending, as well as macroeconomic uncertainty resulting from the new administration, which could affect investment.

“There are uncertainties about the business climate under the new administration. There could be changes in environmental regulations, the tax regime, and the extractive sectors, and the capital market could lose liquidity,” the study adds.

THE EFFECT ON OIL AND GAS

The document points out that one of the Petro Government’s flagship proposals is the transition of the extractive economy towards renewable energies while respecting the current exploration contracts. However, for Fitch, it could bring effects to the industry.

“It has ruled out fracking, where Colombia probably has great potential. Consultations with local communities on oil and mining projects could become even more onerous. In addition, changes in Ecopetrol’s board of directors are not ruled out,” Fitch lists.

All these elements, added to an international situation in which the price of crude oil stabilizes, could also affect the national panorama, whose exports depend on this industry for more than 50%.

COLOMBIAN DEBT

The outlook for domestic debt is more favorable, with Fitch forecasting that overall debt/GDP will fall in 2022 and stabilize at around 60% by 2023. But once that happens, it will be necessary to strengthen efforts to reduce it further.

He also recalled the bet that the new Finance Minister, José Antonio Ocampo, would respect the fiscal rule to reduce the government’s debt to 55% of GDP and the deficit by 3% in the four years.

“After two years of general government fiscal deficits above 7% of GDP, we expect a slight reduction of the deficit to 6.6% of GDP in 2022 due to the superior performance of revenues”, the document specifies.

With information from La República