Colombia’s Investment Grade at Risk as Debt Rises Under Socialist Government

Moody’s, a major credit rating agency, has lowered Colombia’s credit rating to Baa3, the lowest investment grade. This happened because the Colombian government decided to pause a rule that limited how much it could borrow.

The government made this move after spending more money than it collected in taxes, and as its debt kept rising. Colombia’s Ministry of Finance now expects the country’s budget deficit to reach 7.1% of its total economic output in 2025, up from 5.1%.

The government’s debt is also set to climb to 61.3% of the country’s economy next year. Interest payments on this debt will take up 17% of what the government earns, which is almost twice as much as similar countries pay.

Officials said they paused the borrowing rule because tax income was lower than expected and spending commitments were too high to cut quickly.

They used a legal clause that allows for such a pause, but this time there was no outside crisis like a pandemic to justify it. Moody’s said this weakens trust in Colombia’s financial management.

Tax revenue is expected to fall to about $67.5 billion in 2025, down from earlier projections. To fill the gap, Colombia plans to borrow more money from both international and local sources.

The government also wants to pass a new tax reform to raise up to $6.1 billion, but experts say the country actually needs to find $11.1 billion to meet earlier targets.

Moody’s changed Colombia’s outlook from negative to stable, saying the country’s institutions and expected economic growth of about 2.7% in 2025 and 3% in 2026 could help.

Still, if Colombia does not control its debt and spending soon, it could lose its investment-grade status altogether. This downgrade means Colombia will likely pay higher interest rates to borrow money, which could leave less for public services.

With elections coming in 2026, it is unclear if the government can fix its finances in time. The key issue is that Colombia has chosen to spend and borrow more now, hoping future growth and reforms will balance the books later. Investors and citizens are watching to see if this risky bet will work out.

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