Moody’s interview on the situation of the Colombian economy – Sectors – Economy

Moody’s It is the only risk rating agency that maintains the investment grade for Colombia, unlike Fitch Ratings and Standard & Poor’s, which removed it in May 2021. In an interview with EL TIEMPO, the agency’s principal analyst for the country , Renzo Merino, talks about how he has seen macroeconomic policy in this first year of the president’s administration gustavo petro and features are the risks you are most concerned about.

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A few days ago, Moody’s affirmed Colombia’s Baa2 rating. What factors support this decision?

On the one hand, the fortress that we have seen is operating. In the context of last year’s elections we thought it was going to be very important the balance of powers of congress, the government and the courts and that the counterweights were going to drive macroeconomic policy. And that is what we have seen throughout the administration of the President Petro. LPrudent macroeconomic policies have been maintained, which has allowed the economy to emerge from shocks. On the other hand, in the context of the pandemic, one of the concerns was the tax issue. However, we have observed that, thanks to a very dynamic economic recovery and a gradual fiscal consolidation process, the numbers have stabilized to the point that Colombia compares well with its peers.

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They also kept the outlook stable. What did he wear?

This reflects a base scenario in which we contemplate that this prudent macroeconomic management will continue, especially in terms of compliance with the fiscal rule. We see that the institutional counterweights will continue to operate. Although there may be changes in some policies, we believe that they would be carried out within the institutional framework.

Do you think that the dollar down in recent days responds to the brake that the reforms have had?

We believe that it partly responds to the dynamics that we have seen in the discussion of the different reforms, of the counterweights and the probability that they will prosper in a different way from the initial proposals that some consider radical in terms of possible changes to the existing model. An appreciation of the peso could help the process of falling inflation and one of the cost of government funding, that is, it helps it to have to spend less on interest in relative terms.

And how do you see the discussion of social reforms?

The term reform paralysis has been widely used. That may not be entirely, because the truth is that in Colombia, before the pandemic, we saw that there were social pressures that had affected the ability to implement policies. At the same time, there are other structural issues such as informality, growing at a faster rate or recovering what was lost in the commodity shock several years ago. So, To the extent that reforms can be made to address these social and structural issues, they could even be positive. What we hope is that there will be some moderation and consensus building in Congress. This could imply that there may be positive changes in the projects and other modifications that we will have to see how they affect the different aspects of the credit profile.

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So, yes to the reforms, but with counterweights?

Yeah.

And do you think they could put more pressure on spending?

If nothing changes on the income side and there is more social spending, it could mean greater rigidity and the next shock would be more difficult. Something that we are monitoring is the effort made by both the previous and this government to improve the efficiency of spending. In addition, we also highlight that this administration passed a tax reform. This is something that in other countries we have not seen. In addition, it is important that all the fiscal measures that have been adopted always try to comply with the fiscal rule.

Are you calm with the change of Minister of Finance, from José Antonio Ocampo to Ricardo Bonilla?

Yes, we have met, but for now virtually. What the minister has said publicly and to us as well is that the commitment to maintain a prudent policy remains, and he sees it as something positive.

How much do you expect the economy to slow down in 2023?

we hope they grow 1.5 percent and by 2024 we are forecasting a rate close to 2 percent. But beyond these projections, the question is what growth will be in the medium term, if it can return to 3 percent levels.

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The Government is expecting a higher fiscal deficit than expected. The imbalance would no longer be 3.8 but 4.3 percent of GDP. It worries them?

Obviously, the price of oil is lower than what had been budgeted for. We hope that there will be a correction and it is something that we are seeing in all the countries that have structural deficits. Beyond that, we’ll have to see over the course of 2023 and 2024. compliance with the fiscal rule and debt goals.

What do you think of the plan to increase the price of gasoline?

The gasoline policy shows a balance between social and fiscal reconciliations. The subsidies were putting a lot of pressure on balance sheets and the government’s ability to meet the fiscal target. In this sense, to the extent that the price is raised to reduce the subsidy, it is positive, since it gives the Government more room to comply with the rule. Obviously, from a social perspective it is not a popular measure. We see it as another indication that this government is committed to complying with fiscal parameters.

What would you say are the risks that worry you the most?

The balance that the Government has to maintain based on its policies. Prudent macroeconomic management, addressing social issues and also fostering investor confidence. Above all, that this was something that affected some of the financial variables from 2021 and in particular last year, such as the exchange rate or the cost of funding for the Government.

Growth in the medium term and the process of fiscal consolidation. Beyond the issue of the current slowdown in the economy, it is important that there be national and foreign investment. See how the perception of risk continues and how the issue of the energy transition progresses, that there is greater clarity on the subject, already with a concrete plan would be positive.