May 19, 2024
Colombian economy

Colombia GDP Growth Seen Rebounding to 4.9% in 2021; Wall Street, President Duque Like U.S. President-Elect Biden

Wall Street bond rater Fitch Ratings announced November 6 that Colombia’s gross domestic product (GDP) is likely to rebound to a positive 4.9% in 2021, up from the Coronavirus-caused 6.9% GDP contraction this year.

Meanwhile, bond ratings on Colombian sovereign debt remain at a modest “BBB-” with a continuing negative outlook because of the hangover effects of Coronavirus contractions this year, according to Fitch.

“Colombia’s ‘BBB-‘ rating reflects the government’s long track record of conservative macroeconomic policies that have underpinned macroeconomic and financial stability,” according to Fitch.

“Its ratings are constrained by high commodity dependence, weaker external metrics compared with peers, rising government debt burden and structural weaknesses in terms of low GDP per capita and weaker governance indicators relative to peers.

“The ‘negative’ outlook reflects downside risks to the economic growth outlook and uncertainties about the capacity of the government’s policy response to decisively cut deficits and stabilize and eventually lower debt in the coming years, following the sharp rise in general government debt burden as a result of the Coronavirus pandemic.

Beyond the 4.9% GDP rebound in 2021, “Fitch projects growth of 3.8% in 2022, above the estimated medium-term growth potential of about 3.0% as a result of the large output gap that has emerged,” according to the company.

Fiscal deficit is forecast to rise to 9.1% of GDP in 2020 “due to the sharp fall in revenues and higher spending to combat the pandemic as well as economic reactivation measures,” the Wall Street analyst adds.

“The deficit is expected to gradually diminish to 7.5% in 2021 and 4.9% in 2022. The government suspended its fiscal rule for two years to combat the pandemic and reactivate the economy with increases in spending in both years.

“Although Fitch expects revenues to increase in 2021 given the cyclical economic rebound, income taxes and oil revenues will likely underperform the budget targets given lagged effects of 2020 economic activity and drop in oil prices,” the company added.

Tax revenues would rise by around 2% of GDP in 2022-2024 “due to implementation of a tax reform,” but “budget deficit reduction in 2022 will depend on the government’s ability to pass revenue-enhancing measures given the spending rigidities which regional transfers and other nondiscretionary social spending impose,” according to Fitch.

Government budget deficits this year largely tapped foreign finance, “including the planned use of US$5.3 billion from the IMF [International Montetary Fund] Flexible Credit Line,” according to Fitch.

Foreign direct investment has covered around 70% of Colombia’s current-account deficit in the last decade, “where it is expected to remain over the medium term.”

“Net external debt is expected to rise to 18.4% of GDP in 2020 — surpassing the current BBB median of 10.2% — up from 12.1% of GDP in 2019,” according to Fitch.

“International reserves have risen in 2020 to US$57 billion, from US$52.7 billion in 2019, improving external liquidity measures (10 months of current account payments, up from 7.6 months in 2019).

“Colombia’s floating [peso-to-dollar exchange] regime and the IMF’s Flexible Credit Line (augmented to US$17.2 billion in September 2020) help mitigate external vulnerabilities,” the analyst concluded.

President Duque Congratulates President-Elect Biden

Meanwhile, Colombia President Ivan Duque on November 8 congratulated incoming U.S. President-elect Joe Biden and incoming Vice President-elect Kamala Harris.

Duque noted that long before the election of new President Biden, “when he was a member of Congress, [Biden] supported the initiative that was Plan Colombia, and has maintained a very close relationship with our country.

“With [former U.S.] President Bill Clinton we made the leap [expanding] Plan Colombia. With President George Bush we made progress not only on security issues, but also on trade issues.

“During the administration of President Obama, very important issues regarding the relationship with Colombia were also explored. And I also want to emphasize that with the administration of President Trump we have had a very good and fruitful relationship on security issues, the fight against drug trafficking, trade, innovation, and we have recently signed what is known as ‘Colombia Crece,’ a program which is a new version, a new update of what was Plan Colombia at the time,” Duque concluded.

Wall Street Soars on Biden Election, Covid-19 Vaccine News

Meanwhile, on top of the new, encouraging outlooks for Colombia and continuing good relations with the U.S. — its number-one investment and trading partner —  major U.S. and European stock indexes skyrocketed today (November 9) on news of President Biden’s victory over Donald Trump, along with news from U.S. drug maker Pfizer and its German biotech development partner BioNTech announcing a 90% effectiveness for a new Covid-19 vaccine.

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