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Colombian economy 66

Wall Street bond rater Fitch Ratings announced last night (July 1) that it has downgraded Colombia’s “Long-Term Foreign-Currency” (LTFC) and local currency “Issuer Default Ratings (IDR)” to ‘BB+’ from ‘'BBB-,’' but Colombia’s debt outlook is now revised to “stable,” up from the prior rating of “negative.”

“The [LTFC] downgrade reflects the deterioration of the public finances with large fiscal deficits in 2020-2022, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years,” according to Fitch.

“Colombia’s gross general government debt (GGGD) to GDP is forecast to reach 60.8% in 2021, more than double the 30% level when Fitch upgraded Colombia back to the ‘'BBB’ category in 2011.

“Fitch expects debt to continue to rise through 2022 and does not expect significant debt reduction over the medium term, leaving Colombia vulnerable to shocks. Furthermore, Fitch sees significant risks to the government’s fiscal consolidation plan, given the reliance on tax administration efforts and divestments, as well as the uncertainty of the impact of the pending tax reform,” the bond rater added.

The Covid-19 pandemic caused a 6.8% GDP contraction in 2020, caused the government debt-to-GDP ratio to hit 58.3%, up from 44.7% in 2019. “Fitch now expects government debt to GDP to continue to rise over the forecast period to 64.4% of GDP by 2023,” the analyst added.

While the Covid crisis caused a big jump in unemployment along with contractions in GDP, private-sector income and government tax revenues, “the pace of [Covid-19] vaccinations is now picking up, with around 23% of the population receiving a least one jab according to Our World in Data, and unemployment has fallen to 15% as some of the hardest hit parts of the economy begin to reopen,” Fitch noted.

Following a failed tax proposal in April that aimed to tax wealthier people and corporations in order shore-up government finances and extend benefits to Colombia’s poorest populations, “Fitch expects the government to reintroduce a revised tax reform package in July 2021 when the new session of Congress commences, and is targeting a benefit of around 1.2% of GDP on a net basis,” the analyst noted.

“However, Fitch believes that the majority of the fiscal benefit will be obtained only in 2023 --given reliance on corporate income tax measures -- while the government extends some pandemic related spending such as cash transfers into 2022,” the analyst added.

However, “the passage of any reforms will be difficult to achieve given the growing social pressures, the government’s low popularity and the upcoming elections, with congressional and presidential elections scheduled for March 2022 and May 2022 respectively,” Fitch noted.

Combined with further extension of government subsidies to the poor, “Fitch forecasts central government deficits of 8.2% in 2021 and 6.9% of GDP in 2022,” up from lower amounts in the last decade, the analyst added.

If the government succeeds in selling some state assets, then fiscal deficits could be reduced, Fitch added.

In addition, “the government has outlined an updated fiscal rule to be presented with its new tax reform proposal that will include a debt anchor of 55% of GDP with a limit of around 70% of GDP,” Fitch noted.

On a positive note, “Fitch has raised its GDP growth forecast to 6.3% in 2021, up from Fitch’s previous forecast of 4.9%. Fitch sees some upside to even the revised forecast if the Coronavirus pandemic outlook improves and social protests remain subdued, albeit there is a greater than usual degree of uncertainty surrounding forecasts,” the company added.

Inflation expectations likewise look good, Fitch added.

Meanwhile, foreign direct investment (FDI) “historically has covered around 70% of the current account deficit (CAD) and Fitch expects the favorable financing of the CAD to continue during the forecast period,” the analyst found.

On another positive front, “Colombia’s external liquidity has improved markedly over the last three years as a result of the central bank’s international reserve accumulation policy,” according to Fitch.

“International reserves rose to US$58.5 billion at year-end 2020, up significantly from US$52.7 billion in 2019. As a result, Fitch’s external liquidity ratio rose to 108% in 2021 from 89% in 2019. Additionally, Colombia maintains access to a flexible credit line with the International Monetary Fund for US$12.2 billion (out of a total program of US$17.6 billion),” the analyst concluded.


Fedesarrollo – Colombia’s leading economic think-tank – announced June 17 that it has revised upward its previous GDP (“PIB” in Spanish initials) growth forecast to 7.2% for full-year 2021, up from a prior estimate of 4.8% growth.

“The increase in the growth forecast is due to higher growth in the first quarter of this year compared to expectations -- due to the low comparison base due to the economic contraction of 6.8 % the previous year -- as well as the reopening of different sectors, the acceleration of the vaccination process and the greater prospects for global growth, which would positively impact internal and external demand,” explained Fedesarrollo director Luis Fernando Mejía.

An unexpectedly strong 1.1% GDP growth in first quarter (1Q) 2021 is now being followed by even stronger growth “in sectors such as construction (32%), entertainment activities and domestic services (23%), industry (22.5%) and trade (22.3%),” according to Colombia’s Economic Monitoring Indicator (ISE in Spanish initials).

“In the month of April [2021], the economy indicates an annual [year-on-year] growth of 25.8%, but with less dynamics compared to the production of March, as a result of the mobility restrictions in the framework of the third peak of Covid infections,” according to Fedesarrollo.

Meanwhile, the net effects of the violent national strikes and road blockades starting in late April “would be translated into a lower level of activity in May and, as of July, an increase in domestic demand would be observed as a result of the sectorial opening announced by the national government and local authorities,” according to Fedesarrollo.

“However, these very positive economic growth figures would not be immediately reflected in better labor market figures” -- as unemployment is the main cause of rioting and strikes, since the Covid-19 crisis has caused massive job losses especially among younger workers.

“There is a significant risk related to the economy having a year of exceptional economic growth without a substantial reduction in the unemployment rate,” Mejía warned. “To avoid this risk, it is essential to execute a shock plan to generate employment during the second half of the year that allows unemployment rates to be below 12% at the end of the year.”

According to Fedesarrollo, Colombia's strong growth forecast for full-year 2021 would be led by recoveries in commerce, transport and travel sectors, manufacturing industries and construction, which together would contribute 4.4 percentage points to the 7.2% GDP growth outlook.

On the other hand, “downward risks still persist, mainly due to an eventual return of protest demonstrations and roadblocks in the country, as well as eventual increases in the occupancy level of Intensive Care Units (ICU) that generate new restrictions on mobility and productive activity,” Fedesarrollo added.


Colombia’s national economic statistics agency DANE revealed May 14 that gross domestic product (PIB in Spanish initials) has finally moved into positive territory for first quarter (1Q) 2021, following a year-long Covid-19 crisis.

Since the collapse in second quarter (2Q) 2020 -- when PIB bottomed-out at a negative 15.7% -- Colombia has since steadily rebounded in subsequent quarters, with first quarter (1Q) 2021 now showing a positive 1.1% growth.

Colombia Finance Minister Jose Manuel Restrepo immediately hailed the 1Q 2021 results as “great news,” adding that “the manufacturing industry (+7%) is the economic sector that contributes the most, accounting for 0.9 percentage points” of the total 1.1% gain.

Colombia President Ivan Duque noted that the national government over the past 15 months has spent billions of dollars in subsidies for the poor, the working classes and job-saving businesses of all sizes in response to the Covid crisis.

“Last year we launched the reactivation program and today we can say that, in the first quarter of 2021, the growth of our economy was positive, above all expectations,” Duque said.

While recent economic growth has been impressive even in the face of many Covid-19 curfews, quarantines, travel restrictions, shopping restrictions and strict health protocols for public and private areas, recent violence and road blockades by terrorists infiltrating peaceful protest marches threaten to hobble further growth, he warned.

Fortunately, the “Comite del Paro” protest committee has finally agreed to meet with national and regional governments to negotiate terms for an end to the violence and blockades, Duque noted.

The 1Q 2021 rebound is “well above the forecasts of experts, who set their estimates between a contraction of 1.9% -- as the most pessimistic -- to an expansion of just 0.1%,” the official Colombian press bulletin noted.

“The challenge that all Colombians now have is that this reactivation continues, that in our second quarter of this year and in all that remains of this year we reactivate Colombia, because the generation of employment, the generation of opportunities depends on that,” Duque added.


The International Monetary Fund (IMF) on March 23 issued a detailed economic/social report finding that the Colombian government is responding wisely to the Covid-19 crisis.

“Colombia has been hit hard by the pandemic, but the policy response has been timely and well-coordinated,” according to the IMF official report.

“Covid-19 has taken a severe social and economic toll, including more than 60,000 deaths. Over 5 million jobs were temporarily affected and GDP contracted by 6.8% in 2020, the largest recession on record in Colombia,” IMF adds.

In the face of the economic-social crisis, government authorities “used the flexibility afforded by their very strong policy framework to deliver a coordinated and timely response to the exceptional shock.”

In addition, “emergency measures have supported the health care sector, households and businesses,” the agency added.

“A flexible exchange rate, monetary policy accommodation and liquidity support, temporary suspension of the fiscal [spending] rule and macroprudential measures mitigated the fallout from the pandemic.”

On another positive front, “a national vaccination program to cover most of the population started in February,” the IMF added.

Meanwhile, Colombia is enjoying a “gradual recovery with [GDP] growth expected to rebound to around 5 percent in 2021. Under our assumptions for declining infections, rising vaccinations and limited lockdowns, GDP is projected to recover gradually this year, although it is not projected to return to pre-pandemic levels until the second half of 2022,” the agency stated.

“Labor markets have partly rebounded with unemployment declining from its peak, although local lockdowns have recently dampened employment gains. Both external and domestic risks to growth remain tilted to the downside.

“External financing needs are expected to remain elevated. However, as non-oil FDI [foreign direct investment] recovers and public borrowing needs decline, the share of private capital flows in external financing is expected to increase.

“Finally, Colombia’s unwavering efforts to integrate Venezuelan migrants into the economy, most recently by granting them Temporary Protective Status, should raise Colombia’s potential growth in the medium term,” the agency concludes.


Colombia’s gross domestic product (“PIB” in Spanish initials) is likely to grow by 4.5% during 2021 -- up sharply from the 6.8% GDP net decline during the Covid-19 crisis of 2020, according to a just-released monthly survey of economists by Fedesarrollo, Colombia’s top economic think-tank.

According to the organization’s latest “Financial Opinion Survey” (FOS) for February 2021, Colombian economic growth for 2021 is now seen by most economists at 4.5%, with opinions ranging between 3.9% and 4.8%.

Other survey highlights:

Interest rates: Since the Colombian Central Bank (Banco de la Republica) set monetary policy interest rates at 1.75% during January 2021, “66% of the [economists] foresee an unchanged interest rate (1.75%) and 6.4% expect a reduction of 25-bps [basis points]” for the remainder of 2021.

Among those surveyed, 19% expect an increase of 25-bps, while 2.1% foresee a rate under 1%. Another 2.1% expect an increase to 2.25%, and the remaining 4.3% of those surveyed expect a 2.5% interest rate by the end of 2021, according to the survey.

Inflation: In January 2021, the annual inflation reached 1.6%, lower than the analysts forecast. In February, the analysts believe that inflation will be 1.5% , while inflation expectations for the end of 2021 are at 2.58%.

COP/U.S. Dollar Exchange Rate: In January, the exchange rate closed at COP$3,559.46 to the U.S. dollar, with a monthly appreciation of 3.69%.
According to the survey, “the exchange rate forecast by the end of [February] ranges between $3,450 and $3,550, with $3,510 as median response. The exchange rate forecast for the end of 2021 is COP$3,450, ranging between $3,400 and $3,530.

“Finally, the exchange rate forecast for next three months ranges between $3,400 and $3,550, with $3,475 as median response,” according to Fedesarrollo.

Colombia Treasury Bond Trading: In January, the traded volume of the Colombian treasury bonds reached COP$47.4 trillion (US$13 billion), up 183% from December 2020.

Now, 57% of analysts surveyed believe that T-Bill interest rates will range from 3.0% to 3.25% during the next three months, while 27% believe that the rate will be between 3.25% and 3.5% and the remaining 6.4% of those surveyed expect a rate over 3.5%.

“Regarding TES bonds maturing in 2028, none of the analysts considers that the rate will be under 4.5% during the next three months, while 29.8% consider it will be between 4.5% and 4.8%. The percentage of analysts who expect that the rate will be between 4.8% and 5.2% during the next three months was 66%. Finally, 4.3% expect a rate higher than 5.2%,” according to the survey.

Investment Determinants: “Economic growth continues ranking as the most important aspect considered for investing decisions, reaching 45.65%” of those surveyed.

“Fiscal policy and external factors placed second and third place, respectively. Concerns accounting for fiscal policy reached 28.26% (up from 20.9% in the previous month), while external factors reached 10.87% (down from 11.6% in the previous month),” according to the survey.

“Other factors” took fourth place, with the rate of Covid vaccinations being the main reason for “other factors.”

“Monetary policy, sociopolitical conditions and security conditions were the least in the investment determinants with 4.35%, 2.17% and 0.0% respectively,” according to the survey.

Investment preferences: Compared to January 2021, in Februrary 2021 “portfolio managers increased their preferences for private debt indexed to the CPI, foreign stock, private equity funds, international bonds, fixed rate private debt and cash,” according to the survey.

Colombia’s “Colcap” stock index: In February, 76.6% of the analysts (84.1% in January) expect a Colcap valuation [rise] during the next three months,while 19.1% of the analysts expect the index to devaluate and 4.3% to remain the same,” the survey found.


Colombia’s national economic statistical agency DANE on February 15 revealed that the national gross domestic product (PIB in Spanish initials) shrunk by 6.8% for full-year 2020 -- all because of the Covid-19 crisis.

However, GDP sequentially rebounded in third quarter (3Q) and fourth quarter (4Q) 2020, compared to the huge 15% decline in second quarter (2Q) 2020, the DANE report shows.

According to DANE, the economic sectors that contributed the most to the 2020 GDP decline were wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; construction; mining; lodging; and food services.

Commenting on the DANE report, Bruce MacMaster, president of ANDI (Colombia’s biggest industrial-commercial trade association), said: “We can see that in the [sequential] inter-quarter growth data, the economy presented an expansion of 9.4% in the third quarter compared to the second, and 6% in the fourth quarter compared to the third, which accounts for an important correction, accompanied by the lifting of the strictest quarantines since June.

“The indicators for the end of the year 2020 show us trends that suggest that we will reach positive data in the near future. The reactivation, accompanied by the vaccination process, puts Colombia in a more positive outlook,” he added.


Colombia’s national economic statistics agency (Departamento Administrativo Nacional Estadistica, DANE) announced November 17 that third quarter (3Q) gross domestic product (“PIB” in Spanish initials) rebounded by 8.7% over second quarter (2Q) 2020.

While the sharp increase in GDP in the latest quarter is an encouraging sign, 3Q 2020 GDP is nevertheless down by 9% compared to 3Q 2019 -- all because of the drastic shutdowns and cutbacks this year resulting from the Covid-19 pandemic.

Comparing 3Q 2020 with 3Q 2019, wholesale and retail sectors including motor vehicles, transport, tourism and food services collectively fell by 20% year-on-year, while construction dropped 26%, DANE noted. Mining and quarrying also fell by 19% year-on-year, the agency noted.

Expenditure on final consumption fell 7% year-on-year, while gross capital formation declined 18.3%, exports fell 24.1% and imports declined 21.1%, according to DANE.

On the upside, “compared to the immediately previous quarter, the [3Q 2020] Gross Domestic Product in its series adjusted for seasonal and calendar effects grew 8.7%,” according to DANE.

The big improvements in 3Q 2020 versus 2Q 2020 include the following changes, according to DANE:

• Manufacturing industries grew 23.4%.
• Wholesale and retail; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food services grew by a collective 22.3%.
• Artistic, entertainment and recreational activities and other service activities, together with activities of individual households as employers collectively grew 12.3%.

In addition, 3Q 2020 gains over 2Q 2020 include these bright spots:

• Final consumption expenditure grew by 7.3%.
• Gross capital formation grew by 21.6%.
• Exports grew by 1.9%.
• Imports grew by 13.5%, according to DANE.


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.


ANDI -- Colombia’s biggest industrial-commercial trade association -- announced July 8 that its most recent survey of 200 major companies shows that business liquidity is starting to improve thanks to the gradual reopening of various economic sectors during the current Covid-19 crisis.

During the height of the national quarantine and business shutdowns in April, surveyed companies had (on average) only 11 days of cash-on-hand to cover salaries, benefits, suppliers, taxes, overhead and outstanding loans, ANDI noted.

But thanks to subsequent, government-authorized exemptions to quarantines – paired with strict biosafety protocols – cash-on-hand doubled to 23 days in May and tripled to 35 days in June, the survey found.

“Government measures and the resumption of activities and operations have given companies oxygen,” said ANDI president Bruce MacMaster. “However, this liquidity survey shows that companies face a difficult situation. There are companies in big problems that require great support and even rescue plans,” he added.

The big improvements in liquidity seen in the latest survey “can be explained by several factors: a greater number of productive activities in operation, the reactivation of production chains and not only in isolated sectors, the rationalization of costs within companies, aid provided by the financial sector (grace periods, extensions, among others), national government measures such as the day without VAT [sales tax] and aid such as the payroll and ‘prima’ [mid-year worker bonus] subsidy, among others,” according to ANDI.

“As we have noted in previous versions of the survey, the situation in the business sector is not homogeneous. On the one hand, we find companies with a situation of marked illiquidity. This is the case of 20.6% of the companies surveyed, where cash-on-hand only covers between one and eight days to operate.

“Then there are another 10.8% of companies with between nine and 15 days [liquidity] and 26.3% between 16 and 30 days. Thus, 57.7% have cash to operate for a month or less.”

The survey also found that operating income declined for 72.8% of companies in May 2020 versus May 2019, while 20.4% of companies saw a year-on-year increase and 6.8% reported no change, according to ANDI.


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