Colombia’s qualification by Moody’s Ratings was lowered. This was announced by the risk firm this Thursday, June 26, when he informed that He degraded her from Baa2 to Baa3. In addition, it changed the country’s perspective of ‘negative’ to ‘stable’.
The grades in the ‘Shelf’ items of uniornated senior debt in foreign currency (provisional qualification) and of a short -term emitter in local and foreign currency ran the same fate and were reduced.
(See: How viable is the idea of President Petro of ‘Relivir’ Telecom?).
“The issuing and debt ratings were degraded in the local and foreign currency of Colombia to BAA3 from BAA3, and the ‘Shelf’ Senior ‘Debt’ rating not guaranteed in foreign currency A (P) Baa3 from (p) Baa2. The short-term emitter ratings in local and foreign currency were reduced to Prime-3 (P-3) from P-2“Moody’s explained.
The country roofs in local and foreign currency from A1 to A2 were also reduced And in front of this Moody’s said that “The four -level gap between the roof in local currency and the sovereign rating reflects a low presence of the government in the economy, high predictability of moderate political and external policy and risks. Alignment between ceilings in foreign and local currency incorporates the strong effectiveness of the country’s policies, moderate levels of external indebtedness and an open capital account, which denotes minimum risks of transfer and convertibility“
The firm assured that The degradation of the qualification sample “The deterioration projected in the government’s debt indicators, which is expected to persist in the coming years, since fiscal deficits will continue to be high and higher than the limits established by the country’s fiscal rule“
Colombian economy
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The impact of the suspension of the fiscal rule
About the suspension of the fiscal rule by the Petro government, He pointed out that this decision was made “Despite the absence of an economic shock, which negatively reflects on the effectiveness of the fiscal policy framework“
He recalled that this position of the current administration moved away from a history of “Prudent policy formulation that different governments had built for decades” and The change in compliance with the rule negatively affects the effectiveness of Colombian fiscal policy.
“Between 2022 and 2024, the authorities reiterated their commitment to the deficit objectives and implemented measures, including spending cuts, to adjust to the fiscal rule, even in front of pressures such as the increase in interest or payments to the Fuel Price Stabilization Fund (FEPC). However, in 2024, in the face of a strong fall in income regarding the budget, the cuts did not prevent the expansion of the deficit, and the income will fail to comply in 2025“He stressed, while quoting the Autonomous Committee of the Fiscal Rule To assert that no “There is a macroeconomic shock that justifies the use of the exhaust clause“
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Other reasons for the qualification reduction
Moody’s considered that the delay in The country’s fiscal consolidation will contribute to weaker debt indicators and lower fiscal force.
“The fiscal dynamics of Colombia has deteriorated more than expected in 2024 and 2025, which has led to broader tax deficits that will increase the burden of debt. The overestimation of income in the budgets of 2024 and 2025 has intensified tax pressures, without being compensated for spending measures. This will contribute to a government deficit close to 7% of GDP in 2025, in line with 2024“He valued.
Projected that Government’s debt will reach 59.5% of GDP in 2025 (compared to 58.7% projected by the Executive), while By 2027 it would reach its maximum point, with 64% of GDP, “Above the projected median for the BAA category (62%). This indicates a greater probability that Colombia’s fiscal strength continues to weaken with respect to countries with similar qualification“
“The government’s proposal to gradually adjust the fiscal deficit in the next three years will contribute to a greater increase in debt“, said.
(See: Fiscal Framework of the Government would increase the fiscal uncertainty of Colombia, says Fitch).
Thus, Moody’s continued, and since the country currently faces high costs of both internal and external indebtedness, The increase in debt would contribute to weakening the ability to pay.
Colombian economy
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And the ‘stable’ perspective?
On the change of perspective of ‘negative’ to ‘stable’, the firm supported its decision on the weight that Colombian legislative and judicial controls have had, which “They have limited radical policy changes“
“Institutional arrangements will continue to play a stabilizing role in the medium term, with political guidelines that will implement a fiscal consolidation and stabilize, in general terms, debt when pressures arise“He said.
Likewise, he acknowledged that the country has built, in recent decades, A macroeconomic policy history “prudent that have reduced imbalances after clashes”, and that the autonomy of the Bank of the Republic It has been key to “anchor and contain” Inflation expectations.
(See: Fiscal Framework 2025: The concepts that must be clear to understand it).
“The perspective incorporates the vision that, in the medium term, legislators and policy responsible will support corrective measures to allow fiscal consolidation. A first step has been the Petro government proposal of a fiscal pact to increase income and address the stiffness of spending, as well as a more moderate 2026 budget. These measures are key to reducing the fiscal deficit and stabilizing debt at levels comparable with peers“He analyzed.
Finally, he stressed that Colombia’s economic resilience and its recovery capacity support the ‘stable’ perspective, Remembering that, after the deceleration of 2023, “The economy has shown a gradual recovery, with growth rates that converge towards 3%. If future administrations adopt policies that favor investment, growth prospects could improve, further supporting tax consolidation“
He added that he hopes GDP growth returns to 3% levels in the coming years.
Colombian economy
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What does the new qualification mean
For The Fiscal Observatory of the Javeriana University, “This decision will have direct implications on the cost of financing. In 2026, only interest payment will represent 4.8% of GDP. A higher risk perceived by investors will imply higher rates for sovereign debt, further reducing the available fiscal space, accentuating investment restrictions and maintaining the persistence of high fiscal deficit (-7.1% of GDP in 2025)“
Luis Fernando Mejía, director of Fedesarrollo, He referred to the fact that the investment grade is maintained and that this is because “Trust corrective measures in the medium term to initiate a consolidation process“
While this news It is a setback for investor trust in the country, It was better than expected, since some economic analysis and study centers They pointed to the lost investment grade.
It should be remembered that the Moody’s Credit Qualification Scale measures the ability to pay the debt of governments and companies. Within the investment grade, the grades range from AAA (superior quality and risk of non -low breach) to BAA3, which represents the lowest level accepted as safe investment. This range also includes AA (high quality) and A (low risk), reflecting a solid financial health of the issuer.
When an entity is qualified below BAA3, its debt enters the speculative or ‘high risk’ field, also known as ‘garbage degree’. This implies a greater probability of default and usually limits access to cheap financing.
Moody’s details that the BAA1, BAA2 and BAA3 qualifications reflect an average quality with moderate credit risk, and They function as an early warning for investors on possible fiscal or institutional vulnerabilities.
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