Taking care of fiscal stability and risk premiums should be one of the priorities of the monetary authorities of every country, since in this way the confidence of investors in the ability to comply with their obligations is strengthened and therefore translates on arrival of new capital for the development of strategic works and economic growth.
This has been a recurring theme in recent months in Colombia, since various analysts and economic study centers have said that things are not going well due to factors such as the uncertainty generated by the announcements of the National Government, the process of social reforms and the suspension or paralysis of energy projects; that have aroused market concern.
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Proof of this has been seen in recent analyzes such as that of BTG Pactual on the economic situation of the country, which took the CDS (Credit Default Swap) as a reference and stated that at this time there is one of the highest risk premiums or debt differentials. highs in Latin America, discounting Venezuela and Argentina, which is becoming a burden when it comes to fighting against the very slow pace that the economy is showing.
According to these economists, this alert originates from future value income.or, that is, the inflows of money that a Nation will have in the short, medium and long term, since they are a guarantee that there will be enough to pay the debts that are acquired and at this moment they are on the decline. , as a consequence, among other things, of the drop in Ecopetrol’s profits.
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Not everything so bad
The importance of risk premiums lies in the fact that if they increase, borrowing costs also increase, which can affect both the public and private sectors, limiting access to financing for investment and growth projects; Not to mention that capital owners rely on this to know where they put their money.
Although things in the country are not going as they should and it has not returned to pre-pandemic levels, a report from the Anif Center for Economic Studies, released this week, indicates that there is progress in the matter and that towards the future, If the right decisions are made, there are opportunities to improve much further.
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In an approach of scenarios and data that favor a lowering of interest rates from the Bank of the Republic, this research team carried out an exercise to analyze the behavior that risk premiums have had in the country in comparison with peer economies of the region, based on the monthly average of five-year Credit Default Swaps (CDS).
“To do this, we build an index to analyze the evolution of its value since March 2023, month where Colombia registered its highest annual inflation (13.3%). The data make it clear that since that month the value of CDS has followed a similar trend in Colombia, Brazil, Mexico, Chile and Peru. In the case of Colombia, the value of CDS has decreased, reflecting a reduction in the risk perceived by the market. Although they still remain above pre-pandemic levels, the reduction in Colombia has been more pronounced compared to other countries in the region,” they limited
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Although Anif’s conclusion pointed out that the Bank of the Republic has room to lower rates, in the midst of the fight against inflation, the data presented in the study leave on the table that there are improvements with respect to this indicator and that the recovery What the economy has shown has been helping the country’s image change, for the better, among investors.
However, although this marks a favorable outlook that should be taken advantage of, it must be taken into account that the warnings from the market have focused on the fact that the priority of the tax authorities must be to guarantee financial stability and not put at risk important items such as the fiscal rule, since the experts’ analysis to determine risk premiums also starts from there.
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