The rating agency Moody’s joined this week the block of financial authorities, at the local and international level, that presented their economic growth projections and fiscal review for Colombia and in its comments made it clear that although it expects the credit notes to remain at the same levels for now, There are risk factors that require urgent actions because they affect the performance of companies.
In an in-depth review, this team focused on the behavior of energy supply, water supply levels, fiscal policy and the effects of the uncertainty generated by the Government’s announcements on investment and economic dynamics, which for them, is limited by the lack of confidence that currently prevails in the local market, despite the fact that it resists remarkably.
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Among the first points addressed, Moody’s maintained that it must be kept in mind that the country is preparing to face higher energy costs as natural gas supplies decrease, although it does not believe that this will yet translate into blows to corporate credit quality. until 2025, especially when there is an improvement in hydrological conditions that is relieving pressure on Colombia’s electrical grid.
Regarding economic growth, they indicated that by 2025 it will improve to 2.8% and then exceed 3.0% in subsequent years. Of course, depending on the investment dynamics sensitive to confidence in the country, making it clear that until now There have been favorable winds despite the low income compared to other countries in the region.
Economic growth
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However, they noted that “persistently high interest rates will reduce gains in the credit quality of energy suppliers and that tighter financial conditions and a high monetary policy interest rate partly explain Colombia’s relatively slow economic recovery.” to date.”
Cost of credit
Although he warned that credit quality will remain stable in the coming months, The rating agency emphasized that growth is limited by scourges such as uncertainty and loss of confidence on the part of investors and that although there are improvements in the development of works that boost the economy, this must go hand in hand with other measures such as easing monetary policy.
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“Colombia had a robust post-pandemic recovery, but its growth slowed markedly in 2023-24, to less than 2.0% amid a cooling in domestic demand and a drop in investment. The slowdown in growth has allowed Colombia to adjust some of the macroeconomic imbalances that accumulated in 2021-22, including inflation and a broader current account deficit,” they explained.
In this sense, they indicated that stricter financial conditions and a high monetary policy interest rate partly explain Colombia’s relatively slow economic recovery in 2024. Some base effects comparisons are also affecting the growth numbers.
By 2025, it will be key to prioritize investment in sectors that generate significant economic growth, such as housing, infrastructure, mines and energy.
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To better express this postulate, Moody’s said that until 2022, the country was showing an increase in investment, mainly in road projects, which slowed down in recent years due to the “high political noise and uncertainty about policy direction,” which hit investor confidence.
“Rising social tensions amid relatively high income inequality high and other social demands also contribute to Colombia’s political risks,” they pointed out, while they also noted that “Higher borrowing costs will continue to put pressure on Colombia’s corporate and infrastructure sectors through 2025”which for them should not be a minor risk to evaluate.
The experts in charge of the report added that for them, although rates will decrease, they will still be higher than historical levels and those of most other large Latin American economies, since after a significant adjustment of their policy stance to Facing inflation in 2021-23, the Bank of the Republic is now gradually adjusting its policy rate downwards.
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As it is, they project that although national interest rates are high at this time, “we expect inflation to fall to 5.5% by the end of 2024 and to 3.8% in 2025, from 9.3% in 2023”; which would give relief to the pockets of Colombians and open the way for the monetary authorities execute measures that promote reactivation, starting with consumption.
Reserves down
On the other hand, Moody’s also reviewed the country’s energy situation, a point in which they highlight that there are only 6.1 years of gas reserves as of December 2023, and it is anticipated that these will continue to decrease, which poses significant risks to energy security and long-term credit quality.
Oil.
Bloomberg
“In its 15-year natural gas supply plan, the Ministry of Mines and Energy indicates that Colombia will need to invest at least USD$2 billion in gas infrastructure over the next decade to meet growing demand, including USD$1.2 billion in gas pipeline projects and USD$861 million in Natural Gas regasification facilities.the analysts said.
Thus, they were emphatic that Colombia’s dependence on hydroelectric generation makes its electricity sector vulnerable to climate risks and although it recognizes that hydrological conditions are improving, they insist that infrastructure must be expanded to meet the growing demand for electricity. in a context of high interest rates.
“The country’s reserves-production ratio suggests that its oil reserves would last just over seven years at current production rates. Dangers remain despite a 33% increase in contingent resources by the end of 2023, with exploration, new discoveries and a notable increase in exploratory wells drilled in 2022-23”they concluded.
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