Moody's sees challenges in Colombia to avoid negative outlook

BOGOTA: Colombia faces challenges to reduce spending, boost tax revenue and improve its fiscal structure if it wants to ward off a negative outlook on its credit rating in the future, Moody's said on Tuesday.

The credit rating agency last month revised Colombia's outlook to stable from negative and kept the sovereign rating "Baa2". This came after a series of economic measures and an improvement in the economy aimed at stabilizing the relationship between debt and GDP in the coming years.

But Moody's said the government's spending structure - like pensions and subsidies - has become "rather more" rigid because they are linked to laws that limit the ability to adjust them.

"We believe that there are pending challenges and this may not only eventually affect the credit quality of Colombia... but if they are not addressed they may lead to a negative outlook," said Renzo Merino, assistant vice president at Moody's at a conference in Bogota.

Finance Minister Alberto Carrasquilla said recently the government is committed to policies that allow the economy to improve, to reduce the fiscal deficit, stabilize public debt and maintain an environment conducive to investment.

In tax matters, Merino stressed that while Colombia has made constant fiscal reforms, tax revenue remains moderate.

"In the case of Colombia almost every two years there's a tax reform, it has been improving in part how it's collected in Colombia, but despite all these reforms collection...remains relatively stable at around of 14 points of GDP," Merino said.

He projected potential growth in Colombia in the medium term of between 3% and 3.5%, lower than the 4% expected by the government.

While Moody's improved the outlook for the country, the same day Fitch did the opposite and reduced the outlook to negative from stable and left the sovereign note at "BBB".