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Free AccessSovereign Rating At Risk Over Tax Reform (FT)
- President Duque says he will present a tax reform package to congress in March with the aim of getting it approved by June. If the timetable slips, there is a danger his proposal will become mired in the country's legislative and presidential election campaigns for 2022.
- Both Fitch and Standard & Poor's rate Colombia BBB- with a negative outlook, one notch above junk. Moody's rates Colombia Baa2, two notches above junk. If the reform fails to gain approval or is watered down, there is a high probability Colombia will be downgraded — demoted from a small group of Latin American investment-grade nations that includes Mexico, Chile and Peru.
- "Losing investment grade status would hit Main Street Colombia, it would hit morale and dent the government's image." (BTG Pactual)
- The government is aiming for a reform worth at least 1.5% of GDP, or $4.4bn, and will try to address Colombia's multitude of tax exemptions, which cost the state roughly $20bn a year. This is likely to meet resistance. Duque's right-wing Democratic Center party has fewer than 20% of seats in congress and needs the support of other parties. Some have already said they will not consent to a repeat of historical proposals.
- Some analysts have played down the potential impact of a downgrade, citing an estimated capital flight of only ~$1.5bn in a country with a GDP of $291bn.
- However, Fitch warned that a downgrade would have a knock-on effect and "would negatively affect some corporate, bank and infrastructure ratings". Furthermore, Duque will not want to go down in history as the president who steered Colombia to junk status.
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.