Fitch is an international debt rating agency that improved Colombia’s grade from BBB to BBB+, it means that Colombia government has a good credit quality for her long run external debt. However, this agency as many others some times are myopic as it was evidenced in 2008 global crisis, in this case it appears that Fitch did not pay attention to main indicators to evaluate the Colombian external long run debt, for instance the exponential external long run debt growth and the lack of international reserves to meet the total public external debt and Colombian imports, in the first case the ratio public external debt and international reserves was 1.02 in 2011 and the second case the ratio total imports (goods and services) and international reserves was 2.50 in 2011, therefore Colombia doest not have enough reserves to meet her duties if an economic shock happens, for instance a crude oil and mining labor force strike (both commodities share in about 60% of total exports). Moreover the colombian Current Account faced a deficit in 2011 in about US$9,955 million, Current Account deficits has been permanent in Colombia since 2001 and before.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
The last 6th of March the international rating agency Fitch improved the public long run debt for Colombia, this grade came from BBB to BBB+ (good credit quality), therefore Colombia is a place below of A- (high credit quality). This improvement is the result of illusion from Colombia GDP growth, one has to pay attention to GDP as flow and external debt as stock: while the flow goes, the stock stays. There are things that can be improved to deserve this grade. Figure 1 shows the colombian real external debt from 1923 to 2011, as one can see Colombia increased her external debt in an exponential way mainly in the last 4 years, therefore Colombia has not taken the Col$ appreciation to reduce her long run external debt as must be, of course central government through a clever movement took a long term credit abroad at lower rate and they used it to pay old external credit that faced high interest rates, this movement took place at the beginning of 2013. Therefore, the first thing is reduce external debt.
Figure 1. Colombian external debt 1923-2011
(US$ million of 2005 prices through USA GDP deflator index)
The Colombian external debt reached US$32,934 millions in 2011 that means 9.1% of GDP, this percentage showed a declining trend in the last 10 years, it reached 25.3% in 2002. If one takes into account the local and external debt, both of them share about 40.0% of GDP. The issue is when GDP shows low growth rate as in 2012, then local and abroad debt will share in a higher value in the GDP due to external debt and local debt grow exponentially. Therefore, government has to take into account the real growth instead of external debt as a share of GDP to broadcast that the external debt shows a decline.
Moreover, the external debt is higher than external reserves as figure 2 shows (green line above 1), of course there were periods when external debt were lower than external reserves but in the last 14 years the case is the other, Colombia had US$32,934 million as external debt in 2011 and her reserves were US$32,303 million in 2011. Colombian government has to increase their reserves to deserve this grade.
Figure 2. Colombian external debt as a share of international reserves1923-2011
Source: Colombian Central Bank.
Fortunately there are other international rating agencies that keep Colombia’s grade as table 1 shows. To improve these grades Colombia has to promote exports through high value added products to reduce the risk from crude oil and mining sector revenues, moreover she has to reduce the nominal value of external debt.
Table 1. Foreign colombian long run debt grade from global rating agencies
2013
Institution
|
Sovereign foreign debt mark
|
Date of grade
|
Standard and Poor’s (S&P)
|
BBB- (Investment grade)
|
Last revision 16th of March of 2012
|
Moody’s
|
Baa3 (Investment grade and moderate risk. Prime 2-Prime 3)
|
Last revision 31th May of 2011
|
Fitch
|
BBB+ (Good credit quality)
|
Last revision 6th of March of 2013
|
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