Fitch Ratings just raised Colombia's credit rating BB+, leaving the country on the verge of investment grade as it pays down foreign debt amid the fastest growth in three decades.
Fitch raised Colombia's foreign currency credit ratings one level, leaving them in line with Brazil and Panama, from BB. Fitch increased Colombia's country debt ceiling to an investment- grade rating of BBB- from BB+.
As explained early this week, S&P changed its methodology to calculate long-term debt ratings. As a by-product, S&P raised Colombia's foreign currency senior unsecured debt to BBB-, the lowest level of investment grade, while maintaining the rating on the Colombian government at BB+, one level below investment grade.
According to Fitch, the upgrade reflects Colombia's much-improved debt dynamics underpinned by higher economic growth, disciplined fiscal policies and deft liability management. In addition, strong GDP and current external receipts growth has also led to a decline in the country's external debt burden, while higher foreign direct investment flows have allowed a better financing of the country's current account deficits.
Fiscal balances have continued to improve steadily, with central government deficit expected to decline to 3.5% of GDP in 2007 from 6.1% of GDP in 2002. Colombia's general government debt burden declined to 47% of GDP in 2006 from 56% in 2002, although it remains heavier than the 'BB' median of 40% of GDP. Even so, Fitch believes that the country's impeccable debt service record implies that the country has a considerably higher 'debt tolerance' and thus can sustain higher levels of debt.
The rating agency believes that Colombia can sustain high growth rates (around 5%) in the next two years. This is due to a strong recovery in investment to 24% of GDP in 2006 from 13% in 1999.