巴黎银行-哥伦比亚-宏观经济-哥伦比亚：现在有多快？-20171214-8页_505kb

Summary of "Colombia: How soon is now?"

Core Content

This document provides an analysis of Colombia's fiscal situation and its implications for the country's credit rating, economic growth, and public spending in the context of the 2018 elections. It outlines the challenges the government faces in meeting its fiscal targets, the impact of the fiscal rule, and the potential for rating downgrades by credit agencies.

Main Points

1. Government's Fiscal Targets for 2018

• The government's target for the nominal deficit in 2018 is seen as challenging to achieve.
• Changes in the budget bill by Congress have increased spending provisions, making it harder to meet the fiscal targets.
• The fiscal rule requires non-trivial cuts in public spending over the next two years.

2. Historical Trends in Government Spending

• Government spending tends to increase before elections, even though there is a legal restriction on new projects six months before the election.
• This trend suggests that fiscal consolidation is likely to occur after the election, as new governments often implement austerity measures.

3. Structure of the Budget and Spending Cuts

• A large portion of Colombia's budget (around 90%) is not easily reducible, due to its age-related spending and peace process-related commitments.
• The infrastructure project and Bogotá subway project are expected to significantly impact the 2018 and 2019 budgets.
• Debt servicing is identified as the main source of potential budget cuts, although interest expenditures are expected to decline in 2018.

4. Impact of the 2018 Budget Changes

• The final version of the budget bill has reverted some spending cuts, particularly in education and social development, while increasing allocations in mining and energy.
• The expected cut in investments was trimmed by half, indicating a more balanced approach to fiscal policy.
• The total budget for 2018 is unchanged from the original draft, suggesting that the adjustments are more about reallocation than overall reduction.

5. Monetary Policy Implications

• The central bank is seen as linking fiscal issues to growth, which may lead to monetary stimulus to support economic activity.
• The author's forecast for the policy rate in 2018 is 4.0%, which is below consensus.
• A 1pp increase in GDP per capita growth could reduce the risk of a credit rating downgrade, but current budget changes still pose some rating risks.

6. Credit Rating Outlook

• The current rating is two notches above investment grade.
• S&P's downgrade to BBB- has raised concerns, but a junk rating is unlikely in the near term.
• Rating agencies are concerned about sluggish growth, external accounts, and frequent budget target changes.
• The fiscal rule may be bent to accommodate spending or tax cuts, increasing the risk of non-compliance.

7. Oil Prices and Economic Impact

• Oil prices are higher than last year, but their impact on public revenues is limited.
• The fiscal rule considers the structural deficit, not volatility from oil receipts, which reduces the effectiveness of oil price increases in improving the fiscal outlook.

Key Information

• Economic growth is expected to rebound from 1.5% in 2017 to 2.5% by end-2018, with long-term expectations of 4.5%.
• The government's view is more optimistic than the author's, suggesting a reliance on higher revenues rather than spending cuts.
• The 2018 budget bill shows a decrease in current expenditure and investments, but increased allocations in certain sectors.
• Rating agencies are watching closely due to the uncertainty surrounding the fiscal rule and budget compliance.

Conclusion

Colombia's fiscal outlook for 2018 remains challenging, with the government struggling to meet its deficit targets. The budget bill has undergone significant changes, reverting some cuts and increasing others, which may lead to rating concerns. While monetary policy could support growth and reduce some fiscal risks, the overall fiscal sustainability is still under pressure. The author's view is that a junk rating is unlikely in the near term, but further downgrades are possible if the government fails to comply with the fiscal rule or if new spending or tax cuts are implemented.