A report on Colombia‘s current economy, from the renowned risk rating agency JP Morgan, is worth a look.
It states that Colombia has increasing fiscal risks, that is, “it faces increasing risks in a challenging external context, and that there are serious difficulties in reducing the fiscal deficit. This economic organization estimates that the deficit will remain at 5.7% for 2024 and 5.4 for 2025.”
They mention “a possible rating downgrade, a significant risk for 2025, which would downgrade the local currency debt rating to junk level, which could trigger capital outflows of between USD 2.5 billion and USD 5 billion”.
And, as if to worry us a little more, they say that “there could be more weakness in the Colombian poso (COP) due to factors such as the strength of the dollar, the drop in oil prices and the increase in local risk . premium.”
What JP Morgan recommends: Well, apply “Underweight” to the COP in your emerging markets model portfolio.
they make an Additional Summary “arguing that high projected deficits and fiscal pressures may limit Colombia’s ability to attract investment. The fiscal situation and the prospect of a rating downgrade could destabilize the bond market and put pressure on the exchange rate. “Fiscal and monetary decisions in the coming months will be critical to the performance of Colombian assets.”
Better said, bad weather may come upon us.
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