Fiscal effects of coronavirus, oil could last years in Colombia-Fitch

BOGOTA, June 23 (Reuters) – The fiscal fallout of the coronavirus pandemic and low oil prices could affect Colombia for several years, Richard Francis, director of sovereign ratings at ratings agency Fitch, said on Tuesday.

Colombia’s government predicts the usually healthy economy will contract 5.5% this year. The country has suspended its fiscal deficit limits for 2020 and 2021 and issued billions in bonds as unemployment rises and businesses close during a months-long quarantine.

Fitch Ratings in April lowered Colombia’s credit rating to BBB- from BBB, while Standard and Poor’s in March revised its outlook on the country to negative from stable.

“In the case of Colombia, it was not just the factor of the pandemic, it was also the fall in the oil price,” Francis said in a video interview broadcast by financial magazine Dinero.

That fall will have “an effect on the fiscal side not this year but next year,” he said. “It means a loss of not only a year but probably two or three years at least, so the adjustment will be harder in the case of Colombia.”

Fitch has predicted GDP contraction of 4.5% for this year, but will likely soon change that estimate, Francis said.

The agency has doubts about whether the government will be able to return to fiscal deficit limits and lower debt, he said, adding Fitch currently predicts a fiscal deficit of 7% this year but it could be larger.

“We still have doubts about the government’s path.”

Whatever the government can do to help businesses, especially small ones, in the face of spiking unemployment and bankruptcies will be very important for economic reactivation, Francis said.

There is likely still room for the central bank to further lower the 2.75% interest rate, he added. Policymakers, who cut the rate by 50 basis points in the last three months, will meet next week. (Reporting by Julia Symmes Cobb)

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