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Petro's Early Policy Actions Are Mixed for Colombia's Credit Rating

Colombian President Gustavo Petro was elected in June 2022 promising to transform Colombia’s society and economy. Two objectives were at the center of Petro’s campaign: 1) to reduce poverty and income inequality through progressive tax reform and greater social spending, and 2) to wean the economy off extractive industries and accelerate the country’s energy transition. This commentary looks at President Petro’s tax and energy policies during his first few months in office and assesses the potential implications for Colombia’s BBB (low) credit rating.

Key highlights:

-- We view Petro's early policy actions as mixed. On the positive side, the proposed tax reform signals that the Petro administration is committed to sustainable public finances.
-- However, Petro’s energy policies pose downside risks to growth and public finances, which may not be evident during Petro’s four-year term but will ultimately complicate the outlook for future administrations.
-- Petro has governed pragmatically so far, but it is still unclear how he would respond if opposition to his agenda strengthens. With the Colombian economy slowing and vulnerable to capital flow volatility, policy errors could be costly.

“Petro’s efforts to build a center-left coalition, appoint centrists to key ministerial positions, and constructively engage Congress on the details of legislation all signal that the President is, so far, taking a pragmatic and moderate approach to advancing his agenda,” said Michael Heydt, Senior Vice President, Global Sovereign Ratings. “However, with the global economic outlook deteriorating and the costs of policy errors rising, a key question is how Petro will govern once his post-election honeymoon is over and the political and social landscape becomes less supportive of his agenda.”