Colombia – A Disappointing Fiscal Reform

Relative to LatAm currencies, the outlook for the COP is bleakest. The combination of plummeting oil prices, falling popularity of President Ivan Duque, and a watered-down fiscal reform all support a pessimistic view. While a fiscal reform was passed, it failed to plug a 1.4% of GDP hole in the 2019 budget in addition to raising just 0.7% of GDP in additional revenues. Unless the government cuts spending by 0.7% in 2019, the chances of weakening the structural fiscal rule will increase. If that were to be the case, the probability for a downward credit-rating revision would increase early next year.