NEW YORK (Reuters) – A decision by S&P Global Ratings to change the outlook on Colombia’s credit rating to “negative” on Thursday was met with skepticism by Wall Street banks and investors, who said the move was “unexpected” and “inconsistent.”
S&P affirmed Colombia’s “BB+/B” foreign currency sovereign credit ratings, but effectively put the country on a warning that it could slip deeper into junk by lowering its outlook.
In its statement, S&P said “potentially persistently weak investor confidence – that affects private-sector investment – may pose risks to our expectation that GDP growth will return to its trend rate of just above 3% in the next couple of years.”
However, the expected output slowdown is seen in a different light by a number of analysts, including Goldman Sachs, which called the decision “somewhat unexpected” in a note to clients.
“The macro focus should not be placed on the possibility of modest real growth in 2024 per se, which we view as part of a necessary rebalancing process,” Goldman Sachs analysts said.
Barclays said in a note to clients – titled “Inconsistent rating outlook change” – that fundamental improvements in fiscal and external accounts as well as historically strong foreign direct investment argued against the S&P decision.
“Nonetheless, it generates a non-negligible risk of another downgrade or at least makes a return to (investment grade) more difficult,” Barclays added.
Regaining investment grade status would lower borrowing costs for Colombia.
Colombia’s finance ministry did not respond to a request for comment on the reaction to the decision, but said on Thursday it expected the country’s credit profile to improve due to its economic recovery plans.
“The decision from S&P appears to be missing the forest for the trees,” said Armando Armenta, EM strategist at asset manager AllianceBernstein.
“Arguing growth concerns for the economy in the region where GDP recovered faster and more prolonged after COVID seems erroneous,” Armenta added.
S&P Global did not comment on the criticism of the decision.
Moody rates Colombia at Baa2 – an investment grade rating – and Fitch at “BB+,” both with a stable outlook.
(Reporting by Rodrigo Campos in New York; Additional reporting by Julia Symmes Cobb in Bogota; Editing by Karin Strohecker and Matthew Lewis)
