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Scenario for 2018 public debt in Colombia could be optimistic

In the Latin-American context, the Colombian public debt has sustainable levels. According to the International Monetary Fund (IMF), as of October of 2017, Colombia closed with a debt-to-GDP ratio (quantitative ratio between two phenomena reflecting the profitability or investment level of 50.2% of the total goods and services produced in the country in regards to gross GDP.) For 2017, the IMF expected a debt-to-GDP ratio of 48.5% of the GDP and a global liability of Col $446,943 million, that is COL $9.067 per inhabitant.

Despite the percentage improvement, Standard and Poor’s lowered the credit rating for Colombia to BBB- (“stable with negative perspectives”) while Moody’s and Fitch maintained the prior rating (Baa2 and BBB, respectively).

The economic slowdown, the post-conflict management with the former guerrilla group FARC, the continuing talks with the active guerrilla group ELN, a deviation of the deficit goals and constant changes to the tax systems have produced a slight deterioration of the opinions with respect to the Colombian debt.

The situation for 2018 and future years tend to be more optimistic, The IMF predicts a 2.8% growth, one point above 2017. The expected fiscal consolidation, the consequence of the tax reform, the increase in oil prices and the improvement of external demand, which would increase income due to other exports, could backup these perspectives.

However, it is expected that the public debt remains at 2017 levels. The outstanding main challenges of the Colombian economy such as to diversify production, consolidate foreign investment and increase productivity will be decisive to reach the 43.5% foreign debt-to-GDP ratio the IMF is forecasting for 2021.

The aforementioned answers to a reasonable indebtedness scenario which undoubtedly will allow settling current citizen needs without future limitations to the Colombian society.

The panorama of the region

Latin America has lower indebtedness ratios than most countries of the European Union or the United States, which closed 2016 with 107.4% debt-to-GDP ratio and liabilities of US $62 billion, the highest in the world.

The most notorious data come from Brazil with a debt-to-GDP ratio of 78.3 % and a liability over US $1 billion for the end of 2016, and Chile, which despite having very sustainable figures (21.2% debt-to-GDP ratio), has the greatest increase of this ratio for the last five years (330%).

Measure of the responsibility of the ruling governments

The indebtedness level is not good or bad. Simply stated it must be cared for and is a measure of the responsibility of those administrations which have the capability to assume and control it as representatives of society.

Public debt is an indicator of the trust an economy has over its possibilities, of the guarantor’s valuation of a country and payment warranties. If it is high, it supposes a latent structural weakness, which should compel reviewing budgetary policies with the purpose of lowering potential risk and reinforcing investor sustainability and trust. Therefore, it is a reference indicator to know the degree of independence of an economy and an indication of inter-generational solidarity.

Hence, it is important to assess the responsibility of positioning the Colombian economy in this situation. Likewise, it is necessary to maintain a sustainable and solvent public debt which offers the due warranties in an increasingly globalized and connected world for Colombian nationals to be owners of their financial future.

Consejo Editorial