(Adds Fitch executive’s comments, background, byline)
BOGOTA, Aug 24 (Reuters) - Credit rating agency Fitch said on Monday it expected Colombia’s economy to contract almost 7% in 2020 because of the coronavirus pandemic, adding the Andean country was likely to lose its investment grade.
The agency forecast economic growth of 5% in 2021, but warned of a 50% chance the country’s investment rating would fall to BB+ within two years.
Latin America’s fourth-largest economy is also expected to post a fiscal deficit of a bit more than 9% of gross domestic product (GDP) in 2020, said Fitch’s ratings director for Latin America, Richard Francis.
“We maintained our negative outlook because of the pandemic and the renewed fall in oil prices,” Francis said during a presentation at the congress of the Colombian Business Association (ANDI).
“Colombia could lose its Fitch investment grade.”
In April Fitch cut its risk rating for Colombia to BBB- from BBB and maintained its credit outlook as negative.
Colombia’s economy has been battered by a quarantine meant to curb the spread of coronavirus.
Fitch expects Colombia’s debt to reach an equivalent to 60% of GDP, up from 45% last year and well above the median 52% expected for its peers.
For the coming year, Fitch thinks the government’s outlook is optimistic.
“We have doubts about growth,” Francis said. “When unemployment is over 20% and businesses are closing, that can hurt the economy not only this year and next, but also in the medium-term - there is a lot of uncertainty,” he warned.
Last week rival ratings agency Moody’s deepened its 2020 growth contraction projection for Colombia to 7.3% from a previous expected fall of 5.5%, citing the economic fallout from the coronavirus.
Moody’s also forecast a fiscal deficit for the year of 9.2% of GDP. Both outlooks exceed the government’s fiscal deficit target of 8.2%. (Reporting by Nelson Bocanegra Writing by Oliver Griffin; Editing by Richard Chang)
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