October 31, 2018 / 1:28 AM / a year ago

Colombia fiscal situation improving but not at speed predicted: S&P

(Reuters) - Colombia’s fiscal situation is improving but at a rate less than what the government forecast in its medium-term fiscal targets, a director at credit rating agency Standard & Poor’s said on Tuesday.

The Andean country’s so-called “fiscal rule” sets a central government deficit goal of 3.1 percent of gross domestic product for this year. The target figure will fall to 2.4 percent of GDP by 2019 and 1.0 percent of GDP in 2027 under the rule.

“We think there is a consolidation trend, but maybe our projection is a bit slower than the rule would demand,” Manuel Orozco, S&P’s director of sovereign & international public finance ratings for Latin America told journalists.

“We project the fiscal deficit for 2018 will reach the 3.0 percent of GDP predicted but what we project is that from there the gap between what we estimate and the (fiscal) rule will begin to open,” Orozco said.

The government of President Ivan Duque is set to propose a financing law to Congress on Wednesday considered key to keeping the rating of Latin America’s fourth-largest economy intact.

The bill would increase income tax on high earners and lower duties on businesses, among other measures, to raise 14 trillion pesos ($4.4 billion) to finance next year’s budget.

It faces a difficult path through Congress, as the government does not have a solid majority and there is little time for debate before year-end.

A failure to pass the reform would not mean an automatic cut to the country’s credit rating, Orozco said, but approval of the law would contribute to maintaining the rating.

“What we look at is not the results from one year, it is the long-term trend, so we’ll view positively a reform that maintains sustained income growth in the coming years – that would be positive for the rating and we’ll evaluate the result,” he said.

S&P is set to review Colombia’s credit rating shortly. The agency cut its rating to “BBB-“ from “BBB” with a stable outlook in December last year, citing weakened policy flexibility.

Reporting by Nelson Bocanegra and by Julia Symmes Cobb; editing by Clive McKeef

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