Colombia Upgraded to Investment Grade by Moody’s

Colombia saw its sovereign credit rating upgraded to Baa3 from Ba1 by Moody’s, the second investment grade rating for the sovereign after S&P made the move in March. Fitch has the sovereign on a positive outlook. Moody’s cites Colombia’s proven ability to deal with internal and external shocks, and steady reductions in the threat posed by guerrilla groups and organized crime. “The country’s institutional framework is well placed to deal with an expected commodities-driven revenue increase in coming years,” according to the agency. General government debt-to-GDP has stabilized at around 37% after falling 10% from 2003 to 2007, comparing favorably with other Baa-rated sovereigns. Colombia has also shown median GDP growth in the last decade higher than the Baa average. According to a ratings note by RBC, the move came earlier than the market had expected. RBC says the move “will open up the country to a potentially much wider pool of foreign institutional investors, who in many cases require at least 2 rating agencies to rate a country IG before they can allocate money there.” The bank says the move will lower funding costs for the sovereign and local corporates and increase portfolio investment. Goldman Sachs says it expects Fitch to follow suit soon, likely after the approval of fiscal reforms currently being debated in Congress.