Colombia is in advanced talks to secure a novel sovereign sustainability-linked loan (SLL) from the Word Bank just as the country gears up to issue a $225 million local currency green bond before year end, its finance minister Ricardo Bonilla told LatinFinance.
His comments, in an interview on the sidelines of the World Bank/IMF annual meetings in Marrakech, came as Uruguay announced last week that it had reached a first-of-a-kind deal with the Washington-based development bank for a $350 million loan that includes a rate-reduction component if it meets targets to lower methane emissions from its livestock sector.
“We are talking to the World Bank, but the protocol is still not fully in place. As soon as it is, Colombia will be at the front of the line,” Bonilla said. He confirmed the sovereign will also issue a $225 million green bond denominated in pesos before the end of the year.
The minister said that recovering an investment grade credit rating by 2025 is a priority for Colombia, but added that achieving it will require fiscal prudence.
Joydeep Mukherji, managing director at Standard & Poor’s, said that downside risks for Colombia’s rating have largely abated following a narrowing in the fiscal deficit from more than 7% in 2022 to 4%-5%, while the current account deficit has narrowed to 4% from 6% last year. The central bank reported that foreign direct investment jumped by nearly 82% in 2022 to $17.1 billion.
“[Colombia is] right in the middle of virtuous and vicious cycles,” Mukherji said.
INTEREST RATES
The minister, who has a seat on the central bank’s board, called for a cut in borrowing costs, throwing his weight behind a growing chorus of demands, including from the influential ANDI business lobby group, for an easing of monetary policy.
“Now that inflation has stabilized, the next step would be for the central bank to lower interest rates,” Bonilla said.
The bank kept the benchmark interest rate steady at 13.25% at its September meeting, but Bonilla said he was hopeful that there could be one or two cuts by December. Annualized inflation fell to 10.99% in September from a high of 13.34% in March.
Bonilla said growth this year would be close to 1.8%, above the original 1% forecast, and cited the IMF’s estimate for Colombia of 2% growth in 2024.
“The ideal would be 4% growth and we are moving in that direction,” he said.
Colombia’s government meanwhile sees new opportunities to attract fresh investment related to nearshoring — the relocation of supply chains from Asia closer to the United States — Bonilla said.
He said Colombia’s vehicle assembly industry could be a platform for the production of electronic and hybrid vehicles. The same is true with parts for the aviation industry and household appliances, especially energy-efficient products.
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