Ricardo Bonilla, Colombia’s Minister of Finance Source: WEF/Pascal Bitz

Colombia is pressing ahead with plans for up to $2.5 billion in new debt financing        despite a widening fiscal deficit and stalling growth that have cast the country’s bonds among the worst performing of any emerging market this year.

In an interview with LatinFinance, Colombia’s finance minister, Ricardo Bonilla, acknowledged the challenging backdrop – including growth of just 0.6% in 2023, half the government’s expectation – but insisted that plans were afoot to “recalibrate” the economy and return it this year to a path of robust growth.

“We had an unwanted surprise last year,” he said on the sidelines of the Inter-American Development Bank’s annual meeting in the Dominican Republic. “The silver lining is that we are not in recession, but we have to recalibrate.”

Recent economic data, however, have undershot government forecasts, which have been revised down: the government now projects gross domestic product will expand by 1.5% this year, down from its earlier estimate of 1.8%, but still above the IMF’s projection in February of 1.3% in 2024.

S&P Global Ratings last month cut the country’s rating outlook to negative on the back of weak growth and a rising deficit. It rates the sovereign at BB+.

But Bonilla shot back that Colombia, like other developing economies, is facing the ill-effects of high global interest rates and an adverse external environment – a scenario he said he was confident would soon improve.  

The minister said the foundation was being laid this year for a return to 3% growth in 2025. He said the government expects the construction sector to recuperate, thanks in part to the massive highway development program known as 4G. Two projects under the next phase of the government-led infrastructure push, or 5G, are reaching financial close. He also noted that tourism has rebounded, with the country receiving 5 million tourists last year.

Investors are waiting for signs on a number of fronts, including a reduction in the current account deficit. Bonilla said the deficit should be around 4% of GDP in 2024 and 2025, which, though still high, is down from 6.3% in 2022. Analysts expect Colombia’s deficit to widen to 5.3% of GDP this year from 4.2% in 2023

Weighing Funding Options

Bonilla said the government would be looking at different options for funding this year while ensuring the debt-to-GDP ratio stays around 55%.

He said the country had not decided on amounts or timing for issuance, which he said would depend on market conditions, but said that the sovereign would now consider thematic bonds at the expense of “abstract bonds,”

“In the past, bonds were issued without any specifics, they were abstract in the sense that they did not go to any target. Today, the world trend is in bonds with names,” he said, referring to thematic bonds including green and blue bonds.

Colombia recently completed a green bond taxonomy, which the minster called “ground-breaking.”

“The taxonomy is to make sure that a green bond is really green,” he said. Last November, Colombia raised $2.5 billion in a two part sale of social bonds consisting of old $1.5 billion worth of 8% 12-year notes and 8.75% $1.5 billion in 30-year notes.

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