Itaú BBA - Colombian risk premium to increase ahead

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Colombian risk premium to increase ahead

January 22, 2018

The fiscal challenge, a wide current account deficit and less favorable financial conditions will pressure Colombia’s CDS.

STRATEGY TEAM:
 

Ciro Matuo, CNPI, ciro.matuo@itaubba.com
Eduardo Alonsoeduardo.marza@itaubba.com
Luka Barbosalbarbosa@itaubba.com

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For the full report, see enclosed file

Highligths

  • Colombia’s fiscal accounts deteriorated substantially over recent years, on the back of declining terms of trade and a continuous increase of primary expenditure as percentage of GDP.
  • Although the government has indicated some effort on the spending side, we are skeptical that the rising expenditure trend will improve much going forward, especially taking into account the spending pressure from the implementation of the peace deal with the FARC, estimated between 0.6%-0.9% of GDP per year over the next 10 years.
  • Besides the fiscal challenge, Colombia’s wide current account deficit and our expectation of tighter global financial conditions ahead are set to pressure the country’s risk premium.

 



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