Colombia Outlook What's Next - May 2021 - Scotiabank Global Site
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Colombia Outlook
What’s Next
May 2021
Macro-Research Team Colombia
Sergio Olarte
Jackeline Pirajan
Tatiana Mejía
Scotiabank | Capital Markets
Carrera 7 No.114-33 | 16th Floor | Bogotá, Colombia,Key insights • The potential new fiscal reform package will likely focus on increasing tax collection from companies and the wealthiest households, as well as imposing some temporary surcharges. Additionally, some social programs will also be made temporary. • Local assets should find improved levels in the medium term. An eventual resolution of the dialogues with the protest leaders and the approval of an adequate fiscal adjustment should end up being credit positive. • Markets appear already to be pricing in a potential downgrade. However, we remain constructive on the economic recovery and a potential agreement on fiscal reform that will maintain public-finance sustainability. • The May 2022 presidential election remains far off, voting intentions are still in flux, and nothing is yet set in stone in terms of likely outcomes. It will be important to monitor potential candidates from the traditional parties and centrist coalition(s). Congressional elections in March 2022 may provide early indicators on the presidential contest.
The most contentious aspects of the initial fiscal reform proposal
have been discarded; a better consensus could lie ahead.
Main points of the initial Capacity to increase Probability to be
fiscal revenues included in the Potential changes
proposal (% of GDP) revised package
Total 2 The new target is COP 14 bn (1.4% of GDP).
VAT* 0.65 0%
VAT reduction on capital-goods -0.15 80% Some opposition parties asked to undo the 2019 Financing Law
imports exemptions.
Individuals’ taxes 1 50% Increasing taxes on high-income people, but not widening the base.
Adding taxes for wealthy people.
Solidarity tax: 10% on gross income 0.1 70% One of the main proposals of the governing party (Centro Democrático);
of people with salaries above ~USD it would be extended for additional years (initial proposal: 1.5 years,
2,700 per month current Centro Democrático proposal: 3 years.) for individuals with
income above ~ USD 5,400 per month.
Normalization (declaration of 0.03 80% Centro Democrático kept this proposal in its revised draft.
unreported wealth in foreign
countries)
Taxes on dividends 0.02 100% Surcharge over existing taxes on dividends.
Corporate taxes 0.4 Centro Democrático proposed to extend the temporary surcharge to the
financial system (including other entities, not just banks). There would be
a delay in some tax reductions scheduled for 2022; business
associations support this change.
Fiscal austerity 100% The potential to get additional savings is not yet known.The current situation immediately hit local assets; the resolution
of the current impasse should lead to a recovery.
USDCOP vs Fundamental model
4300
Yield Curve COLTES USDCOP
10 March 18 2020
Yield (%) May 5/2021
4100
9 March 31/2021
8 April 30/2021
3900
USDCOP
7
Dec 30/2020
6 3700
5
4 3500
3 Macro model
2 3300
1
3100
0
21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Maturity
Sources: Scotiabank Economics, Bloomberg.
Sources: Bloomberg, Scotiabank Economics.A negotiated, watered-down, fiscal reform is our base case. Credit-
rating agencies are expecting a better economic recovery.
Net Liabilities of the General Government (% of GDP)
Economic activity index - ISE
115 10
Index, 2005 = 100 m/m %
110
2.9 3.5 5
2.6 2.5
1.5 1.4
105
-1.3 -1.1 0
100
-5
95
-10 Potential new fiscal rule
Current fiscal rule
90
Sources: Ministry of Finance, from the presentation of the Fiscal Reform.
85
-15
Potential changes in the fiscal rule
welcomed by rating agencies
80 -20
Colombia – Credit Rating Profile
Rating Outlook Last revision GDP growth forecast
ISE SA. m/m % for 2021
S&P BBB- Negative April / 22 / 2021 6%
Sources: Scotiabank Economics, DANE.
Fitch BBB- Negative November / 6 /2020 4.9%
Moody’s Baa2 Negative December / 3 / 2020 5%Although Gustavo Petro is gaining momentum, candidates from the
other parties not yet known; they will matter for the run-off vote.
Petro’s political party: Congress’ Composition
Voter Intentions vs Negative Perceptions
Colombia Humana
45 (1 seat in each
% Others
40 38.3
Vote intention chamber) Partido Verde
Perception that he/she would be a bad president
Colombia Humana
35
32
Partido de la U
30
Conservador
25 Liberal
20 Polo
15.9
Decentes
15
11.8 11 FARC
10
9
6.1 MIRA
5.2 4.6
5
4 4
Cambio Radical
1
0 Centro Democrático
Gustavo Petro Sergio Marta Lucía Alejandro Federico Tomás Uribe
Fajardo Ramirez Char Gutierrez
Senate House
Sources: Scotiabank Economics, Congreso Visible Universidad de los Andes.
Sources: Scotiabank Economics, Invamer survey (April), Centro Nacional de consultoría.Macro forecasts
Indicator 2019 2020 2021 2022
GDP (y/y % change) 3.3 -6.8 5.0 4.0
CPI (y/y % change, eop) 3.8 1.6 3.1 3.0
BanRep policy rate (%, eop) 4.25 1.75 2.50 4.00
Colombian peso (USDCOP, eop) 3,287 3,422 3,450 3,400
Unemployment rate (%, avg.) 10.5 16.1 14.6 13.0
Sources: INS, Scotiabank Economics.Disclaimers Este informe ha sido preparado por Scotiabank Colpatria S.A. establecimiento bancario. Las opiniones, estimados y proyecciones contenidas, corresponden a la fecha de divulgación y se encuentran sujetos a cambios sin previo aviso, pues atienden al comportamiento de la economía y el entorno. Los datos expuestos en el documento provienen de fuentes públicas consideradas fidedignas, sin embargo Scotiabank Colpatria S.A. no se hace responsable de su veracidad ni de la interpretación que de los mismos se haga. Este documento no es ni pretende brindar asesoría de inversión; la información, herramientas y material contenido en el texto, son proporcionados meramente con fines informativos y no deben ser utilizados ni entendidos como una oferta, consejo, asesoría o recomendación de inversión ni para comprar, vender o emitir valores y/o cualquier otro instrumento financiero, ni para realizar cualquier otro tipo de transacción financiera. 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