The downgrade of Colombia’s rating to BB- by Standard & Poor’s (S&P) marks a further deterioration in the country’s risk perception, particularly driven by its high fiscal deficit.
The decision reflects doubts about the strength of its public finances and raises the cost of financing its debt in international markets, although it stabilizes its outlook going forward.
The announcement comes amid tensions between the government of Gustavo Petro and credit rating agencies, which he has openly criticized. Beyond the economic impact, the move intensifies a debate over fiscal management and the country’s credibility with investors.
Despite this, the U.S. agency changed the outlook for the South American country from “negative” to “stable,” sending a message of relative calm regarding its ability to meet payments in the medium term. This suggests that S&P expects Colombia to gradually reduce its deficit without stifling GDP growth.
S&P downgrades Colombia’s credit rating to BB-
The BB- rating places Colombia—which until now was already rated BB-—firmly within the so-called speculative grade, meaning outside the group of countries considered safe for investment. On the credit risk scale, investment grade begins at BBB-, above the country’s current level.
In practical terms, this means lending to Colombia is perceived as riskier. As a result, the country typically faces higher interest rates to finance its debt, making external borrowing more expensive and putting pressure on public finances. It may also affect the inflow of foreign investment, which tends to be more cautious toward economies with lower ratings.
Although S&P’s decision deepens the loss of investment grade that Colombia had already suffered in previous years, the agency maintained a stable outlook, suggesting that, for now, it does not expect an immediate deterioration in the country’s ability to meet its obligations.
The rating agency’s main argument is fiscal deterioration. Colombia continues to spend more than it collects and has not managed to close that gap in a sustained manner, following persistent political disagreements that have prevented the approval of various government measures, including tax reforms and states of economic emergency.
In this regard, S&P expects fiscal deficits to remain high in the coming years, increasing debt and vulnerability to external shocks, leaving Colombia in a weaker position compared to other emerging markets.
This is compounded by a combination of structural factors. The agency warns of a high debt burden, a weak external position, and reduced predictability in fiscal policy, especially after decisions such as the relaxation of the fiscal rule, which had served as an anchor for managing public finances.
Macroeconomic variables also weigh in, such as moderate growth, the slow decline in inflation, and the widening current account deficit. All of this creates a scenario in which the country depends more on external financing and becomes more sensitive to changes in global conditions.
The political backdrop and the controversy: What’s next?
The downgrade had been expected after two years of similar moves. The reality is that it comes amid growing confrontation between the government and various economic actors, including the central bank (Banco de la Republica, in Spanish), business groups, and rating agencies. Gustavo Petro has questioned the legitimacy of these agencies and has called for rethinking their role in the global economy.
The president has suggested that rating agencies do not always reflect the social reality of countries and that their decisions may respond to international financial interests. This narrative has resonated with some sectors but has also raised concerns among investors and analysts, who see these clashes as a risk to institutional stability.
Tensions have also intensified because, alongside the downgrade, the government has acknowledged fiscal difficulties and has proposed measures such as new tax reforms and budget adjustments to close the deficit, which so far have not been achieved.
The future of the rating will largely depend on the country’s ability to put its fiscal accounts in order. Standard & Poor’s has made it clear that further downgrades could occur if the fiscal deficit exceeds expectations or if debt continues to grow rapidly.
Conversely, credible fiscal consolidation—reducing the deficit and stabilizing debt—could improve risk perception and open the door to a potential rating recovery. But that path involves difficult decisions: cutting spending, increasing revenues, or both.
At its core, what is at stake is confidence. Rating agencies do not by themselves determine a country’s economic fate, but they do influence how markets perceive it. And in a context of high political polarization, the discussion about their role also becomes a debate about the economic model and governance.
The downgrade to BB- is therefore more than a technical data point. It is a warning about fiscal imbalances and, at the same time, a new source of friction between the government and international financial actors.