Colombia: Colombian peso tumbles on concerns over fiscal reform and increased trade war tensions
May 10, 2019
The Colombian peso dived sharply at the beginning of May, as recent adjustments to the fiscal rule raised concerns over the pace of fiscal reform. On 10 May, the currency traded at 3,277 per USD, 5.3% weaker than its value the same day last month. The peso was also down 12.6% over the same month of the previous year and fell 0.9% year-to-date.
Large-scale migration of Venezuelans into Colombia has put increased pressure on the budget, prompting the independent Fiscal Rule Committee to relax its fiscal deficit targets for this year to 2.7% of GDP from 2.4%, and for 2020 to 2.3% from 2.2%. While the looser fiscal constraints should help cope with the extra migration-related costs, realizing the fiscal consolidation goals will be more challenging in the medium-term without adopting measures to boost tax revenues. Moreover, the three leading credit agencies have expressed concerns over frequent changes to the fiscal rule undermining the credibility of fiscal consolidation efforts. Escalating U.S.–China trade tensions also led to losses for the peso among other emerging-market currencies as investors shifted away from riskier assets.
Author: Nihad Ahmed, Economist