(Bloomberg) -- Colombian dollar bonds fell Wednesday after the Senate approved a bill that increases central government transfers to regions, stoking concern over the country’s already fragile fiscal outlook.
Notes maturing in 2053 slid 0.7 cents to 102.8 cents on the dollar, according to indicative pricing data compiled by Bloomberg. Meanwhile, the peso weakened for a fourth straight day, dropping as much as 0.8% and hovering around its lowest levels since October 2023.
A widening deficit, higher debt limits and the government’s failure to agree on the 2025 budget with Congress have all raised concern over the country’s fiscal sustainability. Now the government is set to increase payments to the regions, adding a new level of risk.
Investors are “concerned about the impact the bill could have on the fiscal side,” said William Snead, strategist at Banco Bilbao Vizcaya Argentaria in New York. “Most of the risks derived from the latest headlines are being priced in.”
The bill was approved in the Senate after the government agreed with lawmakers to moderate its impact. The reform now needs two additional votes in the House of Representatives where the government has a majority.
The bill increases central government transfers to cities and provinces from the current 26% of its revenue to 39.5% over 12 years, starting in 2027. It also requires a separate law that transfers fiscal responsibilities to the regions, which is meant to limit the spending burden.
Concern over the fiscal outlook means Colombian dollar bonds are the cheapest in the Latin American ‘BB’ bracket, Snead said.
The reform could now trigger credit downgrades, Barclays Plc. warned in a report this week.
©2024 Bloomberg L.P.