Colombia’s public finances: alarm bells ringing

The deterioration in Colombia’s public finances has spooked investors and, with the government showing no clear willingness to rein in spending, Colombian financial assets are likely to remain under pressure. One implication is that the fiscal situation is likely to play an increasingly important role in the central bank’s thinking. While we’re not quite in a Brazil scenario yet (where fiscal concerns have led to rate hikes), the risks to our interest rate forecast are skewed firmly to the upside.