BOGOTA, Colombia--(BUSINESS WIRE)--Fitch Ratings has updated its Institutional Framework for Subnationals in Colombia. The framework for local and regional governments (LRGs) in Colombia reflects the maturity gained from lessons learned after the Colombian economic crisis at the end of the 1990s.
Compared to other countries in the region, Colombia has more explicit regulations for debt and operating expenditure ceilings, as well as mechanisms for recovering fiscal viability. However, it imposes restrictions on the use of budget mechanisms for investments through 'future budget allocations' and proper handling of indebtedness ratios.
Fitch believes that the institutional framework has a number of strengths compared with its international peers, including adequate systems for indebtedness and investment planning, good control and oversight systems, flexibility for subnationals to determine both the subjects and rates of taxation, spending limits based on the size of the subnational's economy, debt ceilings based on the operating balance from current income without depending on national funding, and financial and administrative autonomy for subnationals.
On the other side, the Colombian institutional framework's main weaknesses consist of insufficient resource-balancing mechanisms for regions. In addition, current regulation allows for debt in foreign currencies with the approval of the Ministry of Finance and Public Credit (MFPC) without requiring exchange-rate hedges.
In addition, transparency in reporting requirements has been also reinforced in relation to subnational budget execution, future budget allocations and debt reporting. Since 2008, the Contaduria General de la Nacion, through the Consolidador de Hacienda e Informacion Financiera Publica (CHIP, Consolidator of Finance and Public Financial Information) has been in charge of standardizing the formats used by public agencies to present their financial, economic and social information to national organizations, which also helps to ensure adequate transparency. Beyond transparency, this information portal facilitates public and market access to Colombian public-sector accounts.
The special report, entitled 'Institutional Framework for Colombian subnationals', is one of a series of Fitch reports examining the institutional frameworks for subnationals in various countries which are available on the agency's website at www.fitchratings.com.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: Institutional Framework for Colombian Subnationals
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746837
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