NEW YORK & BOGOTA--(BUSINESS WIRE)--In a recently published special report titled 'Institutional Framework for Colombian Subnationals', Fitch Ratings states that Colombia's institutional framework for local and regional governments (LRGs) has been strengthening during the past decade. The Central Government has promoted fiscal discipline, as well as enhanced transparency in public management, in order to oversee the subnational and regional public sector's capacity to meet their financial obligations. Furthermore, Colombia's efforts in improving resource-balancing mechanisms have been greatly recognized by Fitch.
Furthermore, the institutional framework has a number of strengths in comparison with international and regional peers, which include long-term investment planning in addition to adequate systems for indebtedness at all tiers of subnationals. Regulation on both spending limits and debt ceilings (short-term and long-term) are significantly important in order to maintain fiscal health. Nonetheless, Fitch considers that adjustments to regulatory financial indicators to determine repayment capacity will take place shortly, taking into account that subnationals have been performing much better.
In addition, the autonomy LRGs have to determine tax base and rates, and consequently having revenue raising powers, is considered positive as it makes it possible for the subnationals to adapt to the local situation, and not be completely reliant on decisions taken at the national level.
On the other hand, although the Central Government has shown efforts to improve resource-balancing mechanisms, Fitch believes there are still challenges ahead. Fiscal differences between regions are still noteworthy, and some subnationals still depend in a greater amount on national transfers.
LRGs also face a significant risk from the delivery of public health care due to the sector's high costs, inefficiencies and weak financial position. Even though this sector has financing mechanisms, subnationals must cover extraordinary expenses from their own resources.
The special report, 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=652809
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