Colombia lost its decade-old investment grade status for issuing long-term sovereign debt on Thursday, when Fitch became the second big rating agency to downgrade the country to junk.

The move followed a similar move by Standard & Poor’s in May. A country is deemed to have lost investment grade status when two or more major agencies say it is the case.

Fitch said its decision reflected “the deterioration of the public finances with large fiscal deficits in 2020-22, a rising government debt level, and reduced confidence around the capacity of the government to credibly place debt on a downward path in the coming years”.

The rating agency said it expected Colombia’s government debt to exceed 60 per cent of gross domestic product this year, more than double the level it stood at when the country clinched investment grade status in 2011.

While the decision was largely expected due to the country’s financial difficulties and the impact of the coronavirus pandemic, it will still come as a blow to a nation that has prided itself on its fiscal rectitude. Colombia has not defaulted since the 1930s, a sharp contrast to most Latin American countries.

The Fitch decision is also a blow to Iván Duque, Colombia’s rightwing president, who had hoped he could stave off a downgrade by passing a revenue-raising tax reform package this year.

Duque introduced a bill to congress in April but it prompted an outcry from a public that argued it could not afford tax increases in the wake of the pandemic. People took to the streets in large numbers and Duque was forced to withdraw the reform package within days.

The protests have since morphed into sustained and sometimes violent demonstrations over a range of issues. Dozens of people have been killed in clashes between protesters and the police.

The government has vowed to introduce a revised tax reform plan when congress reconvenes this month but Fitch said it doubted the package would make a significant difference to Colombia’s finances until at least 2023.

“There is a risk that the new tax reform could be watered down,” the rating agency added.

The implications of a downgrade might not be as drastic as some Colombians fear.

Munir Jalil, chief economist for the Andean region at BTG Pactual, the investment bank, has estimated it would trigger capital flight of only about $1.5bn in a country with a GDP of $291bn.

But Fitch warned earlier this year a downgrade would have a knock-on effect and “would negatively affect some corporate, bank and infrastructure ratings”. It said eight of the 21 Colombian companies it rates would be downgraded along with the sovereign.