Escalating drought risk is potential bad news for rural communities, power consumers.

The National Oceanic and Atmospheric Administration (NOAA) and the Climate Prediction Center (CPC) have confirmed that ENSO-neutral conditions are currently present in the equatorial Pacific Ocean. However, technical indicators suggest a rapid transition, with a 61% probability of El Niño emerging between May and July 2026. For international investors and executives operating in Colombia, this shift indicates a looming period of increased operational costs, specifically within the energy and agricultural sectors.

The El Niño Southern Oscillation (ENSO) is a recurring climate pattern involving changes in the temperature of waters in the central and eastern tropical Pacific Ocean. During El Niño, trade winds weaken, allowing warm water to move toward the west coast of South America. Conversely, La Niña is characterized by stronger trade winds and cooler ocean temperatures. These fluctuations disrupt global atmospheric circulation, altering rainfall and temperature patterns across the planet.

In Colombia, the effects of these phenomena are distinct and significant. El Niño typically results in a sharp decrease in precipitation and a rise in average temperatures. Because Colombia relies on hydroelectricity for more than 60% of its total power generation, extended dry periods lead to lower reservoir levels. This forces the grid to rely on more expensive thermal generation fueled by natural gas and coal, which historically drives up spot market electricity prices for industrial and residential consumers.

“There is a 25% probability that the index reaches or exceeds +2.0°C during the Northern Hemisphere winter,” according to the National Oceanic and Atmospheric Administration.

The current technical diagnostic from NOAA shows that while the sea surface temperature index in the Niño-3.4 region was recently -0.2°C, the easternmost indices have already moved into positive territory. Furthermore, the equatorial subsurface temperature index has increased for five consecutive months. This accumulation of ocean heat is a primary driver behind the high probability of El Niño persistence through the end of 2026. Some models, including those from the European Centre for Medium-Range Weather Forecasts (ECMWF), suggest a 25% chance of a “strong” or “very strong” event, where temperatures exceed the 2.0°C anomaly threshold.

The Ministerio de Minas y Energía and the Comisión de Regulación de Energía y Gas (CREG) are monitoring these developments closely. A strong El Niño would place additional stress on a natural gas system already facing structural supply constraints. Reduced hydroelectric output coupled with a potential deficit in gas supply could lead to significant energy price volatility. In past events, such as the 2015-2016 cycle, these conditions resulted in substantial financial pressure on the national utility system and necessitated emergency conservation measures.

Agricultural productivity is equally at risk. The Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM) has identified the Caribbean and Andean regions—including departments such as La Guajira, Magdalena, and Antioquia—as highly vulnerable. During El Niño, these areas face increased risks of forest fires, water scarcity, and crop failure. For agribusinesses and exporters, this translates to disrupted planting cycles and higher production costs for staples like corn, potatoes, and vegetables, which can fuel domestic food inflation.

Conversely, when La Niña is in effect, Colombia faces the opposite extreme. The cooling of the Pacific leads to excessive rainfall, which can cause devastating landslides and flooding in mountainous terrain. While La Niña can replenish reservoirs, it often damages infrastructure and logistics networks, complicating the transport of goods to port. The current transition out of a La Niña phase provides a brief window of ENSO-neutral stability, which the CPC estimates has an 80% chance of lasting through June 2026.

For the international business community, the significance of these weather cycles extends to macro-economic stability. Persistent dry weather can impact GDP growth by raising the cost of basic services and reducing agricultural output. Strategic planning for 2026 and 2027 must account for these climatic variables. Meteorologists at Colorado State University note that El Niño also tends to reduce hurricane activity in the Atlantic, which may provide some relief for coastal logistics, but the primary threat remains the inland hydrological deficit.

As the Ministerio de Ambiente y Desarrollo Sostenible activates preventive mechanisms, companies are encouraged to review their energy procurement strategies and water management protocols. The next comprehensive diagnostic update from NOAA is scheduled for May 14, 2026, which will provide further clarity on the intensity of the projected warming trend. Understanding the mechanics of the ENSO cycle is no longer a matter of environmental interest but a necessity for risk mitigation in the Colombian market.

Satellite sea surface temperature departure in the Pacific Ocean for the month of October 2015, where darker orange-red colors are above normal temperatures and are indicative of El Niño. (Image credit: NOAA)

Headline photo: the Pacific Ocean from Guachalito Beach, Chocó, Colombia (photo © Loren Moss)

Credit downgrade is an indictment of the Petro administration’s fiscal management, including suspension of the fiscal rule.

On April 8, 2026, S&P Global Ratings (NYSE: SPGI) lowered its long-term foreign currency sovereign credit rating on Colombia to BB- from BB and its long-term local currency rating to BB from BB+. The outlook for both ratings is stable, reflecting expectations that the Government of Colombia will gradually reduce its fiscal deficit while sustaining moderate growth in the national gross domestic product.

The rating action follows persistent fiscal imbalances and a policy environment that has become less predictable since the pandemic-related recession. The government decision to suspend the national fiscal rule in 2025 marked a significant shift in the policy framework. Pro-cyclical fiscal policies have provided marginal support for employment and consumption, but have also contributed to higher inflation expectations and a wider current account deficit. S&P expects the general government fiscal deficit to reach 5.6% of the national gross domestic product in 2026, compared to 5.3% in 2025.

“We expect Colombia to have consistently large fiscal deficits over the next few years.” — S&P Global Ratings

Institutional stability remains a key factor in the rating, though challenges persist. A fragmented legislature followed the March 2026 elections, where Pacto Histórico and Centro Democrático emerged with the largest minorities. The upcoming presidential election, scheduled for May 31, 2026, adds further uncertainty. Candidates such as Iván Cepeda of Pacto Histórico, Paloma Valencia, and Abelardo de la Espriella have proposed varying approaches to fiscal consolidation. The new administration will inherit spending pressures related to domestic security, rising healthcare costs, and pension payments linked to minimum wage increases.

The Banco de la República, the independent central bank of the country, has maintained a tight monetary policy to combat inflationary pressures. Annual inflation reached 5.3% in February 2026, prompting the bank to increase reference rates to 11.25%. S&P anticipates that inflation will not return to the target range of 3% +/- 1% until early 2029. While the independent status of the central bank provides a buffer against external shocks, high interest rates and lower-than-expected revenue collections have contributed to the widening deficit since 2024.

Economic growth is projected at 2.5% for 2026, slightly below the 2.6% recorded in 2025. Per capita growth is estimated at $9,900 USD for 2026, with real growth expected to average just above 2% through 2029. Despite being a net energy exporter, the performance of the US economy and international energy prices continue to influence national outcomes. Hydrocarbon exports declined to 35% of goods exports in 2025, down from 67% in 2013, showing some diversification even as the sector remains a primary source of volatility.

Net general government debt is forecast to approach 66% of the national gross domestic product by 2029, rising from 60.4% in 2025. S&P notes that the government interest burden will average 12.3% of general government revenue over the next three years. The shift toward issuing shorter-term debt instruments has reduced reported interest payments but increased vulnerability to interest rate fluctuations. External indicators remain a concern, with narrow net external debt expected to stabilize at 130% of current account receipts through 2029. Foreign direct investment is expected to be the primary source for funding the current account deficit, which is projected to stabilize around 2.6% of the national gross domestic product.

Vise photo credit © Loren Moss