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Colombia’s peso, public debt and stocks depreciated on Monday after President Ivan Duque withdrew a tax reform proposal seen as important for the country’s fiscal stability, sparking market uncertainty and comment from ratings agency Moody’s.

Duque withdrew the proposal on Sunday after staunch opposition from lawmakers and deadly street protests, but he said tax reform is still necessary and that a new proposal will be made with consensus among business leaders, political parties and civil society. read more

The withdrawn proposal, originally intended to raise more than $6 billion in revenue, would have increased taxes paid by individuals and businesses, expanded sales taxes and eliminated exemptions and deductions.

The Colombian currency fell 1.38% to a six-month low of 3,804.95 pesos per dollar. Since the tax proposal was sent to Congress on April 15, the peso has depreciated 5.34%.

Public debt paper set to come due in September 2030 was trading with a yield of 7.25%, compared with a yield of 6.92% during the previous session, while the country’s main stock index COLCAP (.COLCAP) fell 1.69%.

Market participants said a lack of clarity about when the new proposal would be ready and how much it would seek to raise has created doubts about whether the plan could be approved before the end of the legislative session in June.

Delays would make it harder to send a message of fiscal consolidation to investors and ratings agencies if the Andean country hopes to avoid a ratings downgrade.

“In terms of markets, we think the withdrawal of the fiscal reform proposal will increase volatility, and it could steepen the yield curve even further and bring more COP (Colombian peso) depreciation in the short run until President Duque shows the new proposal,” said Sergio Olarte, chief economist at Scotiabank in Colombia.

The withdrawal of the tax proposal is negative from a credit perspective because of the uncertainty it creates about government ability to get fiscal consolidation measures approved in the medium term, Moody’s analyst Renzo Merino said.

The ratings agency will review the elements that led it to assign the country a negative outlook last year, Merino said, with special attention paid to the outcome of the debate on possible tax reform.

Preserving the credit rating will be an uphill battle, but garnering support from stakeholders, including by testing a shift in the tax burden to companies, could be the way forward, said Alejo Czerwonko, chief financial officer for emerging markets in the Americas at UBS Financial Services Inc.

“We were expecting difficult negotiations in Congress. The economic, social and political environment was a challenging one for the approval of a reform that winds up yielding the net savings required,” Czerwonko said.

Even if a new tax proposal is eventually approved, it would likely be one that would generate less revenue than originally sought by the government, said Andres Pardo, chief Latin America macro strategist at XP Investments.

“The government will have to include other tax hikes in a new bill – including several that are not of its preference – that will not be enough to compensate for the ones that were rejected,” Pardo said.

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