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Itaú See A Challenging Fiscal Consolidation Path

COLOMBIA
  • Overall, Itaú view Colombia’s fiscal update as more reasonable in terms of the macroeconomic assumptions incorporated, thereby better reflecting the challenging path to correct large twin deficits. With political support in Congress fraying, the proposed structural reforms will likely be watered-down, limiting their fiscal costs.
  • Weaker oil prices and rising expenditures constrain a fiscal consolidation path, despite additional revenues from prior tax reforms. The MoF’s Medium-Term Fiscal Plan increased the 2023 growth forecast by 0.5pp to 1.8% (Itaú: 1.3%). For 2024, the economy is projected to slow slightly to 1.5% (Itaú: 1.4%), well below the 2.8% outlined in the February fiscal plan.
  • The medium-term growth forecast remained unchanged at 3.2%. With lower-than expected oil prices (USD 78.6 in MTFF from USD 94.2 in the February fiscal plan), the 2023 nominal fiscal deficit estimate widened by 0.5pp to 4.3% of GDP (5.3% in 2022; 3.8% in February).
  • The 2024 fiscal deficit was revised substantially higher to 4.5% of GDP from 3.6% expected in February (2.0% expected in 2022 MTFP). The updated nominal deficit path is consistent with the fiscal rule (a zero primary balance).
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