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COLOMBIA: Large Fiscal Adjustment Needed To Comply With Fiscal Rule

COLOMBIA
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  • CARF, the committee that oversees the country’s fiscal rule, has said that the government needs a fiscal adjustment of at least COP 46tn (2.6% of GDP) to hit the fiscal target this year, according to a report on Bloomberg. The committee said that the government’s weak fiscal position and the increase in the net supply of local bonds will put pressure on its financing strategy. It also said that any deterioration in external conditions or delay in multilateral loan disbursements would challenge the foreign currency debt plan.
  • CARF said that the government has limited room to manoeuvre should tax revenues disappoint. Furthermore, the large minimum wage increase, with its impact on labour costs, and budget execution commitments are significant risks to the fiscal outlook. If these risks materialise, they could add up to COP 28.5tn (1.6% of GDP) to spending pressures, taking the total adjustment required to meet the fiscal rule to around COP 75tn (4.2% of GDP).
  • In its updated financing plan earlier this month, the government said that it is targeting a 5.1% of GDP fiscal deficit this year (vs. 6.8% in 2024) and a 0.2% of GDP primary deficit (vs. 2.4% last year). It also said that it complied with the 2024 fiscal rule target, although CARF said that it didn’t agree with the government on the accounting of one-off shocks, which aided in this compliance.
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  • CARF, the committee that oversees the country’s fiscal rule, has said that the government needs a fiscal adjustment of at least COP 46tn (2.6% of GDP) to hit the fiscal target this year, according to a report on Bloomberg. The committee said that the government’s weak fiscal position and the increase in the net supply of local bonds will put pressure on its financing strategy. It also said that any deterioration in external conditions or delay in multilateral loan disbursements would challenge the foreign currency debt plan.
  • CARF said that the government has limited room to manoeuvre should tax revenues disappoint. Furthermore, the large minimum wage increase, with its impact on labour costs, and budget execution commitments are significant risks to the fiscal outlook. If these risks materialise, they could add up to COP 28.5tn (1.6% of GDP) to spending pressures, taking the total adjustment required to meet the fiscal rule to around COP 75tn (4.2% of GDP).
  • In its updated financing plan earlier this month, the government said that it is targeting a 5.1% of GDP fiscal deficit this year (vs. 6.8% in 2024) and a 0.2% of GDP primary deficit (vs. 2.4% last year). It also said that it complied with the 2024 fiscal rule target, although CARF said that it didn’t agree with the government on the accounting of one-off shocks, which aided in this compliance.