Colombia’s fiscal deficit worse than expected: Analysts
BOGOTA: Colombia’s budget bill shows a far deeper deficit than markets had expected for 2026 and 2027, and the country may need support from multilateral lenders, including the International Monetary Fund, analysts said on Friday. The head of the country’s independent Fiscal Rule Committee also warned that public finances face a “far more critical” situation if the new government’s proposal is approved.
President Abelardo De La Espriella’s administration proposed a 2027 budget totaling 634.9 trillion pesos ($203.6 billion), above a previous estimate of 575.7 trillion pesos.
Juan Carlos Ramirez, president of the Autonomous Fiscal Rule Committee, told Reuters that under the government’s proposal, the South American country’s debt level would reach an unsustainable 67 percent of gross domestic product and that in a year, the fiscal situation would be “far more critical” than it is today.
The government projected deficits of 7.2 percent of GDP for this year and as much as 9.4 percent of GDP for 2027, up from previous estimates of 5.3 percent and 4.5 percent, respectively. Ramirez also expressed skepticism regarding the likelihood of achieving a 21.9-trillion-peso ($7.02-billion) cut in the 2026 expenditure budget, which the finance ministry said it would submit to Congress for approval in the coming days. Finance Minister Miguel Gomez will travel to New York and Washington in the coming days to explain the fiscal accounts to investors, he said on Friday, adding that the fiscal bill he will introduce in the coming weeks will aim to cut spending but will not raise taxes.
“It’s a pretty complicated situation,” said Camilo Perez, head of economic research at Banco de Bogota, adding that the magnitude of the deterioration exceeded expectations.
DAVIbank’s chief economist Jackeline Pirajan said the wider-than-expected fiscal imbalance should force investors to recalibrate expectations and opens the door for a repricing of sovereign risk premiums.
XP Investimentos’ head of macroeconomic strategy for Latin America, Andres Pardo, expects Colombia to pursue a financing package with multilateral lenders, potentially including the World Bank, the Inter-American Development Bank, CAF and the IMF.
Colombia could seek a new arrangement with the IMF through a Precautionary and Liquidity Line, but “the possibility of a traditional IMF-supported program cannot be entirely ruled out,” Pardo said. The Colombian peso COP= weakened more than 2 percent to 3,225 per US dollar on Friday, while domestic government bonds also came under pressure. – Reuters