Colombia gov’t risks incompliance with fiscal rule – committee

12:27 pm Monday, July 10th, 2023

BOGOTA (Reuters) – Colombia risks falling out of compliance with its fiscal rule through greater spending proposed for 2024 and the financial impact of reforms being debated in Congress, an independent committee warned on Monday.

Finance Minister Ricardo Bonilla has said the government would respect the 2011 rule which imposes constraints on fiscal policy to block deterioration of public finances.

The finance ministry in June presented its medium-term fiscal framework (MFMP), noting that the deficit could increase to 4.5% of Gross Domestic Product in 2024. It revised its debt targets upwards and adjusted its fiscal deficit forecast for 2023 up to 4.3% of GDP from 3.8% originally.

The government of leftist President Gustavo Petro is pushing health and pension reforms in Congress and plans to resubmit a labor reform that previously failed to advance.

The expert Autonomous Fiscal Rule Committee (CARF) said spending increases planned for this year and next could put greater pressure on Colombia’s finances and reverse success in reducing the deficit following the coronavirus pandemic.

“By making this adjustment, the spending foreseen in the MFMP won’t meet the goals of the structural net primary balance of the fiscal rule in an amount close to 1% of GDP for 2024, 0.6% for 2025 and 0.3% for 2026”, the CARF said in a report.

The government’s goals depend on unstructured and uncertain income, the CARF said, including awards from arbitration processes. These would be considered one-time gains if the government wins the cases, at a time when more social spending is planned.

“If the national government budget is programmed for 2024 with the spending ceiling seen in the MFMP, this would lead to a possible breach of the fiscal rule,” the CARF said.

“It isn’t prudent to make fiscal plans without any room for maneuver in the face of possible adverse events,” the report said, adding the government forecast excludes probable additional expenses arising from the reforms if Congress passes them.

(Reporting by Nelson Bocanegra; Writing by Oliver Griffin; Editing by Richard Chang)