Government Halts Deficit Limits As Colombia's Finances Worsen

(MENAFN- The Rio Times) Colombia's government confirmed this week that it will temporarily suspend its fiscal rule, a legal framework established in 2011 to cap public deficits and debt.

The Higher Council for Fiscal Policy (CONFIS) authorized the move, citing worsening public finances and a need to avoid stalling economic activity. Official sources from the Ministry of Finance and statements from Finance Minister German Avila confirm the decision and its rationale.

Colombia posted a central government deficit of 6.8% of GDP in 2024, the second highest in three decades outside the pandemic. This figure exceeded the government's own 5.6% target. Public debt climbed to 61.3% of GDP by the end of 2024, breaching the 55% anchor set by the fiscal rule.

The government had aimed to reduce the deficit to 5.1% of GDP in 2025, but lower-than-expected tax revenues and increased spending made this target unattainable.

The Ministry of Finance will present a new medium-term fiscal framework this week, outlining revised deficit and borrowing plans.



The decision to suspend the rule comes after Colombia's autonomous fiscal committee (CARF) estimated that the country would need spending cuts or new revenues totaling between 40 and 75 trillion pesos to meet the original deficit goal.
Colombia's Fiscal Rule Suspension Spurs Market Turmoil
Instead, the government will increase borrowing and delay some payments, as confirmed by official statements. The backlog of unpaid obligations reached 2.8% of GDP in late 2024 and must be addressed in 2025, adding further pressure.

Markets reacted quickly. The Colombian peso lost 0.75% against the dollar in morning trading after the announcement. Yields on 10-year government bonds jumped to 6.9%, outpacing regional peers.

Moody's, which rates Colombia's sovereign debt at Baa2, warned that continued fiscal slippage could prompt a downgrade. The IMF suspended Colombia's $9.8 billion Flexible Credit Line in April, citing fiscal deterioration.

Colombia's government insists that suspending the fiscal rule is necessary to support growth and avoid economic paralysis. However, this move has eroded investor confidence and raised borrowing costs.

The country now faces higher debt service payments, limited room for maneuver, and closer scrutiny from credit rating agencies.

These developments matter because they could restrict future investment, raise the cost of doing business, and limit the government's ability to respond to new economic shocks.

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