The draft General Budget Law of the Nation continues to be the talk of the town, despite the fact that a week has passed since its official submission to the Congress of the Republic, not only because of the warnings that are once again being generated by the revenue projections and the dependence on other regulations to obtain resources, but because some sectors in the Legislature are thinking of withdrawing their support.
Arguing that it “makes no sense” and that errors such as arbitration and litigation would be repeated, which led to the projection of money that was never received, congressmen from the economic commissions have shown themselves to be quite concerned and do not rule out asking the Government to adjust it to avoid fiscal risks.
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Among the warning points is the $24 trillion “contingent space” The Confis report showed that for the Ministry of Finance it is only $12 billion, but it depends on Congress approving the advance compliance with the fiscal rule. Also the fact that investment is sacrificed to increase operating expenses.
A drastic cut
As soon as the budget project was released, several voices pointed out that more than $20 billion would have to be cut from these projections. However, in recent days a report from Banco de Bogotá was released stating that this cut should be doubled if the state’s cash squeeze is to be resolved.
Budget
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The Economic Research team of this financial institution pointed out that In 2025, there could be a surprising drop in the nation’s income of around $40 billion, taking into account that a significant part of this amount depends on the good will of the Senate and the House of Representatives.
“Approval is required to advance the transition period of the Fiscal Rule and the approval of the Financing Law. In addition, the calculation also includes a possible failure by the Dian to meet the tax collection goal, both due to administrative efficiency lower than projected, and in tax collection if economic growth is below expectations,” they said.
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In this way they highlighted that if the risks exposed materialize, the Government would have to cut its spending, despite the fact that Spending pressures are high considering the possible entry into force of the Pension Reform.
“The publication of the 2025 budget was accompanied by important changes in the Financial Plan of the same year. In particular, the Nation’s income expectation was revised upwards (with almost a month’s difference) by +$31.1 billion, of which $26.6 billion are explained by a higher collection goal of the Dian. Thus, in addition to the $12 billion of the tax reform proposal, which depends on approval in Congress, the PGN contemplates a collection of $29 billion for the Dian’s efficiency for the following year, a goal that is difficult to achieve,” they stated in detail.
Ministry of Finance – Ricardo Bonilla.
Courtesy – Ministry of Finance
Spoon stick
To this they added that the country is in a difficult situation governability in the face of the political noise that the country has experienced in recent weeks due to scandals such as the Risk Management scandal, which could affect the requests made in fiscal and budgetary matters not being approved.
In this way, the fiscal space that the Government hopes to gain with the projects that it will present to Congress, “to advance the transition period of the Fiscal Rule (+$5 billion) and the tax reform (+$12 billion), is at risk of not happening. If this scenario materializes, there would be an additional fiscal gap of $17 billion.”
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Economic growth
To sum up the accounts, from the Bank’s Economic Research team Bogotá highlights that there is no certainty regarding the $20 billion of the $29 billion that they hope to achieve through the efficiency of the Dian. If to this we add the $17 billion that depend on Congress, the accounts are close to their cut projection.
However, in another section they include the effects of the economic slowdown if it extends longer than necessary, highlighting that “if the fiscal mismatch of $37 billion is added to a possible failure to meet the tax collection target in the face of a more challenging economic scenario than that proposed by the Government, IE calculations indicate that the total imbalance would be around $40 billion.”
Bank of Bogota
Courtesy
To better argue this part, they indicated that if economic growth in 2025 is more at a level of 2.6% (IE scenario) and not 3% As the government expects, tax collections could be around $3 billion below the target.
“Although the scenario of a $40 billion revenue gap is one of the most adverse that the Government could face, there are high fears that, if the draft General Budget Law for the Nation is approved for next year, it will be underfunded,” they stressed.
Pressures to arrive
This lack of resources looms on the horizon as a threatThe authors of this report added that things will not be easy next year, since the entry into force of the Pension Reform must be incorporated, which will generate spending pressure on the State of $4 billion. However, they make it clear that on this occasion the Government revised downwards its primary fiscal deficit target from 0.5% of GDP in the Medium-Term Fiscal Framework to 0.1% of GDP in the Budget.
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“In other words, it left some room for manoeuvre in the event of possible contingencies. However, the margin is only $7.3 billion. Therefore, while the solution would be to cut spending, the inflexibility of the budget makes this a difficult task for the authorities,” they said, while expecting that any possible cuts would fall again on investment items.
In this sense, they closed by recalling that for Fitch Ratings, beyond confirming Colombia’s credit rating, it put on the table that the sustainability of public finances depends on structural reforms in income or expenditure and They asked to take advantage of the fact that the debate on the 2025 PGN is just beginning to correct whatever is needed.
