The Ministry of Finance’s accounts in the budget project program expenses subject to uncertain income, overestimate the capabilities of the Dian, are subject to contingencies, increase financing needs and pose risks to the country’s fiscal stability. These are some of the conclusions of the recent report of the Autonomous Committee for Fiscal Regulation (Carf) on the proposed General Budget of the Nation for 2025.
This was stated in the analysis published on Thursday – August 22 – which also warns that the economic scenario poses challenges for compliance with the Fiscal Rule and long-term sustainability, both due to the management of resources this year and the cuts that have been made by the Government, as well as the macro and expenditure projections for the coming months.
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The organization highlights that the decisions taken so far have helped stabilize the outlook, although it insists that there are current challenges that should not be ignored, especially in terms of spending, tax collection and debt sustainability, which for them requires a higher surplus than that currently projected in the Medium-Term Fiscal Framework.
Current challenges
One of the first reviews of the CARF regarding the cash flow and budget of the Government was on the progress of the spending cuts and the fiscal gap that exists at present, a point in which they highlight that the adjustment needs in primary spending for them continue to be $46 billion, which so far only have materialized to $12 trillion, while announcements continue to focus on strict monitoring of spending.
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“In order to comply with the Fiscal Rule, primary spending must be at $303.9 billion indicated in the MFMP, so it is still necessary that $34 billion of the 2024 PGN appropriations not be committed. In this regard, the Government has announced that it will control the amount of the Annual Monthly Cash Plan (PAC) so that the execution of payments during the term is consistent with the goal of the Fiscal Rule,” they added.
Given this, they warn that the risk of lower income persists. to those projected for this year, in which case the Government will have to adjust spending to ensure compliance with the Fiscal Rule, in addition to the $46 billion already announced by the Government, since its estimates indicate that the 2024 collection could be $5.7 billion below the estimate.
Uncertain income
After confirming that the fiscal gap for this year could be higher than the Government expects, the Fiscal Rule Committee is focusing on the Ministry of Finance’s accounts for the 2025 Budget and is joining the voices that warn that it is necessary to cut spending to avoid a scenario of underfunding in the future.
“The 2025 PGN Bill contemplates an increase of $24 billion in the primary expenditure of the Central National Government (GNC). Primary expenditure increases from $320.5 billion in the scenario of the Medium Term Fiscal Framework 2024 to $344.4 billion in the scenario of the PGN 2025”, the CARF begins by saying in this section.
According to their calculations, to justify this increase in spending, the Government includes higher revenues of $31.1 billion, of which $14.6 billion is justified by Dian management, $4.5 billion by capital resources and the $12 billion already mentioned by the Financing Law. In this sense, they add that since the increase in projected revenues is greater than that of expenses, the total and primary deficit is reduced by $7.3 billion compared to the 2024 fiscal framework scenario.
Dian
Dian
Regarding the possibility of this being viable, the Carf maintains that there are several risks on the table, starting with the expectation in the collection expected by the Dian management, which could not be met, given that the incorporation of the staff and the investments for the improvement of the systems of information will take longer than initially anticipated, according to the entity.
“The potential revenue collection per management, estimated by CARF at around $6 billion, is below the $28.6 billion included in the budget project,” they said in this regard, recalling that attention had already been drawn to the risks associated with the revenues scheduled for 2025 and that due to this, spending must be reduced by more than $22.6 billion to comply with the Fiscal Rule next year.
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Another point that draws attention in the report is that warns that, as in 2024, in the budget project presented to Congress, expenses are being programmed from uncertain income. “This practice implies risks regarding compliance with the Structural Net Primary Balance goal, which increases uncertainty, makes fiscal programming difficult and would require subsequent spending cuts to comply with the Fiscal Rule.”
“The size of the total deficit increases the Government’s financing needs, which would rise from around $120 billion in 2024 to $140 billion in 2025. This implies a challenge for the Government in the placement of debt, especially external debt, given that the level of issuance in the domestic market remains the same. The Government plans to increase external disbursements from US$5.4 billion in 2024 to US$9 billion in 2025,” they warned.
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Debt anchor
With all this on the table, the Carf closed by saying that if they are fulfilled According to the assumptions with which the fiscal accounts were programmed, the Government’s net debt would end at 55% of GDP in 2024, remaining right where the law requires with the debt anchor, while for 2025, the net debt is projected at 56.1% of GDP, “with an increase of 0.9 percentage points compared to 2024, consistent with a primary deficit of 0.1% of GDP and a total deficit of 4.7% of GDP.”
“Stabilizing the debt at the 55% of GDP anchor requires the Central Government to start generating primary surpluses, given that real interest rates on public debt remain above economic growth. The implicit real interest rate on the debt is set at 3.9% for 2024 and 5.5% for 2025, while expected real growth is 1.7% and 3% respectively,” they concluded.
Finally, the Autonomous Committee of Fiscal Rule said that they will closely follow the proposed Financing Law that the Ministry of Finance will present in mid-September for debate in Congress and that This new proposal is consistent with the needs that the fiscal rule poses for the country.
