Talking about Colombia’s fiscal situation not being the best thanks to the inaccurate projections made by entities such as Dian and the Minhacienda for 2024, mainly in tax collection, may not be something new, however, apparently the lesson was not learned and many of the mistakes of the past are being committed again, according to a recent analysis of the financial sector.
This was made clear in a review by the Bancolombia Economic Research team that was presented this week and in which it was warned that the fiscal space or room for maneuver to manage the State’s money is increasingly smaller and that the optimistic visions that were repeated are repeated. led to having than lower the collection goal and cut the current General Budget of the Nation.
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All this, according to the report, is being done to justify greater public spending next year, despite the fact that suggestions go in the opposite direction and the Government has been asked on several occasions to spend less and avoid continuing to fuel the fiscal uncertainty that has predominated during much of the year.
“The Government’s fiscal space looks very limited in 2024 and 2025. The calculations revealed in the draft National Budget Law for next year reveal that, once again, the Government proposes an optimistic vision of tax revenues, to support an expectation of high spending and, consequently, a budget amount that “It could be underfunded,” they began by saying.
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As things stand, it stands out that it is not a minor issue and that although a lot has been said, we must continue to reiterate that this puts fiscal consolidation at risk, while increasing the probability of needing new cuts or underexecution of spending. primary during the next year.
Unfavorable dynamics
Delving into the country’s fiscal accounts, Investigations Bancolombia recalls that in 2024 the fiscal imbalance reached 3.3% of GDP in the first semester, which in its records appears as the highest since 2004 and is due to the rapid growth of public spending. which grew 13% real annually, while tax collection has been insufficient. Thus, they added that tax revenues They fell an average of 14.4% until August, which complicates compliance with fiscal goals.
“The Treasury accounts for 2025 in the National General Budget Bill revealed, once again, an optimistic bias in the expectation of income, which goes hand in hand with a generous aspiration for spending. Our reading is that this situation “It will have an outcome similar to what we have been seeing in 2024: the Government will have to cut or underexecute spending in order to honor the goal of the fiscal rule,” they said.
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This without taking into account that, from their perspective, insisting on a budget of $523 billion could lead the country to face definancing problems similar to those of 2024, mainly due to the collection expectations placed on the National Tax and Customs Directorate of almost $30 billion, which for them are over $23 billion.
“This decree is susceptible to facing legal difficulties, due to the definancing of $12 billion that motivated the processing of the Financing Law. Thus, a decision by legal entities would be possible that would lead to a budget of $511 billion, an amount that arises from subtracting those $12 billion from the initially proposed budget and which, in addition, coincides with the inflation-adjusted value of the 2024 budget that would be in force. at the end of the year,” they noted.
Colombian pesos.
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Take care of the period
Finally, Investigations Bancolombia recalled that the fiscal rule is an indicationr that it is in force and that it cannot be ignored no matter how many needs the country has, since it is not in a period of crisis. In this way, they explained that the rule would limit the total deficit this year to 5.6% of GDP, which represents around $95 billion, taking into account that the fiscal closure of the first semester left a total imbalance of 3.3% of GDP. , the highest for a first semester since 2004.
“In fact, in the first six months of the year the total CNG imbalance reached $55.7 billion, 58.7% of the total deficit contemplated in the Medium-Term Fiscal Framework (MFMP). This rate of cause of imbalance is the highest so far this century, since usually only 32% of the deficit is caused in the first half of each year. The large deficit exhibited in the first half of the year “It has been a result, in part, of the rapid growth of public spending,” the report states.
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Given this, they closed by highlighting that to comply with the mandate of the Fiscal Rule it will be necessary to put a stop to the dynamics of spending in the remainder of 2024 and that for the second half of the year it will be approximately 13.5% real annual less than in the same period of 2023; remembering that this is something like this hasn’t happened since 2009, so they don’t have much faith that it could happen.
These analysts closed with an invitation to review that in addition to the current uncertainty about the final amount of the 2025 budget, the risk that arises from optimism in income and how the need for budget cuts already seen in 2024 could be repeated is also significant.
Ministry of Finance and Public Credit.
Photo: CEET – Néstor Gómez
“The recent constant has been a large budget based on optimistic tax revenue proposals. This results in the need to make spending cuts that especially affect the investment sector, which also limits the contribution of public spending to medium-term economic growth, and may hinder the fiscal consolidation process for the following years,” they concluded.
For now, the country is waiting to know what the General Budget decree of the Nation will look like for next year and if judicial injunctions are filed against it. Likewise, if it finally remains at the $523 billion that the Casa de Nariño seeks or, on the contrary, it drops to $511 billion in case the Financing Law is not passed in the Congress of the Republic.
