The state of the country’s finances is an issue that has gained relevance in recent months, after the Government itself recognized that the fall in tax collection and the failure to meet the goals that were initially proposed generated a cash crisis in the Ministry of Finance, which led to a budget cut of $20 billion that was announced in mid-June, while other organizations warn that it is insufficient.
After this, the management of public debt, as stated Minister Ricardo Bonilla has been a fundamental part of the work to stabilize the nation’s coffers and process the commitments made by past governments, mainly during the pandemic and the periods immediately following. Although there is an improvement, recent warnings assure that this is not a battle won.
Watch out for the debt
A recent report by the Economic Research team at Banco de Bogotá, published this week, argues that cash and liquidity problems have not been fully overcome and that debt management will bring “twice as many challenges by 2025,” when debt repayments of $100 billion will have to be made.
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These experts maintain that the Government has significantly increased the supply of long-term securities and that in particular, the balance of fixed-rate TES securities maturing between 2028 and 2050 showed an increase of $40 billion. in the first seven months of the year, which will generate a significant burden on the nation’s accounts.
Economic recession
“Of the total, $22.5 billion was accounted for by the primary auction mechanism, $0.8 billion by the creation of the ETF, $5.3 billion by the issue used for the Government’s payment to Ecopetrol, $11.3 billion by the repurchase strategy for early redemption and the remainder by the issue to public entities,” they explained.
The Banco de Bogotá report focuses on the strategy issuance of long-term debt securities, since for them this has steepened the TES curves, reflecting both concerns about the sustainability of public finances and the greater supply of securities in the long nodes.
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“For 2025, the outlook looks more challenging than for 2024. To begin with, the 2025 budget has a high probability of underfunding, a situation that would put pressure on the nation’s treasury again. In addition, unlike 2024, the following year will see the maturity of two bonds, a TES UVR in May and a fixed-rate one in November, with capital payments close to $28 billion,” they added.
Simply put, the Government’s strategy remains the renegotiation of its debts by acquiring new credits, which helps alleviate cash flow problems, but in the long run raises the cost of interest and maintains the risk to the country’s macroeconomic stability.
Bank of Bogota
Thus, they conclude that the alternatives for the Government are clear, since either it resorts to a formal bond exchange operation or it accelerates the pace of debt redemption, something that would also apply to the fixed rate TES, although with less urgency, since if the pace of redemptions is maintained, the balance could be reduced to $3.5 billion by December.
A controlled box
In order to know the position of the Ministry of Finance regarding Regarding the state of public debt and the alerts about the Government’s cash flow, Portafolio spoke with José Roberto Acosta, director of Public Credit and National Treasury, who began by saying that the Government’s cash flow problems have already been controlled and that for now the results show that the debt is being reduced to its fair measure.
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“The cash situation has always been good, not as comfortable as it has traditionally been, but never with complications that put the proper functioning of the State at risk. This, in any case, meant that, being at low levels, as a consequence of the failure to collect taxes by the Dian, which led to the departure of the previous Director, we had to make a budget adjustment of $20 billion to compensate for the gap,” said Acosta.
Acosta Ramos indicated that the Government has managed the TES maturities, especially those that will occur in 2025, through debt management operations to mitigate the risk of refinancing and that thanks to this work, carried out in open markets, has allowed the pressure on the State’s coffers to be reduced.
Ministry of Finance and Public Credit
“It is all within the tactics of any sovereign public debt manager and in the market makers scheme, it is not only well regarded, but it is justified because these debt management operations are carried out in the open market with the purchases and sales that merit, I repeat, to reduce the pressure of these amortizations on the cash for the 2025 period and in many cases it is also done for the 2026 period,” added the Director of Public Credit.
The Ministry of Finance made it clear that the debt rollover It does not necessarily imply an increase in future rates, as high coupons are replaced by lower coupons and each reference has its coupon, but it is also affected by the clean price at which it is quoted in the markets.
“The important thing here is that there is no extensive arbitrage of the nodes in the yield curve, which is the benchmark against which the calculations are made and from which the management operations are closed, as well as the trade of the market makers,” warned José Roberto Acosta.
The Director of Public Credit concluded by saying that one cannot forget that this Government “received a cursed inheritance of a debt level on GDP close to 61% that the previous government irresponsibly raised in terms of indebtedness and today it was possible to lower it from 55% to 53.8% at the end of last year.” which in his opinion is proof of the good management of public debt.
