The Autonomous Committee on Fiscal Rule (Carf) launched new alerts regarding the country’s fiscal situation in which it maintains that financing risks remain latent and that the lack of income to the Nation’s coffers maintains pressure on the State’s treasury. Likewise, it makes several recommendations to avoid disasters next year.
In a statement issued this Tuesday, November 19, the Committee maintains that everything that is happening with the Nation’s finances is the result of the fact that income projections did not materialize as programmed and that by 2024 they would fall below the goal by at least $10.4 billion.
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“If this projection materializes, at the end of 2024 three years would be completed in which the tax collection is below the Government’s projections, which suggests the need for an adjustment of the Government’s projections that reflects the fiscal reality of the country. “, they indicated in the report.
However, they recognize that the execution of the budget as of October shows a pace of commitments slightly lower than that of the same month of 2023 (72.3% in 2024 vs. 79.1% of commitments on appropriations, respectively), while the figures from the Ministry of Finance show that the primary deficit is located at 1.2% of GDP, exceeding the primary deficit goal consistent with compliance with the 0.9% Fiscal Rule for 2024.
Colombian pesos
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“Recently, the Government announced a new spending cut decree for $33 billion that would include the deferred $20 billion and would have an additional fiscal impact of $13 billion. Discounting the postponement decree already issued and the announcement of additional cuts, there would still be $31 billion worth of items in the budget to adjust,” they stated.
Inflexible expenses
Another of the alerts from this fiscal monitoring body had to do with those items that cannot be moved and that have a very strong pressure on national finances, since they are at a very high level and as long as that does not change or new income is generated for the country, we will continue to live on the edge of the fiscal rule.
“The Government faces inflexibility, some structural and beyond its control, that limit the ability to carry out a sustained fiscal adjustment. It is estimated that between 2019 and 2023, 83.6% of spending was inflexible. “Some of the most significant inflexibilities are due to interest expenses, pensions, the General Participation System, subsidies from the Fuel Price Stabilization Fund (Fepc), defense spending and associated health sector expenses,” they stated.
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That said, they put on the table that most of these rigidities have been accentuated in recent years due to the high level of inflation and the growth of the minimum wage, factors that have effects on items like pensions and salaries; which increases the risk of failing to comply with the fiscal rule in 2024.
“We are waiting to know the adjustment measures that ensure compliance with the Fiscal Rule, considering that the last months of the year usually see lower collections and an increase in the pace of execution of primary spending. From a cash point of view, it is observed that the Treasury’s available balance in pesos has remained below the historical average for much of the year. This challenge would be accentuated to the extent that a greater budget delay is generated from the 2024 period to be executed in 2025,” said CARF in its document.
Ministry of Finance and Public Credit.
Photo: CEET – Néstor Gómez
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The Committee also reviewed the state of finances for next year and made it clear that the mistakes of the past could be repeated, since there are estimates above the proven capacities in the Budget that is about to be regulated by the Ministry of Finance, which should be adjusted through a severe cut in spending .
“The projections show that the income programmed by the Government presents a high degree of uncertainty. With the information available today, a risk of lower collection (compared to the Financing Law scenario) of at least $33.3 billion is estimated,” they stated.
To explain where this item comes from, they assert that $22.6 billion would be due to less management of the Dian, $4.2 billion due to a lower collection base in 2024 and $12 billion due to the financing law, the latter in case it is not be approved in the Legislature. Although the accounts at this point total $39.1 billion, the CARF left a range of improvement for the future.
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“The Organic Budget Statute establishes that, if the Financing Law is not approved, the government must make a spending cut at the beginning of the year for an amount equivalent to the collection that is expected to be achieved through said bill. . It will also be necessary to adjust the spending budget to the capacity to generate certain income to comply with the Fiscal Rule in 2025,” they explained.
For the Fiscal Rule Committee it is important to reduce uncertainty and maintain the credibility of the fiscal strategy or else risk premiums, financing costs, the exchange rate and the value of the debt could be negatively impacted.
Financing bill.
Private file
“It is necessary to guarantee compliance with the Fiscal Rule in 2024 and 2025. The 2025 Financial Plan must reflect realistic structural income goals that finance structural expenses, to guarantee compliance with the Fiscal Rule and improve the cash position. Going forward, the country needs to identify and take structural measures that allow for the consolidation of a sustained fiscal adjustment and ensure fiscal sustainability,” they concluded.
Meanwhile, the National Government is advancing the procedures to carry out the financing law, arguing that it is necessary to guarantee fiscal stability and investment in the regions, although in Congress there is not enough strength to make the initiative a reality.
