Colombia Finance Minister Plans US$6.2 Billion Spending Cut

Colombia · Economy

Colombia swaps finance ministers on Friday. The man taking over says the public accounts are far worse than the official figures admit, and that the deepest spending cut in the country’s republican history is now unavoidable.

Germán Ávila Plazas has resigned as Colombia’s finance minister. His departure takes effect on 7 August 2026, the day President Gustavo Petro’s term ends.

The letter was published on the ministry’s account on X. Ávila called his exit inevitable, obligatory and conclusive.

Colombia finance minister: a resignation timed to the handover

Ávila framed the move as a formality rather than a rupture. Time ran short to finish the task, he told Petro.

He also recalled 55 years of friendship and shared ideals with the president. The two men have been political allies for decades.

Miguel Gómez Martínez replaces him on Friday. An economist, former congressman and former ambassador, he was presented for the job on 30 June.

His appointment was confirmed weeks later, when the president-elect named his full 16-minister cabinet. Vice president-elect José Manuel Restrepo is himself a former finance minister.

The biggest cut in republican history

Gómez set out the scale on Wednesday at the Proyecto Colombia forum, in an interview with Caracol Radio. Spending must fall by at least one point of GDP.

That is about COP$20 trillion, or roughly US$6.2 billion. The conversion uses the 5 August rate of about COP$3,341 to the dollar.

One would like to commit to a fixed figure, he said, but it should be at least 1% of GDP. He expects it to be the most important spending cut the country has made in its republican history.

The aim, he added, is to send a strong message to the international financial community. He said his team has been working through the numbers in detail.

Foreign readers should note the unit. In Spanish, 20 billones means twenty million million, which is 20 trillion in English rather than 20 billion.

Two very different deficit numbers

Gómez says he can state with complete calm that Colombia’s real fiscal deficit is 7.8% of GDP. The outgoing government puts it at 5.5%.

That gap matters more than it looks. It is the difference between a hard year and a genuine financing problem.

The higher figure, he argues, makes Colombia the second country in the world where the deficit is highest. Such an imbalance will demand a long period of adjustment.

The number refers to the total fiscal deficit, not the primary balance. The primary deficit excludes interest payments on existing debt.

Gómez places that primary deficit near 3.5% of GDP. Closing it is his first objective, and he expects the work to span most of the four-year term.

CARF, the independent fiscal-rule committee, had already projected a total deficit of 7.4% for 2026. Colombia’s fiscal stress has been widening even as growth surprised on the upside.

Ecopetrol stays in state hands

Ecopetrol is the state-controlled oil company and Colombia’s largest firm. Its market value has fallen sharply, Gómez says.

He has ruled out selling a further government stake for now. This is not the moment to sell an additional stake, he told El Colombiano in July.

His reasoning is commercial rather than ideological. A sale today would not favour the nation, he said, because too much value has been lost on the stock exchange.

First the company must produce again and generate solid profits. Only then would he weigh whether a further sale helps fund its growth.

There is something to build on. Ecopetrol’s second-quarter profit jumped on a stronger Brent price, a rare piece of good news in the handover period.

Wider privatisations are also on hold. Asked whether he would sell state assets to raise money, he answered that he would not in a first stage.

Instead he wants a smaller state. Colombia cannot afford 19 ministries, he said, and any mergers will need a new law.

Where the savings are meant to go

Gómez has said between COP$15 trillion and COP$20 trillion is needed for three urgent problems. That is roughly US$4.7 billion to US$6.2 billion.

The list is the risk of an electricity blackout, the crisis in the health system, and a security shock plan.

The money is meant to come from budget savings. He says the 2026 budget is underfunded by COP$12 trillion, about US$3.7 billion.

He inherits a second hole as well. The outgoing government filed a 2027 budget short by COP$30.2 trillion, some US$9.4 billion, which exists only if Congress passes a tax reform.

His first hundred days also include reprofiling the debt. That means swapping short maturities for longer ones while interest rates are lower.

He plans to restore contact with the IMF, the World Bank and CAF. Those relationships were largely abandoned under Petro, he said.

What it means for foreigners and investors

Expats and pensioners feel all this through the peso. A credible cut tends to support the currency and cut the cost of imported goods.

Holders of Colombian government bonds, known as TES, are watching the deficit number closely. A wider gap normally means investors demand higher yields.

Legal risk is part of the picture too. A comptroller’s inquiry sent judicial police into the Finance Ministry over a 2025 bond swap only last week.

Cash subsidies will continue, Gómez says, with tighter checks on who receives them. That limits how far austerity reaches the poorest households.

A structural tax reform is coming, but not immediately. He expects to file it late in the July-to-December session, not at the start.

Inflation is the other constraint. The central bank has held its policy rate at 12% while prices stay stubborn, and Gómez says he will respect its autonomy.

Growth is the missing half of the plan. Each extra point of GDP is worth about COP$6 trillion, or US$1.9 billion, to the public finances.

Average growth under Petro was 1.7% a year, he said. He calls that far too low to balance the books.

More: Colombia news in English, every day from The Rio Times.

Frequently Asked Questions

Who is Colombia’s new finance minister?

Miguel Gómez Martínez, an economist and former congressman and ambassador, takes the post on 7 August 2026. He replaces Germán Ávila Plazas, who resigned as President Gustavo Petro’s term ended.

How big is Colombia’s planned spending cut?

Gómez says spending must fall by at least one percentage point of GDP. That is about COP$20 trillion, or roughly US$6.2 billion at about COP$3,207 to the US dollar.

How large is Colombia’s fiscal deficit?

Gómez puts the real total deficit at 7.8% of GDP, against the outgoing government’s estimate of 5.5%. The separate primary deficit, which excludes interest on debt, is around 3.5% of GDP.

Will Colombia sell Ecopetrol?

Not for now. Gómez says this is not the moment to sell an additional stake, because the company has lost too much stock-market value, and any further sale would only be considered once it produces and earns more.

Sources: Caracol Radio; El Colombiano; Caracol Radio on the resignation; Semana; El País.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error

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