Colombia’s Fiscal Rule Return Ruled Out in the Near Term
Colombia · PUBLIC FINANCE
Key Facts
- —Deficit The minister says the inherited 2026 shortfall reached 7.8% of gross domestic product.
- —Escape clause The rule has been set aside for 2025, 2026 and 2027.
- —Adjustment The deputy minister puts the needed correction above four points of output.
- —Cuts A first trim of 20 trillion pesos (US$6.41 billion) equals about 1% of output.
- —Rate Banco de la República held its policy rate at 12% on 31 July.
A new government says the accounts it inherited are worse than the official targets suggested.
Colombia’s fiscal rule will not come back soon, the country’s technical deputy finance minister said on Wednesday. Juan Sebastián Betancur told bankers the government is building a medium-term fiscal anchor instead.
What the deputy minister told bankers
Colombia’s fiscal rule cannot be restored in the short term, the technical deputy finance minister said on 26 August. Juan Sebastián Betancur made the remark at the annual banking convention.
He said he is acutely aware of the importance of a medium-term fiscal anchor. The ministry wants that anchor rather than an immediate return to the rule as written.
Betancur put the required adjustment at more than four percentage points of gross domestic product, or GDP. He added that Colombia has never delivered a correction of that size.
What the rule actually is
The fiscal rule is a law that caps the central government’s deficit and steers its debt lower. Law 1473 of 2011 created it, and Law 2155 of 2021 added an escape clause.
The previous government invoked that escape clause in June 2025, covering 2025, 2026 and 2027. Colombia’s fiscal rule is therefore already parked for three consecutive years.
A watchdog called the Comité Autónomo de la Regla Fiscal, or Autonomous Fiscal Rule Committee, monitors compliance. It issued a non-binding opinion before the escape clause was activated.
The numbers the new team inherited
Finance Minister Miguel Gómez Martínez took office on 7 August under President Abelardo de la Espriella. He says the outgoing administration left the largest deficit in Colombian history, at 7.8% of output.
Gómez has called this the most difficult moment for the Colombian economy, with every factor working against it. He blames mismanagement of public finances and says austerity is now the only route.
Fitch Ratings put the 2026 deficit near 7% of GDP, a figure this publication reported earlier. Either number leaves the rule far out of reach for next year.
A budget sent back to be rewritten
Congress returned the 2027 budget bill to the ministry on 11 August at the government’s own request. Gómez said the assumptions in the draft did not match the real financial situation.
The returned bill was worth 575.6 trillion pesos (US$184.59 billion) and carried a financing gap near 30.2 trillion pesos (US$9.68 billion). Those figures use the official rate of 3,118.24 pesos per dollar set for 27 August.
The Superintendencia Financiera publishes that rate, known as the Tasa Representativa del Mercado. A rewritten bill must reach Congress by 30 August under budget law.
The ministry also found debt interest budgeted at 3.9% of output against technical estimates of 4.5%. That single gap is worth roughly half a point of GDP.
Rating firms and the central bank will all read the new numbers closely. Investors will judge Colombia’s fiscal rule debate on what those numbers show.
Spending cuts and a review of transfers
Betancur said the government will cut spending for the rest of 2026 and rework the budget. He framed the cuts as a complement to the strategy rather than its centrepiece.
He also announced a review of transfers, aimed at directing them more efficiently to the people who need them. Transfers to regions and to social programmes are among the largest fixed items in the budget.
The ministry is thinking in terms of a four-year path rather than a single shock. Gómez announced a first cut of at least 20 trillion pesos (US$6.41 billion), worth about 1% of output.
Officials floated a larger trim of up to 60 trillion pesos (US$19.24 billion) for the 2027 budget in July. Colombia’s fiscal rule would still not bind even if that full amount arrived.
Why the central bank is watching
Banco de la República held its policy rate at 12% on 31 July, by a four to three vote. The majority said the peso’s strong appreciation was easing inflation pressure.
The minutes said inflation should converge to the 3% target during 2027 and the first part of 2028. Headline inflation was 6.1% in June, double the target.
Governor Leonardo Villar said on 26 August that the 3% goal would not be reached until 2028. He said the real exchange rate has fallen about 33% from its 2022 peak.
Villar noted the peso has gained more than 18% against the euro, hurting exporters. He also said the bank can do little to shift a real relative price for long.
The link between the peso and the deficit
A stronger peso lowers the local-currency cost of dollar debt service and dampens imported inflation. It also squeezes exporters who compete on price in foreign markets.
Hernando Vargas, the bank’s technical manager, told Congress on 11 August that adjustment is needed on both fronts. He put the measures required to hit the 2027 primary deficit target at 3.7% of output.
That target is a primary deficit of 0.5% of GDP, far from the current outturn. An August earthquake added to the bill, with reconstruction costed near US$6.35 billion.
Betancur says Colombia improved its primary balance ten times in twenty years, by about one point each. The plan now asks for four such improvements in a row.
What Fitch Ratings and BMI actually said
Two different Fitch businesses have commented, and they are not the same institution. Fitch Ratings assigns sovereign credit ratings and reviews the country’s grade.
Richard Francis of Fitch Ratings said spending cuts alone will not deliver a three-point adjustment. He suggested the government present a tax reform early in its term.
BMI, formerly Business Monitor International, is a separate research arm of Fitch Solutions. It projects deficits of 6.6% of output in 2026, 6.4% in 2027 and 4.8% in 2028.
BMI puts the consolidation needed to stabilise debt at about 3% of GDP. Neither set of numbers fits a quick return of Colombia’s fiscal rule.
Frequently Asked Questions
What is the fiscal rule in Colombia?
It is a legal cap on the central government’s deficit and debt path. Colombia’s fiscal rule was created by Law 1473 of 2011 and later amended.
When was the rule suspended, and for how long?
The previous government activated the escape clause in June 2025. It covers the 2025, 2026 and 2027 fiscal years.
What did the central bank say about inflation?
Its July minutes point to the 3% target being met during 2027 and early 2028. Governor Leonardo Villar said on 26 August that 3% would not arrive until 2028.
Connected Coverage
Fitch Warns Colombia’s Fiscal Deficit Could Near 7% of GDP in 2026
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