Colombia Plans a US$6.84 Billion Spending Cut After Abyss Warning

Colombia · PUBLIC FINANCE

The finance minister told bankers that Colombia’s spending cut is the alternative to falling into an abyss.

Colombia’s finance minister told bankers on 28 August that urgent action was needed to avoid the abyss. Colombia’s spending cut, worth 21.9 trillion pesos (US$6.84 billion), was the centrepiece of his plan.

The warning at the banking convention

Colombia’s finance minister, Miguel Gómez Martínez, closed the 60th banking convention in Cartagena on 28 August. The event is run by Asobancaria, the Asociación Bancaria y de Entidades Financieras de Colombia.

That body is the country’s banking association, and its convention is where ministers set out fiscal plans. Gómez told the audience that urgent measures were needed to avoid falling into the abyss.

He said the primary balance of the Gobierno Nacional Central was at unsustainable levels. Gobierno Nacional Central, or GNC, means the central national government, the narrowest slice of the public sector.

Those levels, he said, are impossible to finance and make normal economic operation supremely difficult. One in every three pesos collected now goes to paying interest on debt.

The debt figure behind the warning

Gómez said that if nothing is done, debt would reach 82% by the end of this administration. El Espectador published that number inside a direct quotation from his presentation.

Valora Analitik, covering the same speech, reported the warning as 80% of gross domestic product. Two accounts of one remark therefore differ by two percentage points.

The measure is central government debt as a share of output, and the horizon is the end of the term. Before reaching that level, the minister said, Colombia would face a payments crisis of monumental proportions.

Public debt was reported near 60.5% of output at the middle of this year. The warning therefore describes a path, not a current reading.

The size of Colombia’s spending cut

Colombia’s spending cut totals 21.9 trillion pesos (US$6.84 billion), equal to 1.1% of gross domestic product. Gómez said he would put the plan to the council of ministers in Barranquilla on Saturday.

All peso figures here use the official rate of 3,202.79 pesos per dollar for 29 August. That benchmark is the Tasa Representativa del Mercado, or TRM, Colombia’s official market exchange rate.

No decree has been published, and the ministry has released no legal text for the reduction. El Colombiano reported that service contracts inside public bodies are among the items on the list.

A separate bill, which officials call the ley de rescate or rescue law, follows in the coming weeks. Reported targets for it range from 44 to 45 trillion pesos, or US$13.74 billion to US$14.05 billion.

That would be a structural cut of about 2.2% of output in the 2027 accounts. Gómez insisted the bill is not a tax reform, because its emphasis is lower spending.

Four trillion pesos for earthquake victims

The minister set aside 4.09 trillion pesos (US$1.28 billion) for immediate relief after the 10 August earthquake. He said the money covers immediate effects, and that reconstruction will need separate funding later.

The largest slice is 1.9 trillion pesos (US$593.2 million) moved from February’s winter emergency lines. Another 782 billion pesos (US$244.2 million) comes from royalties prioritised in the affected municipalities.

A further 200 billion pesos (US$62.4 million) is redirected from the surcharge on ACPM diesel fuel. Multilateral credits add 625 billion pesos (US$195.1 million), and the Fonpet territorial pension fund 485 billion pesos (US$151.4 million).

The deficit path for 2026 and 2027

Without the adjustment, Gómez said, this year’s primary deficit would reach 4.4% of gross domestic product. The total deficit would reach 8.2%, against 5.3% in the framework filed in June.

That framework is the Marco Fiscal de Mediano Plazo, or MFMP, the medium-term fiscal framework. The outgoing government filed it in June, and the new team says its assumptions were wrong.

With Colombia’s spending cut and the rescue law, the ministry targets 3.3% and 7.2% for this year. The primary balance leaves out interest, so it compares what the state spends with what it raises.

For 2027 the ministry projects a 9.4% deficit without measures, and 7.2% with them. The rescue law is meant to bring the primary deficit down to 2.3% in that year.

A claim about the outgoing team, and no IMF deal

Gómez told the convention that officials held over from the Petro government spent 10 trillion pesos in one week. That is roughly US$3.12 billion, and he said the ministry had to freeze the budget.

Only Valora Analitik has reported the claim, and no supporting document has been made public. No reply from the former administration has appeared, so the accusation rests on the minister’s word.

Gómez also made clear that the government will not seek a programme with the International Monetary Fund, or IMF. He conceded that even after the adjustment, debt would only stabilise rather than fall.

What economists make of the plan

Luis Fernando Mejía runs Lumen Economic Intelligence and formerly directed Fedesarrollo, a Bogotá research centre. On 28 August he said the 2026 and 2027 deficits would be the second highest in recent history.

Mejía said the primary deficit improves from 3.3% to 2.3% of output under the plan. He added that interest payments rise from 3.8% to 4.9% of output, offsetting that gain.

Germán Machado, an economic analyst quoted by El Colombiano on 28 August, called the accounts more honest. His criticism was that the exercise stops short, leaving some obligations still uncosted.

Diego Montañez, speaking to the same paper, put 2027 interest payments at 94.4 trillion pesos (US$29.47 billion). He noted that the figure exceeds the whole investment budget for that year.

How the peso took the news

The peso weakened sharply during the week the plan was set out. The official rate moved from 3,048.12 pesos per dollar on 22 August to 3,202.79 on 29 August.

That is a depreciation of about 5.1% in the official rate over eight days. The spot market closed on 28 August at 3,201.75 pesos, after trading as high as 3,225.

Whether that made the peso the weakest emerging-market currency of the week could not be confirmed. Over a year the currency is still stronger, with the dollar down about 15.8%.

Rodrigo Lama of Global66 ties the earlier peso strength to the carry trade and a 12% policy rate. Claudia Ximena Flórez of Universidad de San Buenaventura cautioned against reading the move as a trend change.

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Sources

• www.elespectador.com
• www.valoraanalitik.com
• www.valoraanalitik.com
• www.valoraanalitik.com
• www.valoraanalitik.com
• www.valoraanalitik.com
• www.elcolombiano.com
• forbes.co
• www.radiosantafe.com
• colombinews.com.co
• www.elespectador.com
• www.infobae.com
• www.cronista.com
• www.datos.gov.co
• www.riotimesonline.com
• www.riotimesonline.com

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