Colombia’s Debt Surpasses Regional Peers as Government Spending Drives Fiscal Strain

Colombia’s public budget policy has taken a historic leap in external debt, according to official data from the Ministry of Finance and central bank.

After the release of the latest Fiscal Framework, analysts warn that the government’s focus on tax reform cannot overshadow the country’s immediate and medium-term debt obligations.

By the end of 2024, Colombia’s government debt reached 61.3% of GDP, the highest in its history outside the pandemic years. This places Colombia above Mexico, which recorded a debt-to-GDP ratio of 47.7% in September 2024, and Chile, which stood at 44.0%.

However, Colombia remains below Argentina, whose debt-to-GDP ratio reached 91.5%, and Brazil, where the International Monetary Fund projects gross public debt to climb from 87.3% of GDP in 2024 to 92% in 2025.

These figures show Colombia’s debt burden is now well above the regional average, though not yet at the crisis levels seen in Argentina or Brazil. Colombia’s public sector holds 56% of the country’s external debt, while the private sector accounts for 44%.

Most of the debt comes from long-term bonds and loans, with 83% of obligations maturing after one year. The government suspended its fiscal rule—a law designed to limit borrowing and maintain fiscal discipline—after court approval.

This move allows the fiscal deficit target for 2025 to rise to 7.1% of GDP, up from 5.1%. Officials say this aims to support economic growth, especially in agriculture and manufacturing.

However, economists and business leaders have raised concerns about the sustainability of Colombia’s finances. Tax revenues are falling, with projected collections dropping to 281.4 trillion pesos ($67.5 billion) in 2025, down from 299 trillion pesos previously.

To fill the gap, the government plans to issue $2.4 billion in new external bonds and seek $1 billion in commercial bank loans. Domestic securities issuance could also increase to 58 trillion pesos, up from an earlier target of 46.5 trillion pesos.

The Fiscal Framework projects economic growth of 2.7% in 2025, while inflation is expected to rise to 4.5%. The government aims to present a tax reform to Congress to raise up to $6.1 billion for the 2026 budget.

Yet, the autonomous committee on fiscal rule estimates Colombia needs an additional $11.1 billion adjustment in the 2025 budget to meet previous fiscal targets.

This surge in debt and relaxation of fiscal discipline have occurred under policies that prioritize increased government spending, a hallmark of the current administration’s approach.

The government has expanded social programs and public sector commitments, relying on future borrowing and higher taxes to fund these initiatives.

This pattern, often associated with left-leaning or socialist economic policies, typically leads to higher deficits and mounting debt, as spending outpaces sustainable revenue.

As a result, more resources go to servicing debt instead of public services or infrastructure. If Colombia cannot stabilize its finances, the risk of a financial crisis grows, potentially affecting jobs, prices, and the value of the peso.

For businesses and citizens alike, understanding these developments is crucial, as they shape the country’s economic future and its ability to compete globally.