Colombia’s Fiscal Hole Deepens as Petro Runs Out of Road
- Colombia’s primary deficit hit 3.4% of GDP in 2025, a full percentage point above the government’s own target, as tax collection fell nearly $10 trillion pesos ($2.3B) short of projections
- The country already lost investment grade with S&P last June and was downgraded by Moody’s to Baa3 — the last notch before junk — after the government suspended its fiscal rule
- With total government spending topping 22.9% of GDP and presidential elections in May 2026, analysts warn the next administration will inherit a fiscal crisis requiring at least a 3-point GDP adjustment
Colombia’s independent Fiscal Rule Committee published its year-end report this week, and the numbers confirm what markets have been pricing in for months: the government is spending far more than it collects, the gap is widening, and the tools to fix it are running out. The primary deficit — which excludes interest payments — reached 3.4% of GDP in 2025, overshooting the official target by a full percentage point. Total government spending hit a record $422 trillion pesos ($97 billion), equivalent to 22.9% of GDP, the third-highest level in modern Colombian history.
The revenue side was equally grim. Tax collection came in nearly $10 trillion pesos ($2.3 billion) below the government’s own projections, with income tax alone falling $11.2 trillion short. The tax agency managed to exceed targets on VAT and customs duties, but those gains were swallowed by the income tax shortfall — a structural problem the committee has flagged repeatedly since 2024.
Already past the cliff
Unlike Mexico, which is approaching a potential downgrade, Colombia has already fallen off. Both S&P and Moody’s downgraded the country last June after President Petro’s government suspended the fiscal rule — the legal framework designed to limit deficits and debt. S&P cut Colombia to BB with a negative outlook, placing it firmly in speculative territory. Moody’s moved it to Baa3, the last rung of investment grade. Government debt now sits around 60% of GDP, well above the 55% legal anchor, and Moody‘s projects it will peak at 64% by 2027.
The Economist recently ranked Colombia’s 2025 fiscal deficit as the second-worst among 41 countries surveyed, behind only Egypt. With presidential elections in May 2026, the Fedesarrollo think tank estimates the next government will need a fiscal adjustment of roughly three percentage points of GDP — around $54 trillion pesos ($12.5 billion) — just to stabilize the books. That is the kind of austerity package that wins no elections, which is precisely why it hasn’t happened yet. This is part of The Rio Times’ daily coverage of Colombia affairs and Latin American financial news.
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