Without any further tax reform, tax collection could take up to five years to recover to 2023 levels

The market’s fiscal outlook already led Moody’s to change its perspective for Colombia from stable to negative

In its mid-term financial plan documents, also known as the Marco Fiscal de Mediano Plazo, Colombia’s government stated that it will increase this year’s public deficit from the originally projected 5.3% to 5.6% of total GDP. For 2025, the government increased the expected deficit from the originally projected 3.5% to 4.3% and expects the economy to grow by 1.7% in 2024 and 3% in 2025, assuming the most optimistic growth expectations. If growth is lower than originally anticipated by the government, and there are no spending restraints, it is likely that the deficit for both years will be larger than expected. For 2024, FrontierView forecasts 1.3% GDP growth, while other agencies like the IMF and Colombia’s central bank expect growth rates of 1.1% and 1.4%, respectively.

The increase in debt reliance could further impact Colombia’s credit rating in the short to medium term, negatively impacting the value of the COP and its denominated assets in the market and creating additional FX risks. Consequently, FrontierView has revised our COP:USD forecasts to an average exchange rate of 4,150 COP:USD for 2024 and 4,220 for 2025.

Business Implications

Multinationals operating in Colombia should anticipate a weak COP over the next 18 months. Additional FX risks could emerge from the government’s economic revitalization plan, scheduled for announcement on July 20. 

What’s behind Colombia’s move—and will it work?

On June 20, Congress approved an increase to Colombia’s debt ceiling by an additional US $17.6 billion, marking the largest expansion in the 21st century—exceeding the US $16 billion increase during President Alvaro Uribe’s first term in 2002, as well as the US $14 billion emergency increase implemented by President Ivan Duque’s administration to mitigate the pandemic’s impact in 2020.

The Ministry of Finance indicated that US $2.5 billion will be allocated to meet Colombia’s debt obligations with the IMF, of which US $188 million will be destined for interest payments. Additionally, US $3.2 billion will be used to repay debt incurred with multilateral banks.

Despite the government’s efforts to meet its debt obligations on time, credit rating agency Moody’s changed its outlook for Colombia’s debt from stable to negative. However, it maintained the country’s credit rating at Baa2. The rating agency had previously highlighted concerns about Colombia’s credit profile, warning that it could deteriorate due to the country’s current macroeconomic challenges, including low fiscal revenue and a budget shortfall.

In April, Colombia’s treasury deposits fell to 10-year lows following a shortfall in total tax collection for that month. The government primarily attributes the decline in tax revenue to the Constitutional Court’s decision to repeal a series of prohibitions on tax exemptions that were included in the 2022 tax reform. However, the stagnation of consumption and private investment growth has also significantly contributed to the gap between current and expected revenue. Without further tax reform, it is unlikely that Colombia will meet 2023’s tax revenue levels in the next five years.

Although operational expenses and investment cuts totaling US$ 5 billion were announced by the Ministry of Finance, several financial institutions considered this amount insufficient, suggesting that total spending reductions should have been within the range of US$ 7–10 billion.

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