Cash liquidity of the National Government has fallen by 76% in the last year

Last week it closed with a statement from the National Government, in which it recognized that it has a liquidity crisis in its finances and as a solution to this problem, it launched a spending cut plan. in the General Budget of the Nation for 2023, which is being coordinated by the Ministry of Finance.

Within what is known so far, the items susceptible to cuts by each of the State entities have already been presented and in the Council of Ministers that was held in Casa de Nariño, each of them was reviewed. to find out if they are included in the expenses that are deferred to next year.

The Government’s goal, as explained by Minister Ricardo Bonilla, is to lower spending accounts by at least $20 billion, for which various sectors will be reviewed, without touching the red lines drawn by President Gustavo Petro, in social spending, such as subsidies and welfare programs, as well as care for vulnerable populations.

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A first point to understand the solvency crisis they are facing at this time The finances of the State can be seen in a recent communication sent by the Ministry of Finance to the Congress of the Republic, in which it reports that the resources of the National Treasury in the Bank of the Republic went from $29.9 billion in April 2023 to as only $7.1 billion at the end of the same period in 2024.

This means that in the last 12 months, cash liquidity fell by 76%, even remaining at its lowest point in the last 10 years. Although the Ministry recognizes that this is a variable figure that depends on factors such as collection and improves over time, when comparing each month with its counterpart from the previous year, a systematic drop is seen.

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“The liquidity of the Treasury varies throughout the months of the year depending on the behavior of income and expenses, with income presenting its highest level on tax due dates and expenses mainly at the end of the year, as well as on tax due dates. of significant debt. In 2024, the main debt maturity is in the month of July, so cash levels will be prepared to meet that obligation,” the document says.

For Senator Juan Pablo Gallo, these data show that the challenges facing the country are not minor and that it is necessary to adopt urgent measures to get out of this crisis, or else the country’s credibility in the eyes of risk agencies is put at risk. .

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“Today the government has fewer resources than usual in the Bank’s deposits of the Republic, which correspond to the liquidity to cover its expenses. If we add that in April 40% less taxes were collected than last year, the result is not that we are in the pot, but that basically the pot is scraped,” added the legislator.

Meanwhile, for Henry Amorocho, professor of Public Finance at the Universidad del Rosario, one of the points to be taken care of with the spending cut that is planned to be carried out has to do with the inflexibility of the spending contemplated by the law for the operating items in the General Budget of the Nation, although it highlights that if things are done well, up to $25 billion in liquidity could be gained.

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“The substantial problem is how the investment was financed and that is where the State has to organize itself clearly, after having carefully studied the operating position, what investment expenses it is going to cut, which is the hardest part,” said this expert, arguing that there is room for adjustments.

Regarding the items that could be cut, he added that “it would be laudable not to think about reducing the investment budget in infrastructure, roads and others. Because? Because these infrastructure budgets are generally related to contracts that are already in execution, with contracts that are already financed with future terms, with contracts that are already, of course, in advance of work and we definitely have to study that very carefully.”

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In the midst of this debate over the future of the State’s finances, A report from the Bank of Bogotá warns that the public spending cut should be much larger than projected by the Government, taking into account that the income projection for this year is much lower than what was budgeted in the official accounts.

“When Congress approved the 2024 General Budget of the Nation for $503.2 billion in October 2023, the Government expected to obtain income of $352.4 billion throughout the year. However, our calculations show that, in fact, income would be around $292.3 billion, meaning a mismatch close to $60 billion and making a strategy of cutting public spending necessary to ensure compliance with the Fiscal Rule,” they explained.

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Added to this, according to their analysis, is that so far this year, income has once again surprised downwards and, given the little room for maneuver, their accounts indicate that an adjustment in spending of $48 billion is now required to meet the goals of the National Government and warn that given the difficulty of carrying After carrying out this policy, the markets are already pricing in a cut in the country’s credit rating.

Although they recognize that the alternatives to comply with the fiscal rule are few, they highlight that an additional measure “could be to review the country’s economic growth upwards from 1.5% to 2.0% in 2024, but this option only gives it space. tax of $0.5 billion. For its part, making the RF more flexible by bringing forward the transition period would only mean an additional budget of $1.5 billion.”

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Regarding the points in which it can be cut, for the former vice minister of Finance, Juan Alberto Londoño, “operating expenses must be reduced, thinking that raising the minimum wage above inflation does a lot of damage. On the other hand, the size of the State must be reduced and finally the country cannot be generating subsidies every day, I would especially cut those subsidies.”

Thus, for now it is expected that the Ministry of Finance will release the official document of the sectors that will have this announced reduction, in order to determine how much those $20 billion that for now will stop being executed could affect the country’s growth. for this forced tightening of the belt.