Future periods will put strong fiscal pressure on the 2025 National Budget

In less than a month, the Ministry of Finance must present to the Congress of the Republic the project to define the General Budget of the Nation for 2025 and it is already predicted that the processing of this initiative will be surrounded by strong debates and careful oversight, not only from Congress, since that control bodies and economic research centres hope that the problems that the Budget had this year, revealed by Portafolio, will not be repeated.

Likewise, it is expected that the income and expenditure projections made by the Government will materialize, on the one hand, the message of austerity that has already led to a cut in the current budget items, and on the other, that it will be known how the financial authorities will overcome the slowdown, pending the implementation of a recovery plan.

According to what is known so far, from the draft bill that was released in April for discussion in Congress, the figure initially estimated for next year is $524.4 billion, of which $325.9 billion will go to operating expenses, $128.7 billion to debt service, and $69.7 billion will remain for investment expenses.

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One of the points that draws the most attention in these preliminary accounts This is the cut of more than $30 billion that was made to investment items and that for now are projected to end up paying the debts of the National Government, leaving the country without fuel to promote programs that improve the economic dynamics and turn on the productive engines, which are currently turned off.

Ricardo Bonilla, Minister of Finance and Public Credit

Mauricio Moreno / Portfolio

In a study, Corficolombiana’s economic research team took on the task of thoroughly reviewing what is coming for the country in terms of budget and cross-referencing this information with the update of the Medium-Term Fiscal Framework that was released in mid-June, finding that future terms will increase tax pressure in 2025.

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These experts begin by saying that for the two remaining years of government (2025 and 2026) $46.8 billion pesos have been allocated for this concept, of which $37.2 billion are for investment expenses ($21.1 billion in 2025 and $16.1 billion in 2026) and The remaining $9.6 billion of the budget goes to operating expenses.

César Pabón, Executive Director of Economic Research at Corficolombiana

Courtesy

“It is surprising that the Future Validities (VF) for operation not only did not decrease, but on the contrary increased by 47.4%, reporting an additional 3.3 trillion. In addition, specifically for 2025, the future investment validity, which must be incorporated into the General Budget of the Nation (PGN) for 2025 in the coming months, went from $16.4 to $22.4 trillion in 2023, with a real growth of 36.6%,” explained Corficolombiana.

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Thus, according to the calculations of this group of analysts, the country would have one of the highest participations of future validity in the last five years.which is even higher than during the pandemic and beyond. This will increase the tax burden, since it is an inflexible component of the National Government’s investment, as they are payment commitments acquired in previous periods.

“The balance of the commitments for 2025 reveals that there will be greater fiscal pressure in the 2025 PGN, due to the inflexibility that they represent for the National Government. Specifically, investment periods gain a share within the total national investment, which according to estimates by the Corficolombiana team could reach 42% of the total allocated for this purpose next year,” they stated.

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This situation also reduces the room for maneuver in the allocation of resources available for spending in 2025 and takes away space from the Ministry of Finance to incorporate its programs, which is important if one takes into account that The country is in a fiscal scenario that is already challenging, given the fiscal adjustment commitments required.

Taking into account the above, the Corficolombiana report is emphatic in its call to the Government to refrain from repeating what they described as “failed legal attempts” to avoid the commitments made with the terms that were to be issued this year, referring to the ‘2024 Budget Problems’, which were revealed by Portafolio.

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“What happened with the Liquidation Decree of the PGN 2024 and the subsequent Decree that included the need to receive approval from the President for assignments and modifications of future terms has raised signals of alert among participants in the infrastructure sector in the country,” the report emphasizes.

Ministry of Finance and Public Credit

Private file

They also indicated that “the uncertainty generated regarding the incorporation of mandatory payments for future periods in the 2024 PGN is a cause for concern, given that they were considered to have a risk rating comparable to the national public debt, and this was how investors valued it when defining the respective risk premiums for project financing.”

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Although the cash situation is not the best and the belt tightening The Ministry of Finance is committing resources that could be used to promote the programs that President Gustavo Petro wants. These analysts pointed out that touching future terms is not a viable alternative, since it puts financial stability and the perception of risk at stake.

“What has happened this year has increased the perceived risk of non-payment of these resources, which makes the financing of the infrastructure projects they support more expensive. Given the possibility that the Government will face an even more pressing fiscal situation in 2025 than this year, with just over a month to go before the 2025 PGN Bill is filed, it is crucial to analyze in advance the magnitude of the commitments acquired with VF for next year,” they added.

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This report closes by saying that there are currently four 5G infrastructure projects in the structuring phase, with a combined investment in capex and Opex (capital or operation) close to $10 billion, which are investments that will translate into the construction of approximately 592 kilometers of roads and 558 kilometers of railways, with the potential to generate 60,000 jobs and significant economic and social effects.

“However, the viability of these projects is not guaranteed. Recent doubts about the mechanism of future terms could make financing more expensive and reduce the interest of the private sector in participating, which could lead to the closure of these projects,” they concluded.