After the Ministry of Finance confirmed that the budget suspension that was decreed in the middle of the year will finally become a cut in public spending and that said measure will be more severe than what was initially said, things seem to begin to change. improve, since although it is a measure that translates into less resources that enter the economy, for now help maintain the country’s fiscal stability.
So far, economic study centers and analysts generally agree that, taking into account the unfavorable figures seen in the State’s finances due to the drop in tax collection, this snip at the money that was going to be used for investment and operation and no longer, it will be essential in compliance with the fiscal rule, so the faster it comes to fruition, the better it will be.
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However, a recent report from the Bank of Bogotá puts on the table that the decision to cut spending is being supported by another event that was initially considered negative and unleashed criticism of the Minhacienda, but which currently plays in favor of tranquility. of investors and the good image of the local market. It is about low budget execution.
In a simple way, the fact that the National Government is not executing the resources approved for the 2024 period as initially projected, will help the deficit in state accounts to remain at the levels recommended by the Autonomous Rule Committee. Tax, mainly with respect to the acquisition of debt.
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“President Petro would have given approval to the Ministry of Finance to adjust public spending of nearly $33 billion, of which $20 billion would be due to the officialization of the budget cut of frozen resources at the end of May and the remaining $13 billion would be the result of the Government’s preliminary estimate of the lack of income due to the lower collection tributary with respect to the set goal”, they began by mentioning.
Regarding this, they add that although the news has not been made official, its materialization would represent a substantial change for compliance with the Fiscal Rule, which, added to the budget underexecution, would help to counteract the cash pressure that the Government has been experiencing since several months ago.
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Now, to better explain its point of view, the Bank of Bogotá said that “the cut in spending on the Government’s operation and investment, by excluding transfers to the Fuel Price Stabilization Fund (Fepc), would be $63 .8 billion in all of 2024 compared to the allocation approved in the General Budget of the Nation”, which could be seen as an initial relief.
“However, there are nuances that call into question whether the Government will be able to carry out the ambitious spending cut. For example, in February, with the update of the Financial Plan, the Nation committed to adjust its primary spending by $20.1 billion without Fepc and given that at that time there was no decree confirming said cut, it was inferred that the strategy to Achieving this objective was through budget underexecution,” the experts maintained.
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The goodness of the slow step
With the mention of this last element, from Banco de Bogotá They highlighted a second item in the management of the Government’s accounts that could be seen as favorable for the interests of the Minhacienda with regard to compliance with the rule and that if it continues at the observed pace, it will help improve cash flow.
“The authorities announced an additional adjustment in primary spending without Fepc of $30.7 billion compared to the Financial Plan. Of these resources, $20 billion were supported by Decree 677 of 2024 where the Ministry of Finance froze PGN resources for said amount and the remaining $10.7 billion would be related, again, to an underexecution strategy,” they explained in this regard.
The report suggests that we must not overlook that although spending commitments exceed the threshold, payment obligations, which in the end is effective spending, have a different trend, so fiscal goals will depend on the projects that have generated a reserve budget (commitments), do not end up being executed and do not generate a payment obligation.
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“For the moment, the Rule would be complied with. If the new adjustment is confirmed, the Government would be confirming its commitment to honor this rule, something positive for the country. In fact, as shown, the figures support the above. The news is positive and the markets have already reacted favorably with a lower country risk premium, a reduction in public debt rates and a revaluation of the exchange rate,” they concluded.
In addition to the discussions on the execution of the 2024 Budget, The Ministry of Finance has already mentioned the possibility that next year’s spending accounts will have to be cut if the financing bill currently in Congress is not approved, since $12 billion of the PGN 2025 depends on it, which For the first time in history it will go by decree.
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For the Banco de Bogotá, it must be recognized that the results obtained in indicators such as the Ise or the GDP have been better than expected and that what has to be done is pay attention to the particularities of the data, to understand what they are. the fronts of the economy that require special attention, since in this way a reactivation plan can be more easily promoted.
However, they are emphatic that the perception of businessmen and investor confidence is an issue that requires special attention, since for them it is not going through its best moment and requires a change in the way it has been treated.or will continue to translate into a flight of capital to other countries in the region.
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