This Sunday, September 11, the president Gustavo Petro announced, through his Twitter account, that gasoline prices in Colombia will rise. The president justified the decision by a huge budget deficit due to a “growing subsidy to gasoline consumers.”
(Read: Transporters will ask Petro for a reduction in gasoline and tolls).
“The fuel price stabilization deficit due to non-payment by the previous government is 10 billion per quarter. That is almost 40 billion annually. Almost half of the national budget deficit. It occurs when the price of gasoline does not rise“wrote the left-wing leader.
Likewise, the president pointed out that half of the national budget deficit is due to a growing subsidy to gasoline consumers. “It’s time for a national debate about it. Is it worth subsidizing gasoline for 40 billion when the infant mortality rate due to malnutrition doubles?” the president wrote.
Petro is currently in several days of work with his ministers in La Guajira. From there he proposed untie the collection of taxes on gasoline “of the indexation of the price of gasoline to mitigate the impact on the consumer”. And, in addition, he announced to those who buy gasoline that “the price growth path” will be resumed. By-products will not be touched.
(See: The countries with the lowest and highest gas prices in the world).
For this, said the president, Congress could advance the debate on the structure of fuel prices in the country and its indexation with international oil prices.
“The Ministry of Mines and the DIAN must establish effective controls so that the taxation and payment of royalties by fossil fuel extraction companies is made on the actual amounts of extraction and export at international prices.“, he concluded.
Minister of Finance had already made the announcement
Jose Antonio Ocampo
EFE
Colombia needs to carefully reduce fuel subsidies to reduce the fiscal deficit without exacerbating its inflation problemaccording to the country’s finance minister.
José Antonio Ocampo estimates that the gasoline and diesel subsidies granted through the state oil company Ecopetrol will cost the public coffers around 2.5% of gross domestic product this year and 2.1% in 2023.
“We must do what the last government did not do, that is, we must adjust the prices of gasoline and ACPM“, he said during an interview on Thursday. “A major concern is what is the effect on inflation in the current circumstances.”
(Read: How would the change that Petro would make to the calculation of the energy rate).
The Andean country has one of the cheapest fuel costs in the region, sonly behind Venezuela and Bolivia, since the Government has resorted to subsidies to prevent domestic prices from increasing along with the international costs of crude oil.
Ocampo took the reins of the Colombian economy last month, when Gustavo Petro became president. There is no decision yet on when they will start raising fuel prices, the minister said, adding that it will be handled in differently ACPM and gasoline, since the former has a broader impact on production costs.
The increase in fuel prices has become an extremely sensitive issue for governments around the world after the covid-19 pandemic and the Russian invasion of Ukraine. In Latin America, it has caused social unrest and political instability in countries like Ecuador, Panama and Peru.
Ecopetrol presents a positive financial situation. In the first quarter it recorded profits of $6.6 billion.
File, Archive
Colombia’s annual inflation is stands at 10.84%, a maximum of 23 yearsas food prices rose nearly 26% in August from a year earlier and demand has rebounded from the pandemic.
Ocampo said food costs account for a large part of current inflation, which may already have peaked. “Although it can be said that there is a bit of excess demand in Colombia, the underlying issue is really supply.“, said.
The government will implement a plan to mitigate the impact of inflation on the poor population, Ocampo said, adding that the electricity prices could even go down. Earlier this week, Petro urged authorities in the energy sector to explain why electricity costs had risen more than twice the rate of inflation.
The minister said policymakers should consider the risks of capital outflows and cannot ignore how other central banks, including the US Federal Reserve and the European Central Bank, raise borrowing costs.
(Read: Natural gas is key to better air quality.)
Tax reform The Administration of President Petro seeks to increase the income of the Government in 25 billion pesos ($5.7 billion) in 2023, or 1.7% of GDP, through higher taxes on the wealthy and higher levies on dividends, gas, and oil companies.
Legislators have pressured the government to change its dividend and capital gains tax proposalswhich would significantly affect proposed tax revenue, Ocampo said, adding that next week he will present changes to his initial plan.
Colombia recorded one of the lowest tax revenues among members of the Organization for Economic Co-operation and Development, at around 19% of GDP in 2020 compared to a average of about 34% for their peers. It is possible that the congressional economic committees will vote on the tax reform during the last week of September.
The government has proposed an increase of about $2.5 billion to its 2023 budget proposal, and more needs to be raised if social spending increases.
Ocampo said that Colombia’s budget deficit for 2023 is now forecast in 4% of GDP from a previous estimate of 3.6%not including fuel subsidies, and compared to 5.6% this year, as the economy will grow below its long-term trend.
The government estimates that the economy will grow 7.7% this year and 1.8% in 2023. It is unlikely that the country will register a primary fiscal surplus next year, as the previous government proposed, Ocampo said, and He added that the fiscal adjustment could be more gradual in the coming years.
“We are going to see if we have to slightly change the speed of how fast we are going to make” the adjustment, said Ocampo, who described the current fiscal rule as very strict. “But we are going to abide by the fiscal rule.” The Government can complete its external financing plan for 2022 exclusively with multilateral credits and financing from agencies of developed nations, including China. “There have been no bond sales this year, and under current conditions there won’t be,” he said.
BRIEFCASE
With information from Bloomberg*
Add Comment