Preventive blocking of spending: what the Government can do and what it cannot do after this decision

Given the complex fiscal situation facing the country, The National Government has decided to tighten its belt. To this end, the Minister of Finance, Ricardo Bonilla, announced that a plan will be launched to begin adjusting public spending.

(Read more: ‘The collection goal will not be met and that is why we adjust spending’: Minhacienda)

The goal of the Executive, as announced by the head of the portfolio, is to cut $20 billion from the spending stipulated in the National Budget. But how will those changes be made?

To enter into context, we must talk about the General Budget of the Nation (PGN). The amount set for 2024 is $502.6 Billion, of which 61% corresponds to operation, 20% to investment and 16% to debt service.

Its execution is carried out during the fiscal year and for that the director of the PGN issues a document called Certificate of Budget Availability (CDP)which, as its name indicates, guarantees that there are the necessary and available funds to carry out a certain obligation or expenditure commitment.

Now, this is where the Government’s decision is put into action.

To begin releasing resources, the Minhacienda reported that a partial blocking of some spending appropriations will be made assigned to all entities that are financed with money from the PGN. To this end, new CDPs will be temporarily stopped being issued.

According to Lina María Giraldo, professor at the Faculty of Economics and Administrative Sciences at the University of San Buenaventura, the objective of this type of fiscal measures is to control public spending and avoid budget deviations, ensuring that resources are used efficiently and according to established priorities.

(Read more: State, tighten your belt: what effects will the review of public spending have?)

According to Minister Bonilla, the measure will apply to those budget items that have to do with unissued CDPs. That is, ongoing contractual processes that already have this certification will not be affected.

Now, according to the expert, when reference is made to the appropriations items to which the blockade will be enhanced, these are those specific segments of the budget that detail the allocations of funds for different categories of expenditure. This may include operating expenses, investment in infrastructure, social programs, among others.

“The blockade will be applied to these items, temporarily limiting the availability of the funds assigned for their execution,” Giraldo indicated.

In that order of ideas, with this decision the Government you will have the opportunity to review and reassess spending prioritiesas well as reallocate funds towards more critical or urgent areas to maintain fiscal balance.

As for what cannot be done, the expert points out that the Executive will not be able to use the blocked funds for purposes other than those originally approved. You are also not allowed to freely spend locked resources without formal unlock authorization.

(Read more: The billion that the Government could recover if it clamps down on Dian defaulters)

General Budget of the Nation

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(See: Was there an error? President Petro explained why the collection would have deteriorated)

With the adoption of this action plan, there has emerged the questioning whether the measure further accentuates the fiscal crisis. However, many analysts point out that this is a timely and correct determination.

According to Pablo Corredor, financier for Terrazan, the Government’s determination “takes and takes into account the situation that the State’s income is experiencing due to the low dynamism of the Colombian economy, the decrease in tax income due to falls in the non-deductibility of royalties made by the oil sector, the prices of the dollar, etc.”.

The expert adds that it could be considered a stop on the way to reviewing public finances, which should be complemented with a cut in spending established in the Medium-Term Fiscal Framework to close the fiscal gap.

For her part, expert Lina María Giraldo said that concern about a possible fiscal crisis derived from a preventive blocking of spending is due to several factors, including a restriction on cash flow, the impact on market confidence and its effect on the local economy.

However, he highlights that if the blockade is managed transparently and strategically, it can be a useful tool to reinforce fiscal discipline and avoid major problems in the long term.

“The key is to clearly communicate the measures and ensure that adjustments do not compromise essential public services or sustainable economic development,” he adds.

(See: Everyone agrees: why cutting spending is a good option in the face of the fiscal crisis?)

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