The origin of the fiscal challenges that have the country in check

There is just under a month left until the end of the year and as December 31 approaches, companies, industries and economic analysis centers make their assessments and reviews of this period, which was undoubtedly marked due to fiscal pressures and the need to increase investor confidence.

In this context, Corficolombiana took on the task of reviewing the origin of the fiscal crisis that the country has been experiencing since the pandemic and highlighted that high public spending and tax collection have had a lot to do with it, while pointing out that This trend needs to be reversed urgently to generate better growth.

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Although they make it clear that things could be better, the analysts affirmed that the country is moving towards the end of the tunnel and that overcoming fiscal risks requires government leadership, especially regional, and collaboration with the business sector and civil society, in a context of structural changes such as aging, digitalization and sustainability.

“Although we expect an economic improvement next year, risks remain that could slow down productive dynamism. Fixed investment continues to lag pre-pandemic levels, and fiscal challenges remain. In addition, the risks in the energy sector, the increase in social conflicts and insecurity in several regions are obstacles to economic reactivation,” they noted.

Regarding fiscal uncertainty, they explained that their base scenario for 2025 indicates that the Fiscal Rule will be met, but with challenges in income, expenses and the uncertainty of the Financing Law.

“We estimate that tax revenues will be $39.3 billion lower than expected in the Budget, which would require an adjustment in primary spending of between 1.7% and 2.0% of GDP to comply with the rule. Local uncertainty and global would keep the dollar in Colombia at an average of $4,344 during the first half of 2025, with greater volatility. However, the forecasts are subject to greater uncertainty than usual,” they noted.

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The origin of pressure

Now, regarding how the entire fiscal crisis began, Corficolombiana identifies that the roots are in the low economic growth and high levels of public spending inherited from the pandemic, reporting that between 2019 and 2024, the region’s public debt grew by average 10.1 percentage points of GDP, due to the increase in the financial cost of debt and high interest rates.

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“Additionally, the 5.5% drop in the 2024 tax collection, which culminated in revenues of $248.3 billion, forced the government to repeatedly adjust the spending budget to comply with the Fiscal Rule. These adjustments included cuts in primary spending for $15.3 billion and the issuance of TES to pay obligations with the Fuel Price Stabilization Fund (FEPC). However, the deficit between income and expenses persists, increasing the need for corrective measures,” they added.

Finally, another factor that they classified as critical is the uncertainty around the financing sources contemplated in the 2025 General Budget of the Nation (PGN), which foresees a record expenditure of $523 billion, against which the lack of legislative approval and The issuance by decree of the PGN intensifies the risks.

In this sense, they made it clear that if structural measures are not taken to reduce spending and improve income, the country’s fiscal sustainability could face greater challenges in the medium term, which could be mitigated, according to their expertise, making the decisions that are needed at this time regarding spending.