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Bank of America (BofA) economists have raised concerns regarding Colombia’s fiscal health following a two-day trip in Bogotá, where they met with various stakeholders.
Their findings suggest a consensus among policymakers, politicians, independent experts, and business associations that Colombia violated its fiscal rule law in 2024. This marks the first breach since the law’s inception in 2011, signaling potential economic challenges ahead.
The 2025 Financing Plan, which serves as the official fiscal update, revealed in February that Colombia’s fiscal deficit soared to 6.8% of GDP in 2024. This figure is significantly higher than the 4.3% of GDP recorded in 2023 and surpasses the 5.6% deficit previously estimated to be in line with the fiscal rule law for 2024. The Ministry of Finance’s announcement highlights a concerning deviation from fiscal discipline.
BofA analysts indicate that the fiscal rule law is diminishing in significance as the target for the "structural primary balance excluding one-off transactions" is becoming increasingly subjective. The law requires adjustments for the economic cycle, oil cycle, and one-off transactions to reconcile the observed fiscal deficit. However, the definition of "one-off transactions" is becoming a point of contention, as it is used to justify higher fiscal deficits.
In an unprecedented move, the Colombian government has classified "bad luck" as a one-off transaction, attributing 1.9% of GDP (COP 32tn) to such events for 2024. The majority of this stems from an unexpected decrease in tax revenues, amounting to 1.5% of GDP (COP 26tn). Colombia has not previously seen a tax revenue decline in a year with positive GDP growth, which has led to this unusual categorization.
Furthermore, the government has acknowledged "policy mistakes" as part of the one-off transactions. A decree by former Finance Minister Jose Antonio Ocampo in February 2023 significantly increased anticipated income tax payments and monthly withholding, which shifted tax collection from 2024 to 2023. Consequently, these policy decisions are now also considered one-off transactions according to the government’s definition.
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