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Government’s financing needs revised up.
15/06/2023 | Vittorio Peretti & Carolina Monzón

Weaker oil prices and rising expenditures constrain a fiscal consolidation path, despite additional revenues from prior tax reforms. The MoF’s Medium-Term Fiscal Plan increased the 2023 growth forecast by 0.5pp to 1.8% (Itaú: 1.3%). For 2024, the economy is projected to slow slightly to 1.5% (Itaú: 1.4%), well below the 2.8% outlined in the February fiscal plan. The medium-term growth forecast remained unchanged at 3.2%. With lower-than expected oil prices (USD 78.6 in MTFF from USD 94.2 in the February fiscal plan), the 2023 nominal fiscal deficit estimate widened by 0.5pp to 4.3% of GDP (5.3% in 2022; 3.8% in February). The 2024 fiscal deficit was revised substantially higher to 4.5% of GDP from 3.6% expected in February (2.0% expected in 2022 MTFP). The updated nominal deficit path is consistent with the fiscal rule (a zero primary balance). Overall, we view the fiscal update as more reasonable in terms of the macroeconomic assumptions incorporated, thereby better reflecting the challenging path to correct large twin deficits. With political support in Congress fraying, the proposed structural reforms will likely be watered-down, limiting their fiscal costs.


Paying the debt of the fuel price stabilization fund (FPEF) is estimated at around 1.6% of GDP in 2023 and 1.0% in 2024, preventing a swifter fiscal consolidation. Currently, fuel prices sit 37.3% below international prices, with the government adjusting the fuel price up by 31.4% since October 2022. The MoF expects the gap to close around yearend, while the diesel adjustment path will start in January 2024. 

Government’s financing needs revised up, amid elevated interest payments. Gross financing needs of the central government during 2023 are estimated at 7.7% of GDP (COP 122.7 trillion), 0.1pp above the previous estimate, with interest payments totaling 4.3% of GDP. The targeted financing mix is 61% in local currency, and 39% in foreign currency, broadly stable with the February fiscal plan (60/40 split). Regarding financing via capital markets, the government will seek to finance COP 70.7 trillion this year, above from the COP 60.4 trillion expected in February. Domestic funding would reach COP 43.2 trillion through local currency debt auctions of COP 34 trillion (COP 7 trillion above previous estimate) and other funding sources raising COP 8.5 trillion, including COP 1.0 trillion in green bonds. External funding would raise COP 27.5 trillion (USD 5.9 billion; above from the COP 24.2 trillion expected in February), of which 40-50% will be sourced from loans with international financial institutions. The remaining needs will come from debt issuance in international capital markets. For 2024, gross funding needs remain high at 7.8% of GDP, with debt issuance at 4.3% of GDP (63-37% local-external split; local currency debt auctions of COP 37 trillion). 


A more gradual convergence to the net debt anchor (55% of GDP). For this year, the administration is expecting gross public debt to tick down by 1.6pp from last year to 59.5% of GDP, with net debt dropping 2.1pp to 55.8%, but rising interest payments lead to a net debt uptick next year to 57.1%. A primary fiscal surplus average of 0.4% between 2024 and 2032 is assumed in the outlook, resulting in net debt converging to the 55% anchor over a decade (2024 expectation in the 2022 report). 


High financing needs, political uncertainty and a high rates environment will keep the fiscal scenario under strain. Colombia is rated as non-investment grade by S&P and Fitch while Moody’s affirmed its ‘Baa2’ rating with a stable outlook in June. Looking ahead, fiscal consolidation remains challenging in the context of the activity slowdown, high interest rates, still elevated inflation and spending pressures.