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A challenging fiscal backdrop.
2024/02/02 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

A smaller deficit in 2023... According to the MoF's updated Fiscal Plan, the 2023 nominal fiscal deficit fell to 4.2% of GDP, 0.1% below the previous forecast, and down from 5.3% in 2022. Fiscal consolidation in 2023 was achieved even as growth was revised down by 0.6pp to 1.2% (Itaú: 1.0%), with revenues rising by 2.4% of GDP (supported by the tax reform of 2022) above the 1.4% of GDP rise in fiscal expenditures. Of note, even though revenues rose to record levels, they were still below the MoF's projections.  

... yet revised higher for 2024 on lower revenue growth. For 2024, the nominal deficit was revised up to 5.3% of GDP (4.4% expected in MTFF), up 1.0pp from 2023, mainly due to a projected revenue decline that outweighs the expenditure contraction. The net primary structural deficit for 2024 remained unchanged at 0.2% of GDP. Despite an elevated deficit, the MoF states that the projections comply with the fiscal rule due to lower growth and oil revenues. Revenue projections however are based on the MoF's above-consensus growth forecast of 1.5% (BanRep: 0.8%, Itaú: 1.2%), posing challenges to revenues, especially after a 2023 that was below-target.


Fiscal pressures persist due to the expected reduction of fuel and diesel subsidies. During 2023, the fuel price stabilization fund (FPEF) accumulated a net position of COP 20.5 trillion, of which COP 15.2 billion corresponds to diesel (74%). Even though the gap between local and international fuel prices has closed, the adjustment of diesel prices has not yet started. The government is negotiating with transporters to reduce the diesel subsidy granted through the FPEF. By 2024, a net diesel deficit position of 0.6% of GDP (COP 9.5 trillion) is expected.

Net public debt to rise beyond the anchor (55% of GDP) in 2024. By 2023, net debt is expected to have reached 52.8% of GDP (below the anchor; and lower than the 55.8% estimated in the August fiscal plan), but higher financing needs will lead to a net debt uptick this year to 57% (slightly above the previous estimate of 56.9%). Moreover, a primary fiscal deficit of 0.3% of GDP was recorded last year (0% in the August fiscal plan), while for 2024, the primary fiscal deficit would be 0.9% of GDP (above from the +0.2% expected previously).


2024 gross financing needs revised down slightly, as lower amortizations offset the larger primary deficit. The Central Government's 2024 gross financing is estimated at 7.8% of GDP (COP 131 trillion, 1.3 trillion below the previous estimate), with interest payments totaling 4.5% of GDP (68% of the total financing; 57.7% in 2023) and amortization declining to 1.8% of GDP (2.6% estimated the previous update). Regarding financing via capital markets, the government is expected to seek financing for COP 75.8 trillion in 2024 (4.5% of GDP), above from the COP 73.4 trillion expected in June. Domestic funding would reach COP 53.4 trillion through local currency debt auctions of COP 37 trillion (broadly similar to 2023), and other funding sources raising COP 16.4 trillion, including COP 1.0 trillion in green bonds. External funding would reach COP 22.4 trillion (USD 5.0 trillion partially supported by prepayments; below the COP 27.4 trillion expected in the MTFF), of which 55% will be sourced from loans with international financial institutions. The remaining needs will come from debt issuance in international capital markets. Thus, the targeted financing mix is 70.5% in local currency, and 29.5% in foreign currency, relying more on the local market with respect to the June fiscal plan (63/37 split). The authorities have stated that prepayments cannot be ruled out.


A challenging fiscal backdrop. Even though a fiscal consolidation was achieved in 2023, the projected widening of the deficit in 2024 reflects the headwinds on the fiscal accounts. The challenges facing the fiscal consolidation process are in line with the recent negative outlook revision by S&P on the 'BB+' rating. Colombia is rated as non-investment grade by S&P and Fitch, while Moody’s maintains Colombia's investment grade rating at Baa2 (outlook stable).