Colombia's finances still not in order says fiscal rule committee

Colombia's fiscal rule committee said on Tuesday the country's finances are still not in order despite upticks in predicted tax revenue, and there is risk of an eventual increase in debt and spending. The expert Autonomous Fiscal Rule Committee (CARF), charged with evaluating public finances, added in a statement there should be a change in the country's accounting to include fuel subsidy deficit.

Colombia's fiscal rule committee said on Tuesday the country's finances are still not in order despite upticks in predicted tax revenue, and there is risk of an eventual increase in debt and spending.

The expert Autonomous Fiscal Rule Committee (CARF), charged with evaluating public finances, added in a statement there should be a change in the country's accounting to include fuel subsidy deficit. The committee applauded a government projection this month that the central government deficit will fall this year to 5.6% of gross domestic product, about $18.1 billion, from a previous estimate of 6.2% of GDP, about $20.1 billion, as the economy recovers and higher oil prices boost national income.

Finances remain fragile due to more spending during the coronavirus pandemic, the committee said. "The house is not in order. Despite these good results, the deficits produced in the years of the pandemic, the depreciation of the peso and inflation have taken government debt to historically high levels, to the point where it would not be prudent to increase debt," the CARF said.

"More than a fourth of the nation's tax income must be used to pay interest in 2022. That obligation diminishes the capacity of the government to invest in other programs," the CARF statement added. In six weeks, leftist President-elect Gustavo Petro will be sworn in to replace the center-right Ivan Duque. Petro has promised ambitious social programs to fight poverty and a $12.1 billion tax reform effort to partially fund them.

The government should make a methodological change to incorporate the deficit of the country's fuel-price stabilization fund (FEPC), which is set to reach 34.4 trillion pesos ($8.33 billion) this year, the committee said, in order to track compliance with the fiscal rule. The fiscal rule was put in place in 2011 to block deterioration of public finances.

($1 = 4,129.87 Colombian pesos)

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