Petro will suspend fiscal rule for three years

Prior to the announcement of the Higher Council for Fiscal Policy (Confis)'s decision, it was announced that the Colombian government will suspend the fiscal rule for three years, despite the opposition of the Autonomous Committee for Fiscal Rules (Carf). This would have serious impacts on monetary policy and the country's credit rating. The last time the fiscal rule was suspended was in 2021 as a result of the COVID-19 pandemic, allowing the government flexibility in debt acquisition.

The Financial Plan had considered a fiscal deficit of 5.1% of GDP in 2025, but analysts point out that this target would not be met due to the overestimation of tax revenue and the refusal to cut spending. According to calculations by Corficolombiana, with this approval, the country's fiscal deficit could rise to 7.4% this year. This would not only be higher than the Ministry of Finance's February projection, but would also be double the pre-pandemic figure (the average between 2016 and 2020 was 3.7% of GDP).

"The deficit to be financed in 2025 will be between $26 billion and $47 billion higher than projected in the Financial Plan, putting even more pressure on TES rates," Corfi explained.

Representative Óscar Darío Pérez of the House of Representatives stated that the consequences of the decision, without any subsequent catastrophic events that would warrant such a decision by Confis, "are absolutely counterproductive for Colombia."

"This will undoubtedly make us more sensitive to country risk. Foreign investment will be much more hesitant to come to the country, as if it weren't already. Financing for the public and private sectors will be much more difficult and more expensive, and the truth is that we run an enormous risk of having our credit rating downgraded even further. This is absolutely inappropriate, it's irresponsible," Pérez explained.

The government's recent decision has generated a wave of criticism and concern from prominent unions and economic experts, who warn of the risks to the country's financial stability. Former finance ministers warn that this decision would lead to a possible loss of credit rating, as well as the inability to access loans from multilateral banks, and a loss of credibility in international markets. According to José Manuel Restrepo, former finance minister and director of the EIA, suspending the fiscal rule would lead to a credit rating downgrade by Moody's, the only rating agency that has yet to downgrade Colombia's investment grade; it is currently at Baa2.

José Antonio Ocampo, former head of the Treasury, noted that the country would lose access to flexible credit from the International Monetary Fund (IMF). “We will lose access to flexible credit; the government has not intended to use it, but it should not be lost. It is granted to countries that stand out for the strength of their macroeconomic fundamentals,” Ocampo said.

Possible lawsuit against the Government

The president of the National Trade Union Council, Camilo Sánchez, announced a possible lawsuit against the government for suspending the fiscal rule. Sánchez commented that the Trade Union Council is still analyzing the possibility. "Credit will become more expensive for us, and the credit rating agencies will lower our rating. This causes the productive sector to lose profitability, even without doing anything wrong," he explained.