Colombia :
Colombia: Public Finances – any cause for concern?
Colombia’s public finances have come under the spotlight in recent years amidst recurrent adverse external shocks, rising social spending pressures, ongoing challenges in raising revenues, persistent (optimistic) biases in fiscal planning and, as of late, the back loading of fiscal consolidation plans following the Covid-19 shock.
The rapid progression of the public debt ratio and the capacity for future policy adjustment have, in particular, become points of concern and have, since the summer 2021, materialized in Colombia losing its investment grade status. However, overly focusing one’s attention on debt levels, debt dynamics or the speed of fiscal adjustment to assess fiscal sustainability in Colombia can lead to overlook important risk-mitigating aspects of the sovereign’s credit profile.
Despite facing a challenging scenario of its underlying debt drivers, the sovereign maintains a solid capacity to support debt backstopped by a favorable interest-to-growth differential, low contingent liabilities, a manageable debt-servicing burden and a sound institutional framework. Looking forward, engaging the broadest swath of society in shaping fiscal policy represents a significant challenge that could – if done inclusively – pay important dividends in terms of both economic and fiscal outcomes.
3/17/2022