Colombia considers boosting debt to cover growing fiscal deficit, sources say
A demonstrator pulls a flag during a strike called by pro-government labor unions in support of reforms proposed by President Gustavo Petro in Cali, Colombia, Wednesday, May 28, 2025. (AP Photo/Santiago Saldarriaga)
BOGOTA — Colombia is weighing boosting its external and domestic debt by several billion dollars this year to cover a deepening fiscal deficit, three market sources with knowledge of the matter said on Wednesday.
Latin America's fourth-largest economy is facing deteriorating fiscal accounts amid lower tax revenues, high public debt and difficulties in reducing spending. Markets are already wary of President Gustavo Petro's economic management.
The government plans to issue around US$2.4 billion in additional external bonds and take out loans with commercial banks for around US$1 billion, said the sources, who met with finance ministry officials.
The finance ministry could also boost domestic debt securities placed this year to around 58 trillion pesos (US$13.84 billion) from the initial target of 46.5 trillion pesos, added the sources who requested anonymity.
The finance ministry did not immediately respond to a request for comment.
Treasury bonds are Colombia's second-largest source of domestic financing for public spending, behind taxes.
'The strategy minimizes near-term debt servicing costs,' Scotiabank said in a note.
Reuters reported on Tuesday that the government had activated an escape clause to suspend compliance with fiscal rules, allowing Colombia to increase its fiscal deficit target for the year to 7.1 per cent of gross domestic product from 5.1 per cent.
'The increase in the deficit is due to the recognition of inflexible spending, without which the government would have faced a potential government shutdown in November,' Scotiabank said, citing what the finance ministry said in the meeting also attended byReuters' market sources.
Analysts and economic authorities generally agree that Colombia will still need to cut spending.
'Colombia's economy faces a challenging fiscal environment, which is reflected in a higher sovereign risk premium,' said central bank head Leonardo Villar on Wednesday.
The finance ministry plans to hold a press conference on Friday to outline its new financing strategy and lay out a medium-term fiscal framework.
In mid-May, ratings agency Moody's said Colombia's sovereign credit rating, currently at Baa2, was dependent on the 'frank disclosure' of the country's fiscal figures in the forthcoming fiscal framework.
The sources also told Reuters that S&P analysts were in the country to meet with the government and brokers as part of the ratings agency's own credit review.
(US$1 = 4,190.90 Colombian pesos)
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Reporting by Nelson Bocanegra and Carlos Vargas; Additional reporting by Kylie Madry; Editing by Mark Porter and Nia Williams.
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