Colombia to suspend fiscal rule as public finances worsen, source says
BOGOTA (Reuters) -Colombia's government has authorized the use of an "escape clause" to temporarily suspend compliance with its fiscal rule, a government source told Reuters on Tuesday, amid deteriorating public finances.
The fiscal rule, established in 2011 by Latin America's fourth-largest economy, imposes limits on government spending and debt to ensure the long-term sustainability of public finances and macroeconomic stability.
The government's Higher Council for Fiscal Policy (CONFIS) met on Monday and authorized the suspension that will increase the South American nation's fiscal deficit from the government's 5.1% target.
The finance ministry plans to hold a press conference on Friday to provide details about the decision and release its medium-term fiscal framework detailing new financing objectives.
"It's possible that these include piecemeal austerity measures," wrote analysts at Capital Economics in a note. "But the government has a track record of missing its targets by a wide margin in recent years."
The peso currency had weakened around 0.75% against the dollar in morning trading.
"It doesn't look like the deterioration in the fiscal situation has been fully priced in (by the market) yet," the Capital Economics analysts said, adding that sovereign dollar bond spreads could widen a further 30 basis points.
In 2024, Colombia logged a fiscal deficit of 6.8% of GDP, above the targeted 5.6%. While the government maintains that it adhered to the fiscal rule that year, analysts generally disagree.
Last week, Finance Minister German Avila - a close ally of President Gustavo Petro - said that the government would roll out measures including increased borrowing and spending cuts, though he did not provide details.
Colombia's autonomous committee on fiscal rule (CARF) previously estimated that the nation would need budget adjustments of between 40 trillion pesos ($9.74 billion) and 75 trillion pesos ($18.26 billion) to comply with the 5.1% deficit target.
In mid-May, ratings agency Moody's said that 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.
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