According to PanColumbia’s analysis, regardless of interest costs, the government will be able to meet this year’s budget target from operating and investment costs alone.
“Not only is it difficult to consider a new relaxation of the rule that attacks the credibility of fiscal policy, but it is desirable to exceed the targets to achieve a more robust stability in public finances,” they assert.
cost
“As private demand weakens, there is no need to think about easing fiscal policy so that public spending provides a positive counterweight,” they note. They promise that the 2021 and 2022 tax reforms have already begun to provide the government with substantial additional resources this year. Tax revenues in general and tax revenues in particular up to September every year took a very significant leap this year to a new historic high. Therefore, there should be sufficient resources to increase public expenditure without causing a significant increase in inequality.
And, “Income has this positive trend, but so does spending power. The general budget of the nation has a substantial increase. Without including the debt service item – that is, only considering operational and investment spending – authorized spending for the nation is projected to increase by 2.6% of GDP in 2023 and a further 2.2% in 2024, allowing only for the level of spending. More than in 2020. Resources for 2024 are comparable to those needed to address the pandemic, but without such a major health emergency. The key, then, is to improve efficiency in the implementation of the national budget.
They note in their analysis that the reform of the financial rule carried out in 2021 introduced a number of changes in the methodology of calculating the targets, which made the path of facing the epidemic much less challenging than it was met. Happened in the case of keeping the rule in force till 2019.
This new specification of the rule allows the government to run a deficit of 3.7% of average GDP over what happened with the previous specification of the rule. On this basis, experts feel that the proposal to reorganize an institution already subject to such significant flexibility threatens its viability.
Analysis
They point out that a historical analysis of Colombia’s fiscal regime shows how it has become more flexible in light of economic cycles. First, between 2014-2019 the target trajectory for the gross deficit was softened almost every year, which introduced a certain degree of uncertainty about what the effective evolution of public finances would be in the following years.
Although the government has always met the deficit target since the fiscal rule was implemented in 2019, public debt has continued to rise. But the fiscal rule, which was in place until 2019, failed to stabilize public finances, which made the country lose investment grade in 2021 after the shock of the pandemic and set up stylized facts that undermined the credibility of the rule.
All of these include the concept of ‘debt anchoring’, whereby the medium-term objective is to ensure that the central national government’s net debt remains at 55% of GDP.
