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Analysts Assert that the Government’s “Bad Luck” is Now Considered a “One-Time Transaction”
Following a two-day visit to Bogotá, analysts at Bank of America issued strong criticism of the Colombian National Government’s handling of the country’s fiscal situation.
“We returned with the impression that fiscal risks are worse than we thought,” they stated in their report.
Furthermore, they expressed that “the fiscal situation poses risks to the Colombian peso and inflation, hinders faster monetary easing, and creates an obstacle to economic activity.”
Consensus on Fiscal Rule Violation in 2024
After meeting with representatives from official entities, politicians, independent experts, and business associations, one of the conclusions of the Bank of America analysts is that, except for the National Government, there seems to be a consensus that the fiscal rule was violated in 2024 for the first time since its creation in 2011.
“The fiscal battle for 2025 is uphill, which poses risks to the exchange rate and inflation, forces the Banco de la República (Central Bank) to moderate monetary easing, and slows down economic activity,” they said.
Surprise at the Definition of “One-Time Transaction”
The analysts also stated their surprise that the National Government’s “bad luck” is now considered a “one-time transaction,” referring to 32 trillion pesos that were categorized in this way and that would have allowed compliance with the fiscal rule in 2024, according to President Gustavo Petro’s government.
“The 2025 Financing Plan brought bad news to the market in February, with unprecedented arguments (bad luck and policy errors) to ease the fiscal rule,” the analysts commented.
2024 Fiscal Deficit Exceeds Expectations
During the presentation of the Financial Plan, the Ministry of Finance announced that in 2024 the fiscal deficit was 6.8 percent of the gross domestic product (GDP), significantly higher than that of 2023 (4.3 percent of GDP) and the deficit they had previously estimated as consistent with the fiscal rule for 2024 (5.6 percent of GDP).
“The fiscal rule is losing its meaning,” the Bank of America analysts stated in their commentary, adding: “Defining one-time transactions is proving to be subjective and serves as an excuse for high fiscal deficits.”
Criticism of Including “Policy Errors” as One-Time Transactions
The analysts also criticized the fact that “policy errors,” such as the substantial increase in advance income tax payments and monthly withholdings in 2023, are now also being adjusted to the government’s definition of a “one-time transaction.”
“Colombia had never experienced a decrease in tax revenue during a year with positive GDP growth, so it considers this highly atypical event as a one-time transaction. Our interpretation is that, in other words, ‘bad luck’ is now considered a one-time transaction,” the Bank of America analysts concluded.
Resumo em Português:
Analistas do Bank of America criticaram fortemente a gestão fiscal da Colômbia, afirmando que os riscos parecem piores do que o previsto. Eles apontam que a situação fiscal ameaça o peso colombiano e a inflação, dificulta a flexibilização monetária e prejudica a economia. Há um consenso, exceto no governo, de que a regra fiscal foi violada em 2024. Os analistas se surpreenderam com a classificação de “má sorte” como “transação única” para cumprir a regra fiscal. O déficit fiscal de 2024 foi de 6,8% do PIB, acima das expectativas. O Bank of America considera que a regra fiscal está perdendo o significado e critica a inclusão de “erros de política” como transações únicas.
Resumen en Español:
Analistas del Bank of America criticaron fuertemente la gestión fiscal de Colombia, afirmando que los riesgos parecen peores de lo previsto. Señalan que la situación fiscal amenaza al peso colombiano y la inflación, dificulta la flexibilización monetaria y perjudica la economía. Existe un consenso, excepto en el gobierno, de que la regla fiscal fue violada en 2024. Los analistas se sorprendieron con la clasificación de “mala suerte” como “transacción única” para cumplir la regla fiscal. El déficit fiscal de 2024 fue del 6,8% del PIB, por encima de las expectativas. El Bank of America considera que la regla fiscal está perdiendo su significado y critica la inclusión de “errores de política” como transacciones únicas.
