Halting Colombia’s state and economy to ensure compliance with the fiscal rule is not the right approach, Finance Minister Germán Ávila said on Friday. The government plans to adopt measures including increased borrowing and reduced spending. These comments come a day after it was revealed that the government is considering using an “escape clause” to suspend adherence to the fiscal rule that governs the country. “We will take measures that ensure we do not interrupt the growth path of the economy and guarantee a reasonable increase through economic growth in tax revenues,” Ávila assured during a presentation at the bankers’ convention in the coastal city of Cartagena. “Halting the state and economy to comply with the fiscal rule is not the way,” he stated. The minister confirmed that the Superior Fiscal Policy Council (CONFIS) will meet on Monday to decide the future of the fiscal rule, established in 2011, which sets limits on government spending and borrowing to ensure public finance sustainability and macroeconomic stability in the medium and long term. “It is possible to make some adjustments in spending; we are analyzing them, and we will make them,” he specified. “There will be adjustments in the country’s borrowing, and we will likely not reach the limits set by the fiscal rule.” Analysts believe using the fiscal rule’s escape clause could lead to a higher deficit, approaching 7% of GDP, significantly above this year’s target of 5.1% of GDP. “While fiscal concerns have persisted throughout the year, we believe this development goes beyond fiscal math and indicates a reluctance to adjust, which would surprise market participants,” Citi said in a report. The potential decision to suspend the fiscal rule could deter investors and increase financing costs in international markets, according to analysts.
— new from TradingView
