Fiscal deficit

The outbreak of the COVID-19 pandemic and the containment measures will have an extraordinary impact on public accounts. The deficit and the public debt will be at their highest levels in the last decade.

As a small economy, Colombia is not immune to the reality of the global context. Short- and medium-term scenarios can be affected by exchange rate volatility, weakening investment, fiscal deficit, current account deficit and informality in the labor market.

The Budget Office updated its macroeconomic estimates for 2014, as a prelude to next year’s budget discussion in coming months. In this opportunity, GDP growth expectation was corrected downwards to 3.2% in 2014 (BBVAe: 3.1%) with an expected detrimental to fiscal revenues of USD2.0bn in relation to the current budget figures. In terms of expenditures, government revised them upwards in USD1.1bn, with an expected real increase of 6.6% in 2014. If we consider the accumulated 5.8% YoY increase in real expenditures as of May 2014, public expenditures should rise 7.1% YoY in the rest of 2014, supporting aggregate activity figures during 2H14. All in all, fiscal deficit for 2014 was corrected upwards from 0.9% to 2.0% of GDP, without considering additional revenues from the tax reform. In this regard, the Budget Office disclaimed that fiscal deficit could reach only 1.7% of GDP this year considering the additional revenues estimated to collect from the tax reform.