An unexpected turn of fiscal events
Deterioration in the primary balance is expected to be fully compensated for by lower interest payments, so the new expected NCG deficit number for 2025 should be the same 6.7% of GDP as posted in 2024. In terms of debt, things might be somewhat improving on that end too: due to the effects of debt-management operations, the end-of-year NCG net debt-to-GDP ratio has been revised by CARF to 57.5% which, translated into gross debt, means closing the year with 60% of GDP. Better than expected, but still not good.
One of the big 2025 fiscal challenges has been that, on top of all the spending appropriations approved by Congress this year, fiscal restrictions have been put to the test by what is known as “reservas presupuestales.” These are 2024 budget appropriations only partially executed last year that end up being fully executed this year, and affect the 2025 (not the 2024) NCG deficit. It looks like the same will happen in 2025, creating additional pressure on the 2026 primary balance to be managed by President Gustavo Petro’s successor. One can only feel sorry for the public officials who will join the next administration on August 7, 2026. Fiscal hell awaits them.
The respected economist Carlos Medina recently conducted a worrisome arithmetical check of whether government campaign financing will suffice for an honest presidential electoral process. He argues that the current system offers no financial incentives for an honest candidate, that is, one who doesn't expect to repay funding with favors, pork, appointments, contracts, embassies and other goodies.
In a November 24 special Constitutional Court session, the eight justices allowed to vote generated a stalemate, with four voting in favor of declaring the process consistent with the Constitution, and four voting against (one judge was exempted from voting after his colleagues deemed him to have a conflict of interest). Now, the review of whether the procedural flaws in the passage of the pension reform bill in the House of Representatives were properly corrected falls to a new substitute judge, the well-reputed attorney Carlos Pablo Márquez. Once the constitutional procedural hurdles are cleared, though, the Constitutional Court will consider the challenges to the reform bill’s content. Colombia could enter the electoral period without a definitive ruling on this issue.
Q3 2025 economic growth figures, up 3.4% from Q3 2024, generated great joy among government officials and their supporters. Yet we don’t necessarily see this number in a good light. Such growth figures come in very handy for the government for postponing an urgently needed pre-election economic discussion. But we believe that the numbers hide more problems than they evidence news. Growth was, first, almost entirely driven by consumption – especially in the public sector -- a less encouraging fact. Investment is still growing at very low rates, and export growth is flat, in part due to the government’s decision to destroy the oil and gas sector, the largest exporter by far. This situation calls for at least two important actions: moving aggressively toward again increasing production of oil and gas, and finding new dynamic sources of exports. It is time to stop the talk and start the walk.
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