Economic rescue bill is a tall order
2027 won’t be an easy economic year for Colombia. The country will face great monetary, fiscal, environmental (El Niño) and social challenges. Let us hope that the government does not add one more challenge.
The first half of every Colombian presidential term defines the tone and theme of the administration’s approach to power over its full four-year term. As the public expects the president to deliver on his campaign promises, and his political capital is robust, the new administration has a unique window of opportunity to make its boldest moves.
The terrible earthquake that hit Western Colombia within a week of President Abelardo de la Espriella starting his term, besides being a national calamity, represents an opportunity for the government to show its capacity to respond to the needs of those affected. If done well, the reconstruction efforts could carry him a long way politically.
On the security front, the government has managed to produce notorious hits against illegal armed groups in many parts of the country. The Armed Forces, including the national police, are on the offensive again, and de la Espriella is making sure headlines get the message across.
However, the fiscal situation constitutes a major challenge. To bring the deficit down to 7%-7.5% of GDP range in 2027, legislative reforms will be required. These should come in the form of the so-called “Economic Rescue Bill” (ERB), legislation that should be submitted to Congress before the end of October. Though de la Espriella and the finance minister had repeatedly stated that the ERB would help to lower the deficit exclusively via spending cuts that require legal permission to be implemented, revenue measures are inescapable.
The economic team has finally acknowledged in Washington that higher tax collection is necessary, especially through the removal of exemptions both in the income tax regime and in VAT. Then, on October 15, de la Espriella visited the Finance Ministry and, in a key statement, publicly accepted that tax exemptions must be revised. So, it seems the proposed ERB will focus both on cutting spending and raising revenues. That’s no easy task, even with the tailwinds helping the government along.
The agreement is so important, with so many implications for the capacity of the government to obtain financing for its deficit, that Congress has no other alternative than to rise to the challenge, and to deliver, just as it did 25 years ago. It will take all government’s political acumen to convey this sense of urgency to Congress -- but we think Congress will come through.
Meanwhile, with the 2027 budget discussion out of the way, the ERB will have to go to Congress to be approved before the end of the year. We are pretty sure its content is being discussed with the IMF, but its presentation to Congress cannot wait until the IMF board finally gives a Colombia agreement a green light. That is why the ERB should be in the hands of Congress before the end of October.
The Colombian labor market has been showing clear signs of a significant slowdown since at least the end of 2025. The signs were clear: increasing informality and low-income self-employment, excessive growth of public employment, seasonally adjusted numbers showing different trends than non-adjusted rates, and stagnant participation and employment rates. Non-seasonally corrected unemployment was falling due to a combination of diminishing participation rates and increasing public employment and low-quality self-employment. The full deterioration now seems to be reality.
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