Positive fiscal surprises mask threatening increases in spending
Deficit numbers for 2021 came in substantially below the previous round of government projections; the same happened with debt. Minister Restrepo hinted at even better results when definitive 2021 GDP numbers come out in mid-February.
The context Restrepo provided prior to releasing the deficit results was that tax revenues had performed above and beyond previous FinMin estimates. The cascading storyline had a nice ring to it: higher growth, higher revenues, lower deficit, lower debt. The numbers are, however, partially at odds with his storyline. Comparing the numbers just released with the Medium-Term Fiscal Framework (MTFF) numbers of last June, the overperformance in revenues amounts to just 0.1% of GDP, whereas primary spending (current expenditures + investment) came out a whopping 1.5% of GDP below MTFF numbers.
The new deficit number for 2022 is no longer 7% (which is what the MTFF had announced in June of last year) but should be 6.2% instead. If this year closes in line with Restrepo’s announcements, primary spending should be 2.6 pp of GDP above 2019 levels. There are reasons to question the quality of this additional spending.
In spite of the positive announcements, the next administration will still inherit a daunting task for the next four years.
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