The Colombian government recently presented the Fiscal Mid-Term Framework (FMF), which includes the macroeconomic and fiscal scenario for the coming 10 years. The document includes the necessary adjustments for sustained growth and to reduce the fiscal deficit. In other words, it proposes diverse reforms that the administration of J.M. Santos did not perform and for the incoming administration to implement.
As has been the characteristic of the macroeconomic management, the main supposition is to control inflation to 3% as proposed by the Central Bank of Colombia (Banco de la República) and produce the conditions to achieve economic growth rates over 3%.
The 2018 FMF seems much influenced by the temporary rise of oil prices and reflected in the optimistic figures which sustain part of the income of the government coming from taxes and dividends and from Colombian Petroleum Company (Ecopetrol, for its Spanish acronym). However, this implies certain risk on insisting of an economic model which is sustained on selling commodities (oil, coal, natural gas, gold, silver, copper, nickel or foods and raw materials) without diversifying exports and without supporting a real industrial policy which the country requires.
In face of the new fall of oil prices, the consequences are very well-known: low economic growth and unemployment, which implies increasing occupation informality (already above to 50% of the economy), poverty (27%) and inequality (0.53%).
Moreover, the goal of reducing the fiscal deficit by means of what the government calls “intelligent austerity” is not reflected in the dynamics of the projected expenditure. For example, here are a couple of concepts:
Furthermore, with respect to the GDP, the debt of the Colombian government has grown notably passing from 35.4% (23.9% corresponds to internal debt and 11.4% to foreign debt) to 43.1% (28.6 % internal debt and 14.5% foreign debt), between 2014 and 2017.
According to the FMF, they hope to reduce the weight of the debt to 42.6% in 2018 and to 41.4% in 2019 to continue with a decreasing trend on the mid-term and reach an estimated value of 31.7% in 2029.
In regards to future financial periods between 2019-2048 (authorized by the Colombian Superior Council for Fiscal Policy to acquire debt that will impact future budgets) they reach a total of COP$92.8 billion, of which COP$58.6 billion will be destined to building roadways through public-private partnerships (PPPs) and COP$15.6 billion, for the Bogotá subway system, among other expenditures.
For the next four years (2018-2022), future compromised financial periods total COL$24.2 billion. These figures are reflected in the tight flexibility margin the new administration will have to allot funds; therefore, in the best case scenario, stick to complying already acquired commitments.
The FMF was adopted by Law 819 of 2003 and is a document which emphasizes the results and propositions of the fiscal policy. It makes a general review of the most important facts of the fiscal and economic activity of the country during the previous year. It presents the estimations for the current year and for the coming 10 years and shows the consistency of the budgetary figures with the goal of a primary surplus, public debt and in general, macroeconomic previsions.
The Fiscal Mid-Term Framework defines the goal of the economic primary surplus (the difference between tax collection and government expenditure) for the public sector consistent with the macroeconomic program and the goals for primary surpluses of the (10) ten following future financial periods. Furthermore, it reflects an adjustment to guarantee the sustainability of the public debt. Its results are sustained in macroeconomic suppositions, such as:
Taking into account the 2017 results, the defined macroeconomic fiscal mid-term suppositions for 2018 and 2019, are:
With these suppositions, they expect a fiscal deficit to gradually reduce from COP$33 billion, in 2017, to COP$30 billion, in 2018, and to COP$24.9 billion, in 2019 (see chart 1). With respect to the GDP, for the same years, the fiscal deficit passes from 3.6%, to 3.1%, and to 2.4%.
This fiscal result is a consequence of the less dynamics of the total income (COP$144 billion equivalent to 15.5% of the GDP in 2017 and is expected to be COP$150 billion in 2018 and COP$165.7 billion in 2019), in face of a total expenditure (COP$177.7 billion, COP$180.6 billion and COP$190.7 billion, respectively for the same years).
The most important income comes from taxes, which reached COP$127 billion (13.8% of the GDP) in 2017. It is expected that for 2018 they total COP$135.7 billion (13.6%) and for 2019, COP$143.5 billion (13.5%).
Oil prices, US$67/barrel in 2018 and US$ 65 in 2019, sustain the investment projection of the Ecopetrol for which they expect a growth of 67% and 20% for 2018 and 2019, respectively, and a production growth from 844,000 barrels a day in 2018, to 872,000 in 2019 and 936,000 in 2020.
With respect to the GDP, they also expect the income produced from Ecopetrol to pass from 0.1% in 2016 –the lowest in the last decades- and 0.3% in 2017, to 0.6% in 2018 (0.3 in taxes and 0.3 in dividends) and 1.2 % in 2019 (0.5 in taxes and 0.6 in dividends).
As analyzed by the aforementioned figures, the primary balance required to guarantee the sustainability of the Colombian finances, starting with 0.5% of the GDP in 2017, should move between 0.5% in 2019, to 2.6% in 2018 (see chart 2).
This would be the results which will allow achieving a fiscal balance for 2029. If the abovementioned restrictions are taken into account, complying with these goals will be almost impossible.
Consejo Editorial: Fredy Chaparro Sanabria Director Unimedios, Nelly Mendivelso Rodríguez Oficina de Prensa, Liseth Sayago Cortes Oficina de Realización Audiovisual, Carlos Raigoso Camelo, Oficina de Producción Radiofónica, Ramiro Chacón Martinez Oficina de Proyectos Estratégicos.
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