Petro’s Government Suspends Fiscal Rule Despite CARF’s Objection

The Colombian government has approved the suspension of the country’s fiscal rule for a period of three years, activating a rarely used “escape clause” that allows the state to exceed legally established deficit limits. The decision was taken despite the formal opposition of the country’s independent Fiscal Rule Committee (CARF) and just after the meeting on this matter led by the Superior Council of Fiscal Policy (CONFIS), but prior to the publication of their official resolution.

This move, considered exceptional, provides the government with increased borrowing capacity. It allows the Ministry of Finance to bypass restrictions designed to maintain long-term fiscal sustainability. Finance Minister Germán Ávila is expected to provide a public explanation and present the arguments behind the decision.

The fiscal rule, adopted to control public debt and prevent overspending, has served since 2011 as a critical pillar for investor confidence and creditworthiness. Suspending it raises alarms among economists and former officials, who warn that the country may face higher borrowing costs and a possible downgrade from credit rating agencies, such as Moody’s, the only major credit rating agency still maintaining Colombia’s investment-grade status. In May, a top analyst from this agency said to Reuters that if a planned fiscal consolidation in Colombia fails to stabilize public debt and comply with fiscal rules, it could lead to a ratings downgrade for the country.

Analysts had previously warned that the government’s 2025 fiscal deficit target of 5.1% of GDP was unfeasible due to overly optimistic revenue forecasts and reluctance to cut spending. With this suspension, Corficolombiana (the largest financial services company in Colombia) now projects that the fiscal deficit could climb to 7.4% of GDP in 2025, with net public debt hitting a record high of 63% of GDP.

The last time Colombia suspended the fiscal rule was in 2021, during the COVID-19 crisis. That exceptional context justified increased borrowing to respond to the health and economic emergency. Critics argue that no such extraordinary event exists today to warrant this new suspension.

Former finance ministers have raised their concerns. José Manuel Restrepo emphasized via X that the fiscal rule is not a constraint but a safeguard that ensures responsible economic management. Breaking it, in his view, could trigger a chain reaction—rising debt costs, currency volatility, lost investor confidence, and ultimately, deep economic hardship. José Antonio Ocampo echoed these concerns, explaining to the Colombian economic-financial newspaper La República that with this move “access to the IMF’s flexible credit will be lost; the government had no intention of using it, but it shouldn’t be lost. It is given to countries that stand out for the strength of their macroeconomic fundamentals.”

“Suspending the fiscal rule is not only worrying, it also makes clear, once again, that the Petro government is pushing for the 2026 elections based on contracts, debt, and waste,” Mauricio Cárdenas pointed out via X.

The CONFIS meeting that preceded the decision involved key economic and fiscal authorities, including the finance minister, the director of the National Planning Department, and the heads of national treasury, credit, and taxation offices.

As the government prepares to present the new Medium-Term Fiscal Framework on June 13, analysts expect no major spending cuts to be announced. Instead, this suspension signals a departure from Colombia’s historical fiscal discretion, triggering concerns about the long-term credibility of Petro’s economic moves.

Headline photo: Colombia President Gustavo Petro (Gustavo Petro / X)