Colombia’s June 21 presidential runoff will have a significant bearing on the country’s economic policies and prospects, Fitch Ratings said in a commentary published this week.

In the first round of voting on May 31, right-wing candidate Abelardo de la Espriella — running under the Defensores de la Patria movement — received 43.7% of votes, defeating leftist senator Iván Cepeda of the governing Pacto Histórico, who received 40.9%. Neither candidate reached the absolute majority required to win outright, sending the election to a runoff.

De la Espriella’s stronger-than-expected first-round performance prompted a positive reaction in financial markets, reflecting expectations that he may be better positioned to address Colombia’s macroeconomic challenges that have intensified under outgoing President Gustavo Petro.

The next president will face the challenge of addressing Colombia’s wide fiscal imbalance. The central government deficit reached 6.4% of GDP in 2025, or 7.8% when net of a temporary reduction in interest costs from liability management operations. Fitch estimates that debt stabilization will require a fiscal adjustment equivalent to 4% of GDP. Higher global oil prices are expected to boost revenues via taxes and dividends in 2027, but Fitch cautioned that this support may not last.

“De la Espriella’s stronger-than-expected first-round performance prompted a positive reaction in financial markets, reflecting expectations that he may be better positioned to address Colombia’s macroeconomic challenges.” — Fitch Ratings

De la Espriella has pledged fiscal consolidation through a 40% reduction in the size of the state, while Cepeda has proposed restraining public-sector salaries and benefits. Budget rigidities and spending pressures tied to pensions, healthcare, and subnational transfers will make either adjustment difficult. Both candidates have also proposed higher spending — on defense and social welfare respectively. Capital spending could be trimmed as an adjustment variable, but only to a limited extent, with 2025 outlays of 2.7% of GDP.

The interest bill will be another source of pressure amid a higher local yield curve. Recent liability management operations have replaced lower-coupon bonds with higher-coupon ones, providing an up-front financial benefit while increasing future interest costs.

Given these spending constraints, durable fiscal consolidation is likely to require revenue-side measures. Colombia has a history of tax reforms, but new legislation is far from assured. De la Espriella has pledged to cut taxes, and while Cepeda supports revenue-raising measures, he could face obstacles in advancing reforms through Congress — as Petro’s administration found.

Uncertainties about Colombia’s trend growth persist. The economy expanded at an annual rate of 2.5% in 2019–2025, below the ‘BB’ median and below its own prior average of 3.5%–4%, supported by government transfers, a strong labor market, and minimum wage increases that kept private consumption buoyant at +4.2%. In contrast, investment contracted by an average of 1.6% annually, falling to 16% of GDP from 21%, affected in part by business concerns about the Petro administration’s more interventionist policy stance.

De la Espriella has pledged to boost growth through promotion of hydrocarbon development — including fracking — alongside tax cuts and steps to reduce administrative burdens on businesses. Cepeda has pledged continuity with Petro’s state-led development model, without concrete proposals to revive private investment.

Both agendas face implementation challenges. The next legislature will remain fragmented, requiring negotiation to pass any major legislation. As a political newcomer, de la Espriella could encounter difficulty advancing his program should he win. Social protests are a risk, particularly regarding his plans to cut spending and adopt a tougher security stance.

The election could also influence monetary policy, with implications for financial conditions and thus for public finances and growth. Despite rising inflation, the Banco de la República (Banrep) voted to hold its policy rate at 11.25% after swift prior increases of 200 basis points, amid explicit pressure from the executive branch for looser policy. The elections could influence Banrep’s next steps starting with its June 30 board meeting, and will also determine who fills two vacancies on its seven-member board in 2029.

Fitch’s downgrade of Colombia to ‘BB’/Stable in December 2025 reflected the agency’s view that the starting point for public finances had weakened considerably, and that improvement would take time regardless of the election outcome. Faster-than-expected fiscal adjustment, higher growth, and lower real rates that support debt stabilization could be positive for the rating. A worsening of these variables that steepens the debt trajectory could be negative.

Above image: Fitch Ratings

Two decades of fiscal data show that Colombia’s gross general government debt has moved through four distinct macroeconomic phases, ending the current cycle at a level that is materially higher than its pre-pandemic baseline. Persistent annual fiscal deficits, currency volatility, an emergency spending shock and weaker-than-projected tax revenues have combined to push the ratio of public debt to gross domestic product from the mid-30s percent range in the mid-2000s to a band of roughly 60 to 62 percent at the start of 2026, according to figures published by the Ministerio de Hacienda y Crédito Público and the Banco de la República.

The shift carries direct implications for sovereign bondholders, multinationals operating in Colombia and any investor pricing country risk in the Andean region. All three major rating agencies — S&P Global Ratings, Moody’s Ratings and Fitch Ratings — now place Colombia in speculative-grade, or junk, territory, with consecutive downgrades through 2025 and into early 2026.

“The activation of the escape clause confirms that the deterioration observed in 2024 will not be corrected in 2025.” — Renzo Merino, sovereign analyst, Moody’s Ratings

The commodity cushion: 2006 to 2014

During the global commodity supercycle, Colombia benefited from sustained gross domestic product growth and steady government revenue. Hydrocarbon and mining receipts — channeled through Ecopetrol (NYSE: EC; BVC: ECOPETROL) and the broader extractive sector — supplied a substantial share of national tax intake. The debt-to-GDP ratio remained relatively stable during this period, generally hovering between 34 and 38 percent. Even with chronic primary deficits, nominal growth in the denominator absorbed new borrowing, masking the underlying structural imbalance that the Comité Autónomo de la Regla Fiscal (CARF) would later flag as the persistent driver of fiscal stress.

The currency and revenue shock: 2014 to 2019

The mechanics of the ratio changed sharply when Brent crude prices collapsed in late 2014. Reduced hydrocarbon royalties widened the fiscal gap just as the Colombian peso depreciated against the US dollar. Because a significant share of Colombia’s sovereign liabilities is denominated in foreign currency, the peso’s slide automatically inflated the local-currency value of outstanding external debt when measured against domestic GDP. The combined effect — wider deficits funded by new borrowing, plus a valuation effect on existing dollar-denominated obligations — pushed the ratio steadily higher through the late 2010s.

The structural revenue weakness that surfaced during this period has remained a recurring theme in subsequent fiscal assessments from Fedesarrollo and the Pontificia Universidad Javeriana Observatorio Fiscal, both of which have noted that successive tax reforms failed to fully close the gap between commitments and ordinary income.

The pandemic ceiling: 2020

The combination of emergency social spending under the Ingreso Solidario program, expanded health outlays and a sharp contraction in nominal GDP drove the ratio to a historic peak above 65 percent in 2020. The Ministerio de Hacienda reports the all-time high at 65.3 percent of GDP that year. The government activated the escape clause of the regla fiscal — Colombia’s fiscal rule, codified in Law 1473 of 2011 and modified by Law 2155 of 2021 — to accommodate the spending response, suspending the rule for 2020 and 2021.

That episode also triggered the first sovereign downgrade cycle: S&P Global Ratings cut Colombia’s long-term foreign currency rating to BB+ from BBB- in May 2021 after the administration of then-president Iván Duque withdrew a tax reform bill following street protests, costing the country its investment-grade status with that agency.

The new baseline: 2023 to 2026

Strong post-pandemic nominal growth briefly pulled the debt ratio down toward 57 percent in 2023. The decline did not hold. Structural spending pressures, elevated international interest rates and tax collections below budgeted projections pushed the ratio back up, establishing a new operating band around 60 to 62 percent of GDP. The Ministerio de Hacienda reported government debt to GDP at 61.3 percent for 2024.

The administration of President Gustavo Petro and Finance Minister Germán Ávila Plazas activated the regla fiscal escape clause for a second time in June 2025, with the Consejo Superior de Política Fiscal (Confis) approving a three-year suspension covering 2025 through 2027. The decision came despite an unfavorable technical opinion from the Comité Autónomo de la Regla Fiscal, which concluded that legal conditions for activating the clause were not met outside of a national emergency. The clause had previously been invoked only during the COVID-19 pandemic.

According to the Marco Fiscal de Mediano Plazo (MFMP) presented by the Ministerio de Hacienda, net public debt to GDP is projected to rise from 53 percent in 2023 to 61.3 percent in 2025 and approximately 63 percent in 2026. The fiscal deficit for 2025 was initially projected at 7.1 percent of GDP and later revised to roughly 6.2 percent of GDP, with the administration targeting a deficit below 6 percent of GDP for 2026.

Debt service consumes a larger share of the budget

The cost of servicing this debt has reshaped the structure of the national budget. The 2026 draft budget presented by Minister Ávila totals $557 trillion COP, equivalent to roughly $134.7 billion USD, and represents 28.9 percent of GDP. Of that, debt servicing costs are projected at $102.5 trillion COP, or 5.3 percent of GDP, down from 6.2 percent of GDP in 2025.

The figures published by the Ministerio de Hacienda for domestic debt service in 2026 are higher when measured against tax intake alone: of an estimated $130 trillion COP in domestic debt service, $79 trillion COP corresponds to principal that can be rolled over through new issuances, while $51 trillion COP represents interest payments funded directly from the budget. Against projected tax revenue of approximately $300 trillion COP, that implies roughly one in every three pesos collected by the central government is allocated to interest on existing debt.

Rating agencies reprice the sovereign

The rating cycle has accelerated alongside the fiscal trajectory. Moody’s Ratings downgraded Colombia to Baa3 and subsequently into junk territory in 2025, citing the suspension of the fiscal rule. S&P Global Ratings issued a further downgrade in April 2026, its second cut in less than a year, on the same persistent deficit and debt concerns. Fitch Ratings also moved Colombia deeper into speculative grade in December 2025.

The Banco de la República reported external debt — combining public and private liabilities — at $238.7 billion USD at the close of November 2025, equivalent to 54.8 percent of GDP, an increase of $15.8 billion USD from January of the same year. The Colombian economy is currently valued at approximately $435 billion USD.

What investors are watching next

The Comité Autónomo de la Regla Fiscal has stated in its most recent reports to Congress that the 2025 primary balance target was missed by a wide margin even after the escape clause was activated, and that incoming projections for 2026 raise the bar for any return to the original fiscal rule by 2028. Business groups including Fenalco and the Consejo Gremial Nacional have publicly opposed the suspension and signaled potential legal challenges.

The 2026 financing plan disclosed by the Ministerio de Hacienda includes approximately $4.6 billion USD in global bond issuances, primarily to refinance a one-year Swiss-franc Total Return Swap operation valued at roughly $9.3 billion USD. The ministry has stated that the issuance does not constitute net new external debt. Updated debt and deficit targets are scheduled for release in the next iteration of the Plan Financiero.

For executives operating in Colombia or evaluating new investment, the baseline shift from a mid-30s to a low-60s debt-to-GDP environment alters several variables simultaneously: peso volatility tied to refinancing cycles, the trajectory of corporate tax policy as Congress weighs successive reform proposals, and the path of domestic interest rates set by the Banco de la República as it manages inflation alongside elevated sovereign funding costs. Detailed historical and forward-looking debt data is published by the Investor Relations Colombia office of the Ministerio de Hacienda.

Colombia’s General Government Debt-to-GDP Ratio (2006-2026) (image: Google)

Many headlines are tied to the fiscal situation in one way or another.

The $16 trillion COP tax reform which is related to the 2026 Budget is in such danger of being sunk by opposition forces that a ‘Plan B’ is already being discussed in the dark corridors of power. I am no tax expert, but it does seem a little top heavy on unpopular measures that might get a Congress member voted out in March if they were to vote for it. Ministerio de Hacienda Avila is struggling on this one.

The tax collection data through October has been published by the DIAN and despite an 11.28% YoY increase to $249 trillion COP and a very healthy $20 trillion COP collection for the month, experts are anticipating that there will be a shortfall of up to $11 trillion COP versus the FY $305 trillion COP target.

The Departamento Administrativo Nacional de Estadística – DANE Colombia revealed the latest Total Productivity number which rose 0.91% YoY – this is relevant for the country as it will be added to the FY25 CPI estimate of 5.51% to give us a baseline for the impending Minimum Wage discussions. In reality 6.42% won’t be a number even taken into consideration by anyone except the public sector – 10% would be a success & 12% a real possibility.

Fedesarrollo reported the latest Industrial (4.9%) & Retail (22.8%) Confidence data for October. Whilst both are healthy numbers there was a decline on the Industrial side MoM whilst Retail rose.

White Noise Section

The CNE (Electoral Council) is possibly going to sanction Gustavo Petro for exceeding spending limits in 2022. It’s taken three years to discover he probably did what every other candidate ever did. File that alongside candidates photographed with drug lords and the section that says incumbent officials shouldn’t comment on politics.

The US Government (or some low lying official) is stating once again that the strained relations between the two countries could harm trade – a week after 70% of tariffs were removed on Colombian goods. The world is ever more bored and less intimidated by TACO man and almost ironically, if he has finally found a foe small enough to beat in the shape of Venezuela, the number one benefactor would be Colombia.

Have a wonderful day and extended Thanksgiving!

Thanksgiving turkey (photo © Loren Moss)

Of course, the plight of Gaza made the headlines because, in some small way, it has been reflected in local politics, with the polarization we have seen around the world appearing in Colombia. The extreme right have pinned themselves to Donald Trump & Benjamin Netanyahu from day one, the left and Gustavo Petro have made their thoughts very clear at the United Nations, whilst ANDI – Asociación Nacional de Empresarios de Colombia and big business, only seem to worry about the Pesos in their pockets. We already see them in the press asking for trade relations with Israel to be re-established immediately – given the historical fragility of the Middle East, perhaps there will be, rightfully, some wait and see.

This will be a big week for the 2026 budget as congress gets back to work after a well-earned holiday (for those not familiar with British sarcasm, this is an example). A couple of weeks ago, along with the tax reform, we seemed to have an agreement. However, these are rabid times in Colombian politics; we could get anything from ‘done’ to ‘lack of quorum’.

We will have the latest real sector data from the Departamento Administrativo Nacional de Estadística – DANE Colombia for August. The most recent figures for July were extremely strong, and analysts will be looking for more of the same. Whilst inflation’s stubbornness has kept overnight rates (9.25%) higher than anticipated at the outset of 2025, growth remains healthy. Bancolombia, in its most recent update, suggests the economy is moving into a more favorable stage, but of course with a wary eye on the deficit situation.

Amidst all this, the stock market remains in rude health despite concerns over the impact of Trumponomics on the US markets. The COLCAP may have dropped 1% on Friday, but it remains 35% (Peso) & 52% (Dollar Terms) higher YTD. Volumes are less than ideal, however, for local investors, it’s been a bumper year.

Finally, for this morning, gold. One of the abject failures of every single government this century is to capitalize on Colombia’s gold reserves. From Uribe to Santos to Duque to Petro, not one of them, or their respective ministers, has done enough to capitalize on an asset that could have paid so many of Colombia’s debts. Instead, there has been a lack of direction, and far too much of the production has fallen into the hands of illegal groups who are receiving the benefits of the increase in gold prices, which seems set to continue.

Have a wonderful week.

Regards.

Roops.

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Headline photo credit: erik_and_so_on from Pixabay.

The US may offer some minimal help with the Colombian war on drugs. Still, it is local soldiers and law enforcement officers, as well as civilians and human rights workers, who are killed daily, gunned down, or bombed by a plethora of armed gangs.

Gustavo Petro is right to state that cocaine is a demand-driven business and that the US, Europe, and other major narcotics markets are doing next to nothing. Sadly, the practicalities of legalizing cocaine are impossible, desirable as it is. Could Petro do more? Probably, but whilst cocaine planting and harvests have risen, it is seizures that have risen most.

Away from drugs….”It’s the economy, stupid.”

ISE (economic activity) for July rose 4.3% according to Departamento Administrativo Nacional de Estadística – DANE Colombia, well ahead of expectations and the highest reading of 2025. YTD, we stand at 2.7% – the comparative in 2024 was 1.44%. The main drivers were once again commerce (+6.69%) & the public sector (+7.04%). Surprisingly, agriculture (1.64%) is struggling.

The real sector data for the same month was again even stronger than analysts expected. Retail sales rose 17.9% with vehicles (+57% across various sectors), telephones/electronics (+56%) & other durable goods driving the gains.

Manufacturing production (5.8%) also rose more than expected, with 32/39 sectors gaining. This data point had been a drag until recently – now, not so much, which is very positive.

Surprisingly, this week, the politicians were (very) suspiciously quiet and there was little to no mention of the 2026 budget or tax reform – that won’t last.

That is about it for my last day in my 50s.

Take care.

Roops.

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Cocaine bricks seized by the US Drug Enforcement Agency (DEA): Photo credit: DEA.

The tax reform ($4.5 billion USD) is due to be presented (dens of iniquity such as gambling, tobacco, alcohol, and the church are included) and will form an important component of the $149 billion USD total budget, albeit that the opposition is looking to trim it by over $10 billion USD, including the tax reform component. In short, the environment is hostile. The budget is seen as excessive by many, but of course, that depends on your political ideology. Those in government are looking to improve the lives of millions in Colombia who are the forgotten class, Orwell’s proletariat if you like, and that isn’t cheap. One problem, of course, is money; Colombia doesn’t have enough of it. The other is the March legislative elections, which means that the current congress is not going to vote for Christmas.

Taxes are an ongoing theme. Whilst they are set to hit a record collection of $70 billion USD, up 15% YoY, that is still almost $5 billion USD below the budget, and therein lies the problem. The DIAN is still working on thousands of overdue payments, and we are already discussing the 2026 reform. For those wondering why Gustavo Petro is undertaking a second tax reform, both Iván Duque and Juan Manuel Santos did the same.

For those at the back who are still wondering why, the Colombian tax system is broken. It doesn’t work, is open to abuse, is unfair, and invites evasion, especially by the elite.

Asobancaria was upstanding this week and also discussed the deficit issues, but they also emphasized four positive aspects of the economy. Lower inflation, which hits 4%, will trigger lower rates. Higher confidence—this week, Fedesarrollo reported improved industrial and retail levels for July to accompany the already reported consumer data. Lower unemployment and gradually improving investment levels.

Finally, are we seeing an oil romance? Canacol Energy Ltd has been the last Canadian standing for many a year; few understand why it wasn’t snapped up much earlier, given its natural gas assets. But the press is reporting that Ecopetrol is flirting with Canacol, whose stock price erupted on Thursday – whether it is a JV or equity purchase, I hope my old chum Charles drives a fearsome bargain after so many years supporting Colombia.

Have a wonderful Friday.

My regards.

Roops.

Never miss Rupert’s latest commentary.
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Capitolio Nacional (Photo: Oficina de Información y Prensa Cámara de Representantes)

Overnight we had the latest real sector data from Departamento Administrativo Nacional de Estadística – DANE Colombia which read well.

The manufacturing production numbers, despite the tidy GDP growth, have been spotty, but in May there was a 3% increase (above 2% estimates) in real terms, with sales (2.6%) & employment (0.3%) also showing improvement. However, despite 25 of the 39 sectors being in positive territory, it’s a little early to claim victory – only last month, there was a 3.3% overall decline. For the record, the main drivers were food, clothing, and chemical manufacture.

As expected in Colombia’s consumer driven economy, there was another big retail sales (13.2%) increase driven by vehicles (+29.8%), information/technology (+56.6%), & food (+6%). This all reads well, except for the fact that scanning through the categories, so much is imported. With exports still in the doldrums, expect ongoing deficit problems.

Interestingly, the main economic press concentrated on industrial production which dropped 0.2% – no mention of the other data points – any wonder they get criticized by the government for misrepresenting the economy !

Whilst the diplomatic & trade dispute rumbles on with no fresh news, Donald Trump & Gustavo Petro find themselves continuing as strange bedfellows with Petro again this weekend, aiming at Banco de la República – Colombia and what he perceives as their stubbornness over rates, which remain at 9.25%. Trump has the same attitude toward the FOMC. Whilst 2025 has seen slower-than-expected growth in Colombia, the reality is that overnight rates should have come down far more in 2024, and allegations of politics at play are hard to ignore. This month we should see a reduction to 9%, from there hopefully we’ll see rates at or below 8.5% by the end of the year.

Over the past few weeks, there have been a growing number of headlines related to the growth in agriculture, record revenues, exports, etc., which was one of Petro’s stated aims when he came to office. Why is there so much surprise? Colombia has arguably the best growing climate in the world, and it is also a country where only 4 million of an estimated 32 million farmable hectares are in use, so there is huge upside potential. The fly in the ointment, of course, are the mega-rich robber barons who prefer to use their farms for their purebred horses and infinity pools, as opposed to contributing to the future of the country.

Those are the main points this Wednesday, but where we haven’t heard anything significant for the past week is pension reform, tax reform, referendums, decrees, or national assemblies. There has, of course, been plenty of hot air amongst the runners and riders in the 2026 presidential derby – but there is no need to give them airtime.

Have a great rest of the week.

Roops.

Never miss Rupert’s latest commentary.
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Departamento Administrativo Nacional de Estadística – DANE Colombia office in Cúcuta. Photo credit: EEIM/Wikipedia.

The government’s aim is to boost state revenues in the short term, but the plan is already drawing criticism for its potential long-term consequences, as it may lead to long-term fiscal complications while shifting the burden onto future administrations.

According to La República, Colombian economic-financial newspaper, the reform is projected to generate between $1.6 million and $4.6 million USD, depending on implementation: Luis Fernando Mejía, director of economic think tank Fedesarrollo, estimates the change would effectively advance about 0.8% of the country’s GDP in 2026 taxes. He noted that this amount closely mirrors the tax reform proposal that failed in Congress in December 2024. The measure would impact numerous economic sectors, including coal extraction, which would face a hike from 3.2% to 5.5%, and oil, jumping from 5.6% to 7%.

The announcement triggered an immediate response from Representative Katherine Miranda (Congresswoman in the lower house of the Congress), who condemned the plan. She accused the government of irresponsibility, pointing to its spending abroad while proposing austerity at home.

“They’re spending more than $11 million USD on fake houses in Japan, $600 billion COP on a consultation to campaign and they want to defund the next government”, Miranda wrote on X following the announcement. Miranda’s comments echo those of Senator María Fernanda Cabal (Congresswoman in the upper house of the Congress), who earlier that day denounced what she called “wasteful and unaccountable” foreign expenditures under the guise of promoting Colombia, after the investment of $11,200,000 USD in a government-backed cultural and diplomatic space established by the Colombian Ministry of Foreign Affairs in Japan as part of the Expo 2025 Osaka

“Petro’s government spent more than $11 million USD on the ‘Casa Colombia’ in Osaka, Japan. It’s outrageous to see how they deny funding for medicines, housing subsidies, and education, yet they provide millions of dollars for a house in Osaka, Japan,” Cabal said in an X post.

According to Cabal, more expenditures with the same purpose were done for the ‘Casa Colombia’ initiative in Davos and Paris.

Laura Sarabia, Foreign Minister, visited Japan and inaugurated Colombia’s pavilion at the Expo 2025 Osaka, where Procolombia expect around 28 million visitors. Officials argued that the venue will help showcase Colombia’s global potential, but opposition voices remain unconvinced about the actual benefits.

In response to the complaints, President Petro defended the investment, also via X, pointing out that Colombia was the only Latin American country to participate in the event and that “the money invested in the stand can be regained in only one day through exports and tourism.”

Headline photo: The design, construction, and operation of Colombia’s pavilion at Expo 2025 Osaka cost more than $11 million USD (Photo from Colombia Expo 2025 Osaka official Twitter account @Colombiaexpo)

Colombia is however something of a paradox. Despite this wanton female unemployment, it has for some years, especially in Latam, been held up as a country with a plentiful amount of female executives—visiting clients frequently commented upon it. I have met with innumerable talented female executives who acted as true role models over the years. Whilst at Bancolombia, I went through the statistics, and they seemed to add up.

Nonetheless, for several years now, we have been inundated locally with panels, think tanks, seminars, webinars, and other women’s groups lobbying for higher female participation in executive roles, boards of directors, etc. However, beyond the fear of slippage towards quotas, which never works, there is the sensation that this adds up to nothing more than “Jobs for the Girls”. These groups are 90% populated by women who are from the same ruling elite who have always enjoyed the same privileges as the men in the same class.

Whilst well-intentioned, it is impossible for them to truly understand the circumstances of the vast majority of women living in Colombia. They may make headlines and create a good photo, but they have had zero impact on moving the overall employment needle. It is instead for the authorities, government at both national and local levels, to form a truly robust strategy to change the direction of travel. At all levels of Colombian society, there are millions of talented women, the opportunities must be found to allow their advancement.

Elsewhere, February inflation data from Departamento Administrativo Nacional de Estadística—DANE Colombia was released on Friday, and it was higher (5.28%) than the 5.17% consensus and also up from 5.22% in January. The main driver was housing, which contributed around 30% of the increase. Education also rose a significant 5% YoY. There are no concerns yet, but with a fast expanding economy, CPI is proving more stubborn than expected by many. Overnight rates remain at 9.5%, and it remains to be seen what Banco de la República—Colombia will do in a few weeks.

Last week, Fitch Ratings (BB+) lowered their outlook to negative due to ongoing concerns about the fiscal situation, and Ministerio de Hacienda Diego Guevara also has it in mind. Having cut $3 billion USD of 2025 spending due to the failure to pass a new tax reform, Guevara is again talking about further cuts to spending, although he is also not ruling out another tax reform.

About it for this Monday.

Have a wonderful week.

Roops.

Never miss Rupert’s latest commentary.
Follow him now on LinkedIn to see What Jumps Out.

Photo credit: MULTIMEDIOSDS from Pixabay.

With this decision, the Ministry of Finance, led by recently appointed Diego Guevara, will need to adjust the funding available for the Colombian government’s operations in 2025. The reform had been drafted by former Minister Ricardo Bonilla, who resigned earlier this month following a corruption scandal involving another entity from the government.

A predictable consensus?

The defeat was secured with votes from the right-wing opposition parties, independent parties (including the Liberal and Conservative parties, both of which had previously expressed their discontent through official statements), and some members of the Green Party, despite its partial alignment with the government. Only the left-wing parties in the governing coalition supported the bill.

Congressmen Miguel Uribe and Christian Garcés, who presented their arguments against  the bill, pointed out that the reform was inconvenient and asserted that it further affected an economy that is not going through its best moments. 

“The tax reform is not convenient, it is designed to discourage business formalization, increase the tax burden on individuals, erode investment and savings,” Uribe argued.

Other strong arguments were the low execution rate of the current budget —according to Dapper, as of November 2024 the budget execution rate was the lowest since 2019— and the potential consequences of eliminating the Simplified Tax Regime (RST), which the reform had proposed. Introduced to boost business and labor formalization in Colombia, the RST simplified taxation for small businesses by basing it on gross income rather than net profit.

Luis Fernando Mejía, CEO of the Colombian think tank Fedesarrollo, voiced his concerns about the viability of the project on Twitter/X just hours before the proposal was rejected. 

Mejía criticized measures such as tripling the carbon tax, due to its negative impact on the productive sector, and also warned that the reform would introduce a “minimum presumptive dividend,” a concept that could lead to double taxation on 30% of corporate profits, creating uncertainty and further discouraging investment. Also, he suspects “presumed minimum dividend” could result in double taxation on 30% of corporate profits, potentially creating uncertainty and further discouraging investment.

Earlier this year, president of AmCham Colombia Maria Claudia Lacouture also expressed her concern with the bill in an interview with La República, pointing that “In the current context of economic slowdown, with multiple pressures keeping growth below 1.2%, the best tax reform would be austerity and public spending execution, combined with strategies to foster investment, build trust, and create certainty. This approach could not only generate short-term investment but also attract foreign investment to the country.”

Petro’s administration to face the consequences — and the year to come

Government officials who attempted to save the reform at the Congress expressed their disappointment at this failure. President Gustavo Petro, through his Twitter/X account, offered hints about the government’s future tax policies, stating: “The budget crisis will not be paid for by the people,” meaning that social programs would remain unaffected, and added: “The fight against tax evasion, starting with online gambling and smuggling, must become a central priority.” 

Additionally, with discussions on the labor reform bill proposed by Petro’s government postponed until 2025, Petro suggested that this delay “must be compensated by [a significant increase in] the minimum wage.”

Finance Minister Diego Guevara, according to El Tiempo, described the death of the tax form bill as more than just a ‘fist’ to President Petro, stating: “This is a vote against the regions, a vote against investment,” meaning it is as a setback for regional investment in Colombia and development projects.

The coming year, 2025, will be the last before the 2026 presidential election to determine Gustavo Petro’s successor. In this context, the 2025 budget will now be established via a decree, adjusted to exclude the revenue the failed reform sought to generate.

Headline Photo: Capitolio Nacional (Photo: Oficina de Información y Prensa Cámara de Representantes)