Don’t be fooled
The Petro administration will surely trumpet new CARF announcements outlining better-than-expected 2025 fiscal results. The 2025 national central government deficit will be below the 7.6% we and a substantial group of analysts and investors were expecting, and closer to 6.2%. Net NCG debt also improved, from an initial CARF estimate of 61.7% of GDP, to 57.5%. These surprising results are partly explained by higher GDP growth, faster price increases and a stronger currency. But the most important driver is Finance Ministry debt management operations that cut NCG interest payments by 1.4 pp of GDP. Though the results are a good surprise, a closer look shows that one should not be fooled by what is undoubtedly a one-off. While expected debt amortization payments for 2026 were equivalent to 3% of GDP in April, as of October they’d jumped to 6.1% of GDP. This shocking increase highlights the fact that NCG debt roll-over is a key risk for the Colombian economy next year. If one focuses on primary balances, the fiscal situation continued to deteriorate in 2025. And to avoid persisting on this dangerous path in 2026, substantial fiscal adjustment efforts must be enforced in H2 2026.
Our concerns are shared by analysts and investors across the board. Incidentally, on December 16 Fitch downgraded Colombia's long-term foreign currency issuer default rating to BB from BB+, with a stable outlook. Concerns about high spending pressures and narrow political room for the next administration to increase revenues are worsening, according to the rating agency. Even remaining in the BB group might prove challenging. The next administration will have to work very hard to stay at BB, and to work wonders to merit a rating upgrade.
This year has brought the good, the bad and the ugly. The good: Colombia benefited from a boom in non-traditional exports, sustained remittance inflows, a strong currency and unexpectedly solid growth after two years of near stagnation, driven by consumption. Unemployment fell to historical lows, and Central Bank independence withstood political pressures. The bad: these gains were offset by deep structural weaknesses: pervasive informality, rising insecurity, a debilitated healthcare system, hidden fiscal strains, eroded policy credibility, regulatory abuse and an impending gas supply crisis. And there was the ugly: widespread corruption scandals, public spending to boost reelection and an absent and rambling president who utters the most unimaginable sentences against the likes of U.S. President Donald Trump, the Jewish community, and anyone from the center to the right at home and abroad, plus a cabinet adrift with no management or leadership, and poor regulation of many sectors – which collectively cast a long shadow over 2025’s apparent economic resilience.
The latest leading indicators published by DANE bring generally good news, with a few specks of grey. We see lots of consumption, low investment, a consistent and major move toward a service economy, constant weakening of construction and major fiscal deficits supporting growth. Yet leading indicators suggest hope that things may improve in anticipation of a new government probably more favorable to market economies and private initiative, plus likely to take a steadier stance on security issues. Such factors would be combined with a normalization of Colombia’s relationship with the United States, the country’s most important commercial and economic partner.
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