Colombia: Government presents 2025 budget proposal with spending to rise 4.0% y/y

• Debt servicing is to be 6.3% of GDP and investment some 4.6% of GDP
• Govt to present a financing law to collect COP 12tn
• The sectors with the highest allocations will be education, health, and labor
• Budget assumes GDP growth of 5.7% in 2025, inflation of 3.2%

Colombia's Finance Ministry presented late Mon. the government's?2025 general budget?(known as PGN) with spending rising 4.0% y/y to COP 523.0tn (29.4% of GDP) from the 2024 budget spending plan of COP 502.6tn (26.3% of GDP). Excluding COP 20tn frozen for the current fiscal year, the effective total amounts to COP 482.6tn. The bulk of the higher spending is destined for current expenditure, which is to be COP 327.9tn. Ministry spokespersons stated that the budget aims to support the energy transition, ensure fiscal sustainability, and comply with fiscal rules. It also maintains funding for government social programs and aligns with the financing law aimed at reducing public debt. The ministry specified that out of the COP 523tn budget, COP 511tn would be financed with existing revenues, while COP 12tn are contingent and depend on the new tax reform that will be submitted to Congress.

Debt servicing is set to increase by 19.1% y/y to COP 112.6tn (6.3% of GDP). Investment is projected at COP 82.4tn, equivalent to 4.6% of GDP, representing a 17.4% y/y decrease. This decline has raised concerns among experts, stressing investment is crucial for boosting the economy. In the breakdown by topics, education will have the largest share in next year's budget, reaching COP 79.2tn, which represents a growth of 19.3% y/y. This is followed by the health and social protection sectors with COP 67tn, labor with COP 53.4tn, and defense with COP 41.7tn.

The budget is based on macroeconomic assumptions of 3.2% inflation by end-2025 and 5.7% economic growth. In parallel, the government expects the price of oil to be USD 80 per barrel in 2025.

Overall, the government unveiled the 2025 general budget draft amid fiscal pressure from reduced tax revenues. It's important to note that the spending increase is small compared to last year's. The ministry cited high inflation as a factor, with expectations that inflation will return to the target range by 2025, which should ease the budgeting process. However, a key uncertainty is the details of the new financing law, which the government is expected to present soon. The budget bill, requiring approval by Congress by October 20, may face significant amendments, as President Petro lacks a majority in Congress and has been surrounded by scandals.