Colombia: Government reports 2024 fiscal deficit at 6.8% of GDP - Preliminary results

• FinMin blames lower tax revenues for the higher deficit
• FinMin says it complied with fiscal rule
• Govt forecasts 2025 GDP growth at 2.6%
• Govt expects inflation to reach the central bank's target range by year-end
• Govt expects deficit fiscal of 5.1% in 2025

Finance Minister Diego Guevara announced late Fri. that the central government's fiscal deficit reached 6.8% of GDP in 2024, in line with the fiscal rule. Speaking at a?press conference,?Guevara attributed the sharp increase from the originally projected 5.6% deficit in the Medium-Term Fiscal Framework to a 2.3pps drop in revenues, coupled with a 0.3pps rise in expenditures. He further explained that tax revenues declined by COP 18.5tn in nominal terms compared to 2023. However, since these were classified as one-time transactions, they do not impact the structural net primary balance.

For 2025, the government expects the fiscal deficit to decline to 5.1% of GDP, remaining in compliance with the fiscal rule. The higher projected deficit is attributed to an anticipated increase in interest expenses, Guevara noted. The minister acknowledged ongoing fiscal risks and emphasized its continuous monitoring of revenue trends. It reaffirmed its commitment to aligning fiscal targets with its strategy while ensuring the effective allocation of resources to safeguard public finances.

On macro projections, the government expects the economy to have grown 1.8% in 2024, with growth accelerating to 2.6% in 2025, 0.4pps below the Medium-Term Fiscal Framework estimate. Despite the downward revision, Guevara said this marks the start of a sustainable recovery driven by strong domestic demand and exports. Inflation is now projected to end 2025 at 3.6%, up from the previous 3.2% forecast. The government also expects the exchange rate to average COP/USD 4,360 by year-end, while oil prices are forecasted at USD 74.3 per barrel, lower than the USD 80 previously projected.

Overall, preliminary data reveals a larger-than-expected fiscal deficit, raising concerns about the government's claim of compliance with fiscal rules. While officials attribute the 1.5% of GDP revenue shortfall to temporary factors, Luis Fernando Mejía, director of Fedesarrollo, argues that the government relied on inflated revenue projections and likely failed to meet the fiscal rule. The Autonomous Committee of the Fiscal Rule (CARF) will play a crucial role in verifying compliance. Looking ahead, 2025 presents a significant challenge, as CARF has recommended COP 40tn in budget cuts to align with fiscal targets.