Financial Plan: risks that the Government has for the 2023 goals – Sectors – Economy

Although the Consultative Committee of the Fiscal Rule (Carf) which recognizes that the Government Financial Plan presents a scenario with positive figures for 2023, warns about the levels with which the net debt closed and its slow decrease for this year, which could limit the ability to react to unexpected shocks.

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And it also points out that for a longer-term scenario, that is, 2024 and subsequent years, a «risk in meeting the goals of the structural net primary balance (BPNE)» and convergence towards the anchor is perceived. Of the debt.

At the end of the eighth month of 2022, the gross debt of the Central National Government exceeded 804.9 trillion pesos, according to figures from the Public Credit Directorate of the Ministry of Finance.

Thus, by August of that year, the Nation’s debt reached close to 60 percent of the gross domestic product (GDP).

According to the CARF, in the future, the dynamics of the debt will arise critically from the behavior of the interest rates of the public debt, currently at high levels, and from the exchange rate.

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«A higher public debt path limits the ability of fiscal policy to react to unexpected shocks,» said committee argued through a statement.

As provided in the Financial Plans, as a result of the fiscal adjustment, the debt of the National Central Government (GNC) would be reduced from 60.8 percent in 2021 to 59.6 percent in 2022, and to 57.5 percent in 2023, in line with a convergence towards the debt anchor (55 percent) in the medium term. In 2022 and 2023, the fiscal rule would be exceeded by 2.9 and 0.3 percent of GDP, respectively.

In general terms, the CARF finds that the macroeconomic assumptions used in the Financial Plan are reasonable and are in line with the vision of market analysts. However, it warns that the macroeconomic and fiscal scenario will continue to be «challenging» and highly dependent on the performance of economic variables.

For example, he mentions that price shocks could keep inflation high, more persistently, having effects on the expenses and interests of the Nation.

“The growth assumption, although it is conservative, has downward risks due to a greater weakness in external demand due to the international context, and due to the possibility that a contractionary monetary policy for a longer period than previously foreseen to anchor domestic inflation”, he explains.

In addition, he warns that the fiscal scenario came, to a large extent, from the consolidation of the programmed revenues after the tax reform.

Regarding the deficit of Fuel Price Stabilization Fund, CARF highlights the Government’s commitment to pay off the debt and continue the policy of fuel price increases.

However, he assures that despite the increases made in the last quarter of 2022, and in January 2023, the price per gallon of gasoline in Colombia is the third cheapest in the region (after Venezuela, 291 pesos, and Bolivia, 9,944 pesos), is below the price of countries on the continent that are producers, such as Ecuador (11,647 pesos), Brazil (18,087 pesos) and Mexico (23,059 pesos); and it is less than half the international average price (23,691 pesos).

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The CARF highlights that the Financial Plan contemplates higher revenues of 42 trillion compared to the Medium Term Fiscal Framework, as a result of the better performance of the economy, the tax reform and a favorable revenue scenario for oil tankers.

For this reason, the Government announced an increase in primary spending and the resources will also be used to cover the increase in interest payments, settle the entire deficit accumulated by the Fuel Price Stabilization Fund (Fepc) in 2022 and reduce internal financing requirements.

Despite this, the committee reiterated that the net debt of the National Central Government ended in 2022 above what was forecast in the tax framework, and that the proposals for its reduction are now slower.

According to the report, the higher interest burden continues to be a source of concern.

In 2022 it reached 24 billion and for this year it is estimated at 68.3 billion.
In addition, the CARF analysis that recognizes «the macroeconomic and fiscal scenario will continue to be challenged in 2023 and highly dependent on the performance of economic variables» and that this in turn depends on the consolidation of the revenues programmed after the tax reform, both in 2023 as in the medium term.

cheaper crude

In addition, to this is added the economic slowdown planned for this year, as well as part of 2024, which would bring adverse effects on collection, and «a lower income derived from a lower oil price than that consigned in the assumptions, and the interaction of this with the internal signals adverse to the hydrocarbon industry.

Since November of last year, Brent crude, the main reference for Colombia, has been below government estimates of 94.2 dollars. This year, the price per barrel has fluctuated between 77 and 85 dollars. The International Energy Agency (IEA, for its acronym in English) has a less optimistic expectation in terms of prices for this 2023, since it estimates an average per barrel of 83 dollars. This means there is a difference of at least $11 per barrel between the government calculations and the IEA estimates.

For this reason, the committee also recommends keeping in mind the risk of lower oil income.

“In order to provide greater peace of mind about short and medium-term fiscal and balance of payments projections, it is still essential that the public government draft the plan for the energy transition as soon as possible and reassure the market, and the players in the sector, about the continuity of the exploration and exploitation of hydrocarbons in the country”, he points out in his document.

And he adds that the elimination of uncertainty on this front will contribute to consolidating the expectations of agents regarding the exchange rate, investment and growth, while making the Nation’s income more predictable both through expected taxes from the sector as well as through Ecopetrol’s dividend flow.

According to Andrés Velasco, CARF’s technical director, the uncertainty that the committee perceived does not refer so much to 2023, but to the medium term. “We think this year’s deficit goal is under control to the extent that there is significant income and they are being incorporated into the financial plan. The uncertainty is from 2024 onwards,” said the committee expert.

The arguments, according to Velasco, are related to the tax reform and the resources that can be generated going forward, the price of oil, which if it is lower will affect the accounts in 2023 and 2024, and also the public policy reforms.

“The reforms that the government is promoting will probably have an effect going forward. The message is that the accounts are better, the fiscal scenario seems likely, but the range of risks is wide and care must be taken to guarantee the sustainability of finances,” said Velasco.