Bogotá — Colombian Finance Minister Diego Guevara called for adjustments to the country’s fiscal rule framework, including revising debt targets set post-pandemic, while voicing doubts about the viability of another tax reform in the final months of President Gustavo Petro’s administration.
In an exclusive interview with Bloomberg Línea, Guevara emphasized the need to reevaluate how future spending commitments are treated under the fiscal rule. He noted that no definitive decision has been made on pursuing additional tax changes, citing the limited time remaining in Petro’s 20-month term.
Guevara also defended the government’s central bank board appointments, describing the new co-directors as technically skilled professionals who bring diverse perspectives to monetary policy.
“We comply with the fiscal rule as it is the law of the republic. That’s our starting point. But it doesn’t mean we can’t consider necessary adjustments over time, both domestically and globally,” Guevara said.
He highlighted specific areas for review, including “technical aspects like the debt anchor and whether future investment commitments could be excluded from the fiscal rule.” Guevara suggested these reforms would likely be addressed in the coming years, though not necessarily under the current administration.
Colombia’s fiscal rule, established under Law 1473 of 2011, sets annual deficit targets to safeguard fiscal stability and prevent excessive debt. Guevara underscored the need to reassess its components, noting the country lacks a coal cycle and that current debt targets were set immediately post-pandemic. He added that the government has sought to accelerate the transition regime linked to these targets.
The minister reaffirmed the administration’s commitment to fiscal sustainability.
On the possibility of a third tax reform — following the recent failure of financing legislation that left a 12 trillion peso ($3 billion) budget shortfall for 2025 — Guevara said no decision had been made. He plans to evaluate congressional support when sessions resume in February.
“While some officials have discussed this, we haven’t reached a decision, particularly since many elements of tax reforms wouldn’t address financing for 2025,” he said. “We need to realistically assess what can be achieved to address this year’s significant fiscal pressure.”
He added that key provisions from the failed financing law, such as corporate tax reductions and specific levies on corporate and oil income, wouldn’t impact 2025 due to tax calendar constraints. Similarly, accelerating the fiscal rule regime would be ineffective in the current term.
The Central Bank’s Rates and New Board
Guevara revealed the government had pushed for a 75 basis-point rate cut in December, arguing that forward-looking inflation risks were absent. However, he noted the central bank’s resistance was driven by fiscal pressures and regional concerns, particularly Brazil’s economic situation and capital outflows. The bank maintained that higher rates help attract capital.
“The January 31 meeting will still feature the current co-directors, as the new appointees won’t join until February, in line with legal requirements. I expect the board to uphold a conservative monetary policy stance,” Guevara said.
On inflation, the minister projected it would return to the central bank’s target range by 2025, dismissing the notion that minimum wage increases necessarily fuel inflation. He pointed to 2024 as an example, when inflation declined despite a substantial minimum wage hike. “There’s often a monetarist assumption that higher wages increase inflation through more money in circulation, but inflation isn’t purely a monetary phenomenon. In Colombia’s case, it also depends on external price factors,” he explained.
Discussing the appointments of Laura Moisá and César Giraldo to replace Roberto Steiner and Jaime Jaramillo-Vallejo on the central bank board, Guevara highlighted the administration’s goal of incorporating broader theoretical perspectives while preserving technical rigor. “They are technically qualified and bring a wider view that challenges the idea of inflation as solely a monetary phenomenon. That’s the central debate,” he said.
Guevara added that President Gustavo Petro selected the new members to diversify the board, emphasizing the historic significance of having three women serve simultaneously on the monetary authority for the first time.
2025 Growth and Unemployment
On financing the 511 trillion peso ($127.7 billion) budget for 2025, Finance Minister Diego Guevara said the government would closely monitor tax collection and oil cycles throughout the year to identify funding alternatives. He expressed optimism about improved consumer dynamics, highlighting that a year of lower interest rates — “which we hope will decline at a much faster pace” — should stimulate both investment and consumption.
Guevara underscored Colombia’s strong macroeconomic outlook for 2025, with all key indicators showing resilience. The government projects GDP growth of 1.9% in 2024 and 2.5% in 2025, unemployment remaining in single digits between 9% and 10%, and inflation continuing to decline.
He noted that the country’s three main macroeconomic variables are performing well, supported by stable exchange rates in recent months, positioning Colombia favorably within the region.
Investment Plunge
Addressing record-low investment rates in 2024, Guevara attributed the decline to high interest rates, which have dampened physical asset investments. However, he pointed to robust demand for Colombian debt securities last year, despite a slight increase in spreads, as evidence of investor confidence in the country’s fiscal sustainability.
“Investors recognize our commitment to meeting obligations. A year ago, during Wall Street meetings, many asked how we would address DIAN’s litigation obligations — a 15 trillion peso gap. I said we’d make cuts, and we delivered. This reflects the prudent fiscal approach we’ve maintained since the start of this administration,” Guevara said.
Colombia’s Credit Rating
The minister dismissed concerns about Colombia losing its investment grade as “a myth,” emphasizing that while two agencies downgraded the country in 2021, Moody’s has maintained its investment-grade rating with a stable outlook. He acknowledged that recent economic shocks have added pressure but reaffirmed the government’s commitment to fiscal sustainability.
Guevara also noted that regional factors, such as currency depreciation in neighboring countries, could influence credit ratings more than domestic events in some cases, although local dynamics remain critical.
He highlighted the government’s dedication to meeting creditor obligations, pointing out that the 2025 budget allocates 112 trillion pesos to debt service. After adjustments, including the 12 trillion peso deferral, around 74-75 trillion pesos will be allocated to investment. “This demonstrates our commitment to investors — a key factor considered by rating agencies,” he said.
