(Bloomberg) -- Colombia’s government is committed to keeping public debt on a sustainable path and retaining investor confidence, the nation’s new Finance Minister Diego Guevara said.
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A failure to do this has sometimes led to “catastrophic” consequences for radical leftist governments in the region, he added.
“Fiscal sustainability is the crux of the matter, and we are committed to that,” Guevara said Friday, in an interview at the ministry in Bogota.
Neighboring Brazil has been hit by a plunge in its bonds and currency in recent weeks as investors lost confidence over the widening fiscal deficit. That’s forced its government to study unpopular austerity measures — something Colombian President Gustavo Petro wants to avoid.
In 2024, Colombia stayed within the deficit limits set by the fiscal rule, Guevara said, speaking in his first interview with foreign media. Even so, the Petro government will likely face criticism from the committee that oversees this rule, for having excluded spending on one-time shocks, he said.
Guevara, 39, said Colombia’s fiscal targets should be more flexible to allow for the costs of severe weather and fluctuations in coal revenue, which are volatile and affect public finances.
He said it would be better if the fiscal rule allowed more debt to fund investment, but that the government would abide by the rules as they stand. Any modification of the fiscal rule should be passed by congress, he added.
The peso extended gains, strengthening 0.9% to close at 4,306 per dollar, its strongest level in more than two months. Interest rate swaps surged, with two-year two-year swaps rising 16 basis points, as traders price in a lower chance that the central bank will accelerate monetary easing, said Jose Prieto Jaramillo, business head at BTG Pactual in Bogota.
Spending Cuts
The government has been forced to cut spending this year after congress denied its proposal for 523 trillion peso ($120 billion) budget, and weeks later it rejected a proposal to raise 12 trillion pesos from higher taxes and other measures.
Guevara’s ministry is still studying what to cut. One option is to reprogram payments for long-term contracts for strategic projects such as key highways or mass transport systems, he said. This would depend on how advanced the projects are, and investors can be sure the government will meet all its commitments, he added.
Investors have become increasingly worried about Colombia’s public finances, demanding a higher premium to hold the country’s sovereign debt than some peers with lower credit ratings. Colombia lost its investment grade in 2021 during the COVID pandemic and failed to consolidate fiscal sustainability. Guevara recognizes the country could face further downgrades from its BB+ rating, but said the administration will work to retain investor confidence.