CARF warns of fiscal unsustainability and highlights challenges for the 2026 Budget

Fiscal sustainability was the focus of the panel led by Astrid Martínez Ortiz, president of the Autonomous Committee for Fiscal Rules (CARF) at the National Congress of Exporters, who warned that " the fiscal imbalance is practically the only macroeconomic problem we face that is already accompanied by rising debt ." She explained that taxes are not enough to cover the current level of spending and that the situation requires disciplinary measures that will return the country to a path compatible with reducing public debt.

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Martínez emphasized that the Colombian economy "has grown the most among the countries in the region from 2019 to the present." He noted that the rebound after the pandemic was largely due to accumulated household savings, which allowed for growth in domestic demand in 2022, although income expectations subsequently proved overestimated. This dynamic, coupled with increased spending, has left the country with a higher structural deficit.

“ Spending grew 4.3% and revenue 0.3% between 2019 and 2024. That is the fundamental reason for the imbalance ,” he stated. He also emphasized that although tax reforms have provided resources, their impact is limited because they must be shared with local authorities, which limits the central government's scope.

The assessment included the evolution of other indicators. Inflation, which reached 13% in 2023, has begun to decline, although the Bank of the Republic has not yet observed a consolidated trend. The current account deficit, which stood at 6% of GDP in 2022, returned to sustainable levels in 2023. However, the growth of public debt remains a concern: levels rose from 55% to 61.3% of GDP, moving away from the limit set in the fiscal rule.

" If we reach such a large deficit, we'll have to have a primary surplus of 1.8% of GDP. Growth is the only thing that will get us out of the fiscal imbalance ," said the president of CARF, who insisted that the country's functioning is at risk if current trends are not corrected.

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Another year in which the tax collection goal will not be met

The 2025 scenario also presents significant challenges. Projected tax revenues will not be fully realized, requiring a 0.5% of GDP adjustment to achieve the approved deficit of 7.1%. Spending, on the other hand, will increase to over 24% of GDP, driven by inflexible items such as operating expenses. Cash availability remains at historic lows, limiting the government's maneuverability.

Regarding the 2026 General National Budget, the CARF warned that " it will grow 5.7 percentage points in real terms, without debt, i.e., 10.6%, despite the promise of a budget without growth beyond inflation ." The budget reflects planning problems, since the medium-term spending framework was published after the budget was approved, which undermines the fiscal design.

The updated financial plan increases primary spending by $18.2 trillion, or one percentage point of GDP, increasing the primary deficit from 1.4% to 2% of GDP. Although the total deficit remains at 6.2% of GDP due to a restructuring of revenues and lower interest rates, there is concern that some of the persistent spending is being financed with temporary or uncertain resources.

For the CARF, the resource gap to meet the 2026 fiscal target amounts to $45.4 trillion pesos, equivalent to 2.4% of GDP. Furthermore, the fiscal effort will be greater in 2027, as the required adjustment in the primary deficit will increase from 1.1 to 1.7 points of GDP in a single year.

“ 88% of total spending in 2026 will be inflexible, and two-thirds will come from constitutional or legal obligations ,” Martínez pointed out, further reducing the scope for redirecting resources.

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Don't throw away the Fiscal Rule

According to the president of CARF, the fiscal adjustment process initiated in 2021 was interrupted in 2024, leading the Autonomous Committee of the Fiscal Rule to warn that meeting the Confis targets in 2025 and 2026 requires adjustments of 0.5% and 2.4% of GDP, respectively. The organization noted that in the short term, risks of lower revenues and higher primary spending persist, in a context in which the government's liquidity in pesos remains tight. " The fiscal rule must continue to be the medium-term anchor ," emphasized Martínez, who stressed the urgency for the Executive to manage reforms that allow for increased revenues and reduced expenses, as well as the inflexibility that pressures public finances.

The 2025 Medium-Term Fiscal Framework proposed a significant but insufficient adjustment to ensure debt sustainability , while the divergence between the MFMP scenario and the 2026 General Budget of the Nation reveals serious fiscal planning problems and, according to the CARF, sends "an unfavorable signal."

(Read: Calls to cut $37 billion from 2025 budget due to exceeding reserve limits )

DIANA K. RODRÍGUEZ T. Portfolio Journalist