Colombian Fiscal Deficit Will Remain Wide In 2021, While Rising Opposition Delays Consolidation Efforts

• Colombia’s fiscal deficit will remain significantly wider than the historical average in 2021 as the government sustains higher public spending levels to support economic activity. 
• In 2020, the budget shortfall was 7.8% of GDP, the widest in over 30 years, as the COVID-19 pandemic depressed public revenues and prompted President Iván Duque’s government to enact countercyclical spending measures. For the year, revenues fell 11.2%, while expenditures increased 16.4%, which brought public spending to 23.0% of GDP, the highest in the last two decades. 
• However, as the Colombian economy recovers from the pandemic, it is expected that revenues will strengthen over the coming quarters. That being said, the 2021 budget will roll over many of the social spending programmes enacted by the Duque administration in 2020 that are intended to bolster incomes for unemployed and low-income Colombians. 
• Fitch Solutions forecasts that stronger revenues will bolster a fall in Colombia’s budget deficit to 7.5% of GDP in 2021 and 6.2% in 2022. 
• While it also expects the government will enact fiscal consolidation measures to adhere to longer-term deficit reduction in line with the 'fiscal rule', ongoing political uncertainty clouds its medium-to-long term outlook.

(Source: Fitch Solutions)