Oil And Tax Revenues To Continue Narrowing 2022 Fiscal Deficit In Colombia

• Fitch Solutions forecasts that increased tax revenues and oil profits will narrow Colombia’s fiscal deficit to 6.7% of GDP in 2022, from 7.1% in 2021. The 2021 fiscal deficit came in slightly narrower than the forecast of 7.2%, largely due to increased tax collection resulting from above-trend economic growth. 
• High commodity prices, moderate oil production growth, and strong economic activity will bolster fiscal revenue ensuring it outpaces spending growth, particularly as it is expected that President-elect Gustavo Petro will only implement small increases in expenditure in 2022. Revenues are projected to grow by 16.1% in 2022 down from 25.9% in 2021. This increase will be supported by higher corporate taxes as the rate was increased to 35.0% in 2022 from 31.0%. 
• Additionally, Fitch’s Oil & Gas team forecasts Brent crude oil prices will average USD100.0/barrel (/bbl) in 2022 and USD90.0/bbl in 2023, up from USD71.0/bbl in 2021. Coupled with modest increases in oil production in Colombia, this will boost oil royalties and other intakes from the energy sector, which has historically accounted for approximately 20.0% of government revenues. 
• Expenditures will grow 13.5% in 2022, revised up from the previous 9.3% forecast, particularly as President-elect Petro will likely look to deliver on his campaign promises to expand spending on social programmes.
• These factors underpin Fitch’s forecast that fiscal deficit will fall to 6.7% in 2022, and average 5.4% between 2023 and 2026. The average is up from the prior forecast of 4.4% of GDP.

(Source: Fitch Solutions)