Colombia is set to experience its largest fiscal deficit since the Covid-19 pandemic, projected at 5.6% of GDP for 2024, up from an initial target of 5.3%, primarily due to declining tax revenues. This has caused the peso to become the world’s worst-performing currency this week, while local currency bonds have also faced sell-offs as wary investors pull out. In response, Finance Minister Ricardo Bonilla announced a 20 trillion peso ($5 billion) budget cut for 2024 and emphasized the government’s commitment to the fiscal rule, which restricts government borrowing.
Additionally, Public Credit Director Jose Roberto Acosta revealed plans to increase bond auctions in the local market by 3 trillion pesos ($725 million) to finance part of the deficit. Despite these financial maneuvers, President Gustavo Petro has assured that his social programs will remain unaffected by the spending cuts. Meanwhile, credit rating agencies Fitch and S&P Global have downgraded Colombia to junk status, although Moody’s Ratings still holds the nation at Baa2, the second-lowest investment grade, with a stable outlook.