(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.
Most Read from Bloomberg
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.
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.
Story continues
Many analysts think the government will struggle to stay within the fiscal rule this year. David Cubides, chief economist at Bogota-based brokerage Alianza Valores, said soaring public spending will make it challenging for the government to meet its fiscal commitments in 2025, even though revenue is likely to recover as growth accelerates.
The Colombian economy is forecast to expand near 3% this year as lower interest rates boost demand after output grew around 2% in 2024. The currency weakened 13% last year.
Among other cost-saving measures, Guevara said that he and the rest of the government’s economic team will skip the World Economic Forum in Davos this year. Colombia’s Environment Minister will attend, however.
Central Bank Changes
Petro will change two central bank board members this month, with the newcomers to take office in February. Guevara said the new appointees will have a profile that is “consistent with the vision of this government”, but didn’t elaborate.
The president has repeatedly complained that policymakers have limited economic growth by declining to cut interest rates faster.
The bank surprised investors last month by unexpectedly slowing the pace of monetary easing amid concerns about the fiscal outlook. However, Guevara and one other board member voted for bigger reduction, meaning that Petro’s new members could potentially shift the balance in favor of deeper rate cuts.
The bank has lowered its key interest rate by 3.75 percentage points since December 2023, to 9.5%.
Colombian inflation ended 2024 at 5.2%, overshooting the upper limit of its target 2-4% target range for a fourth straight year.
Some economists fear that the government’s decision to raise the minimum wage by almost 10% will boost inflationary pressure and limit the central bank’s ability to ease policy. Guevara said he doesn’t rule out the possibility that his colleagues might suspend the cutting cycle at their January meeting.
The minister said that minimum wage hikes haven’t caused big upticks in inflation in recent years. However, other board members have a different view than his own about the transmission of labor costs to prices, he said.
“There will be a very important dispute at this meeting regarding whether to lower or leave the interest rate unchanged,” he said.
Guevara, an engineer with a PhD in economics from Bogota’s National University, took office as finance minister last month after his predecessor, Ricardo Bonilla, quit amid a corruption scandal in which he denies wrongdoing.
(Adds Guevara’s plan to skip Davos in 13th paragraph and views on the impact of minimum wage on inflation in third-last paragraph.)
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.