Public Debt and Political Economy in Colombia

38 Pages Posted: 28 Mar 2022

Date Written: February 24, 2022

Abstract

This document presents fiscal simulations to visualize possible trajectories of the Colombian Consolidated Public Debt/GDP ratio over 2019-2024. The main conclusion is that the driving-force to stabilize such ratio must come from efforts to increase tax-collections from 14% to 16% of GDP over 2022-2024.

We consider three scenarios: Case A (support additional social expenditure of +2% of GDP, but without additional tax-collections); Case B (curtail that social expenditure, given the absence of the additional tax-collection); and Case C (maintain that social expenditure but supported by the required tax-reform and the one-off proceeds from privatizations yielding about 1% of GDP). Even under Case B, Colombia’s consolidated public debt ratio would continue to increase from 65% in 2020 towards 73% by 2024. Under Case A debt would escalate towards 75% of GDP by 2024; under C debt could be contained at 73% of GDP and positive signals of stabilization would arise as additional social and investment expenditure propel higher growth rates.

Years 2022-2024 look appropriate to pursue modifications of a Fiscal Rule that over 2014-2019 was characterized by: i) allowing an escalation of debt ratios that duplicated to 52% of GDP (even before pandemic); ii) recurrent changes in gaps related to oil-price and GDP-growth; iii) use of “escaping-clauses”; and iv) absence of primary balance anchors.

Finally, we focus on tax-administration issues that could support additional revenues and the “political-economy” themes that should be kept in mind while the new Administration (2022-2026) tackles the required structural reforms related to fiscal, labor, and pension items.

Keywords: Taxes, Public Goods, Public Debt, Latin America

JEL Classification: H2, H44, H63, O54

Suggested Citation

Clavijo, Sergio, Public Debt and Political Economy in Colombia (February 24, 2022). Available at SSRN: https://ssrn.com/abstract=4042880 or http://dx.doi.org/10.2139/ssrn.4042880

Sergio Clavijo (Contact Author)

Universidad de los Andes ( email )

Cra 1 # 18 A - 12
Bogota, Cundinamarca 111711
Colombia
57-1-703-5135 (Phone)

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