(Bloomberg) -- Investor confidence in Colombia is threatened by a plan to tinker with fiscal deficit limits, according to two of the nation’s best-known economics think tanks.
A proposed “green” amendment would let the government skirt spending restrictions with projects that have environmental objectives. That could weaken the “fiscal rule” or balanced-budget act which has underpinned confidence in the Andean nation, according to Bogota-based economics research centers Fedesarrollo and the National Association of Financial Institutions, or ANIF.
“This goes against the government’s commitment to strict compliance with the fiscal rule,” Fedesarrollo head Luis Fernando Mejia said in a note Tuesday. “It will probably be interpreted by creditors as a sign of relaxation in the path of reducing the country’s deficit and public debt, which could increase financing costs for the nation.”
Jose Ignacio Lopez, the head of ANIF, said in a note that adding clauses to the fiscal rule will “result in a loss of credibility in fiscal institutionality, and will translate into higher interest costs for the government, companies and Colombian families.”
President Gustavo Petro’s government sent a tax bill to congress on Tuesday which included a “green component” that would allow additional annual spending equivalent to 0.3% of gross domestic product from 2025 to 2030. The measure is intended to address “a persistent climate financing gap that results in substantial environmental liabilities,” according to the finance ministry.
After it was introduced in 2011, the fiscal rule helped Colombia attract foreign investment by reassuring investors that the government would limit excess borrowing.
The nation’s commitment to sound fiscal policy must be independent of what the government wants to achieve in terms of environmental sustainability, according to Munir Jalil, Andes chief economist at BTG Pactual.
“No matter how altruistic the spending is, it is still an expense and it must be paid,” Jalil said, speaking by phone.
Petro, Colombia’s first leftist leader, was elected on a pledge to phase out fossil fuels and oversee a transition to clean energy.
The nation has struggled to rein in the deficit this year as a weak economy has led to lower-than-expected tax revenue. The fiscal deficit will widen to 5.6% of gross domestic product this year, its highest level since the pandemic, according to the finance ministry’s forecast.
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