The day after the health reform proposal sank in the Senate’s 7th Committee, the Ministry of Health and the Superintendency surprisingly produced a new version, signed by the major insurers (the EPS) and the two business associations representing them (ACEMI and Gestarsalud), which basically stated they were going to re-submit a reform Act to Congress come August, but this time with the full support of the EPS. This outcome was disturbing to the critics of such reform.
The nuts and bolts of the 2024 Medium Term Fiscal Framework (MTFF) produced by the Finance Ministry have little to do with the much-required process of fiscal consolidation. A root cause behind the evident 2024 fiscal disarray was an over-optimistic revenue estimation. The national government originally expected USD 88.1 billion in total revenues for 2024, but it has been forced to revise that figure downward, to just USD 72.2 billion. Even though the deficit allowed under the Fiscal Rule this year is now 5.6% of GDP, substantially higher than the 4.4% announced last year, when the budget was approved, the collapse in revenues will nevertheless require a substantial cut in primary spending for the revised target to be met. It’s far from certain that this spending cut will be achieved. This has produced a dismal fiscal outlook, far worse than our most acid scenarios.
Since mid-May COP depreciated around 8 per cent in nominal terms – its direction and extent reflect higher uncertainty over government’s reforms approval, erratic policymaking in several fronts (peace, housing, infrastructure and energy, at least) and fiscal underperformance. The surprise regarding the nominal depreciation was the trigger, namely, the election of Claudia Scheinbaum as president of Mexico, instead of the Central Bank crossing some threshold in its intervention interest rate reduction, as we had expected. The exchange rate, given its role as a sponge absorbing all information available, is currently reflecting several challenges and dilemmas. Market participants are already assessing the rumors of a new tax reform, a new fiscal rule, prolonging diesel subsidies, and eventual healthcare and public utilities reforms that could extend the stalemate with Congress. These events amplify the uncertainty over macroeconomic equilibria. Furthermore, an eventual Donald Trump victory would present the Colombian government with new and more severe foreign policy dilemmas.
Last month it was announced that pension reform had been approved in its final debate in the House of Representatives. The government circumvented reconciling different versions emerging from the two chambers of Congress, and instead proposed the House to accept face value the one approved in the Senate. Why? The answer was simpler than anyone thought: the government grew worried that the reform could sink during reconciliation. Hence, avoided it by resorting to such a risky formula of foregoing approving a different version in the House. While the pension reform was approved and signed by president Petro, it is uncertain whether it will be in force a year from now since it will face serious challenges in the Constitutional Court.
