The most interesting pistol duel of this legislature, running from July 20th, 2024 until June 15th, 2025, is between the minister of finance and the opposition in Congress. The issue is a two-headed beast, composed by the 2025 budget and the so-called Financing Act (aka the second tax reform). The budget implicitly takes for granted the approval of the Financing Act, and hence it contemplates a corresponding increase in expenditures of COP 12 trillion.
Also, the national central government (NCG) headline deficit target for this year stands at 5.6% of GDP. This number is far removed from the 4.5% of GDP initially set, back in the 2023 Medium-Term Fiscal Framework (MTFF), as the NCG deficit for this year. Although the new target is more than a full percentage point of GDP higher than the old one, everything remains within the bounds of the fiscal rule; more cyclical space has done the trick, something we have addressed in recent reports. Despite the additional room for a higher deficit this year, meeting the NCG target remains a steep hurdle, as tax collection keeps disappointing. All the while, spending is higher than last year’s as a percentage of GDP, even after the budget freeze declared a couple of months ago.
The Gustavo Petro government once again presented to Congress, not as soon as the new legislature started as they promised (that is, back in July the 20th), a new version of the health reform, after it was sunk in the last vote of the Senate’s 7th Committee. Remember that after that negative voting in May 1) the government intervened (i.e., took control) of the largest EPS (the insurers within the system, Sánitas, Nueva EPS); 2) the other systemic EPS (Sura) decided to go out of business; and 3) other smaller EPS were also intervened by the government through the health Superintendency.
Finally, Q2 economic activity data has been published by Dane. The much-awaited number, of 2.1% real growth over Q2 2023, suggests that the economy might be changing gears and accelerate; don’t forget that growth in Q1 was a meager 0.8%. Things are indeed making a turn for the better. Some key sectors that have been clear laggards, such as construction and commerce, are finally moving from contracting in recent quarters to into positive territory; manufacturing is not there yet, but contraction seems about to end. Public administration, education and health, all bundled into a single big sector, continues to grow by around 5%. Finally, the growth rate for the agricultural sector jumped to a surprising 10.2%; all the main crops, including coffee, posted strong results.
