Crunching the numbers on Colombia’s 2015 budget

Colombia’s Finance Minister outlined a $110 billion national budget to Congress on Tuesday, which has been touted by President Santos as a list of “social priorities for a time of peace.”

Colombia’s 2015 budget contains a mixture of funding dynamics only partially consistent with the “three pillars” Santos outlined in his 2014 inauguration address – peace, education, and equity.

MORE: Santos promises peace, equality and education on inauguration

The $110 billion budget, which grew 4.5% on an inflation-adjusted basis over 2014, puts about $83 billion into various investments and ministries with the remaining $27 billion going towards servicing the national debt, which at last count was about $163 billion and 75% peso-denominated.

This makes the country’s debt service the singularly most expensive account on the budget.

However, Finance Minister Mauricio Cardenas spoke in confident terms about the debt burden, saying that “although the debt is bulky, it is mainly due to amortizations, while interest payments are not growing. This year we will do more amortizations [payments toward the principle].  This is good for the country because concentrating our resources on the debt in this way, and not on the interest payments, lowers the total obligation.”

Debt payments scheduled for 2015 rose sharply at 15.06% over the current year’s obligations of $21 billion.

2015 budget allocation winners

National deficit aside, the top three winners for funding in 2015’s budget are education, slated to receive about $14.52 billion; defense and police, at about $14.17 billion; and labor sector, which includes social welfare programs, with about $13.32 billion.

This marks the first time in Colombia’s history that funding towards education, which grew nearly 5.75%, will exceed that going towards national defense, which grew by only 1.2%.

However, much of that educational funding will go towards financing Universities and Icetex grants, which are scholarships for higher education students, leaving much of the basic infrastructure and lower level student assistance programs underfunded.

This decision calls into question the government’s true commitments to the “education pillar,” as the bulk of funding is going towards advanced level schooling, leaving many Colombians without the benefits of an increased education budget.

Another notable aspect of the budget is the significant increase in funding for the Finance Ministry, which increased its income more than any other ministry (including the debt) at 15.8% to become the fifth largest budget recipient with about $8 billion.

‘Peace’ allocation wanting

The hefty increase in funding to the Finance Ministry takes away from the possible development of ministries more deeply involved with the government’s ongoing peace process with guerrilla groups.

The Prosecutor General’s office, in charge of all the transitional justice programs aimed at negotiating difficult and controversial demobilization settlements with the FARC, is just 20% of the Finance Ministry’s.

The Ministry of Agriculture, another important agency involved in peace solutions with the largely rural guerrilla groups, will also have fewer funds available to it.

MORE: NGOs slam Colombia’s transitional justice law at constitutional court

Tax revenue shortage could threaten budget

It is possible that the government will not be able to gather the necessary revenue to fund the $110 billion budget proposal.

The government supposes total tax revenue in 2015 to be around $101 billion, with the remainder to be gained from extensions of financial transaction and “patrimonial” taxes, which were both set to expire at the end of this year.

MORE: Banks gear up to pressure Colombia’s govt to end ‘always changing’ tax reform

But such extensions may not be so easy to get passed. Alfredo Ramos Maya, senator for the conservative Centro Democratico party, criticized the budget proposal, saying that “the reality of the budget will oblige the government to present a change to the tax law which would ultimately mean more taxes for Colombians,” according to reports by El Pais.

Moreover, the government will be facing a probable shortfall of tax revenue from its equity positions in the oil sector as its production estimates of 1 million barrels per day are highly unlikely.

MORE: Colombia’s EcoPetrol stock price falls 46% from 2012 peak, 13% on year

The proposed budget must be approved by the Senate before the end of October before it goes into effect.

Sources

 

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