Colombia’s finance minister on Monday warned that next year’s government budget will see major spending cuts as the country is facing a major drop in revenue due to low oil prices.
In an interview with newspaper El Colombiano, Finance Minister Mauricio Cardenas said that “revenue is falling because of oil.”
In an interview with Reuters, the minister had already said the government is expecting a 60% drop in oil revenue, usually amounting to 20% of the government’s income.
Consequently, “for the coming year’s budget the only thing that can be expected is more austerity everywhere,” said Cardenas.
According to the minister, government agencies have already begun applying austerity measures and “reduced general spending with 10%.”
The public spending cuts are necessary because the country’s accounts showed a deficit of 7% of the country’s gross domestic product (GDP) in the first quarter of 2015.
“In the coming quarters this will be lower, and the idea is to have a plan to bring it below 5%” of the GDP.
Colombia hopes to improve next year’s balances’s figures by reducing imports. For years the country could count on an international trade surplus, but this has shrunk to a trade deficit.
To curb this, the minister plans to “reduce imports, but especially of goods we can produce in Colombia like food and textiles. The idea is that all these [imported] goods can be substituted for national produce.”
Colombia’s cheap peso, which has lost value against the dollar for the past nine months “helps a lot to close the deficit,” according to the minister.
The exchange rate helps with this because with a high dollar the people will lean towards domestic products,” said Cardenas.
The biggest challenge will be to increase non-energy exports that, in spite of being cheap, have failed to increase in spite of the cheap peso.
To increase Colombia’s global competitiveness, the government has announced major road infrastructure products that would reduce prices of local agricultural products and manufacturing. However, this is not going to prevent austerity measures on the short term.
“These are medium term challenges,” according to Cardenas.