Colombia’s peso has lost 20% of its value against the dollar so far this year, which is threatening the government’s budget.
The most recent devaluation of Colombia’s currency made the US dollar on Wednesday reach 4,762 pesos, a historic high.
The value of the American currency in Colombia has already gone up 20% since January 1 when one dollar traded for 4,065 pesos.
The devaluation of the peso has helped soar inflation and threatens to shrink Colombia’s gross domestic product (GDP) next year, according to President Gustavo Petro.
The unprecedented devaluation of the peso could benefit some export sectors, but also push inflation of consumer products that rely on imports.
The Comptroller General’s Office also warned about the government’s outstanding debt, which reached $75.2 billion or 50.6% of Colombia’s GDP in July, according to the central bank.
According to Comptroller General Carlos Hernan Rodriguez, the government of former President Ivan Duque increased government debt with 6.3% of Colombia’s GDP in 2021.
This is now affecting the budget of his successor, who is expected to pay interest on this debt in dollars with the pesos that are in the national budget.
Comptroller General Carlos Hernan Rodriguez
So, the more dollars the government has to spend on debt, the less pesos it can spend on everything else.
Economist Edgar Jimenez of Bogota’s Los Andes University told newspaper La Republica that the price of the dollar in could soar to 4,800 and even 5,000 pesos before the end of the year.
Colombia’s government and central bank can’t do little to change this as the value of the peso depends largely on actions taken by the United States’ central bank, the Federal Reserve.
Economist Edgar Jimenez
If the Federal Reserve continues to raise its interest rate and global oil prices also continue to disappoint, Jimenez said, the Colombian peso could lose even more value.
Colombia’s Finance Ministry said Tuesday that it would cut back on the sale of government bonds next year in the hope that this will reduce the government’s dependency on foreign debt to finance its budget.
Colombia’s dollar woes are significant, but not as bad as those of Venezuela, whose bolivar lost 44.6% of its value against the dollar, and Argentina, whose peso lost 32.8% of its value so far this year.