Colombia’s Congress passed on Tuesday the last of three key fiscal reforms which is aimed at saving surplus oil and mining revenues during boom times in Latin America’s No. 4 oil producer.
The world’s fourth largest coal exporter has seen a major influx in oil and mining investment over the last decade as production ramped up due to improving security from a security crackdown in the Andean nation.
The fiscal rule will allow the government to create an overseas fund to invest the resources, which will be administered by the central bank.
“This savings is a precautionary one that the country uses to absorb shocks. When there’s a negative shock, you can take those savings and spend more without breaking the fiscal rules,” Finance Minister Juan Carlos Echeverry told reporters.
The bill was proposed by the last government which said it should help lower public debt to 28 percent of gross domestic product in the next ten years from 39 percent, equivalent to a drop of $28 billion to $30 billion.
Billions of dollars in foreign investment flow into Colombia every year — 50 percent or more into the oil and mining sectors — which have pushed petroleum and coal output to the highest levels in the country’s history.
“We’ll both reduce the deficit and save … it’s the same if one pays debt or saves so we’re going to save,” Echeverry told Reuters a few hours before the bill passed.
Last week, lawmakers passed two key reforms, including a bill to more evenly spread oil and mining royalties and legislation amending the constitution to require the state to be fiscally sound.
Colombia’s fiscal reforms are expected to help it gain a third investment grade credit rating — this time from Fitch after Standard & Poor’s and Moody’s upgraded Colombia earlier this year, the government says.
Another key legislation to pass Congress was a law to redress abuses from armed conflict and return land to peasants in order to turn the page on decades of bloodshed, but experts warn that it could generate more violence.
Colombia’s crackdown on illegal armed groups coupled with how it has dealt with external shocks have helped the nation regain investment grade from two agencies this year after losing the coveted marker in a 1990s economic crisis.
“The main challenge now will be implementation as such, in the issue of victims, the issue of royalties. In general, execution is where the government of Santos will have a big challenge,” said Nadya Aranguren, head of legislative analysis at the Institute of Political Science in Bogota.
“The government of Santos finished with such good results that I don’t believe that will change in a radical way from one moment to another in the next legislature.”