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Colombia News | Colombia Reports
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Economy

Government raises 2011 deficit to boost spending

by Newswires September 7, 2010

Colombia news - Juan Carlos Echeverry

The Colombian government raised its expected consolidated budget deficit for 2011 as it will boost spending in agriculture, housing, infrastructure and science and technology, making budget equilibrium more distant.

Finance Minister Juan Carlos Echeverry said Monday that the government’s estimated consolidated budget deficit will be equivalent to 3.4% of the country’s gross domestic product, up from a previous target of 3%, while the deficit of the Central Government, which excludes regional governments and state-controlled companies, will be equivalent to 4.1%, up from a previous 3.9%.

Echeverry had said on Aug. 17 the new target would be 4.3% of GDP.

The increase in the estimated deficit is the result of an additional COP2 trillion ($1.1 billion) in investment projects geared at such sectors as agriculture and infrastructure, projects that the administration of President Juan Manuel Santos considers essential to boost economic growth in Colombia, Echeverry told reporters on Monday.

As a result the government will sell COP2 trillion more in local bond, known as TES bonds, for a total COP28 trillion.

The government’s borrowing plans abroad–$2.63 billion in foreign bonds and $1.5 billion from multilateral lenders will stay unchanged.

“It is good for the government to spend more in some of these areas such as infrastructure because of the country’s needs,” Daniel Velandia, a market analyst with local brokerage Correval SA, said. “But the deficit is widening and unfortunately it seems they won’t take advantage of faster growth to reduce deficit, but to maintain its size as a percentage of GDP.”

Echeverry and his predecessor Oscar Ivan Zuluaga have said the country’s budget will narrow and in the coming years may reach surpluses if the country’s economy is expanding.

The government will propose a fiscal rule for approval in Congress. The rule will limit deficits and recommend surpluses starting in 2014 and 2015.

Echeverry said the government may reduce local borrowing if revenues in 2011 are higher than forecast thanks to faster growth, the sale of regional electricity firms and lower debt servicing as a result of debt management operations.

He said the growth in 2011 will likely be close to 5.5%, which is much higher than the official 4.5% target.

Despite the plans to sell the regional power generators, the government won’t sell any stake in the three most appreciated state-owned firms oil company Ecopetrol SA and electricity firms Interconexion Electrica SA and Isagen SA.

“We don’t plan to sell assets to pay for operation expenses and the deficit is mainly due to operation spending,” he said.

Ecopetrol will pay the government, which owns 89.9% of the company, about COP4.6 trillion in 2011, Echeverry expects. (Inti Landauro / Dow Jones Newswires)

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