Colombia Reviews Deficit Limits Amid Venezuela Migration Crisis

(Bloomberg) -- Colombia is considering whether to ease its fiscal targets to allow the government to run a bigger deficit as it struggles to cope with the fallout of the humanitarian crisis in neighboring Venezuela.

The committee that sets Colombia’s deficit limits will take a decision at its next meeting on whether to adjust for the migration crisis, according to Finance Minister Alberto Carrasquilla. The costs of providing the migrants with health care and other services will fall over time, as they join the workforce and start to pay taxes, he said.

“In the short term, it’s demanding from a fiscal point of view, but in the medium and long-term it’s positive,” Carrasquilla said Friday, in an interview in Bogota.

The Venezuelan diaspora will swell to about 8 million by the end of next year, from 3.4 million now, if the nation continues on its current course, according to a report this month by the Organization of American States. Colombia is bearing the brunt of the crisis, with more than a million migrants already and thousands more arriving every day.

The World Bank estimates the fiscal cost for Colombia at half a percentage point of gross domestic product per year.

Extraordinary Events

Colombia’s fiscal rule contemplates a gradually falling “structural deficit,” but has short-term flexibility to allow for temporary shocks, such as a fall in the oil price. It also contains a clause that allows for its suspension in the event of “extraordinary events which compromise macroeconomic stability.”

The committee is also discussing what would be the subsequent trajectory of the deficit, to comply with the goal of eventually cutting the deficit to 1 percent of gross domestic product, Carrasquilla said. The committee members and the government remain committed to this goal, which “isn’t not up for discussion,” he said.

Under the fiscal rule, Colombia has to cut the deficit to 2.4 percent of gross domestic product this year, from 3.1 percent in 2018, then gradually reduce it to 1 percent of GDP by 2027. Fitch Ratings and Moody’s Investors Service rate Colombia at the second-lowest investment grade rating, while S&P Global Ratings has the nation at BBB-, or one notch above junk.

The government will publish its medium-term financing plan in June, including measures to curb spending, Carrasquilla said. An overhaul of the tax agency, including investments in new technology, is projected to yield additional revenues equivalent to one percent of GDP by 2021, he said.

Stake Sales

Carrasquilla said there’s “absolutely no reason” to think the nation’s investment grade rating might be at risk, since its indicators are in line with investment-grade peers, while its borrowing costs show confidence on the part of investors.

The Finance Ministry is studying the more than 100 companies in which it has a stake, which are worth a total of about $51 billion, to weigh which of them it makes sense to sell, Carrasquilla said.

To prevent cuts to public investment, while complying with the fiscal rule, the government needs to sell some of these assets, he said. The government expects to raise about $3 billion this year form the sale of public assets, according to the ministry’s financing plan published last month.

The government hasn’t yet decided whether to sell another stake in state-controlled oil company Ecopetrol, which will depend on on analysis of whether the resources could be deployed more effectively elsewhere, he said.

To contact the reporter on this story: Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editors responsible for this story: Matthew Bristow at mbristow5@bloomberg.net, Robert Jameson

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