Colombia Seeks to Raise at Least 1.5% of GDP With Fiscal Reform

Colombia plans to raise taxes and cut spending to reassure investors that the country is serious about getting its finances back on a sustainable path, deputy Finance Minister Juan Alberto Londono said.

The fiscal bill to be sent to Congress in the first half of the year will aim to boost revenue by at least 1.5% of gross domestic product a year, Londono said in a video interview Monday.

“We believe it is important to have this revenue path that provides tranquility to markets,” Londono said. The government had initially pointed to a target of 2% of GDP, which he said might be “too ambitious,” but “we have to increase revenue by at least 1.5%.”

Colombia Seeks to Raise at Least 1.5% of GDP With Fiscal Reform

While declining to provide details, he said the bill will also seek to better allocate social spending and will avoid placing a higher burden on companies. Whatever changes are approved won’t come into effect until 2022, he added.

The Andean nation is struggling to get its finances back on track and defend its investment grade rating after pandemic spending led the fiscal deficit to balloon to an estimated 8.9% of GDP in 2020, up from 2.5% the previous year. Besides plans to increase tax revenue, Colombia is also looking to raise cash by selling stakes in government-owned utilities, including Interconexion Electrica SA.

The government this month announced it entered into an exclusivity contract with state oil company Ecopetrol SA to determine the terms of the sale of its 51.4% stake in the electricity transmission company known as ISA. The sale is expected to fetch as much as $4 billion.

While Grupo Energia Bogota SA, a utility majority owned by the city of Bogota, has also expressed interest in bidding for the ISA stake, the government will give priority to Ecopetrol and will only analyze other offers if an agreement isn’t reached, Londono said. In this way, the government will continue to keep a controlling stake through Ecopetrol, he added.

“Electricity transmission is very important, which is why the nation should continue to count on this asset and not depend on third parties,” said Londono. Ecopetrol and the Finance Ministry will separately hire investment banks to value the company and the sale will likely happen this year, he added.

The economy will grow more than 5% this year, according to Londono, after contracting an estimated 7.2% in 2020.

Besides the fiscal reform, the government this year plans to present a capital markets bill that will help improve access to companies that seek funding in the local market. The government has set aside plans for a pension reform bill for the time being, he said.

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