Colombia’s Peso Breaks 3,200 as 2027 Deficit Is Seen Worse Than the Pandemic

COLOMBIA · ECONOMY

Colombia’s peso broke through 3,200 per dollar on Monday as warnings over the 2027 budget escalated. A new analysis puts next year’s deficit at 9.4 percent of gross domestic product, deeper than the pandemic year itself.

Downtown Bogotá. The peso has lost about 5 percent against the dollar in a week of fiscal warnings. (Photo: Wikimedia Commons, CC BY-SA 2.0)

The peso tells the story first

Colombia’s currency has fallen through five consecutive sessions. The official exchange rate, known as the TRM, fixed at 3,202.79 pesos per dollar for Monday 31 August.

The TRM, short for Tasa Representativa del Mercado, is the reference rate published daily by the Financial Superintendency. A week ago it stood near 3,048, so the peso has lost roughly 5 percent in seven days.

Currency moves like this are rarely about one headline. They are the market’s running verdict on the numbers below.

A deficit deeper than the pandemic’s

The starkest warning comes from Andrés Pardo, head of Latin America macro strategy at XP Investments and a former deputy finance minister. His reading of the new budget, published by Forbes Colombia, puts the 2027 deficit at 9.4 percent of gross domestic product (GDP).

That is more than double the 4.5 percent foreseen in the government’s own medium-term fiscal framework. It would also exceed 2020, the pandemic year, when the central government deficit reached 7.8 percent of GDP.

The deterioration starts earlier. The updated financial plan raises this year’s deficit estimate from 5.3 to 7.2 percent of GDP.

Even full success would not be enough. If the government delivered its entire planned adjustment, XP calculates the 2027 deficit would still top 7 percent of GDP.

Where the money goes: interest first, investment last

The interest bill alone rises from 3.9 to 4.9 percent of GDP in the new scenario. The primary balance, which excludes interest, swings from a projected 0.5 percent deficit to 4.5 percent.

Debt issuance needs nearly double as a result. They climb from COP 125.6 trillion (US$39.2 billion) to COP 238.6 trillion (US$74.5 billion), an increase of almost 90 percent.

Of the new total, COP 150.9 trillion (US$47.1 billion) would be domestic debt and COP 87.7 trillion (US$27.4 billion) foreign. Central government net debt would reach 66.2 percent of GDP, against 58.9 percent previously expected.

The bigger budget does not buy more investment. Operating spending rises from COP 368 trillion to COP 393 trillion (US$122.7 billion), while investment falls from COP 90 trillion to COP 87 trillion (US$27.2 billion).

What the government says it will do

Deputy Finance Minister Juan Sebastián Betancur acknowledged the scale this week. Stabilising the debt requires an adjustment of more than four points of GDP, he said, and a “drastic” correction is not possible quickly.

The plan is to spread the fix over four years, favouring spending cuts over tax rises. Richard Francis of Fitch Ratings reached a similar conclusion, saying an adjustment of at least four points cannot be done in one year.

The government will file a fiscal adjustment law and act by executive decree. Together the measures aim to cut up to COP 40 trillion (US$12.5 billion), close to two points of GDP.

XP considers even that target optimistic given the politics. Colombia’s Congress has spent much of the year blocking revenue measures.

The warnings are piling up

Anif, the research centre backed by Colombia’s banks, warned last week that ordering the public finances could take four, six or eight years. It sees debt ending near 66 percent of GDP even under a credible plan.

This morning, industry chief Bruce Mac Master called the fiscal situation extraordinarily severe. He spoke as president of ANDI, the country’s largest business association.

For foreign readers, the chain is straightforward. A bigger deficit means more borrowing, more borrowing means higher interest costs, and higher interest costs mean a weaker peso.

The next checkpoints are the budget debate in Congress and the text of the rescue law. The peso’s five-session slide suggests investors are not waiting for either.

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Sources: Forbes Colombia, XP Investments, Anif, Fitch Ratings, Superintendencia Financiera de Colombia (TRM), Ministry of Finance.

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