Debt and deficits: Colombia's unsustainable fiscal mix

Abstract

This paper presents an overview of recent fiscal history in Colombia, and it projects the future course of fiscal deficits and the debt-to-GDP ratio under several different budgetary scenarios. Our projections, which are based on the macroeconomic and fiscal models developed at the Ministry of Finance and Public Credit, suggest that the current path of fiscal models developed at the Ministry of Finance and Public Credit, suggest that the current path of fiscal policy is not sustainable. Substantial increases in the government s fiscal surplus are needed in order to return to a regime in which the debt-to-GDP ratio will stabilize in several decades- Our base can analysis suggests that stabilizing the debt-to GDP ratio at 45% by the year 2030 would require a 1,8% of GDP reduction in the fiscal deficit, effective immediately. This assumes that the social security reforms introduced in the last Congress are enacted- If they are not, the required adjustment in the fiscal deficit is several percentage points greater.