Background on President Gustavo Petro
Gustavo Petro, the current President of Colombia, took office in August 2022. A former guerrilla member turned senator, Petro is known for his progressive policies and social justice advocacy. As president, he aims to tackle Colombia’s fiscal challenges and promote economic growth with a focus on social equity.
Fiscal Rule Pause and Tax Reform Announcement
On June 13, 2025, President Petro announced the formalization of a pause in the fiscal rule through a decree by the Minister of Finance, Germán Ávila. This move came despite a negative assessment from the Autonomous Committee of the Fiscal Rule (Carf), which lacks veto power over the decision.
Reasons for the Fiscal Rule Pause
Petro justified this action by citing the “sabotage” to the financing law and a popular consultation. He emphasized the necessity of this measure to stabilize public finances following these events.
Tax Reform Proposal
The proposed tax reform aims to generate a minimum of $19.6 billion (approximately $4,533 million) to a maximum of $25.4 billion. Petro stated that this reform is intended for implementation by the incoming government, providing clear fiscal prospects.
Public Spending Cuts and Debt Repayment
In addition to the tax reform, Petro announced public spending cuts for 2025 and the full repayment of debt subscribed by the previous government with the International Monetary Fund (IMF) by 2026. The Minister of Finance confirmed that the debt would be settled during 2025 through the IMF’s Flexible Credit Line.
Addressing Fiscal Concerns
Petro acknowledged the decline in real interest rates, which he believes will boost economic dynamics. This improvement is expected to particularly benefit the housing construction and long-term investment sectors, thereby enhancing the economic growth outlook based on production and socially just redistribution of benefits.
Key Questions and Answers
- What is the fiscal rule pause and why was it formalized? The fiscal rule pause was formalized to suspend the fiscal rule, allowing for a tax reform proposal aimed at stabilizing public finances following perceived sabotage to the financing law and popular consultation.
- What is the proposed tax reform’s estimated revenue? The proposed tax reform aims to generate a minimum of $19.6 billion (approximately $4,533 million) to a maximum of $25.4 billion.
- When will the public spending cuts take effect, and when will the IMF debt be fully repaid? Public spending cuts are planned for 2025, and the IMF debt will be fully repaid by 2026.
- How will the tax reform impact various sectors? The tax reform includes modifications to carbon tax, VAT for gambling, platforms, and churches, along with a special carbon and oil tax. The VAT may be reviewed for specific sectors to achieve the targeted revenue.
- What is Colombia’s projected debt-to-GDP ratio for 2026? The net government debt is expected to be around 63.8% of the GDP in 2026.
