Background on Colombia’s Debt History and Current Situation
Colombia has traditionally been a responsible debtor, adhering to payment deadlines set by international organizations, unlike some of its regional counterparts such as Argentina. However, recent developments indicate a significant rise in the country’s external debt.
The Rising External Debt
A proposed tax reform in Colombia for later this month has overshadowed the true economic concern: the rapidly escalating external debt. The debt-to-GDP ratio is projected to surpass 61%, the highest in Colombia’s history, according to analysts. This increase stems from a growing budget deficit.
Luis Fernando Mejía, director of Fedesarrollo, highlighted the worrying fiscal situation: “The debt-to-GDP ratio will increase by 9.6 percentage points, in the context of an economy that has not experienced any significant internal or external shocks.”
Debt Composition
According to the Banco de la República, during the first quarter of 2021, bonds accounted for 54% of the total debt, while multilateral organizations represented 33%. Commercial banking contributed 8%, “others” accounted for 3%, and foreign agencies and governments made up 2%.
Experts’ Concerns and Predictions
José Antonio Ocampo, former Minister of Finance, expressed concern that Colombia’s debt risk margin would widen further, surpassing Mexico, Brazil, Chile, and Peru. He also warned that Colombia’s credit ratings would deteriorate, including from Moody’s, which remains the only major rating agency still granting Colombia an investment-grade status.
Andrés Velasco, president of Asofondos, echoed these concerns, stating that suspending the fiscal rule without a genuine and extraordinary justification could lead to increased deficit and debt levels. This, in turn, would elevate Colombia’s fiscal risk and potentially raise external debt interest rates.
Ex-Minister Restrepo’s Analysis
José Manuel Restrepo, former Minister of Finance and rector of Universidad EIA, explained that suspending the fiscal rule would push Colombia’s public debt above 61% of GDP, the highest in its history. He predicted it could exceed 65%. Considering the projected deficit and debt increases, the government would have at least $140 billion more to spend in 2025.
Historical Context of Colombia’s Debt
In 1990, Colombia’s external debt stood at 34.3% of GDP, with public debt accounting for 29.5% and private debt at 4.8%. This equated to US$17,993 million. The turning point in Colombia’s debt trajectory occurred in 2020, with the onset of the COVID-19 pandemic. In that year, external debt reached 57% of GDP, the highest level in Colombian history.
By 2024, external debt had grown to 48.1% of GDP, equivalent to over US$201,600 million.
Key Questions and Answers
- What is the main concern regarding Colombia’s economy? The primary worry is the rapid increase in external debt, which is projected to surpass 61% of GDP—the highest level in Colombia’s history.
- What factors contribute to the rising debt? The growing budget deficit is the main driver behind Colombia’s escalating external debt.
- Who are the major creditors of Colombia’s external debt? Bonds account for 54% of the total debt, while multilateral organizations represent 33%. Commercial banking contributes 8%, “others” account for 3%, and foreign agencies and governments make up 2%.
- What are the potential consequences of suspending the fiscal rule? Suspending the fiscal rule without a genuine and extraordinary justification could lead to increased deficit and debt levels, elevating Colombia’s fiscal risk and potentially raising external debt interest rates.
- How has Colombia’s external debt evolved historically? In 1990, Colombia’s external debt was 34.3% of GDP. However, the COVID-19 pandemic in 2020 pushed external debt to 57% of GDP, the highest level in Colombian history. By 2024, external debt had grown to 48.1% of GDP.
