Fiscal deficit in 2025: Spending rises and risks to economic stability worsen

In 2024, the Government faced a revenue shortfall of $74 billion, one of the highest figures in recent history. This imbalance was caused by several factors, such as rulings by the Constitutional Court and the Council of State that affected tax collection. In addition, the budget included uncertain revenues from litigation and optimistic estimates from the Dian.

For 2025, the government projects gross tax revenues of $320.9 billion. However, the Autonomous Fiscal Rule Committee (Carf) considers this goal unrealistic and estimates a lower collection of $286.9 billion, which would generate a fiscal deficit of $34 billion with respect to the official projection.

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Prospects for tax collection and fiscal deficit in 2025

In January 2025, the Dian reported tax collections of $32.8 billion, 6% more than the same month of the previous year. Historically, January represents between 10.5% and 11.1% of the annual total, suggesting that total collections could be between $295.5 and $312.4 billion. This would imply a revenue shortfall of between $8.6 and $25.5 billion.

According to Banco de Bogotá Economic Research, if key sectors such as manufacturing, commerce, financial services and transportation show a recovery, the revenue shortfall could be reduced to $20 billion. In addition, the increase in household consumption and healthy taxes could improve revenue collection.

Fiscal sustainability risks

Despite a less critical fiscal outlook than estimated by Carf, the risk of public finance sustainability is still present. The General Budget of the Nation is highly inflexible, which could lead to spending in excess of official targets. According to the analysis of Investigaciones Económicas del Banco de Bogotá, if revenues fall and expenditures increase, the fiscal deficit could increase by an additional $30 billion, with an extra $10 billion in spending. In this scenario, the Central National Government’s imbalance would reach -6.7% of GDP, instead of the -5.1% projected in the 2025 Financial Plan.

If this trend continues, public debt would continue to increase, generating higher financial costs. In addition, interest rates could rise, affecting consumption and investment. Also, the exchange rate would face upward pressures, making imports more expensive and compromising macroeconomic stability.

Record fiscal deficit and challenges in spending execution

Banco de Bogotá’s Economic Research report indicates that the Central National Government started 2025 with the highest fiscal deficit in recent history, reaching -0.7% of GDP in January, the worst result since 2004. This was due to a 35% annual increase in spending and a 0.2% drop in revenues. As a result, the country is already in breach of the Fiscal Rule, which requires a primary deficit of -0.2% of GDP, while in January it stood at -0.5%.

Unlike 2024, when the main concern was weak tax collection, in 2025 the problem lies in high and rigid spending. This increase responds to the accumulation of Budget Reserves (BR) in 2024, which reached a record $63.2 billion.

Budgetary reserves are the resources that a public entity sets aside at the end of a fiscal year to cover spending commitments acquired during that year, but which have not yet been paid or fully executed.

In January 2025, the Government executed almost $30 billion of these reserves, which is equivalent to the total revenues received in that month.

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Borrowing and financial risks

To address fiscal pressures, the government increased debt issuance through TES, placing $18 billion in fixed-rate bonds in the first two months of 2025, compared to $5.3 billion issued in the same period of 2024. Without this strategy, the country would face an unprecedented liquidity crisis. However, this mechanism increases the debt burden and fiscal risk going forward.

The sustainability of public finances will depend on corporate income tax collections in April. If revenues are lower than expected, the government will have to further increase debt issuance, as margins to cut spending are limited. Analysts warn that the fiscal deficit could exceed 6% of GDP, above the official target of -5.1%, which would put the country’s fiscal stability at risk.

Credit rating and perception of fiscal risk

As of March 2025, Colombia’s sovereign credit rating is at BB+ according to Fitch Ratings, with a recently revised outlook from stable to negative. This assessment reflects the fiscal challenges facing the country, including a high interest burden and dependence on specific sectors.

Standard & Poor’s (S&P) maintains Colombia’s foreign currency credit rating at BB+/B with a negative outlook, due to growing fiscal challenges and high deficits that increase government debt.

Under these conditions, the outlook is quite uncertain and even more so when the social and economic situation may imply the attention of problems that require new unforeseen expenses. This is the case of the rice growers’ crisis, the catatumbo crisis, the costs of an eventual Popular Consultation, the shortage of natural gas, among others.