Colombia to Cut $5 Billion in 2024 Budget on Fiscal Pressure

(Bloomberg) -- Colombia will reduce public spending by about 20 trillion pesos ($5 billion) this year, the finance minister said, as President Gustavo Petro’s administration faces budget restrictions after overestimating tax revenue.

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While the government won’t hit its revenue target it wants to assure investors it will meet its commitments, Finance Minister Ricardo Bonilla told Blu Radio in an interview Friday.

“We must be honest with the nation’s accounts, with honest accounts of what the real debt is and how we guarantee the fiscal sustainability of the state,” he said.

Petro’s cabinet will meet on June 10 and a decree detailing the spending cuts will be published a day later, Bonilla said while speaking at a banking event in Cartagena on Friday.

Colombia’s congress approved a 503 trillion peso budget for this year that includes a shortfall equivalent to 5.3% of gross domestic product. Bonilla had floated running a wider deficit and economists are anticipating big spending cuts and clearer guidance about the long-term fiscal path when the government publishes a mid-term financial plan later this month.

On Thursday, the finance ministry announced a spending freeze at government agencies and public institution.

Most of the revenue raised in recent tax reforms is being allocated to pay for gigantic fuel subsidies, the minister said, adding that no government programs will be affected by the decision to cut spending. The government will start to increase diesel prices for large consumers to relieve some of the fiscal burden, he added.

Colombian law doesn’t allow the government to reduce fixed expenditures such as wages, so Petro must decide whether to cut social programs or investment projects amid sluggish economic growth.

--With assistance from Patricia Laya.

(Updates with remarks from Bonilla in the fourth paragraph.)

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