Colombia cannot lose credit with the IMF

This column was written by the guest columnist Mauricio Salazar-Sáenz.

The International Monetary Fund (IMF) temporarily suspended Colombia’s access to the Flexible credit Line (LCF) due to the country’s fiscal deterioration, visible in the increase in deficit, the government without paying the government for lack of resources, the fall in tax collection and the sustained growth of public debt and the payment of interest.

LCF is an instrument designed for countries with solid macroeconomic foundations and significant economic stability. In essence, it works as a pre -approved loan that allows governments quickly accessing financing in favorable conditions. Its main advantage is the low interest rates for short -term operations, because, when the financing exceeds three years, the fees increase and that considerably reduces their attractiveness.

Since its approval in 2009, Colombia only activated this credit once during the pandemic to face the emergency, in more favorable financial conditions and with temporary and strategic use. Although the country does not depend directly on this line, recovering its access is key to guaranteeing economic and social stability. In addition, it is important to keep it as an option available if necessary, especially in an uncertain global context like the current one.

The IMF is concerned about the country’s fiscal sustainability

The IMF highlights the deterioration of several critical fiscal indicators. First, the budget lag reached unprecedented levels. This situation obeys, in part, to the strong fall of tax revenues in 2024, which were $ 18.1 billion lower than those collected in 2023. The shortage of resources led to the fact that, at the end of the year, the lags exceeded $ 50 billion, which generated a significant pressure on the fiscal execution of the following year.

Graph 1. Budget lag

Source: Own elaboration based on SRIF nation data.

In parallel, the fiscal deficit was also expanded considerably. During 2024, it amounted to -6.7% of GDP, a deterioration of 2.5 percentage points compared to the previous year. This level of deficit had only been seen during the pandemic. But the growing unbalance between income and expenses increased the need for indebtedness and questioned compliance with the fiscal rule.

Graphic 2. Balance Total del GNC

Source: Own elaboration based on data from the Ministry of Finance and Public Credit.

In turn, internal and external public debt rose significantly. In 2024, this indicator reached 59.3% of GDP, a considerable increase compared to 2023 where it closed at 53.4% ​​of GDP. The projected trend by 2025 anticipates that the debt will continue to grow, even exceeding the previous official projections. This trajectory reinforces the concern about the sustainability of public finances.

Graph 3. Net Debt of the CNG

Source: Own elaboration based on data from the Ministry of Finance and Public Credit.

With the debt size the country faces another related challenge: the growing interest payment. This component of the debt service has gained relevance within public spending. Since 2022, interest payment has represented on average 60% of the total allocated to debt service and remains close to 4% of GDP.

This phenomenon has deep implications for fiscal policy because each weight destined for interest is a weight that cannot be invested in infrastructure, health or education. As the indebtedness grows and global rates remain high, interest payment will continue to press the public budget, limiting the government’s margin.

Graph 4. Payment of interests of the CNG

*Projected figures. Source: Own elaboration based on data from the Ministry of Finance and Public Credit.

The combination of these factors draws a complex panorama for public finances in Colombia, so maintaining access to LCF is a strategic need. In an uncertain global environment, with commercial tensions and recession risks, having this tool would mitigate macroeconomic risks, and ensure an accessible and timely source of financing.

The government needs a solid plan

In the face of the next negotiations with the IMF, the Government must present a credible fiscal adjustment plan that structurally addresses these challenges. Only with a solid strategy can recover the confidence of markets and multilateral organizations, ensuring not only the reopening of the LCF, but also the sustainability of public finances in the medium and long term.

Although the general budget of the Nation (PGN) by 2025 and in the next few years do not depend directly on the resources of the LCF, having this support becomes special importance in scenarios of high global uncertainty.

The intensification of international conflicts, with its consequent effect on demand and global liquidity, could trigger a severe economic crisis. In such circumstances, having an immediate source of financing, with preferential rates, would allow the country to mitigate adverse impacts on the main macroeconomic variables.

Moreover, it would help protect the most vulnerable sectors of society, who historically are the most affected in periods of adjustment and recession. For these reasons, the restoration of access to LCF should not only be understood as a financial objective, but also as a key tool for social and economic stability.