The underlying challenge / Analysis by Ricardo Ávila

The Colombian economy is experiencing something similar to that of a person who claims to be doing very well when they arrive for their regular medical checkup. At first, the examiner agrees that their patient appears relatively vigorous despite a few ailments and an obvious weight problem that suggests the need for a strict diet.

But when the lab tests arrive and are compared with the medical history, the specialist frowns. What seemed manageable with a minimum of discipline is actually a noticeable and accelerated decompensation, threatening to send the patient who claimed to only occasionally feel unwell to an intensive care unit in a relatively short time.

Therefore, the recommendation is to begin treatment immediately, which includes several medications that are difficult to swallow, along with a real change of habits. Despite the serious diagnosis, the now grieving man says that nothing much will happen to him and that he really just needs to replace his pants with larger ones.

Furthermore, he remembers what another doctor told him, who, despite his minimal experience in these matters, recommended a single-dose pill. Several close friends tell him not to swallow it because it can cause undesirable side effects, while others insist he do nothing because they just want to scare him.

All things considered, this hypothetical case is similar to what's happening in Colombia, where unemployment is growing at an acceptable pace and reached its lowest point of the century for the month of July, according to the most recent data from the National Statistics Institute (DANE). It's true that inflation persists as a mild headache, but that doesn't prevent domestic consumption from growing strongly and corporate profits from increasing in most cases.

Perhaps for this reason, it's so difficult to convince the national public that there's a fiscal bomb that started ticking down some time ago. This consists of a progressive pace of state spending that will reach a historic high this year as a proportion of the economy, while revenues grow at a much slower pace, resulting in an ever-increasing deficit.

Depending on certain decisions, the clock may or may not be sped up, but deactivating the explosive will require multiple efforts over the course of years. It's not just a matter of cutting a cable, but of isolating a series of triggers that today point to a regrettable outcome: such as has been seen on multiple occasions over the decades in different Latin American nations, where public finance turmoil has caused hyperinflation and worsened people's social conditions.

For this reason, and beyond the understandable debate surrounding the merits of the financing bill submitted to Congress on Monday, it is important to emphasize that the objective is much larger. It consists, no more and no less, of having sustainable state finances.

The challenge begins with addressing a series of emergencies that will require a concerted effort, as well as a significant amount of political capital, from whoever takes office in the Casa de Nariño in August 2026. Ideally, the work of putting the house in order should begin immediately, but the Petro administration is not only largely responsible for the rapid deterioration observed, but it also shows no intention of amending it.

The numbers speak for themselves. In 2019, central government spending, as a proportion of Gross Domestic Product (GDP), amounted to 18.7 percent, a figure that this year is projected to reach 24.2 percent.

This jump is the result of several factors, including a higher interest charge on public debt and a deficit in the Fuel Price Stabilization Fund. Similarly, higher expenditures for health care, pensions, and transfers to local authorities play a significant role in this situation.

Part of the deterioration was caused by the pandemic. The health emergency not only forced the treasury to make emergency payments, which were financed with increased borrowing, but the paralysis attributable to mandatory lockdowns also collapsed revenue collections.

Even so, when the time came for recovery, the figures improved rapidly. By 2023, the fiscal deficit fell to just over 4 percent of GDP, after reaching 7.6 percent in 2020.

However, a significant decline occurred last year, which has worsened in 2025. Once again, pensions, interest, and transfers are responsible for the decline, but personal services also appear as an important element in the equation.

According to projections from the Autonomous Committee of the Fiscal Rule (CARF), this fiscal year will close with figures very similar to those at the beginning of the decade, following the outbreak of COVID-19. Put another way, the fiscal picture will resemble that recorded during the pandemic, but without being able to blame the coronavirus. Other observers believe the result could be the worst in history.

To make matters worse, the outlook for 2026 looks even more critical. Far from opting for austerity, the Ministry of Finance presented a 567 billion peso budget for discussion in the Capitol, an increase of almost six percentage points, discounting the effect of expected inflation.

According to CARF, meeting the established deficit target (equivalent to 6.1 percent of GDP) requires cuts of 45.4 trillion pesos in proposed government spending. The entity warns that the shortfall could be greater if additional pressures materialize. Even in the baseline scenario, the public debt burden would be equivalent to 63.5 percent of GDP, a new record that would exceed the 2023 figure by ten percentage points.

To say the outlook is grim is no exaggeration. Currently, one in every three pesos collected through taxes is used to pay interest, a proportion that stood at one in six in 2018.

As with anyone who begins to feel stretched by their obligations, market risk perception has only increased, causing the cost of new loans to skyrocket. Currently, the expected return on a ten-year peso-denominated government bond is close to 12.8 percent per month, five percentage points higher than in 2021. Colombia pays much more than its regional peers, including Brazil, which also has serious fiscal problems.

Breaking out of this vicious cycle will be very difficult without structural changes. An operation is underway to reduce the cost of debt, which would include issuing short-term debt in currencies other than dollars, but the relief would be temporary and increases the risk of having to pay millions of dollars without the necessary support.

Amid the gathering clouds, there will be no shortage of those who believe there is calm on the exchange rate front. After all, on Friday, the greenback fell below the symbolic threshold of 4,000 pesos once again, which goes against the experts' predictions.

However, the more cautious insist that there are international circumstances that justify the dollar's relative weakness. They also reiterate that, if Colombia doesn't do its part to get its act together, the lull of these days could simply be the prelude to a major storm.

No one doubts that the challenge is enormous. During a forum called "Proposals to Avoid Fiscal Collapse," held last week at the EIA University headquarters, seven specialists, including five former ministers, discussed the challenge of organizing public finances in depth and made it clear that nothing will happen overnight.

One of the main obstacles is what is known as "budget inflexibility." This consists of the fact that a large portion of government funds are already pre-allocated.

For example, the Constitution establishes mandatory payments to the General Participation System, along with pensions and health care. In turn, the law prioritizes official payroll, transfers to Family Welfare and the National Sena (Sena), financial obligations, or future payments, among other items. According to the CARF (National Carriage Fund), 88 percent of the expenses proposed for 2026 fall into this category.

Given such a limitation, it's clearly unrealistic that what happened in Argentina, where Javier Milei used the chainsaw to balance the federal government's books, could happen here. In general, the experts convened by the EIA stated that a reduction of around 20 billion pesos annually is feasible, a sum that seems insufficient given the magnitude of the imbalance.

This does not prevent detailed and exhaustive work from being carried out to examine each appropriation. There will always be room for savings, as is the case with controlling the abuse of service provision contracts, the number of which has increased recently. Even so, the incoming government will find signed commitments that will take time to undo.

Showing that the executive branch cares for the tax money it collects from citizens is a way to gain legitimacy in the face of other sacrifices. These include the requirement for additional tax burdens to sustain a larger state that is forced to make investments on multiple fronts and is facing urgent security and health needs.

Opening this discussion is not easy, especially in a country where everyone defends their privileges. A particularly thorny issue is that of the middle class, whose tax contributions are lower than in other latitudes but who resist assuming greater burdens while the current regime disproportionately penalizes businesses.

Worthy of special mention is the reform to the General Participation System, approved by a large majority in Congress through a legislative act. The law gives a growing share of government revenue to the regions, something that would effectively bankrupt an already struggling central sector, unless a Competition Law is passed that properly allocates responsibilities and has a neutral fiscal impact.

Nor can we forget that it is key to have a framework that allows for investment and growth. If the economy expands faster than in the recent past, this would translate into trillions of pesos in additional revenue attributable to increased consumption and higher profits in the private sector. Recovering Ecopetrol, the largest contributor in historical terms, is crucial in this endeavor.

However, rather than talking about individual recipes, we should remember the pirinola made famous by Antanas Mockus during his time as Mayor of Bogotá. Rather than championing a game of chance, the former rector showcased the "everyone contributes" approach as a formula for changing social behavior and solving the enormous challenges facing the Capital District.

Only with a major joint effort, requiring adequate public leadership and the participation of the private sector, will it be possible to solve one of the most difficult puzzles facing Colombia today. As in the analogy at the beginning, the process will be long and will require sacrifices, as there are no easy answers to the fiscal debacle.

Whether there's a financing law or not, the stakes are much higher. Nothing less than the viability of a nation that today seems trapped in a dark tunnel, but which has no choice but to find a way out if it wants future times to be better than the present.