Bogotá.- The new Government of Colombia inherits a country with a high fiscal deficit resulting from increased public spending, low levels of investment, and an upward trend in inflation, problems for which it proposes an austerity plan that may have social impacts.
President Gustavo Petro received an economy in 2022 that had just emerged from the pandemic and in the last three years had moderate growth of 0.8% in 2023; 1.5% in 2024 and 2.6% in 2025, driven by household consumption, commerce, and services.
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However, Foreign Direct Investment (FDI) experienced sharp declines during his administration, mainly due to uncertainty regarding regulatory standards in sectors such as oil and mining, such that in 2025 only 9.174 billion dollars entered the country for that concept, 14.1% less than in 2024, a year in which it had already fallen by 15% compared to 2023.
But the biggest economic challenge for the Abelardo de la Espriella administration, which will take office on August 7, will be to face the bloated fiscal deficit that in 2025 was equivalent to 6.4% of GDP due to the surge in public spending, with the consequent indebtedness of the outgoing government to finance it.
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According to data from the Ministry of Finance, public debt reached a record 1.167 trillion pesos (about 373.85 billion dollars) at the end of the first semester, a figure equivalent to 60.5% of GDP, which leaves the new Government with little room for fiscal maneuver and social investment.
“The country comes with very poor fiscal management,” said BTG Pactual’s chief economist for the Andean Region, Munir Jalil, in a recent conference, adding that “the new government has to arrive and make adjustments” while at the same time it will have to spend more to meet all its commitments.
The difficult task falls to the designated Minister of Finance, Miguel Gómez Martínez, who will have to cut state spending by up to 40% by 2030, the year in which De la Espriella’s term must end.
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“The Colombian State is financially unviable as it is currently structured. The responsible thing to do is what the career politicians have not done until now: cut back the State so that it can function,” said De la Espriella during the campaign.
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According to the president-elect’s advisor, José Manuel Restrepo, who served as Minister of Commerce and later Minister of Finance in the Iván Duque administration (2018-2022), the fiscal adjustment should not affect social programs, but those considered a waste of public money will be ended.
Restrepo and Gómez Martínez were in the United States a few weeks ago along with other future Colombian officials to “strengthen the bilateral relationship” and seek new investments in the country.
In that international campaign, the president-elect has already reaped the first results, such as the announcement by the executive president of CAF – Development Bank of Latin America, Sergio Díaz-Granados, that the entity will finance development projects in Colombia with 9 billion dollars until 2030.
“The $9 billion financing framework for the coming years transcends the financial, dear friends. It is a vote of confidence in Colombia,” stated De la Espriella regarding those resources allocated to four strategic sectors: energy security; infrastructure for productivity; security, prosperity and social inclusion, and territorial presence and strengthening, which are the new Government’s priorities.
Your Administration will also have to deal with the upward trend in inflation, which at the end of 2025 was 5.10% but in the first half of this year was already at 6.14%, more than double the 3% annual target set by the central bank as a benchmark for its monetary policy.
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The rise in the CPI is attributed in part to this year’s 23.7% increase in the minimum wage, which, added to the 23.2% revaluation of the Colombian peso against the dollar over the last twelve months, expands the consumption capacity of Colombians and forces the Banco de la República (monetary authority) to restrict credit with interest rate hikes, currently at 12%.
The dollar, which a year ago was trading at 4,124 pesos, closed this past July 31st at 3,166 pesos, the lowest rate in seven years, since April 2019.
“There is great uncertainty regarding the behavior of the exchange rate, which has shown a very strong appreciation in the recent period. It is likely that this appreciation corresponds to a very temporary phenomenon, but there is enormous uncertainty about that,” said the general manager of the Banco de la República, Leonardo Villar.
