Colombia returns to IMF as fiscal deficit projects record numbers

Less than two months after taking office, Colombian President Abelardo de la Espriella confirmed that country authorities are negotiating financial assistance from the International Monetary Fund (IMF) to address Colombia’s fiscal deficit.

IMF Deputy Managing Director Nigel Clarke arrived in Colombia last weekend as part of the start of negotiations. 

During his four-day stay, he held talks with Vice President José Manuel Restrepo, Finance Minister Miguel Gómez, and Central Bank head Leonardo Villar.

In a statement published following his visit, Clarke said that “timely and credible action to reduce fiscal imbalances” in Colombia “can help strengthen confidence, lower borrowing costs, and create more favorable conditions for private investment and job creation.”

He also highlighted some of the country’s “strengths,” such as its “economic resilience,” solid political framework, independent central bank, and “resilient financial system.”

Finally, Clarke pointed to potential reforms that the IMF will ask of Colombia in exchange for its financial support.

“Reducing barriers to investment, improving security, addressing infrastructure gaps and informality, and strengthening the rule of law and regulatory predictability,” the statement read. 

The next meeting between Colombian officials and IMF technical staff will take place next week in Washington, DC.

This is the first time since 2020 that Colombian authorities have turned to financial assistance from the IMF.

A delicate financial situation The country’s public finances worsened during the final years of President Gustavo Petro’s tenure. 

For instance, primary fiscal deficit — which includes debt payments — in 2023 was 4.3% of GDP. It jumped to 6.7% in 2024 and around 6.4% the following year.

Excluding the first two years of the pandemic, this is the two-year period with the highest fiscal deficit so far in the 21st century. 

According to estimates from financial firm Corficolombia, the deficit for this year and the next could be even higher, exceeding 7% in both cases.

Oscar Torrealba, director of research at the Colombian Institute of Political Science (ICP, by its Spanish acronym), told the Herald that while additional financing “may prove necessary,” it does not mean that turning to the IMF is “desirable or that it constitutes a solution to the fiscal problem.”

Any credit obtained, he argued, does not “replace the correction of the structural problems.” Efforts must be focused on “reducing the deficit and not on replacing [fiscal tightening] with greater debt.” 

“A state whose spending is sustained by debt and grows inertially is not sustainable,” he added.

Marcela Meléndez, director of the Colombian think tank Fedesarrollo, called the Colombian government’s announcement that it was seeking an agreement with the IMF “good news.”

“It represents the possibility of having an independent expert entity accompanying the government in charting a credible path of fiscal sustainability,” she said, adding that it’s the “sign of fiscal discipline that markets need.”

Meléndez also pointed out that an IMF agreement usually eases access to credit from other multilateral institutions like the World Bank, the IDB, or the CAF. 

“The main benefit is that we will have the IMF as an ally in the constant review of the plan that is agreed upon, and that will allow for lowering the cost of financing and being able to make sound decisions.”

Cover photo: From left to right: Colombian Finance Minister Miguel Gómez, Vice President José Manuel Restrepo, and IMF Deputy Managing Director Nigel Clarke (Credit: Clarke X account)