A blueprint for public expenditure in the future
An independent commission charged with making recommendations about the size, composition and efficiency of public spending in Colombia hasn’t advocated spending cuts, but has focused on efficiency, inflexibility and income redistribution.
The Public Spending and Investment Commission (PSIC) has so far only produced an executive summary of its recommendations but is clearly questioning whether aggressive tax cuts are appropriate. The implication of keeping central government spending at around 18.5% of GDP has downstream implications for complying with the fiscal rule, the reason the PSIC considers medium-term fiscal perspectives “worrisome, requiring decisive action.”
The PSIC recommends, among others: pension reform, a health system overhaul, a revamp of budgetary and procurement processes, and institutional adjustments. The PSIC’s assessment is mostly accurate and fair, which means the task ahead is enormous. The inescapable reality is that, after all the efforts are made on the revenue front, governments will be obliged to face spending cuts.
Cesar Gaviria, former president of Colombia, former secretary of the Organization of American States, former President Juan Manuel Santos ally, former head of the YES in the plebiscite and former supporter of Santos’ 2014 reelection campaign, is now a Santos foe.
Apparently sensing that Santos is not leaning toward favoring his Liberals, Gaviria has openly exposed Santos’ tactics. This is remarkable, as it signals a change in manners and content of the congressional campaign. Traditionally, presidents have ample leeway in how they influence politics, and only real antagonists try to expose them. Why isn’t Santos favoring official Liberal candidates? He has been a Liberal all his life, and has favored Liberals throughout his presidency. Could Santos end up supporting someone other than the Liberal candidate, Humberto de la Calle? This dispute may show that Santos does not feel an unbreakable liaison with anyone. He will support whoever seems poised to win, provided he or she embraces the principles established in the FARC peace negotiations.
Is the Colombian economy recovering? It’s hard to say. Some indicators show minor recovery, while others lag. But one thing can be stated with certainty: the path to robust recovery will be harder and longer than everyone, including the government and some multilaterals, expected.
We think the scenario still looks rather bleak, and that 2018 growth will barely reach 2.5%. Signals from the main sectors are weak, the fiscal situation is tight and further rate cuts are unlikely to be very effective. Oil appears to be the only area poised to generate growth – though the outlook is for performance far below that of 2009-2014.
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