Vigencias futuras: How big?
Though fiscal policy will surely be discussed during this presidential campaign, a rather under-the-radar topic attracting criticism is the size of spending commitments President Juan Manuel Santos is leaving for future administrations to pay. These future budget commitments, known as vigencias futuras in Colombia’s budget jargon, must be included in future budgets before the next government embarks upon any new spending priorities.
Our analysis shows that the current vigencias futuras situation is not necessarily worse than the one bequeathed by the two previous presidents, though. From certain perspectives, it is actually better. Yet there is no legal limit on their size, as, for example, in the UK, where the stock of future budget commitments cannot exceed 10% of GDP. That’s a sound guideline. So far, Colombia’s only guideline is a 0.4% of GDP ceiling on yearly allocations of vigencias futuras to central government PPP projects – an executive measure the country should consider turning into a law.
New DANE growth numbers for Q4 2017 and estimated growth for all of 2017 were discouraging, as the nascent recovery heralded in Q3 did not quite materialize in Q4. In fact, 2017 growth was just 1.8%, below government expectations, though in line with ours (we’d projected growth at around 1.7%). A very worrying trend can be reaffirmed: growth is being pushed by sectors heavily dependent upon public spending, and by non-tradable sectors. That could lead to stagnation. Traditional tradable-private driven sectors such as agriculture, manufacturing industry and mining all grew far below average, or even negatively (at 1%, -1%, and -1.4%, respectively). Even housing and retail commerce grew very sluggishly in Q4.
What does this imply for public policy, and the future? In the near term, only mining, especially oil, promises to provide stronger sustained growth (along with some agri-business and tourism). Thus, it is imperative to design policies and programs that both give security and help oil-related investment grow again. In manufacturing, a diagnosis of developments over the past 10 years is badly needed.
We doubt a return to robust growth levels (of above 3.5%) will be as easy as some seem to think. The next government will need to be extremely creative -- starting with the ability to cope with a 3%-4% of GDP fiscal deficit, rising expenditures, a more biting fiscal rule and the need to implement its platform.
Now read on...
Register to sample a report