Colombia's national budget proposal for 2016 could open the door to several years of austerity.
After a decade of strong government spending, Colombia faces several years of tight budgets. On 14 July the National Council for Economic and Social Policy (Conpes) approved the finance ministry’s budget proposal for 2016. Although total expenditure is set to increase by 2.3% to US$60.5bn, there will be major cuts to investment projects, especially in the areas of mining, agriculture and housing. At a press conference, Finance Minister Mauricio Cárdenas announced that the budget represented a "policy of austerity."
With global oil prices remaining depressed, the government forecasts just US$1.2bn in oil revenues in 2016, down from US$8.5bn in 2013. The imminent entry of 1.0m barrels of Iranian oil onto the global market, following the end of international sanctions, has dampened optimism for a bounce in crude prices. Cárdenas and his team have been forced to make tough decisions.
Given the ongoing peace process (and continued military confrontations) with the Fuerzas Armadas Revolucionarias de Colombia (Farc), it is no surprise that the defence and justice ministries have escaped the cuts. However, overall government investment is set to fall by 11% to US$15bn. The agriculture ministry will see its budget slashed from US$1.2bn to just US$508m. Other ministries amongst the hardest hit are mining and energy (a 30% reduction), housing (20%), transport (21%) and environment (18%).
None of these cuts can be easily absorbed. Agrarian reform is a key component of the peace process and will require significant investment in a post-conflict Colombia. The upgrading of the country's road infrastructure is crucial to boosting the competitiveness of the country's agricultural and industrial sectors, and financing for major projects is already in jeopardy as legal challenges have stalled the sale of the state energy firm Isagen, the profits from which were earmarked for so-called fourth generation projects. Likewise, the natural resources sector requires major investment to resolve the institutional and operational bottlenecks that likewise have frozen the development of new projects.
Cárdenas has pinned his hopes on an improving trade balance, with the weaker peso discouraging imports and increasing demand for local products. Importantly, the tax agency (DIAN) has seen its budget increased by US$1.5bn to ease the implementation of new tax reforms and crack down on evasion.The conservative opposition Partido Centro Democrático (PDC), the party of former president Alvaro Uribe (2002-2010), was quick to attack the cuts, accusing the government of relying too heavily on commodity prices and failing to put aside sufficient funds during the boom period to cope with the inevitable "rainy day." While this may be true, Colombia's fiscal laws have prevented major overspending based on inflated price expectations. The same cannot be said of the rest of the continent. While the IMF forecasts real annual GDP growth of 3% for Colombia in 2016, the rest of the region is set to grow at an average rate of just 0.9%. Austerity may prove painful for Colombians, who have grown used to bullish growth, but the finance ministry argues that early implementation of conservative fiscal measures will allow the economy to set the bases for more sustainable medium term growth.
- Coca production rebounds strongly
The area under coca cultivation in Colombia soared by 44% in 2014 to 69,132 hectares (ha), according to a report released on 2 July by the United Nations Office on Drugs and Crime (UNODC), with potential cocaine production rising by 52% to 442 tonnes. The UNODC report differed from a comparable study published last May by the White House Office on National Drug Control Policy (ONDCP), which argued that the amount of land under coca cultivation in Colombia jumped 39% in 2014 to 112,000 ha and potential cocaine production soared by 32% to 245 tonnes. Despite their discrepancies, both reports captured the upward trend of coca cultivation in Colombia after six straight years of declining or steady production.
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