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Covid and after: the battle for fiscal space in LAC

Street protests in Colombia

Colombia’s right-wing government also got itself into political difficulties over fiscal adjustment. Colombia, with an economy similar in size to Argentina, contrasts with its southern neighbour because it has a long history of fiscal prudence, a more consistent record of economic growth, and significant fiscal space (the public debt-to GDP ratio stands at 61.4%). Nevertheless, as in other countries, the pandemic shock to the economy in 2020 was severe. In response, President Iván Duque and finance minister Alberto Carrasquilla drew up a tax reform plan designed to raise an extra US$8bn or 2% of GDP. The money was to be used to help fund the widened fiscal deficit (which was 8.1% of GDP in 2020) and to pay down some of the public debt – in other words, to rebuild fiscal space.

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