Colombia's Fiscal Deficit Worsens Sharply, Analysts Flag IMF Need

Colombia's new government has submitted a budget bill to Congress that reveals a significantly worse fiscal outlook for 2026 and 2027 than markets had anticipated, according to analysts. The proposed 2027 budget totals 634.9 trillion pesos ($203.6 billion), exceeding the previous estimate of 575.7 trillion pesos.

The government now projects a deficit of 7.2% of GDP for the current year and up to 9.4% of GDP for 2027, a sharp increase from earlier estimates of 5.3% and 4.5%, respectively. Camilo Perez, head of economic research at Banco de Bogota, described the situation as "pretty complicated," noting that the scale of deterioration surpassed expectations.

Jackeline Pirajan, chief economist at DAVIbank, said the wider-than-expected fiscal imbalance should prompt investors to recalibrate their expectations, potentially leading to a repricing of sovereign risk premiums. Andres Pardo, head of macroeconomic strategy for Latin America at XP Investimentos, expects Colombia to seek a financing package with multilateral lenders, possibly including the World Bank, the Inter-American Development Bank (IDB), CAF, and the IMF.

Pardo indicated that Colombia could pursue a new arrangement with the IMF through a Precautionary and Liquidity Line, but added that "the possibility of a traditional IMF-supported program cannot be entirely ruled out." Market reaction was immediate, with the Colombian peso weakening 0.70% against the U.S. dollar on Friday and domestic government bonds coming under pressure.