Scrutiny of proposal to buy land by taking loan

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President’s View gustavo petroIn the sense that the country increases its public debt, the FARC to buy 3 million hectares and give them to farmers to comply with peace agreements, contrary to recent recommendations approved by the Autonomous Committee on Financial Regulation (CARF) this week, Surprise and uncertainty arose among economic analysts and experts on public finance.

When there was talk of a reform that was going to collect around 5 points of GDP, we were emphasizing that it was practically impossible.

Petro, who at first count in the ‘Noticias Caracol’ statements that the process would cost 60 billion pesos (if each hectare is bought for 20 million pesos), said it would be done by paying the current owners of the land. may, not with money but with government titles (TES), which are redeemed when they expire over several years.

For the Center for Economic Studies Anif, the President’s view sends a message that raises uncertainty about what the situation holds for investors who continue to buy Colombian Treasury paper under this new scenario, at a time when Treasury titles (TES) yield curve has been noticeably flattening, meaning that indebtedness is becoming increasingly expensive for the government.

Anwar Rodriguez, Anif’s vice president, points out that the additional 60 billion figure, roughly 5 points of GDP, is completely complicated. Bearing in mind that there has already been vigorous discussion about tax reform and a collection target of 25 billion pesos. He assured, “When there was talk of a reform that was going to raise GDP by about 5 points, we were emphasizing that it was practically impossible and the finances of 60 billion proposed by the President.” The sources of nutrition are no longer seen.”

According to the Medium Term Fiscal Framework (MFMP) data presented by Ivan Duque’s government, the central government’s net debt to meet strong impacts and needs increased from 48.4 percent of GDP to 60.6 percent of GDP in 2020 Gone. of pandemic COVID-19Its level for 2021 stood at 60.8 per cent of GDP, five percentage points below the 2021 fiscal framework forecast. And the level projected in July for 2022 was 56.5 percent of GDP. less than 60.5% of GDP 2021 Financial PlanAccording to the document.

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Luis Fernando Mejia, director of the Center for Economic Studies Fedesarolo, explains that the spending space for the government is determined in the fiscal structure. Medium term, through two elements. The first is the state’s ability to generate income, especially tax collection, which is the primary source. And the second is a restriction on the need to comply with the fiscal rule, a rule that forces the government to gradually reduce its public deficit to return to the level of public debt that existed before the pandemic.

“We must not forget that Colombia, in 2019, had a debt level of 50 percent of GDP. This year in 2022, debt will close at a level close to 60 percent of GDP, i.e. from pre-pandemic levels 10 points up, ”the economist insisted.

thus, Colombia today does not have the capacity or space to raise the level of public debt.Therefore, any additional public policy priority that requires additional resources must come from the reallocation of the nation’s current general budget, that is, from an increase in tax revenue, which allows funding for that additional space.

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Colombia is paying a relatively high risk premium and is currently borrowing for debt securities at a rate of 12%
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“It is worth reviewing that what is being proposed in the current tax reform can be used for the new priorities that President Petro is talking about now, all very valid, but currently public There is no room to raise the level of debt”, Mejia insisted.

that’s why he said It is important to continue on the path of complying with the deficit established by the fiscal rule, Strengthening revenue and prioritizing public spending without deteriorating the financial position of the coming government from the year 2021.

And that’s why Colombia is paying a relatively high risk premium and is currently borrowing for 10-year public debt securities (TES) at a rate of 12 percent.

This Friday, during an event of the Finance Minister, socialization of tax reform In Cali, he made a statement on the same lines, saying that “the financial framework will be presented at the end of the year and will follow the norms of fiscal rule. forces to do.

Inflexible spending slows down adjustment

Congress puts forward an agenda to make spending more efficient and fiscal adjustment viable.

photo:

Serge Steel. Time

Autonomous Committee on Financial Rules (Karf) asserted that the inflexibility of spending has in the past made it difficult to make fiscal adjustments that improve the allocation of public spending. For this reason, and given the high level of deficits and the need for funding, he considered it imperative that the government of Gustavo Petro and the Congress pursue an agenda to make spending more efficient and fiscal adjustment viable.

In particular, the experts recommended the promotion of a legislative and regulatory agenda that seeks to restructure public spending, to make it more flexible, the participation of the common system, the ICBF, the military, the future legitimacy and volume of sectors. The index of income of commodities directed to of spending with multiple executors such as roads, which receives allocations through institutions such as DPS, Invías, ANI and Adaptation Fund,

This year, out of every 10 pesos collected by the government, 30% will go on interest

This week, the Autonomous Committee on Fiscal Regulation (CARF) reiterated the call that, in line with proposals for the Medium Term Fiscal Framework (MFMP), the government would continue efforts to reduce its debt levels and, thus, fiscal deficit levels. .

According to Karf, “the level of fiscal deficit that has been observed remains very high” while describing it as “risky” that exacerbates the country’s financial needs.

The largest amount would be needed to finance the programmed fiscal deficit for the central national government, as well as those generated by the Fuel Price Stabilization Fund (FEPC).

“Fiscal deficits programmed for the central national government, as well as those generated by them” stabilization fund fuel prices (FEPC) will require the largest amount to be financed in the history of the nation”, the committee said.

In the document released by the team of experts, it was confirmed that public finance is on the limit, as 3 out of every 10 pesos of collection will be paid in interest in 2022, which is required to reduce debt, tax in line. with rules.

At the end of August, and according to data from the Directorate of Public Debt of the Ministry of Finance, the gross debt of the central national government (GNC) exceeded 804.9 billion pesos. In other words, it stood at 59.1 percent as a percentage of gross domestic product (GDP).

Faced with this situation, and following Caraf’s announcement, the finance minister, Jose Antonio Ocampo, said on Monday that debt was still “far below the threshold of 75 percent of GDP, and is expected to reach 55 percent.” A target. Unfortunately, due to the prevailing interest rates, it is very difficult to reach that target, but we are working on it,” the official assured.

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And he also highlighted that in its assessment, and despite comments on the situation facing the country, “the committee supported the government program, which we presented to international banks and the New York risk rating agencies.”

These meetings were held last week with the three main risk rating agencies, which according to Ocampo were positive as the image was left that the government has a very serious economic policy and it is apt to continue investing in the country.

In August, ahead of President Gustavo Petro’s inauguration, risk rating agency Fitch Ratings projected that the country’s fiscal deficit would shrink substantially over the next year, but also underscored what could happen in the medium term. There was uncertainty about the economy, as he believed that a large increase in social spending could lead to a bigger deficit if revenue underperformed.

You On public debt, reiterated that the debt-to-GDP ratio has increased by about 13 per cent. as a result of the pandemic (both the growth shock and the fiscal package), but said it would fall marginally in 2022 and stabilize at around 60 per cent in 2023.

In his report, Karf reiterated that tax reform resources should be factored into fiscal scenarios, bearing in mind that structural spending can only be financed by structural income.

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