Colombia Eases Fiscal Curbs in Revised Regional Funding Bill
(Bloomberg) -- Colombian lawmakers have lifted some restrictions on government spending in a controversial decentralization bill that’s already stoked concern among investors.
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The constitutional committee of Colombia’s lower house removed a requirement that the bill, which aims to transfer as much as 39.5% of central government revenue to regional authorities by 2039, must align with the government’s mid-term fiscal framework.
Instead, lawmakers included a stipulation that the reform shouldn’t “compromise the principle of fiscal sustainability,” according to a copy of the approved text seen by Bloomberg. The bill must still be approved by the full lower house.
The committee, which unanimously backed the changes with 28 votes, also removed a section that explicitly tied additional transfers and responsibilities allocated to regional authorities to corresponding reductions in central government spending.
Advisers to the interior minister will ask lawmakers to reintroduce proposals clarifying that the size of the central government will decrease as a result of the reform to avoid incurring additional fiscal costs, according to a person familiar with the discussions who requested anonymity because the new text of the bill hasn’t been made public.
Now that it’s been approved by the committee, the reform will return to the lower house to be debated in the first week of December. A final approval process will follow to reconcile any differences between the versions passed by the lower and the senate.
Colombian assets, including the peso and government bonds, have been selling off in recent weeks as investors worry the decentralization bill could further jeopardize Colombia’s fiscal outlook.
Central bank economists estimate that the reform would increase Colombia’s proportion of debt to gross domestic product to nearly 65% by 2038, or 10 percentage points more compared to a scenario without the bill.
(Updates with details and context beginning in 4th paragraph.)
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