Tendencia Económica No. 249

Abstract

Editorial: The primary objective of reforming the old-age protection system in Colombia is to address its current deficiencies. This involves expanding coverage, promoting greater equity, reducing the economic vulnerability of the elderly, and ensuring the sustainability of public finances in the short, medium, and long term. Consequently, the pension reform, in its version approved after deliberations in the Senate and the House of Representatives, marks significant progress in several respects. It broadens the coverage of the old-age protection system, eliminates the disparity between public and private schemes, and significantly reduces subsidies in the public system. However, at Fedesarrollo, we have called for necessary adjustments to mitigate the fiscal impact. These include setting limits on the number of weeks for differential treatment for women, refining the transition regime, and lowering the threshold for the public component. Each of these adjustments would help to alleviate the fiscal burden of the reform, especially in the face of an accelerated demographic transition that threatens the sustainability of pay-as-you-go systems like Colpensiones. Furthermore, it is essential to make parametric adjustments to the public component to ensure its sustainability in the medium and long term.

Actualidad:

On June 14, 2024, the national government published the Medium-Term Fiscal Framework for 2024 (MTFF 2024), outlining the country's fiscal policy roadmap for the next 10 years. Regarding the fiscal front, it is estimated that the Central Government’s deficit will reach 5.6% of GDP in 2024, aligning with the upper limit allowed by the Fiscal Rule. This deficit is 0.3 percentage points higher than the projections in the 2024 Financial Plan (FP2024), mainly due to lower revenue collection, which is offset by a primary spending adjustment of 1.9% of GDP. In the medium term, compared to the 2023 Medium-Term Fiscal Framework (MTFF 2023), a decrease in tax revenue of 1.2 percentage points is projected between 2024 and 2034. This decline is partially offset by a spending adjustment of 0.6 percentage points during the same period. As a result, the Central Government’s deficit is expected to be 0.5 percentage points higher during these years. Consequently, by 2026, the economy is anticipated to have experienced seven consecutive years with fiscal deficits exceeding 4% of GDP. A primary surplus is not expected until 2027, with compliance with the Fiscal Rule throughout this period.