The Autonomous Committee of the Fiscal Rule (Carf) issued several warnings to the Government in relation to the health and pension reform projectss in Colombia, as well as on the Fuel Price Stabilization Fund (FEPC), in order to maintain control of public finances.

(Also read: The new pulse of the private sector and the Government for the labor reform).

Although said committee will highlight some benefits of the pension reform project, such as the elimination of arbitration between the current regimes that operate in Colombia, the reduction of subsidies for high pensions and the expansion of coverage in the country, it also made a series of of recommendations to the Government in the sense of adjusting this initiative so that it has the least possible impact on fiscal sustainability.

One of the first suggestions points to the need to reduce the threshold of the Colpensiones contributory pillar to a minimum monthly salary from the three proposed by the project, This recommendation coincides with that of several experts and analysts, who believe that a lower threshold will undoubtedly have a much smaller impact on the pension deficit in the future.

In the opinion of the members of the Committee, accepting this proposal would represent a tax saving in the Net Present Value (NPV) of the reform close to 20 percent of the gross domestic product (GDP), some 300 billion pesos at today’s prices.

(You may also be interested in: Fears for the $24 billion that would reach Colpensiones and not the AFPs).

The same committee also warned about the need to save one hundred percent of the contributions that, if the project is approved, would go from the individual savings regime, private funds (AFP), to Colpensiones.

According to Asofondos calculations, these are monthly resources of the order of 2 trillion pesos, which translates to about 24 billion annually, corresponding to the savings of those who earn up to three minimum wages.

The members of the Autonomous Committee are also emphatic in suggesting to the Government that the resources that arrive at the Savings Fund are not used to finance the semi-contributory pillar, beyond what is quoted by the beneficiaries, but that, in addition, there are the necessary guarantees that said background is managed by professional managers, with appropriate incentives to maximize return on investments«.

They warned that «a drop of 1 percentage point in the return on the resources accumulated in the Savings Fund represents a higher cost of the reform of up to 12 percent of GDP and the Fund would run out 9 years ahead of schedule».

Health adjustments

In terms of health, the CARF was also clear in the recommendations made to the Government so that the impact of the reforms on this front are not large and put the country’s fiscal stability at risk, considering that, as the initiative is drafted , this will have an annual cost of between 4 and 7 billion pesos, according to estimates by the Government itself.

The supply scheme that is proposed to generate loss of capacity to limit the cost of health services.


Esneyder Gutierrez. TIME

In this sense, they identified five risks associated with the reform project that is being studied in Congress and that could increase its fiscal cost. The first of these is the cost of primary care, which can exceed
what is anticipated is important.

For the Committee, the proposed supply scheme generates a loss of capacity to limit the cost of health services due to lack of alignment of incentives between those who provide the service and those who pay for it; also considering insufficient capacity to manage resources in the regions.

(Be sure to read: ‘Exit from Corcho opened doors to negotiate’: Dilian Francisca Toro).

A fourth theme too points to the lack of capacity to manage risks inherent to the provision of the service that the Nation will assume in the proposed scheme, previously shared with the sector, while there are also risks for prior and full compensation for lawsuits alleging deprivation of legitimate activity.

fuel prices

In relation to the Fuel Price Stabilization Fund (FEPC), the Committee recommends that the Government continue its efforts to reduce the differential between the reference price of gasoline and its regulated price.

Consider that this will allow the reduction of the FEPC deficit from 36 trillion pesos in 2022, to close to 26 trillion this year, a figure that, however, continues to be very high for the Nation’s finances, so it must continue to be reduced.

Government evaluates differential gasoline rateThe government is considering the possibility of establishing a differential tariff for gasoline, which means that a different price would be charged depending on the geographical area or the economic circumstances of consumers.

«Fossil fuel subsidies are currently the most expensive subsidy program in charge of the Nation and more than double the totality of direct transfers to households in the country, in addition to being regressive. Rreversing or suspending the price correction policy not only jeopardizes compliance with the goals of the financial plan and compliance with the fiscal rulebut it would divert fiscal resources from other social and infrastructure programs, to the payment of these subsidies», warns the Carf.