This fiscal transparency evaluation (FTE) report assesses fiscal transparency practices in Colombia against the first three pillars of the IMF’s Fiscal Transparency Code. Fiscal forecasting and budgeting—Pillar II—is the strongest area in Colombia’s FTE. Half of the related indicators are advanced, mostly in the areas of: (1) orderliness of the legislative process and the adequacy of powers and information available to Congress; (2) credibility of economic and fiscal forecasts; and (3) medium-term forecasts and policy orientation. Fiscal reporting—Pillar I—and fiscal risk analysis and management—Pillar III—also reveal clear strengths. Fiscal reporting practices are advanced in terms of the coverage of fiscal institutions in fiscal reports and timeliness of annual financial statements.


This fiscal transparency evaluation (FTE) report assesses fiscal transparency practices in Colombia against the first three pillars of the IMF’s Fiscal Transparency Code. Fiscal forecasting and budgeting—Pillar II—is the strongest area in Colombia’s FTE. Half of the related indicators are advanced, mostly in the areas of: (1) orderliness of the legislative process and the adequacy of powers and information available to Congress; (2) credibility of economic and fiscal forecasts; and (3) medium-term forecasts and policy orientation. Fiscal reporting—Pillar I—and fiscal risk analysis and management—Pillar III—also reveal clear strengths. Fiscal reporting practices are advanced in terms of the coverage of fiscal institutions in fiscal reports and timeliness of annual financial statements.

I. Fiscal Reporting

Fiscal reports should provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance.

9. This chapter assesses the quality of fiscal reporting in Colombia against the principles set out in the first pillar of the IMF’s FTC. It focuses on the following four dimensions:

  1. Coverage of public sector institutions, stocks and flows;

  2. Frequency and timeliness of reporting;

  3. Quality, accessibility, and comparability of fiscal reports, and

  4. Reliability and integrity of reported fiscal data.

10. Fiscal reporting in Colombia is characterized by a multiplicity of reports produced by the three central agencies. The MHCP, Comptroller General of the Republic (CGR), and the General Accounting Office (CGN) are the main government agencies that publish fiscal reports on a regular basis. These reports, however, differ in their coverage of institutions, stocks, and flows, are prepared on different accounting basis, and are classified following different standards. Colombia’s main fiscal reports (Table 2) include:

  • Monthly budget execution reports produced by the CGR, compare budget estimates, adjusted appropriations and outturn of expenditures on a commitment basis, using the budget classification.

  • Monthly revenue collection reports published by the tax directorate (DIAN), present monthly tax collection on a cash basis by tax type.

  • Monthly investment reports published by the national planning department (DNP) on its website, present detailed analysis of the execution of investment budget.

  • Quarterly fiscal bulletins produced jointly by the MHCP General Directorate of Macroeconomic Policy (DGPM) and Central Bank (Banco de la República (BanRep)) and published by the MHCP, present a modified cash-based consolidated fiscal balance of the non-financial public sector (NFPS)—the main fiscal indicator used for policy analysis.5 The report also consolidates Fogafin (the government’s deposit insurance corporation) and the quasi-fiscal balance of the BanRep.

  • Quarterly debt management reports published by the General Directorate of Public Credit and National Treasury (DGCPTN), present detailed information on stocks and flows (issuance/redemption) of the central government debt, including breakdown by counterpart residency, currency, and maturity.

  • Annual state of public finance report produced by the CGR, presents an analysis of the macroeconomic environment and the government’s fiscal performance. The report contains revenue and expenditure data covering the central government, the social security operations, the subnational governments, the non-financial public corporations and the central bank. Revenue is compiled on a cash basis and expenditure on a modified cash basis.

  • Annual consolidated financial statements produced by the CGN based on the accounting data submitted every quarter by the various public entities through a web-based software system called CHIP (Consolidador de Hacienda e Información Pública).6 The statements are prepared on an accrual basis using the national accounting standards that are in the process of adapting to the international public sector accounting standards (IPSAS).

  • Annual public debt reports produced by the CGR present detailed information on stocks and flows (issuance/redemption) of the entire public sector debt, and its subsectors (central government, decentralized entities, subnational governments and public corporations). The report includes a debt sustainability analysis under different macroeconomic scenarios.

  • Annual government finance statistics (GFS) questionnaire (CAEFP) is jointly prepared by the MHCP and CGN and follows the Government Finance Statistics Manual (GFSM) 2014 presentation, using the bridge tables developed by the inter-sectorial commission on fiscal statistics (CIEFP) that map the national chart of accounts to the GFS codes.7 It includes the statement of operations and the balance sheet for the general government sector (GG). Additional statistical treatments are used to fill data gaps, for example, estimation of public investment through changes in stocks of fixed asset. Challenges, however, remain, particularly related to the economic classification of the accounting data.

Table 2.

Main Fiscal Reports

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Note: Fin = Financing, R =Revenue, E = Expenditure, A = Assets, L = Liabilities, M = Monthly, Q = Quarterly, S = Semiannual, A = Annual, M-cash = Modified Cash, Nat = National.

1.1. Coverage of Fiscal Reports

1.1.1. Coverage of Institutions


11. In 2015, the public sector in Colombia comprised 3822 institutional entities that together accounted for public expenditure equivalent to about 50.8 percent of GDP (Table 3). CIEFP maintains a comprehensive list of public entities that is updated on a quarterly basis and published on the CGN’s website. The list, called CUIN (Clasificación entidades según código Único Institucional), categorizes entities according to Government Finance Statistics Manual (GFSM) 2014 guidelines. The CGN publishes another list that groups the same entities following the national standards that are applied to the presentation of the budget and consolidated financial statements. Following CUIN, in 2015, the Colombian public sector included:8

  • Budgetary central government (BCG): comprising 102 executive, legislative and judicial bodies that include 23 ministries and departments, 7 agencies, 7 funds and 65 other public establishments (institutes, commissions, autonomous units, among others). The latter includes the UGPP, a pension fund covering public sector employees hired before Law 100 (1993) was enacted (see Box 1).

  • Extrabudgetary central government: comprising 140 entities, of which 6 are professional councils; 37 corporations; 38 national funds (including the coffee fund, the national housing fund, and the fund for economic emergencies – FOGACOOP); 25 institutes; and 17 universities.9

  • State and local governments: comprising 1,644 entities, of which 143 state-level budgetary and extrabudgetary entities (including 32 department administrations, 50 institutes, 16 universities and 45 other units) and 1501 local-level entities (including 1,103 municipalities, 36 municipal associations, 31 funds, 201 institutes and 130 other entities).

  • Social security sector: comprising 29 pension funds (including the general PAYGO system administered by Colpensiones and other pension funds for the military, police, the legislative branch and teachers); the health insurance system; and 9 health centers.

  • Public corporations:10 comprising 74 financial and 1822 non-financial corporations, including Ecopetrol - the Colombian oil company - and several municipal and departmental utility companies (electricity and water/sanitation) (See Section 3.3.2).11

Table 3.

Public Sector Institutions and Finances, 2015

(in percent of GDP, unless otherwise stated)

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Sources: Annual consolidated financial statements 2015; Annual GFS questionnaire 2015; Annual state of public finance report 2015; CHIP database; individual financial statements for public corporations; BanRep’s annual financial statements 2015 and staff estimates.

12. Colombia belongs to a select group of countries that publish financial statements covering the entire public sector. The annual financial statements prepared by the CGN consolidate the entire public sector, including the central bank, and are the basis for assessment of this indicator. The statements are presented in three volumes: (i) consolidated financial statements that include the public-sector balance sheet, a statement of operations, and notes; (ii) the national government financial statements consolidating all national-level entities; and (iii) financial statements at the subnational (territorial) level.

13. The 2015 financial statements covered 95 percent of public sector entities and 90 percent of public sector expenditures (Figure 4). The exclusions mainly related to a part of pension payments made by Colpensiones (Box 1) and investments undertaken by non-financial public corporations. While the budgetary transfers to the Colpensiones to bridge the gap between its income and expenditures are included, the subscriber contributions that Colpensiones received and payments it made to pensioners are not included. Investments are directly recognized in the balance sheet. These gaps can be filled with data available in other fiscal reports.

Figure 4.
Figure 4.

Coverage of Public Sector Institutions in Fiscal Reports

(in percent of expenditure)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: Staff estimates.Note: “Not Reported” refers to expenditures of units not consolidated in fiscal reports.

14. A weakness is the lack of harmonization of the definitions of subsectors, making it difficult to compare information across reports. Financial statements and budget execution reports follow national classification. Fiscal statistics follow old international standards (GFSM 1986) while the GFS questionnaire is aligned with GFSM 2014. Using different definitions of institutional subsectors undermines the utility of the reports for supporting the policy analysis and public debate. The absence of a cash flow statement is another weakness of the financial statements that needs to be overcome.

1.1.2. Coverage of Stocks


15. The consolidated balance sheet and the annual GFS questionnaire provide detailed information on both financial and non-financial assets and liabilities, as well as net worth of all subsectors. Colombia’s balance sheet comprises most financial and non-financial assets (including natural resources) and liabilities. The 2015 balance sheet provides a detailed breakdown of the public sector assets and liabilities:

  • Non-financial assets amount to 52 percent of GDP, including 5.7 percent of GDP in subsoil assets (oil, gas and minerals) and 33.2 percent of GDP in buildings, structures, and land.

  • Financial assets are estimated at 89.6 percent of GDP, including 24.6 percent of GDP in debt securities, mainly BanRep holdings related to international reserves, 18.4 percent in shares and equity of corporations, 9 percent of GDP in currency and deposits, and 29.9 percent of GDP in accounts receivable.12

  • Reported liabilities amount to 112 percent of GDP, including 38 percent of GDP in debt securities, 14 percent of GDP in loans, and 27.7 percent of GDP in accounts payable.

  • Net worth and net financial worth are reported at 29.6 percent of GDP and - 22.4 percent of GDP, respectively.

16. However, the public sector balance sheet published by CGN does not reflect fully all government assets and liabilities, and their true value (Figure 5). The main differences arise because, in the financial statements:

Figure 5.
Figure 5.

Public Sector Balance Sheet Coverage in Fiscal Reports, 2015

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

  • Pension liabilities are not fully recorded (see Box 1). Following international standards, all future pension payments under employment-related pension schemes should be recorded as direct liabilities. The balance sheet reports only part of the pension liabilities related to public service pension schemes prior to the 1993 reform (the so called “Régimenes Empleadores and UGPP”). The CGN’s resolutions 633 determined the gradual incorporation of these liabilities to the balance sheet, in a process to be concluded by 2029. In 2015, almost half of the liability was recorded (5.9 percent of GDP). The other half (6.7 percent of GDP) was reported as a memorandum item.

  • Financial liabilities related to PPPs are likely underreported. The balance sheet reports limited information on PPP liabilities since Colombia still does not fully comply with IPSAS 32 methodology.13 Agencia Nacional de Infraestructura (ANI), the main infrastructure agency that operates PPP contracts, is working to adopt international accounting standards for the fourth generation (4G) PPP contracts, awarded from 2015 onwards. The third-generation contracts (3G, from 2011 to 2015) will also have their accounting records reviewed in line with IPSAS 32; however, the accounting of the first and second (1G and 2G) generation of contracts, awarded up to 2011, will not change (Section 3.2.4). The size of this gap is estimated to be 1.4 percent of GDP.

  • Buildings, structures and other fixed assets are recorded at historical cost. The valuation method recommended by the GFSM is market value, which can potentially alter the non-financial asset position. The MHCP is conducting an inventory of central government fixed assets to better evaluate the current condition of these assets and update their accounting records accordingly. Law 42/1993 (article 107) requires every public building to be insured against liability for loss or damage to property; such insurance contracts could be used to support a proper valuation of assets. The mission’s computation (Table 1) does not consider the effect of market valuation of these assets.

17. The CGR’s audit findings regularly indicate under- and/or over- estimation of assets and liabilities. These findings led to an adverse opinion on the 2013 accounts and to an abstention on the 2015 accounts. In 2015, it found net underestimation of assets (1.2 percent of GDP) and liabilities (1.6 percent of GDP). The inconsistencies (both underestimation and overestimation) affected several items in the balance sheet. Most noticeable were those related to tax receivables and litigation.

18. Taking a more comprehensive view of the public sector balance sheet would slightly worsen the reported fiscal position. Initial estimates of the fully consolidated public sector balance sheet suggest an estimated negative net financial worth of around 30.5 percent of GDP and a net worth in 2015 of about 21.5 percent of GDP, comparable to Peru (Figure 6). This change in the reported fiscal position is mainly due to the inclusion of pension and PPP-related liabilities in the balance sheet. A re-evaluation of some of the main assets and liabilities (e.g., fixed assets, pension liabilities) and assessment of PPP-related liabilities is needed to fully reflect Colombia’s fiscal position (Figure 7). For example, a probability-based analysis (building on historical recovery trends) could be performed to better assess the value of accounts receivables.

Figure 6.
Figure 6.

Public Sector Net Worth in Selected Countries

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: FTEs.
Figure 7.
Figure 7.

Public Sector Gross Liabilities in Selected Countries

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

The Colombian Pension System

The Colombian pension system is rooted in a complex set of legislations. The Constitution of Colombia (Art. 48) defines the broad contours of the system, making the pension benefits universally available subject to meeting stipulated conditions. Law 100/1993 introduced the general pension system (Sistema General de Pensiones), which was modified by subsequent legislations – principally, Law 797/2003 that removed the exception granted to the Ecopetrol employees; Law 812, also of 2003, that brought teachers under the general pension system; and Law 923/2004 that reformed the scheme applicable to the armed forces and aligned it with Law 100/1993. Further, the Legislative Act 01/2005 amended the Constitution, integrated the various pension schemes that were in operation then, and removed the possibility of any special regimes as well as collective bargaining. Act 01/2005 also stipulated an end to all transitional arrangements by 2014. The system cannot be modified, except by the Congress through a Legislative Act.

The law makes affiliation mandatory for formal workers who have the option to select one out of two alternative schemes, and to switch from one to the other under certain conditions. The system covers both private and public sector employees under equal terms. The two schemes are:

  • Régimen de Prima Media – RPM: a public defined-benefit scheme operated almost entirely by Colpensiones, a public financial corporation. This scheme is funded by contributions calculated as a fixed percentage (16 percent) on the worker’s wage, of which three-fourth is borne by employers and one-fourth by employees. The scheme operates on a PAYGO basis. Contributions received by Colpensiones, and other administrators, are used to meet the payment obligations of pensioners. Shortfalls are met by the government with budgetary transfers. While the legislative Act 01 of 2005 brought all PAYGO pension funds under the overall umbrella of the RPM (within the general pension system), special entities continue to serve certain categories of subscribers (e.g. military and police).

  • Ahorro Individual con Solidaridad: a defined contribution individual capitalization scheme operated by private financial corporations (AFPs). The contribution rate is the same as in the RPM. Pension is paid out of the stock of resources accumulated in the individual account of the beneficiary over the working life.

In addition, there are schemes covering specific categories of public servants that are mainly covered by the central government budget:

  • Régimenes Empleadores: these schemes cover civil servants who entered the public service before 1993. These are non-contributory schemes, administered by the employing government agencies, which pay pensions partly from the general budget. Régimenes Empleadores also covers the pension liability component corresponding to collective bargaining agreements in force prior to the 2005 legislative act.

  • The UGPP (Unidad de Gestión Pensional y Parafiscales) manages pensioners belonging to entities falling under the employer’s pension regime that were subsequently dissolved.

The total actuarial pension liability in Colombia, considering the general pension system, Régimenes Empleadores and UGPP, reached COP 839 trillion (104.7 percent of GDP) in 2015.

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According to GFSM 2014, the statistical treatment of pension schemes depends on whether the scheme is contributory or not, whether it is a defined-benefit or defined-contribution, and whether it is a social security or employment-related scheme. For defined-benefit schemes, the statistical treatment depends on the type of beneficiaries: when the beneficiary is the general population, or a large segment of the general population, the scheme is considered a social security scheme; whereas if individuals, households, or a group of employees are eligible to receive social benefits, the scheme would be considered an employment-related social insurance scheme. Under social security schemes, the link between benefits and contributions is not considered sufficiently strong to give rise to a financial claim on the part of contributors. As a result, no liabilities are recorded, but an estimate equal to the net implicit obligations for future social security benefits should be presented as a memorandum item to the balance sheet. Employment-related pension schemes are, on the contrary, considered to involve a contractual liability towards employee and registered as liabilities.

According to this criterion, the actuarial liabilities of the Régimenes Empleadores and UGPP would be recognized in the financial statements of the public sector as firm liabilities. The treatment of entities serving armed forces, teachers, and Congress staff requires a complex interpretation of their legal status. Per the Constitutional requirements, viewing these as administrative arrangements within the general pension system-designed to service certain large group of beneficiaries more efficiently, would imply that the actuarial liabilities of the entire general pension system (92.1 percent of GDP) are treated as contingent liabilities and disclosed in the financial statements.

Source: Annual Consolidated Financial Statements, 2015, on GFSM 2014 basis.

1.1.3 Coverage of Flows


19. The incomplete accrual recording, and the absence of a cash flow statement to accompany the consolidated financial statements, implies that Colombia does not meet the most advanced practices under the FTC. Fiscal reports mainly used for policy decisions are prepared on a modified cash basis while financial statements, although on accrual basis, are not complete. Annual financial statements cover accrual flows, including accounts payable/receivable, depreciation of fixed assets, and other economic flows (revaluations, exchange rate variation), but major omissions are social contributions to the PAYGO pension scheme and pension payments made by Colpensiones.

20. While most of cash to accrual adjustments can be obtained from the annual statements, some relevant accrued flows are not reported. Cash to accrual adjustments for each subsector (central government, social security, regional governments, and corporations) are derived by comparing revenue and expenditure figures from the accounts and the fiscal statistics. Nevertheless, important accrued flows related to pension liabilities (Régimenes Empleadores and UGPP) and PPPs are partially reported in the statements. Initial estimates, based on limited data, suggest the accrual of pension liabilities amounts to 2.0 percent of GDP every year and the annual investment in PPP could reach 0.8 percent of GDP (Table 4).

Table 4.

Cash to Accrual Adjustments

(Percent of GDP, unless otherwise stated)

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Sources: Fiscal statistics; Annual consolidated financial statements 2015 and staff estimates.

21. Recognizing these additional accrued expenses would increase Colombia’s public sector deficit. On an accrual basis, the NFPS deficit would reach 7.4 percent of GDP, 4 percentage points higher than currently reported in fiscal reports. Expanding the coverage to include the financial corporations would reduce the deficit by 0.9 percentage point. Finally, incorporating the two major unreported accrued flows (pension entitlements and PPP contracts) would turn the public sector net lending/borrowing into a deficit of around 9.3 percent of GDP.

22. Apart from cash to accrual adjustments, some important flows across subsectors are not identified in the current fiscal reports. Central government transfers to pension funds, such as Colpensiones, and to the health insurance system are not explicitly reported. These flows are consolidated into a recurrent expenditure line item in the quarterly fiscal bulletin (Cierre Fiscal), making it difficult to reconcile the figures reported by Colpensiones and the health system. Such transfers amounted to around COP 20 trillion in 2015 and are expected to grow in the coming years. Fiscal reports would improve in transparency if these transactions were fully disclosed in additional tables.

1.1.4. Coverage of Tax Expenditures


23. Annual estimates of the main tax expenditures of the central government are published in the MFMP (Figure 8). Each tax expenditure is analyzed by category of expenditure (e.g., credit, deduction), by economic sector (e.g., education, construction) or by legal beneficiaries.14 In 2015, estimated revenue losses from tax expenditures amounted to about COP 62,392 billion (7.8 percent of GDP or 54 percent of tax revenue) higher than in most neighboring countries (Figure 9). The losses are concentrated in finance and insurance activities, energy and mining industries, and general tax expenditures that apply to public administration, defense and social security. The quantum of tax expenditures has been increasing in recent years. For example, according to MFMP, the fiscal costs of VAT exclusions increased by more than half during the five-year period between 2011 and 2015.

Figure 8.
Figure 8.

Tax Expenditures, 2015

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: MFMP 2016.
Figure 9.
Figure 9.

Tax Expenditures in Selected Countries

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: IMF Fiscal Monitor April 2011 and UK FTE.Note: All estimates are for 2010, except when stated otherwise.

24. Introducing explicit controls and budgetary objectives for the size of tax expenditures would bring Colombia in line with advanced practices. Tax expenditure estimates cover the central government only and have no explicit budgetary limit. They do not cover taxes levied by subnational governments, which remain unquantified. In addition, most tax expenditures related to income tax and value-added tax (VAT) are not subject to any time limit. Moreover, time limits, where imposed, can be extended by law. The authorities have, thus, experienced difficulties capping the growth of tax expenditures.

25. The government’s estimates of tax expenditures could be improved to support cost-efficiency analyses. A recent study by the World Bank identified more than 200 separate tax expenditures in Colombia, and also assessed their value-for-money.15 The number of tax expenditures has grown substantially in recent years without a thorough ex-ante or ex-post analysis of their total fiscal cost, or an evaluation of their economic impact. In addition, the cost analysis conducted within the MFMP is a static one and does not account for behavioral changes that may result from the deductions or exemptions provided through the tax system. To facilitate decisions between using the tax system or direct subsidies to achieve policy objectives, the government could consider generalizing its use of cost-efficiency analysis. The comparative cost of using tax expenditures or direct subsidies should also be assessed.

1.2. Frequency and Timeliness

1.2.1. Frequency of In-Year Reports

Not Met

26. Several in-year reports are produced by the various general directorates of the MHCP but none meets the coverage and timeliness required under the FTC. The quarterly fiscal reports produced by the DGPM are the only in-year reports providing a comprehensive view of the revenues, expenditures and financing. The DGPM produces these reports both for the central government and combined public sector operations. The reports are produced on a quarterly basis but with a lag of more than a quarter. The timeliness of these reports is affected by the time taken in the reconciliation of above-the-line deficit and below-the-line financing figures obtained from the Central Bank, which needs to be addressed by further strengthening the cooperation between the MHCP and Central Bank. Other reports, such as the monthly reports by the General Directorate of National Budget (DGPPN) on the execution of the expenditure budget, DIAN’s reports on tax collections, DGCPTN’s quarterly debt reports, DNP’s reports on the execution of investment projects, are brought out at a higher frequency and score better on timeliness, but provide only a partial view of the fiscal operations.

1.2.2. Timeliness of Annual Financial Statements


27. The Constitution (Article 354) requires submission of the audited consolidated financial statements within six months of the end of the fiscal year. To meet this deadline, the CGN is required to submit the consolidated financial statements to the CGR latest by May 15 every year. These dates are met invariably. The CGR’s report is placed before Congress when it convenes in July. The financial statements are published simultaneously on the CGN’s website and the audit report on the CGR’s website.

1.3. Quality

1.3.1. Classification

Not Met

28. The lack of a harmonized classification system based on international standards remains a major weakness and impedes the government’s ability to produce quality fiscal information on a comparable and consistent basis during the annual fiscal cycle. There is no consistent application of economic, functional or program classifications that meets international standards. In compliance with the requirements of the Organic Budget Law (Law 38, 1989; Article 7 and 23) the budget is classified by institutions and economic nature of expenditure. For each institution, the budget is broken down into three broad components: operational, debt service and investments. The operational budget is further classified by economic types using a hierarchical structure with increasing granularity. The investment budget is classified by programs, sub-programs and projects, but an economic classification of programs/projects is missing. A functional view of expenditure—using 12 functions—is also provided in the budget documents. The functional classification broadly corresponds to the Classification of Functions of Governments (COFOG) at a higher level, but deviates at lower levels. There is no reporting of budget execution by functions. The monthly budget execution reports and the quarterly fiscal balance reports produced by the MHCP follow the budget classification. The financial statements follow a different classification structure, which is designed to meet the requirements of the accounting standards. A bridge table is used to map the accounting classification to the classification used in the GFSM.

29. Recognizing this weakness, the authorities have started a project to harmonize the classification systems used by different agencies. The MHCP-led CIEFP is tasked to propose policies and strategies that will enable the harmonization of fiscal statistics and the application of consistent, and homogeneous methodologies compatible with international standards on data dissemination and transparency. Based on a 2015 diagnostic study, an action plan has been developed. Technical working groups have begun working on six important areas: sectoral classification of entities; harmonization of classification systems; measurement of public debt; identifying the boundaries of the social protection sector; developing an integrated budget and accounting classification for the territorial entities; and consolidation of accounts.

30. While full harmonization would appear to be a medium-term objective, early achievements indicate good progress. A notable accomplishment has been the establishment of a Bureau, led by the CGN and supported by the National Statistics Department (DANE) and MHCP, for developing a classification of public sector institutions. A comprehensive list of public entities, categorized in accordance with the GFSM 2014, has been developed and coded using a unique identifier (CUIN). A new economic classification of budget, aligned with the GFSM 2014 and IPSAS, has been drafted, and will be embedded in the financial information system (SIIF) for a uniform application. Work is in progress on developing a unified classification structure that will harmonize the budget and the financial and statistical reporting. A policy note is being developed for submission to the National Council for Economic and Social Policy (CONPES) during the second half of the year 2017. Once approved, the note will serve as the framework for organizing and managing public financial management information.

1.3.2. Internal Consistency


31. The fiscal reports present two of the three reconciliations demanded by this indicator. The quarterly fiscal reports present a reconciliation of the above-the-line deficit with below-the-line financing figures obtained from the central bank. Discrepancy between the two measures is reported as “statistical discrepancy” (Table 5), which has been significant in some years, and needs more rigorous reconciliation. The quarterly debt reports contain data on the debt issued during the period and the opening and closing stock positions. The reconciliation of debt issuance and stock can be derived from this information, although it is not explicitly presented. The presentation in this report could be enhanced by including a table that shows changes in debt stock due to transactions during the period and valuation changes, including those due to exchange rate variation. There is no report that reconciles financing with debt stock.

Table 5.

Reconciliation Between Deficit and Financing (COP Billions)

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Source: MHCP.

1.3.3. Historical Revisions


32. Major revisions to fiscal data are disclosed, but no further explanations or bridge tables between old and new figures are provided. Revisions are reported in a short section—Fe de Erratas—in the quarterly fiscal bulletin (Cierre Fiscal), but without an explanation of the changes. Such revisions have, however, had a minor impact on the final fiscal balance. The MHCP updates retroactively its online databases containing fiscal aggregates. Fiscal statistics are also updated as they move from provisional to final status; however, in this case, the changes are not reported. To date, no revision has affected the compliance with the fiscal rule.

1.4. Integrity

1.4.1. Statistical Integrity


33. Fiscal statistics have been disseminated in line with IMF’s Special Data Dissemination Standards (SDDS) since 2000. Colombia subscribed to the SDDS in 1996 but met all SDDS requirements only in 2000. Fiscal data reported under the SDDS framework are the same as those released in the quarterly fiscal bulletin (Cierre Fiscal).

34. More recently, Colombia has been submitting data to the IMF’s GFS Yearbook under the GFSM 2014 reporting format; however, there is room for improvement in compliance with the GFSM guidelines. The accuracy of the CGN’s compilation procedures is limited by the structure of the chart of accounts and current accounting practices. Furthermore, the CGN does not perform consistency checks in a systematic manner; such checks would lead to improvements in the classification of units and/or statistical treatments of operations, particularly the reciprocal transactions within subsectors. Checks should be undertaken against other sources of fiscal data, i.e., external sector and monetary statistics, national accounts and cash-based fiscal statistics compiled by the DGPM.

35. Entrusting the responsibility to produce fiscal statistics to a specific government agency, and if possible to a professionally independent body, would be in alignment with international good practice, and result in a higher score under the Code. An important element in statistical integrity is the professional independence of the agency responsible for producing fiscal statistics that will allow it to produce reliable statistics.16 Multiplicity of agencies compiling and publishing fiscal data using different data sources, methodologies and reporting practices, can create confusion, and be detrimental to transparency objectives.

36. CIEFP has been working to improve the inter-agency coordination. The committee should receive strong institutional support and must have access to all resources needed to carry out its activities. Regarding the medium-term action plan, priority should be given to integrating budget execution and accounting by: i) harmonizing the chart of accounts and codification of both systems; and ii) ensuring full interoperability between SIIF and CHIP.

1.4.2. External Audit


37. The CGR—the supreme audit institution—has not been in a position to certify financial statements in two recent years. In 2015, while the CGR certified the reasonableness of the treasury balance, it abstained from providing an opinion on the consolidated financial statements due to the lack of adequate evidence to judge the reasonableness of several accounts. A large proportion of entities received qualified opinion, pointing to control weaknesses in these entities. During the year, the CGR audited 95 entities representing 87 percent of the total public sector assets. Of these, over half (49)—representing 46 percent of the total assets and 27 percent of total liabilities of the 95 audited entities—received a qualified or adverse opinion. Another major issue was the lack of adequate explanation of the changes in the financial statements due to the adoption of new accounting standards (Resolution 743 of 2013) for the public listed companies. The CGR also commented on large accounts payable, including those pertaining to the government pension fund administrator (Colpensiones), weaknesses in the consolidation process that resulted in large unreconciled related-party balances (COP 43.2 trillion), and incorrect representation of assets (net underestimation by COP 9.7 trillion) and liabilities (net underestimation by COP 12.9 trillion). In 2013, the CGR gave a negative opinion on the accounts for similar reasons.

The Comptroller General of the Republic (CGR)

The CGR is an independent organ of the State. The Political Constitution of 1991 (Article 267) empowers the CGR to exercise “fiscal control” by way of overseeing the overall fiscal management and that of the individual public entities. The Constitution recognizes the technical character of the CGR, grants it administrative and budgetary authority, and prevents it from taking on any administrative functions other than those pertaining to its own organization. The CGR is elected by the Congress during the first months of the legislative session for a four-year period from a list of three candidates, one each nominated by the Constitutional Court, the Supreme Court of Justice, and the State Council. The CGR cannot be reelected for a second term, and cannot hold any other public office at the national level, nor contest general election until one year following retirement. Only the Congress has the authority to accept a CGR’s resignation.

The Constitution provides a wide mandate to the CGR, as part of which the CGR submits several reports to Congress. The mandate, among other things, includes: prescribing the methods and form for rendering accounts, reviewing and closing the accounts of the public entities and to determine the level of efficiency, effectiveness, and economy with which they performed; keeping a record of the public debt of the nation and its territorial entities; establishing accountability for financial management and where necessary imposing financial sanctions. In exercise of these functions the CGR routinely audits the accounts of the national and territorial public entities. The CGR’s reports to Congress include an annual report on the budget execution containing its opinion on the reasonableness of the treasury balance and the CGR’s views on the consolidated financial statements prepared by the CGN. The CGR expects to complete its adoption of the international organization of supreme audit institutions (INTOSAI) auditing standards by 2018.

The 2015 Open Budget Survey gave very high marks to the independence and effectiveness of CGR.

Source: Colombian authorities.

38. Aiming to modernize its accounting practices, Colombia is undertaking a gradual transition to IPSAS. The CGN published in 2013 an action plan to adopt International Public Sector Accounting Standards containing an implementation schedule up to 2019.17 The transition is gradual for the different types of public entities, incorporated corporations, non-incorporated corporations and general government units. The CGN issued three resolutions in the period 2013-2015, establishing the new accounting standards for these entities. The first, Resolution 743/2013, became operational in 2015 for the incorporated public corporations. Resolution 414/2014 came into force in 2016, and applied the international standards to the unincorporated corporations. The implementation for the general government units, originally scheduled to take effect in 2018, has been postponed to 2019 (Resolutions 533/2015 and 113/2016). It is expected that on successful completion of transition, the accounts will present a more consistent and credible position in accordance with international standards.

39. Strengthening of internal controls, particularly at the sub-national level, would be important to improve the quality of the financial statements and to avoid the recurrence of audit qualification. The nature and recurrence of audit observations point to possible control weaknesses. The large and increasing number of entities receiving such qualification should be a matter of concern. Strengthening controls would require improving procedural weaknesses, if any, addressing capacity constraints, providing better guidance and documentation, and stronger accountability arrangements. More specifically: interoperability between CHIP and information systems used by the subnational entities, including the public corporations at the subnational level, should be improved; universal introduction of financial information systems at the subnational levels should be pursued further; and data validation and controls in CHIP should be improved.

1.4.3. Comparability of Fiscal Data


40. Fiscal reports in Colombia score low on comparability. Reports are prepared by different agencies with divergent institutional coverage, accounting base and methodology, and classification. There are at least three distinct reporting plans:

  • Reports, such as the MFMP, quarterly fiscal bulletin, and the annual compliance report, focus on fiscal aggregates broken down by sub-sectors. The definitions of subsectors and the economic classification follow old international standards (GFSM 1986).

  • The annual budget, the DGPPN’s monthly budget execution reports, the DNP’s monthly report on the execution of investment projects, and the CGR’s annual and in-year reports on the budget execution follow the budget classification.

  • The CGN’s annual financial statements are prepared on an accrual basis using the accounting classification with a view to meeting the requirements of the accounting standards, and used for compiling GFS data.

Due to the coverage and methodological differences, the deficit figures, as well as other main fiscal aggregates disclosed in these reports, differ from each other (Table 6).18 Likewise, the debt reports produced by the CGR and the MHCP differ in their coverage.

Table 6.

Comparison Between DGPM and CGR Fiscal Statistics

(Percent of GDP, unless otherwise stated)

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Source: Quarterly fiscal bulletins and Annual State of Public Finance report 2015.

41. Improving comparability of reports would require presenting reconciliation tables for the main fiscal aggregates between the different reporting plans. The financial statements could include a reconciliation of main aggregates with the annual fiscal bulletin. Similarly, the GFS and the CGR’s budget execution reports should present a reconciliation with the outturns reported in the fiscal bulletin, and should reconcile with the annual financial statements.

1.5. Conclusions and Recommendations

42. Colombia’s fiscal reporting meets good and advanced practices in several areas. A major strength is the accrual-based annual financial statements that consolidate the entire public sector, and are available within six months of the year-end. Globally, few countries have achieved such a high level of consolidation. By adapting gradually its national accounting standards to international accounting standards, Colombia has made impressive progress in bringing the public sector liabilities and assets, including sub-soil assets, on its balance sheet. The audit of the financial statements by an independent and professional audit institution is another major institutional strength. The disclosure of tax expenditures complements the financial statements, and facilitates a more comprehensive policy analysis.

43. A key weakness, however, is the lack of a well-developed and harmonized classification system which limits the comparability of fiscal reports and constrains their analytical use. A classification system that is aligned with international standards is essential to the richness of information captured and reported in fiscal reports, and central to a robust reporting system. CEIFP has made impressive progress in further developing the budget classification and harmonizing the various classification systems. This is an important reform that, once completed, will significantly enhance the capability of the reporting system and enhance the quality, consistency and comparability of reports.

44. Another major weakness is the delay in publishing a comprehensive in-year fiscal report to support monitoring and policy analysis. The quarterly fiscal bulletin, the only report that provides a comprehensive view of fiscal operations, needs to be compiled and published at least within three months of the reference period, if not earlier, if it is to be relevant as a monitoring and decision-support tool. Over the medium term, the aim should be to build capacity to produce this report every month, within one month of the reference period.

45. Although financial statements are well developed, there is a need to improve their methodological rigor, and achieve full compliance with international standards. Partial recognition of pension and PPP-related liabilities results in the balance sheet understating liabilities by 8.1 percent of GDP. Similarly, the operating statement excludes significant flows relating to the public pension scheme and the annual accrual of pension liabilities. As a result, the deficit remains underreported. A complete coverage of stocks and flows, and their recognition and measurement in accordance with international standards, would further enhance the credibility of the financial statements and their utility as an accountability and analytical tool, besides contributing to greater transparency.

46. The integrity of fiscal reports scores low, but improving it does not present a major challenge. Simple technical improvements, such as systematically applying consistency checks, explaining major revisions to historical data, and reconciling key aggregates in reports not prepared on a comparable basis, would address these concerns.

47. Based on the above assessment, the FTE highlights the following priorities for improving the transparency of fiscal reporting:

  • Recommendation 1.1: Continue the reforms initiated to develop a harmonized classification system. As a first step, the national government budget and accounting classifications should be unified, and the economic classification should be further deepened and consistently applied in budget formulation and execution. This will improve the content of the budget execution reports, and allow the production of the central government financial statements on a comparable basis. Embedding these changes in the transaction processing system will, however, be a major challenge, and could be disruptive, if not managed well. Subsequent reforms will involve harmonizing the economic classification with the classification used for compiling fiscal and national account statistics, unifying and standardizing classifications used by the territorial-level entities, and making them compatible with the national chart of accounts. The harmonization will enable a smooth conversion of data from one format to another, improving the consistency and comparability of reports.

  • Recommendation 1.2: Improve the timeliness of the quarterly fiscal bulletin. As a first step, the MHCP should publish a reporting calendar with responsibilities assigned to its general directorates for publishing respective reports by their due dates. The central bank should be asked to provide the financing data on a more timely basis. To fill the reporting gap, the MHCP could also consider reviving the monthly central government fiscal balance reports.

  • Recommendation 1.3: Complete the transition to international accounting standards, and aim for achieving full compliance in a timebound manner. The main items for refining the accounting and consolidation methodology would be: recognition in the operating statement of flows relating to the PAYGO pension scheme; recognition in the balance sheet of all employee-related pension liabilities and PPP-related liabilities; and improving the valuation of assets and liabilities in accordance with international standards. To facilitate consolidation, an information base on related-party transactions could be developed. Strengthening internal controls, particularly at the subnational level entities, is important to enhance the data quality submitted by them. Successful implementation of the classification reforms should also benefit the financial statements, particularly in meeting consolidation challenges by making it easier to identify counter-party information. Overall, these improvements will enhance the credibility of the financial statements.

Table 7.

Summary Assessment of Fiscal Reporting

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II. Fiscal Forecasting and Budgeting

Fiscal forecasts and budgets should provide a clear statement of the government’s budgetary objectives and policy intentions, and comprehensive, timely, and credible projections of the evolution of the public finances.

48. This chapter assesses the quality of Colombia’s fiscal forecasting and budgeting practices against the standards set by the FTC. In doing so, it considers four key dimensions of fiscal forecasting and budgeting based on publicly available information (Table 8):

  • The comprehensiveness of the budget and associated documentation;

  • The orderliness and timeliness of the budget process;

  • Policy orientation; and

  • The credibility of the fiscal forecasts and budget proposals.

Table 8.

Fiscal Forecasting and Budget Documents

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Source: Authorities, FAD staff.

2.1. Comprehensiveness of Budget Documentation

2.1.1. Budget Unity


49. The budget process in Colombia is highly fragmented with four separate types of budgets:

  • The central government budget (PGN) incorporates the gross revenues, expenditures, and financing of central government ministries and agencies; approved by Congress.

  • The royalties budget (Sistema General de Regalias, SGR), covering the receipt and allocation of natural resource revenues, approved by Congress every two years;

  • The budgets of subnational governments (comprising governorates, departments, and municipalities) approved by local legislatures; and

  • The budgets of 29 public corporations that are approved by the Supreme Council for Fiscal Policy (CONFIS).

50. Although Colombia is a unitary state, a sizeable proportion of public spending is carried out by the regional and local administrations through two separate funds. Given their limited tax capacity, states and municipalities are heavily reliant on funding by the two national resource sharing systems, the Sistema General de Participation (SGP) and the SGR, which transfer approximately 10 percent of GDP in resources to subnational governments. The SGR draws its revenues from oil and other natural resources. State and local governments account respectively for around 10 percent and 20 percent of total general government expenditure (net of intra-government transfers). Non-financial public corporations are an important component of the Colombian public sector, with over 15 percent of the GDP in expenditure, half of which is by Ecopetrol, and about one-third of which pertains to hospitals and health service providers.

51. No information on the revenues or spending of extrabudgetary units is included in the budget documents. The PGN excludes some 111 extrabudgetary units (EBUs), which represent about 10 percent of total revenues and spending by the central government (Table 9).19 These entities include a wide range of regulatory bodies, research and training institutions, government commissions, and entities delivering public services.20 The reporting of their financial conditions and performance is variable, and is not included with budget documentation: some publish quarterly and annual reports, but many only report on an annual basis. In addition, some ministries, agencies and EBUs receive revenues that are earmarked for specific purposes (e.g., road maintenance, hospital expenses, educational fees). Earmarked revenues account for some 7 percent of total central government revenues, and full information is disclosed in the budget documents.21 The social security system (healthcare, retirement pensions) is also outside the PGN, apart from annual transfers made by the government to meet any deficit in social security contributions. The MFMP includes a chapter on social security finances. The government also publishes a half-yearly social security bulletin that provide more in-depth analysis of the social security system.

Table 9.

Extrabudgetary Spending by Central Government Units

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Source: MHCP.

2.1.2. Macroeconomic Forecasting


52. Colombia’s fiscal and budget documentation provides a clear and comprehensive analysis of the key macroeconomic forecasts and assumptions underlying the budget. The MFMP includes forecasts of key macroeconomic aggregates (including GDP, inflation, current account balance, and commodity prices) ten years ahead. These forecasts are consistent with the projections and assumptions developed in the National Development Plan (PND), which has a four-year time horizon. The MHCP also presents the government’s Financial Plan for the next budget year. Along with the Annual Operating Investment Plan (POAI) and the national budget (PGN), the Financial Plan is one of the government’s main budgetary tools22 and covers the consolidated public sector (Article 6 of Decree 111 of 1996). The MFMP is generally updated in the second half of the year whereas the Financial Plan is first presented in December, and usually revised in March (Section 2.3.1).

53. Although relatively accurate, both Colombia’s one year-ahead and medium-term GDP growth forecasts tend to show an optimistic bias in recent years. The mean deviation of real GDP forecasts one year ahead was only 0.1 percentage points between 2009-2016 but 1.0 percentage points between 2012-2016.23 The government’s one-year-ahead forecasts of real GDP growth have hence been relatively accurate, although more optimistic than the forecasts of the central bank, the international financial institutions, and independent agencies in recent years (Table 10). Projections of real GDP over the medium term also show a slight optimistic bias (Figure 10), partly explained by the unforeseen oil price shock in 2015.

Figure 10.
Figure 10.

Evaluation of Macroeconomic and Fiscal Forecasts, 2009-2016

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source. MHCP, FAD staff calculations.
Table 10.

One-year-ahead Forecasts of Real GDP Growth, 2013-2015 (percent)

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Source: FAD staff.

54. Inflation forecasts rely mainly on the central bank’s mid-range inflation target over the medium term, and have tended to underestimate inflation in recent years. The average deviation of inflation forecasts one year ahead was minus 0.8 percentage points between 2009-2016 and minus 1.5 percentage points between 2013-2016. Revenue forecasts also exhibit a recent optimistic bias (averaging about 0.6 percent of GDP in the past three years), but forecasts of spending by the central government one year ahead have been reliable, with an average deviation of 0.1 percentage points between 2009-2016. The reconciliation of different vintages of macroeconomic and fiscal forecasts is discussed in Section 2.4.3.

2.1.3. Medium-Term Budget Framework (MTBF)


55. The MGMP published by the government annually has many positive characteristics. The MGMP for 2016 sets out: (i) the macroeconomic and fiscal context, based on the assumptions and projections described in the MFMP (see Section 2.3.1); (ii) an analysis of fiscal constraints in the medium term; (iii) an assessment of the objectives of government programs and projects, drawn largely from the PND; and (iv) projections of medium-term spending plans for the period 2017-2020, broken down by investment and operating expenses. The document also sets out indicative spending ceilings for 29 sectors (education, defense, health, transport, and so on) for the forthcoming budget year and three additional years to guide ministries and public institutions in preparing their budgets.

56. The MGMP, however, displays some important gaps when compared with good international practice.24 The focus of the MGMP is on investment spending, and the document does not provide a full coverage of all expenditures. It adopts the classification of sectors used in the PND, which currently differs from the classification scheme used in the annual budget, though as noted in Section 1.3.1 of this report the government is discussing options for harmonizing the classification schemes used in budgeting, accounting and fiscal reporting. No breakdown is provided by economic category or program. The MGMP presents indicative ceilings for three out-years, but these ceilings have been substantially revised in recent years (Table 11), and do not provide a credible basis for planning spending over the medium term.25 The processes of preparing the MGMP and the annual budget are largely separate. Finally, the government does not publish any reconciliation of the projections contained in the MGMP with those in the previous year’s document.

Table 11.

Revisions to Medium-Term Expenditure Ceilings, 2013 to 2016 (COP billion)

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Source: MHCP and FAD staff calculations.Note: The figures show changes in the estimates of total spending made in successive vintages of the MGMP. The final row of figures measures the percent difference between the outturn spending and the initial estimate of spending made four years previously.

57. Bringing Colombia’s MGMP in line with best-practice MTBFs would require changes in several areas, and substantial capacity building in the MHCP and spending agencies. Differences between the MGMP and MTBFs produced in advanced countries are substantial, as shown in Table 12. Similar enhancements of medium-term budgeting in Colombia could be considered.

Table 12.

Differences Between Colombian MGMP and Advanced MTBF Model

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Source: FAD staff.

Some advanced countries have adopted a fixed framework for the MTBF, i.e., one that is only changed at the end of the 3-4-year period.

Some advanced countries have binding ceilings for the out-years, e.g., Sweden, U.K. (partially).

2.1.4. Investment Projects


58. A wide range of information on public investment projects is publicly available. The PND contains details of planned public investment projects over a four-year period, including a list of ongoing and pre-selected investment projects, with a projection of their overall costs, as well as their planned beginning and end dates, classified by program and sector. The POAI provides both an aggregate view and individual information on planned investment spending, though only amounts to be appropriated for the budget year are disclosed. The DNP maintains a project database (SPI) that contains summary information on individual projects financed from the national budget, and a database of PPPs (the RUAPP), but without details of the multiyear fiscal obligations associated with these projects. A database of all procurement contracts (SECOP) is available on the web site of the National Procurement Agency.26

59. The MFMP (Chapter VI) provides information on the total spending of all public investment projects for the next 30 years, with data on year-by-year spending presented for the early years. MFMP presents information on authorized multiyear expenditure commitments (vigencia futuras) for individual major projects, but data on the amount of spending already incurred, and estimated expenditure over the remaining life cycle of projects, is not available. Information on all these elements, however, is published for individual PPPs (see Section 3.2.4).

60. There is a standard requirement for entities to carry out economic and financial appraisals of new investment projects, using a methodology approved by the DNP. There is no differentiation between projects of different sizes. The results of project appraisals are not made publicly available, however, either before or after the projects have been approved.

61. In some cases, projects are approved without a prior assessment of the merits of the PPP mode compared to direct government investment. Good practice in public investment management is to first appraise whether a proposed project is likely to generate net social benefits, and then to rank and prioritize projects. At a second stage, an assessment is made as to whether these projects should be implemented through direct government investment or the PPP mode, using a methodology referred to as the public sector comparator. This methodology has not been promulgated in Colombia, and it appears that the many “unsolicited” projects27 which are categorized as not requiring any public funding—which can include public contributions up to 20 percent of total costs—are being approved with only a limited review of their merits. There is a comparatively large number of unsolicited projects in Colombia (Figure 11).

Figure 11.
Figure 11.

Unsolicited PPP Proposals in Colombia in Comparative Perspective

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: DNP Estimates.

62. There is a high percentage of direct contracting of public procurement contracts (Figure 12). The legal framework contains a presumption in favor of open and competitive tender, but there are numerous exceptions allowed by the law.28 In practice, in 2016, 40 percent of contracts by value were categorized as being procured through direct award (there is no separate data on major projects). In addition, contracts within the “special regime” (for entities of mixed public and private ownership) may also be procured through direct awarding, but the National Public Procurement Agency does not collect data that distinguishes between procurement methods within the special regime. The 2015 PEFA assessment established, from an assessment of procurement methods used for large projects in five large ministries, that more than 50 percent of contracts in 2014 used the direct contracting method.

Figure 12.
Figure 12.

Distribution of Public Procurement by Modality, 2016

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: National Public Procurement Agency.

2.2. Orderliness and Timeliness of the Budget Process

2.2.1 Fiscal Legislation


63. The framework for budgeting and fiscal management in Colombia is comprehensive, clearly established in law, publicly available, but highly complex. The Constitution includes many articles on budgeting and finance, which are supplemented by organic laws29 on budgeting (e.g., Law 38 of 1989 and Law 179 of 1994) and on national development planning (Law 152 of 1994), as well as lower-level decrees and resolutions. There are more than 20 principle laws and decrees which are summarized in Annex III. This framework covers all aspects of budgeting, development planning, fiscal transparency, and fiscal reporting, as well as many aspects of fiscal risk management, including PPPs for example.

64. The legal framework sets out inter alia a clear timetable for budget preparation and approval, which has been regularly complied with in recent years (see Section 2.2.2). It also defines the key content requirements of the budget, and the Congress’s powers of amendment which both in law and in practice are extremely limited. The Congress may not increase any spending proposals made by the executive, and may only decrease items of spending with the approval of the MHCP (further discussed in Section 2.4.2).

2.2.2 Timeliness of Budget Documents


65. The legal framework includes specific deadlines on the preparation and approval of the budget that have been fully respected in recent years. As shown in Table 13, the budget is submitted to the Congress and made available to the public five months before the start of the fiscal year, and is approved and published two months before the start of the year, although the full details of the budget are not made available until the end of December. The debate in the Congress comprises two phases: first, a discussion of fiscal policy issues, tax reform issues and budget ceilings in June/July, built around the submission of the MFMP; and, second, in August/September, an examination of the expenditure proposals in the draft budget by sector, entity, programs and investment projects. Government ministers, officials, the central bank, think tanks, and other organizations participate in these discussions. In terms of the key fiscal information that was disclosed, the recent PEFA Report gives the 2016 budget law a high rating against international standards.30

Table 13.

Calendar for Submission and Approval of the Budget

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Source: MHCP, PEFA Reports for 2009 and 2015, FAD staff.

These Committees of the Senate and the Chamber of Representatives cover economic policy and revenue issues (Committee #3) and the budget (Committee #4). They deliberate in joint sessions, but vote separately.

The budget approved by the Congress comprises broad expenditure categories for each spending entity. During the “liquidation” process these ceilings are converted into detailed line item appropriations.

66. Procedures and the disclosure of information related to other aspects of fiscal policy and national development planning are also subject to strictly enforced legal deadlines. These requirements apply, for example, to the operations of and disclosures made by the MHCP, the DNP, CONFIS and CONPES on fiscal- and planning-related issues, as well as the MGMP (Section 2.1.3), and the MFMP, fiscal policy objectives and the fiscal rule (Section 2.3.1). They also define detailed operational procedures such as the issuance of budget circulars to spending ministries, and the setting and notification of spending ceilings, and the release of data to the public.

2.3. Policy Orientation

2.3.1 Fiscal Policy Objectives


67. In 2003, the Fiscal Transparency and Responsibility Law improved the presentation of fiscal information and increased coordination among the different levels of government.31 This law (Law 819) required the national government and subnational governments (SNGs) to present each year a MFMP that represents the government’s main instrument of macro-fiscal programming. The MFMP must present a consistent 10-year macroeconomic framework which, in its initial formulation, comprised multiannual primary balance targets that were intended to guarantee fiscal sustainability in the medium term and long term. Controls on the spending and borrowing of SNGs were also substantially tightened in this period (Section 3.3.1). Finally, the notion of “fiscal sustainability” was added as an amendment to the Constitution in 2011.

68. To further strengthen the fiscal responsibility legislation and operate a sustainable and countercyclical fiscal policy,32 the government introduced a new fiscal rule in 2012. This rule comprises a structural deficit target of 1 percent of GDP from 2022 onwards with a transition period between 2012 and 2021. Intermediate targets of 2.3 percent of GDP in 2014 and 1.9 percent of GDP in 2018 were established. Additionally, the law requires that in each intervening year the structural deficit must be lower than in the previous year. The law includes an escape clause that permits deviations from the rule in exceptional circumstances, namely if output falls below its potential level, or oil prices fall below their long-term trend level, but the government has not yet made use of this provision. Since its establishment, the rule has been adhered to.

69. The law established an independent review process in the form of a Consultative Council. The Council has an independent membership comprising representatives of universities, think tanks, and the heads of the Economic Committees of the Congress (see section 2.4.1). It is responsible both for preparing the methodology for calculating the structural deficit, and measuring the government’s compliance with the rule.33 The Council has some of the characteristics of the fiscal councils34 that have been established in other countries, especially in Europe; it presents a report to the government in April setting out its projections of potential output and oil prices, and the structural deficit over a 15-year period. In June, the MHCP publishes, at the same time as the MFMP, a report on compliance with the fiscal rule, using calculations that have been agreed with the Council.

70. In addition to the MFMP, the MHCP also prepares an annual Fiscal Plan, releasing its preliminary version in December and publishing a revised version in March. This plan presents fiscal projections one year ahead, as well as an assessment of fiscal policy developments, and progress in implementing the fiscal rule. In preparing these documents, the MHCP holds regular consultations with counterparts in government and the central bank, as well as four meetings per year with the Congress, to discuss fiscal developments. In addition, the CGR publishes in August an annual report on the fiscal situation which includes an assessment of, and opinions on, the macroeconomic outlook and the government’s macroeconomic forecasts, fiscal policy developments and the fiscal rule, debt sustainability, and the quality of fiscal data.

71. While the fiscal rule has been adhered to since its introduction in 2012, looking ahead to 2022, the government may face challenges in ensuring that it remains on track. Fedesarrollo, a leading economic think tank in Colombia, has reported that the uncertainties surrounding the fiscal impact of the Peace Agreement could increase the deficit by about 0.5 percent of GDP.35 The institute estimates that, on current policies, there is likely to be a fiscal gap of some 2.0-2.5 percent of GDP by 2022 which the next government will need to offset if it is not to breach the fiscal rule. The government also faces challenges in ensuring that modifications to healthcare and the pension system are made in the next few years that are fiscally sustainable (see Section 3.1.2).

2.3.2 Performance Information


72. A formal system of performance-based budgeting has not been developed in Colombia, though policymakers draw on a wide range of information in decision-making and setting spending priorities. Information on performance is most widely used in relation to capital investment projects. The national budget, however, does not incorporate a comprehensive programmatic classification, and information on the outputs or outcomes of public service delivery is limited. Similarly, budget execution reports contain little information on the impact and performance of public expenditure policies and projects. This is confirmed by the recent PEFA report which found no evidence that information on resources received by front-line service delivery units, such as schools or health clinics, was systematically collected by the ministries responsible for these services.36 The only documents containing performance data are those prepared by the DNP to report on progress made by public institutions, through their investment projects, in achieving the objectives of the PND.

73. Some work is underway that may lead to improvements in performance information in coming years. The DNP, for example, has been preparing with the World Bank a results-oriented framework37 for planning, monitoring, and evaluating investment projects on a systematic basis, but this framework has yet to be completed, tested, and implemented. In addition, the DNP has published performance assessments on the efficiency and effectiveness of service delivery; and the CGR has released management audits and sector policy analyses that focus particularly on the non-financial performance of investment projects.38

2.3.3. Public Participation


74. A Citizens’ Guide to the Budget (Prepuesto Ciudano) is published after the budget is approved by Congress each year. The Guide is in an accessible form, centered around the use of graphics.39 The 2017 Citizens’ Guide contained information on total revenues and expenditures for the budget year, macroeconomic assumptions, the sectoral allocation of spending, transfers to subnational governments, and an overview of the annual budget calendar. It also contained some data on per capita subnational transfers from the Sistema General de Participation across different geographic departments, and social spending by sector on particular groups of citizens, such as children and older adults. The Guide is published only in Spanish (not in indigenous languages), and the website is the only form of dissemination. The government has not consulted the public on the content of the Citizens’ Budget.

75. The government does not engage with or consult the public during its preparation of the annual budget. There is some opportunity for public input during the Congress’s consideration of the budget presented by the government, but not prior to that stage. The Open Budget Survey 2015 rated public participation in Colombia as weak during the executive stage of the budget, limited during the legislative stage, and adequate with respect to the CGR.40

76. There are other examples of public outreach and engagement with respect to fiscal policy. The DNP conducts public consultations every four years in the preparation of the multiannual PND, which is an important determinant of investment spending in annual budgets. On the revenue side of the budget, Colombia achieved candidate status for the Extractive Industries Transparency Initiative (EITI) in 2014,41 while MHCP conducts public consultations on draft decrees within its field of responsibility, including proposed changes to tax administration.42

The Ministry also maintains a Transparency Portal (the site received 89,062 visits from January 2017,43 and publishes some fiscal data in open data format.44

2.4. Credibility

2.4.1 Independent Evaluation


77. Although an independent fiscal council does not exist, the legal framework in Colombia provides for evaluation by multiple independent entities at different stages. These include the following:

  • The independent Consultative Council, set up under the fiscal responsibility legislation (Law 1473 of 2011), defines the methodology and sets parameters for the operation of the fiscal rule (Section 2.3.1). The Committee comprises nine independent members, including the chairs of the two Congressional committees on economic and fiscal matters. It authorizes the MHCP’s report on compliance with the fiscal rule before its submission to Congress. The law requires the government to consult the Committee in case the fiscal rule is to be suspended.

  • In accordance with the Constitutional requirements, the BanRep is invited by Congress to present its opinion on the government’s macroeconomic and fiscal forecasts and the MFMP during the budget deliberations.

  • In discharging its “fiscal oversight” function mandated by the Constitution, the CGR in its “State of Public Finance” report provides an ex-post assessment of the government’s macroeconomic and fiscal forecasts, comments on developments in the external and internal macroeconomic environment, and analyzes in detail the government’s fiscal performance.

2.4.2. Supplementary Budgets


78. Amendments to the approved budget are carried out in accordance with legal provisions and published on the MHCP’s website. Law 38 of 1989 and Decree 111 of 1996 regulate changes to the approved budget. In case it becomes necessary to increase the amounts of initially authorized appropriations, or to include a new item of expenditure in the budget, the law allows the government to place before Congress bills on reallocations and additions to the approved budget. As a general principle, only Congress can approve changes—additions or transfers across budget lines—to the approved appropriations contained in the annual budget law. In certain cases, the powers are delegated to the government, which are exercised through decrees and resolutions.45 Reallocations across ministries or other public institutions, and across programs within a ministry or institution, are thus not permissible without Congressional approval. The law further demands that supplementary appropriations are obtained only after clearly establishing additional sources of funding to meet those expenditures, and on a certification by the CGN, or the head of budget in case of a public institution, of the availability of such resources. Budget laws, decrees, and resolutions authorizing revisions to the original budget are published on the MHCP’s website, and the CGR’s budget execution report consolidates all changes, comparing the outturn with both the original and revised budgets.

79. The government has largely maintained the credibility of the original budget. As shown in Table 14, changes in total budget appropriations have been relatively small in recent years. In each of the past three years, the budget was reduced because of a revenue shortfall. The magnitude of these changes, however, has been small.

Table 14.

Changes to Approved Budgets

(COP Trillions)

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Source: MHCP.

2.4.3. Forecast Reconciliation

Not Met

80. The MFMP contains very limited information and discussion about the revisions to successive vintages of medium-term forecasts of revenue, expenditure, and financing.46 Similarly, while the government’s update to the Financial Plan published each March presents and discusses new fiscal estimates for the past and current fiscal years, it does not provide any reconciliation of these projections, and does not quantify the impact of macroeconomic or new policy developments. The annual report published by the MHCP on compliance with the fiscal rule (Section 2.3.1) likewise presents a backward-looking view of the previous year’s budget, and does not discuss medium-term fiscal forecasts. The MHCP (DGPM) produces some analysis of forecast reconciliations for the ministry’s internal use. The inclusion of reconciliation tables in the MFMP—in which difference in successive vintages of fiscal forecasts are broken down into the relative impact of individual policy changes, macroeconomic determinants, and other factors, such as technical and accounting adjustments—would help improve the credibility of the government’s macroeconomic and fiscal forecasts.

2.5. Conclusions and Recommendations

81. Colombia’s fiscal forecasting and budgeting practices meet basic or advanced practices in many areas, and compare favorably with the country’s peers and some advanced countries. The legal framework is comprehensive though complex, and the budget documentation is also comprehensive and timely. The fiscal policy framework is securely anchored in a fiscal rule that has been in place since 2012 and is adhered to, though fiscal pressures in coming years may put the rule under strain. Macroeconomic and fiscal forecasts are soundly based and largely free from systemic bias. The arrangements for independent assessment of fiscal and budgetary policies are aligned with international good practice; and the procedures for making in-year adjustments to the budget are tightly defined in law, and well-documented.

82. There are also some areas where the performance could be improved. The budget system is highly fragmented: the budgets for royalties, SNGs, public corporations, and social security are separate from the central government’s budget, and there are many extrabudgetary entities and earmarked revenues. The use of performance information in preparing and monitoring the PND, and investment projects, is developing, but a results-based framework is almost entirely absent from the PGN. There are many weaknesses in the planning, appraisal, and execution of public investment projects, including PPPs. While some elements of a modern medium-term budget framework are in place, the preparation of the MGMP is largely decoupled from the annual budget process, the budgets for investment and recurrent spending are prepared separately, and indicative spending ceilings are substantially revised. Many other elements of advanced medium-term budgeting practices are missing. No information is currently published on the reconciliation of current forecasts with previous vintages.

83. Based on the above assessment, the following recommendations could improve transparency in the budgeting and forecasting areas:

  • Recommendation 2.1: Undertake a review to assess which extrabudgetary activities should be consolidated within the PGN, and fully disclosed in the budget documents. This review should cover: the SGR; the revenues, expenditures and financing of EBUs; and the absorption of earmarked revenues within the general revenues of the budget.47

  • Recommendation 2.2: Enhance the medium-term budget framework to align it with advanced principles and practices. Such a reform is a major departure from existing practices and should be carefully prepared, and implemented gradually. It could start with a thorough review of existing practices in preparing the annual budget and the MGMP, and how international good practice could be used to inform and improve the design of a future MGMP. This review should aim to develop an action plan for implementing improvements in the MTBF over the next few years. Important elements will include:

    • Integrating the processes of preparing the annual budget and the MGMP.

    • Harmonizing the definitions of capital and recurrent spending with international standards.

    • Building a robust system of making forward estimates of spending.

    • Incorporating on a step-by-step basis, elements of performance indicators and results-based framework into the annual budget/MGMP.

  • Recommendation 2.3: Improve the management of and disclosure of information on public investment projects. Priority should be given to:

    • Making data publicly available (on DNP’s website) on the multiyear obligations of all individual public investment projects, including the original approved budget, expenditure to date, and the remaining approved expenditure by year.

    • Publishing expanded summary data in the MFMP on the multiyear obligations of public investment projects financed from the national budget, covering a larger number of individual projects.

    • Subjecting all PPP projects, including those categorised as not requiring a public contribution, to an assessment of the relative merits of the PPP mode of procurement compared to public investment through the national budget, using a standard methodology.

    • Amending the procurement law to enable recording and reporting of procurement modalities within the special regime.

    • Reviewing the extent and legitimacy of departures from open and competitive tendering.

  • Recommendation 2.4: Disclose the analytical work on the reconciliation of different vintages of macroeconomic and fiscal forecasts that the MHCP carries out for internal use.

84. Colombia’s rating for public participation in the budget process is weak, and reforms could be considered in this area. For example, the Citizen’s Budget could be released in July, at the same time as the annual budget proposal is presented to Congress.

Table 15.

Summary Assessment of Fiscal Forecasting and Budgeting

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III. Fiscal Risks

Governments should disclose, analyze, and manage fiscal risks to the public finances and ensure effective coordination of fiscal decision-making across the public sector.

85. This chapter assesses Colombia’s analysis, reporting, and management of fiscal risks against the practices of the FTC. The focus of this pillar is the exposure of the public finances to the possibility of short to medium-term shocks to fiscal variables emanating from the rest of the public sector, from the domestic private sector, or from the international environment. The chapter also covers long-term fiscal sustainability. Fiscal risks include general risks arising from macroeconomic shocks and specific risks from contingent liabilities, both explicit—legal obligations or firm commitments to provide fiscal support should a particular event occur or circumstance arise—as well as implicit contingent liabilities, where there is no legal obligation on government but expectation to provide fiscal support. Risks are assessed on three dimensions:

  • General arrangements for the disclosure and analysis of fiscal risks;

  • The reporting and management of risks arising from specific sources, such as government guarantees, PPPs, natural disasters, and the financial sector; and

  • Coordination of fiscal decision-making between central government, local governments, and public corporations.

3.1. Disclosure and Analysis

3.1.1 Macroeconomic risks


86. Colombia is exposed to macroeconomic volatility, which in turn poses sizeable risks to budget. Even if, over the last decade, Colombia’s nominal GDP growth volatility was lower than in most neighboring countries, Colombia has experienced wide variations in its economic growth over that period, in part due to oil price volatility (Figure 13). Moreover, between 2011 and 2014 oil revenues contributed approximately 2.5 percent of GDP to annual central government revenues, against 1.6 percent of GDP between 2004 and 2010.48

Figure 13.
Figure 13.

GDP Volatility

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

87. The MFMP presents sensitivity analysis of fiscal forecasts to macroeconomic assumptions but very limited discussion of alternative macroeconomic and fiscal scenarios. For example, the 2016 MFMP presents a sensitivity table summarizing the net impact on public revenues and spending for the next fiscal year of a change in the main macroeconomic parameters (exchange rate, oil price and production, inflation).49 The MFMP also displays a limited alternative scenario analysis of the evolution of the central government debt over the next ten years, estimating the impact of a change in GDP forecasts by +/- 1 percentage point.50 This analysis does not present the fiscal implications of these changes at a more disaggregated level nor examines closely the channels through which each scenario affects public finances.

88. The MFMP analysis could be expanded to include a more detailed presentation of the short- and medium-term fiscal outcomes associated with macroeconomic stress scenarios and stochastic analysis. The MFMP could discuss the channels through which the macroeconomic scenarios are expected to impact the main spending and revenue items in the budget. Further, the analysis could be disaggregated by level of government, given the weight of local and regional governments. Given the adoption of the fiscal rule and the setting of the path for the fiscal deficit, the analysis could also include (i) the impact of random shocks to fiscal outcomes based on their historical distribution and (ii) the impact of combined macroeconomic and specific fiscal risk shocks (see section 3.1.2 below).

3.1.2 Specific fiscal risks

Not Met

89. Specific fiscal risks are those that arise from narrow and identified sources of uncertainties. Specific fiscal risks include both explicit and implicit risks, from sources ranging from public debt management, guarantees, natural disasters, the financial sector, or from other public entities (subnational governments, and public corporations). This Indicator assesses the overall level of transparency with respect to a broad range of specific fiscal risks. Sections 2 and 3 of Pillar III consider in detail Colombia’s transparency and risk management practices with respect to main sources of specific fiscal risks.

90. Colombia regularly publishes detailed information on explicit contingent liabilities in the MFMP. The Fiscal Transparency and Responsibility Law (2003) requires that the MFMP contain an assessment and valuation of the main contingent liabilities and non-explicit debts. Since 2004, the MFMP has contained a detailed chapter on contingent liabilities, with a section also on pension and civil service severance exposures (non-explicit debt). Contingent liabilities covered include those in PPP contracts, public credit guarantees, legal action against the state, and callable capital in international financial institutions.

91. One of the major specific fiscal risks in Colombia stems from legal action against the State, and is covered in detail in Chapter 8 of the MFMP. Between 2000-2015 payments for judgements and reconciliations amounted to a cumulative COP8.4 trillion (in 2012 pesos), and have been increasing (Figure 14). Because of its significance—it is by far the largest explicit specific fiscal risk in Colombia—it has been the subject of considerable attention in recent years. Efforts to mitigate and manage the risks have included the creation in 2012 of the National Agency for Legal Defense of the State, which has developed a detailed database of claims and payments and is undertaking activities to reduce the risks. It is supporting the MHCP Risk Directorate in the development of improved risk quantification methodologies.51

Figure 14.
Figure 14.

Payments Under Legal Claims

(in COP millions)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: Colombian authorities.

92. The way in which the government’s contingent liabilities from legal action are disclosed could potentially prejudice its legal defense. Appropriations for expected payments are included in the budgets of 160 individual entities in the national budget. There is a concern that disclosing the expected cost of litigation against individual state entities could prejudice the state’s legal defense by revealing information with respect to what the government expects individual cases to cost. Other countries that disclose legal action as a contingent liability do so on a gross basis across central government (rather than entity by entity), and accompany the disclosure with a disclaimer that reporting the risk does not indicate any government acknowledgement of liability.

93. Overall, the MFMP disclosure on risks falls short of a summary of the main specific risks to the fiscal position. Table 16 presents an illustrative overview of selected specific fiscal risks in Colombia. The table separates explicit risks from implicit risks. Explicit risks are those that are legal obligations, the subject of firm commitments, or unavoidable (e.g. damage from disasters to government-owned property). The table also separates short- to medium-term risks, on the one hand, from longer-term challenges to fiscal sustainability e.g. pensions and health care. Important risks not at present covered in the MFMP include those from disasters, debt management, public corporations, subnational governments, and the private financial sector. The MHCP intends to progressively expand the coverage of risks in the MFMP, starting in the 2017 MFMP with discussion of risks from natural disasters.

Table 16.

Selected Fiscal Risks of the Central Government

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Source: Colombian authorities and FAD staff estimates.

Data source: Table 8.14, 2016 MFMP. The figure in the notes to the financial statements (Table 3.95) for the contingent liability from legal claims is COP1,300 trillion (162% of GDP). However, this figure includes some very large claims that are considered to be of very low probability, which MHCP excludes from its gross exposure and expected cost calculations. There are minimal balances in the CFEE to meet legal claims.

Source: MHCP Risk Directorate. PPP contingent liabilities includes concessions, APP projects, and projects without public contribution (APPIP-SRP). The expected costs for concessions and APP projects are paid into the FCEE. By law, realized APPIP-SRP project risks cannot be funded from the Contingency Fund, they are to be met from increased tolls or project restructuring.

Obligations to provide additional share capital in International Financial Institutions if requested. Data from section 8.1.5, 2016 MHCP.

From Section, 2016 MFMP

The total value of central government buildings and structures on the government’s balance sheet, exposed to risk of damage in disasters. Law 42/1993 (article 107) requires every public building to be insured against liability for loss or damage to property; to the extent this covers disaster risks and is complied with, the net exposure would be significantly lower. There are also balances in the Disaster Fund (Fondo de Calamidades) to defray costs from disasters, the balance at December 2014 was COP52 billion.

The government’s potential exposure to provide assistance, e.g., with respect to low income housing.

As at end 2016, the gap between Fogafin’s reserves and total guaranteed deposits.

Gross liabilities of public corporations from the balance sheet.

The gross debt of subnational governments, from Report on Subnational Debt.

The actuarial liability for the defined benefit pensions, from the balance sheet and notes to the financial statements.

2016 MFMP forecasts a transfer from the general budget to the health system of 0.25% of GDP per year over the next decade.

94. There are other significant short- to medium-term explicit risks to the fiscal position. These are areas where there is a greater than usual degree of uncertainty over revenue or expenditure forecasts. They include the peace process, the fiscal impacts of recent tax reforms, regional instability, and uncertainty over the amount of the annual budget transfer required to Colpensiones, given the difficulty of forecasting the numbers switching from private schemes to the public scheme.

95. In view of the range and magnitude of specific fiscal risks in Colombia, and the narrow fiscal space available, summary reporting of fiscal risks should be a priority for fiscal oversight and management. In the last 10-15 years, several countries have started publishing annual Fiscal Risk Statements, generally alongside their annual budgets presented to the legislature. Examples from comparable countries include Brazil, Indonesia, and the Philippines. Box 3 presents a suggested form of a Fiscal Risk Statement for Colombia. The statement would usefully begin with discussion of the government’s fiscal risk management strategy in the context of the medium-term fiscal strategy, recent progress in mitigating risks, and priority areas for further risk mitigation. To avoid any negative reactions when disclosing information on fiscal risks for the first time, care should be taken to include a clear statement of how the risk is being managed. The MHCP Risk Directorate could be tasked to compile the statement.

96. To further improve risk disclosure and management, the institutional arrangements could be further strengthened. Two specific actions could be considered: (i) the internal risk reporting within the MHCP could be strengthened by introducing an in-year (e.g. quarterly) risk report to be submitted to MHCP management; and (ii) a high-level inter-directorate coordination mechanism could be established, with the Risk Directorate providing the anchor. Risk management typically involves multiple units within (and outside) a ministry of finance, and a coordinated approach is required to improve its effectiveness.

Possible Structure and Content of an Annual Fiscal Risk Statement

Macroeconomic Risks and Budget Sensitivity

Discussion of the macroeconomic forecasting record in recent years; sensitivity of fiscal aggregates to variations in key economic parameters, with explanation of underlying mechanisms; presentation of alternative macro-fiscal scenarios; probabilistic fiscal forecasts.

Public Debt

Sensitivity of public debt levels and debt servicing costs to variations in key parameters. The government’s debt management strategy and performance against the strategy. Debt sustainability analysis. Policy and institutional framework for government borrowing and on-lending: projected statement of inflows, outflows, and balances; nonperforming loans.

Other short- to medium-term fiscal risks: civil service scheme exposures; elements where there is an unusual degree of uncertainty, e.g., recent tax or social security reforms, regional instability,

Contingent Liabilities

Contingent Liabilities: government’s gross exposure to contingent liabilities—especially central government guarantees; including expected costs as feasible; disclosure of rationale, criteria, and beneficiaries.

Financial sector: past and current explicit government support to the financial sector; deposit insurance scheme details and an assessment of risks from the wider financial sector.

Legal action against the central government: Past claims and settlements, and the gross value of current claims, with a disclaimer that reporting the risk does not indicate government acknowledgement of liability.

Disasters: fiscal impacts of disasters and other environmental hazards; strategies for disaster risk reduction and disaster risk financing.

Public-Private Partnerships

Summary of the current and planned PPP program (all types of PPPs); quantum of expenditure required to meet the infrastructure needs in the context of the public investment program; policy and management framework and rationale for PPPs; total rights, obligations and other exposures, expected annual receipts and payments over life of contracts; treatment of PPPs in accounting and fiscal reporting.

Cumulative overall exposure from government’s current announced PPP program.

Features of some signed PPPs, and gross exposure from guarantees and similar instruments.

Public Corporations

Policy framework e.g. ownership policy, pricing, dividends. Direct and indirect support between government and public corporations, any quasi-fiscal activities.

Financial performance and position of the sector and the largest corporations. Financial performance and position of state-owned financial institutions.

Subnational Governments

Legal framework for intergovernmental fiscal relations, and summary of aggregate subnational government financial performance and financial position.

Source: FAD staff.

3.1.3 Long-term sustainability of public finances


97. The MFMP presents an extensive study of the long-term sustainability of fiscal policy over a ten-year timespan. Along with the underlying macroeconomic assumptions, notably the oil price projections, this ten-year analysis encompasses forecasts of the main fiscal aggregates as well as a debt sustainability analysis. The discussion on public debt includes an analysis of sustainability under alternative growth scenarios.52 However, the analysis does not consider the possibility of a macroeconomic shock combined with the realization of specific fiscal risks, such as those stemming from natural disasters, litigation losses, or realization of other explicit or implicit contingent liabilities.

98. The 2016 MFMP includes pension and health spending projections over the next ten years. Regarding the pension system, recognized as a non-explicit liability, the MFMP presents the impact of past measures on the net present value of future liabilities of the pension scheme in Colombia.53 It also discusses the evolution over ten years of the future costs of the pension scheme to the government budget; and annual budget transfers required to ensure the equilibrium of the pension system. In 2017, this transfer is expected to amount to 4 percent of GDP, and is forecast to decrease gradually to 3.5 percent of GDP in 2027 (Figure 15). Regarding the health system (SGSSS), the 2016 MFMP discusses the negative fiscal impact of Law 1571 / 2015 (which changed the coverage of reimbursed drugs and medical practices and increased the coverage of the population) and presents a probabilistic approach to its future equilibrium, depending on better efficiency and the ability to generate additional resources.

Figure 15.
Figure 15.

Forecast Transfers from the Budget to the Pension Scheme

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: MFMP 2016.

99. Good and advanced practices require an assessment of fiscal sustainability over a longer period and the publication of multiple scenarios. In particular, liabilities due to the pension scheme will impact the government budget for decades and need to be disclosed in a longer timeframe.54 Multiple scenario analysis of the sustainability of the main fiscal aggregates and health and pension schemes over the next thirty years should also be published. The different scenarios should present alternative paths for the evolution of macroeconomic, demographic and oil price parameters. The mission recognizes the on-going efforts of the MHCP to expand the time-horizon of its analysis. A particular improvement is the upcoming presentation in the 2017 MFMP of the investments required over a 15-year period (until 2031) for implementing the peace agreement.

3.2. Risk Management

3.2.1 Budgetary contingencies


100. The budget includes several provisions for contingencies with clear access criteria for the government’s use to meet unforeseen expenditure. The budget includes three specific instruments for managing contingencies in these areas, whose access criteria are transparent and clearly defined in law.

  • A contingency fund (FCEE), managed by a special trust, was established by Law 448 of 1998. This fund is the largest of the three instruments, with spending averaging 6-8 percent of total budget spending in recent years (Table 17). The fund has three components: an infrastructure component, financed by budgetary transfers by the government entities responsible for infrastructure projects, is used to meet contingencies arising from investment projects and PPPs; a guarantees component, financed by guarantee fees charged to beneficiaries, to meet payments arising from the credit guarantees extended by the government; and a third recently added component to deal with legal claims against the government, which like the infrastructure component is financed from budgetary transfers by all entities covered by the general budget. Resources in the fund that are not spent in the budget year accumulate and can be disbursed in later years.55 The fund’s managers report annually on its opening and closing balances, and its inflows and outflows. The MFMP includes an elaborate discussion on the fund’s operations.

  • A Disaster Relief Reserve was established as an appropriation (line item) in the budget.56 These resources are managed by the Disaster Relief Agency.

  • A general budget reserve (FONDO Inter-ministerial) was established under Law 38 of 1989, and is used to make payments relating to other budget contingencies. Payments from this account must be approved by the CONPES.

Table 17.

Contingency Reserves/Funds in the Budget

(COP billion, and in percent of total expenditure)

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Source: MHCP.

Other budgetary mechanisms for managing uncertainty and risk include emergency spending under supplementary budgets, budget reallocations (Section 2.4.2), and allocations for each agency to settle the cost of pending law suits (Section 3.1.2).

Because they are budget appropriations, monthly reports on items (2) and (3) are issued in accordance with the government’s general requirements on budget execution. The provisions for contingencies made in the budget under items (1) through (3) above have been adequate in recent years.

3.2.2 Management of assets and liabilities


101. The government produces a consolidated public sector balance sheet, which includes most conventional assets and liabilities. In 2015, liabilities were reported to be about 112 percent of GDP and financial and nonfinancial assets around 141.5 percent of GDP. Over the last decade, liabilities have increased by 126 percent (see Section 1.1.2).

102. Government borrowing is authorized by law, and the MHCP periodically reports the profile of the public debt. Law 80/1993 states that all public sector borrowing, including guarantees, has to be authorized by either the Parliament or the Minister of Finance. Specific debt rules are also set for SNGs (see section 3.3.1). In addition, law 1508 / 2012 and decree 1467 / 2012 set a limit on the total annual payments related to PPPs (Section 3.2.4) which must be considered when entering into new PPPs. The MFMP provides information on the debt structure of the public sector, as well as interest rate and exchange rate risk exposure. The MHCP also publishes a quarterly debt report for the central government (Informe trimestrial – Seguimiento de Deuda del Gobierno Nacional). However, while presenting the main characteristics of the public debt, e.g., breakdowns by sources (internal and external, multilateral), currencies, amortization profiles, maturities, servicing, the report does not discuss the related risks.

103. The risks surrounding the central government’s financial assets and liabilities are not disclosed and analyzed. The MHCP actively manages its financial portfolio. The objectives include liquidity management and maximizing return to assets. However, there is no asset and liability management report which could provide information on the asset and liability structure, as well as present and discuss the main risk indicators. Such indicators could, for example, encompass liquidity, interest rate, exchange rate, credit and concentration risks. Moreover, the medium-term debt management strategy published in 2013 has not been updated since, and there is no published strategy for asset and liability management. The definition of such a document, updated annually, which would define the objectives and the implementation strategy in managing financial assets and liabilities and the risks surrounding them, is of paramount importance to better assess the fiscal risks arising from the financial position of the public sector. The implementation strategy should include the management of market and balance-sheet risks, and, for instance, discuss liquidity and interest rate risks management, and the diversification of exchange rate risks.

104. There is also no published strategy for managing most of the non-financial assets recorded in the balance sheet as well as public sector assets not owned by the central government. Non-financial assets, such as land holdings, buildings, infrastructure assets, as well as financial assets and liabilities of the social security and insurance funds, and SNGs, should be included in the government’s assets and liabilities management strategy.

3.2.3. Guarantees


105. The government manages its portfolio of credit guarantees well (Figure 16). Decree 2681 empowers the government to guarantee the payment obligations of public entities with the concurrence of the CONPES and with the approval of the Congressional Commission on Public Credit. Guarantees are managed within a legal limit of US$4.5 billion (or equivalent).58 Decree 2681 prohibits the government from guaranteeing private individuals, public entities that have defaulted on their prior commitments, and the internal payment obligations of subnational entities. Additionally, guarantees cannot be given for credits already contracted without a sovereign guarantee.

Figure 16.
Figure 16.

Government Guarantees in Selected Countries 2015

(Percent to GDP)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: Eurostat and FTEs.

106. Guarantees are extended after a risk analysis by the MHCP that entails a credit risk assessment using a credit rating assigned to the beneficiary through an external agency. The credit rating is used to determine the default probability and the loss-given-default. Guarantees are valued using the price differential between a similar guaranteed and non-guaranteed debt as a proxy. A risk-based fee is levied, and all beneficiaries are required by law to post sufficiently liquid collaterals up to 120 percent of the credit value. The MHCP monitors the financial condition of the beneficiaries and reassesses fees every year based on their credit risk assessment.

107. The FCEE provides the first buffer to meet any payments arising from guarantees. As of December 31, 2016, the guarantees component of the FCEE had a balance of COP 219 billion, which seems adequate considering the cumulative payments of COP 0.59 trillion since its inception in 1998.

108. The government discloses its exposure from credit guarantees, and other contingent liabilities, in the MFMP and the consolidated financial statements. As can be seen from Table 18, the stock of guarantees has gone up in recent years; however, it remains well within the legal limit. According to the 2016 MFMP, as of end-December 2015, there were 78 outstanding credit guarantees benefitting 24 entities.59 The total exposure from these guarantees was COP 6.95 trillion. Over 80 percent of the guarantee exposure is from foreign currency denominated debt. Of the total exposure, 88 percent is from AAA and AA+ rated entities, whereas only 5.5 percent ($ 288 million) is from entities rated CCC. Based on the default probabilities, the MHCP estimates the present value of contingencies over 2016-2027 to be COP 1.83 trillion (0.22 percent of GDP). The MFMP also shows the balance in the FCEE (COP 0.17 trillion) for each of the beneficiaries.

Table 18.

Exposure from Credit Guarantees

(Trillion COP)

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Source: MHCP; MFMP 2011-2016.

109. The disclosure of credit guarantees, however, offers scope for further enhancement. The MFMP could include a detailed table presenting an itemized list of all credit guarantees with the following information: (1) a brief description of their nature, intended purpose, beneficiaries, and expected duration; (2) the government’s gross financial exposure and expected payments; (3) contributions received by the FCEE; (4) payments made during, and up to, the year in settlement of called guarantees, claims established, and payments received in recovery; and (5) any receivables from counter claims. The list could separate existing and new guarantees issued during the year, and show any changes to existing guarantees.

3.2.4 Public-private partnerships


110. Colombia has an active PPP program which has been growing. PPPs are classified as (i) concessions, (ii) standard PPPs (APPs), and (iii) Private Initiative Projects without public financial contribution (APPIP-SRP), although often only APPs are referred to as PPPs.60 For the purposes of the FTC, all three categories of projects are considered as PPPs. A first generation of concession contracts commenced in 1994, under which most risks were retained by the public sector and minimum income guarantees were granted. Changes were introduced in the second and third generations of contracts, including the elimination of minimum traffic guarantees and transfer of some risks to the private sector. The National Development Plans 2010-2014 and 2014-2018 introduced the current—fourth generation (4G)—in three waves, to close the infrastructure gap in Colombia, particularly with respect to roads. APPIP-SRP have assumed increasing importance (Figure 17). Risks in these projects are to be managed by project restructuring or increases in tolls.

Figure 17.
Figure 17.

PPP Projects by Type and Contingent Exposure, 2016-27

(in US$ millions)

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: MHCP Risk Directorate. Exchange rate used for calculations: COP2,924.8 = US$1, as at October 7, 2016. 4G third wave includes Cormagdalena project

111. The legal framework for PPPs has been strengthened over time. The Contingency Fund Law 448 of 1998 and its regulatory decree 1849 of 1999 established procedures for valuation and budgeting of contingent liabilities, and created a Contingency Fund to cover possible calls on guarantees. Law 1150 of 2007 required that each PPP contract be based on an assessment of project-specific risk. Law 1169 of 2007 required the estimation of potential future expenditures, their approval by CONFIS, and their reporting as part of budget documentation. Law 1508 of 2012 and its regulatory decrees (1467 of 2012, and 100 of 2013) introduced further improvements, including principles for risk allocation and regulations for the handling of unsolicited proposals.

112. Many of the earlier PPP contracts were renegotiated at high fiscal cost. According to DNP estimates, PPP renegotiations in road concession projects during the period 1993-2010 have involved high fiscal costs. The average cost of renegotiations was equivalent to 280 percent of the initial cost of the contract. In 25 concessions assessed, there have been 430 changes in contracts, with a fiscal cost of USD $56,000 billion and 131 additional years of delays.

113. Substantial information is published on PPP projects, but none on the government’s rights or expected annual future receipts. Most of the 4G road concessions are classified as public investments; assets are recognized during the construction phase and liabilities of the same value are recognized at the same time. In Chapter 7 of the MFMP, the maximum annual amount of authorizations for multiyear commitments under the APP scheme is defined and allocated amongst sectors for the period 2015 to 2046 (Figure 7.1 and Table 7.6 of the MFMP). The MFMP also includes details of contingent liabilities from PPPs. Section 8.1.2 of the MFMP contains detailed project-level information on the contingent liabilities in concession contracts and APP contracts, by wave. Details are also provided of the expected profile of contributions to the FCEE. As noted for indicator 2.1.4, more information is available on the government’s multiyear obligations in individual PPP projects than on public investment projects financed from the national budget. However, information is not published on the government’s rights in PPP contracts, nor on the expected future annual receipts.

114. There is a quantitative limit on the flow of new PPP obligations. To limit the fiscal costs and risks from PPPs, the MFMP includes a ceiling for future cash appropriations related to PPP contracts (vigencias futuras for PPPs). The CONPES defines the maximum annual amount of authorizations for the implementation of projects under the APP scheme, currently 0.4 percent of GDP. There is no limit on the stock of PPP obligations.

3.2.5 Financial sector


115. The general government’s direct exposure to the financial sector, through a deposit guarantee fund, Fogafin,61 and some 14 financial institutions, is limited (Box 4). The deposit guarantee fund, Fogafin, is financed by contributions from the financial sector but is implicitly guaranteed by the government. Until April 2017, the fund provided insurance for individual deposits up to COP 20 million by person and by eligible financial institutions. In April 2017, the size of the insured deposits was raised to COP 50 million per person per eligible institution. As of January 2017, based on the then applicable ceiling, Fogafin was estimated to provide insurance cover to 98 percent of the 52 million accounts with a potential liability of about 6 percent of GDP. As of January 2017, Fogafin’s reserves stood at less than 2 percent of GDP, placing Colombia among the low reserve countries, but covering 30.7 percent of insured deposits (Figure 18), in line with the international benchmark of about 20-40 percent. However, this represents 4.1 percent of total deposits, below Fogafin’s targeted range of 4.9–5.9 percent. Due to the distribution of deposits, the April 2017 change in the size of the insured deposits is expected to result in only a moderate increase of COP 312 billion in the government’s contingent liabilities.

Figure 18.
Figure 18.

Fogafin Reserve Developments

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: Fogafin.

116. Since the financial crisis in the late 1990s, there has been limited government support to the financial sector and current financial sector risks appear contained by a strong safety net. Since the financial crisis and the divestment of the main public banks, Fogafin has only been called on two occasions, for a limited total amount. As of the third quarter of 2016, capital adequacy (17.6 percent) is well-above the regulatory minimum. However, the concentration of the banking system around four main banks may pose specific threats to the financial system, if a systemic financial crisis were to occur.

117. The authorities regularly assess financial sector stability, although the government’s risk exposure is neither assessed by the Central Bank nor the MHCP. The Central Bank’s semiannual Financial Stability Report includes a thorough assessment of recent developments in the financial sector and of risks to financial stability, although with no reporting of fiscal liabilities and risks. The report presents aggregate results of macroprudential stress tests and macroeconomic scenarios. Last, the government does not disclose any analysis of its total fiscal exposure to the financial sector and the risks around this exposure.

State-Owned Financial Institutions

The Colombian national government is exposed to the financial sector through direct ownership of 14 institutions. Also, there are indirect, or subnational, financial participation through the various funds. The Special Official Institutions (Instituciones Oficiales Especiales) often target a policy objective. Most of them are either (second-tier) public development banks or special funds.

The supervision of the public financial institutions follows the same rules as the ones applied to the private sector. They are thus subjected to the same constraints. Some institutions concentrate more risks and have numerous links with taxpayer money. For instance, Fiduprevisora manages different funds for the public sector (such as FOMAG, el Fondo Nacional de Gestion del Riesgo de Desastres – FNGDR –, and the contingencies fund). These may warrant a closer scrutiny in a fiscal risk assessment.

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Source: Financial accounts of financial institutions, and Colombian authorities.

Those companies are subsidiaries of public financial companies (La Previsora Compañia de Seguros, Bancoldex and Banco Agrario de Colombia respectively). However, due to their role and specificites, they are presented here as distinct entities.

In 2016, La Previsora de Seguros had a market share of 6 percent and Positiva a market share of 10 percent.

3.2.6 Natural resources


118. Colombia publishes annual estimates of the volume and value of major natural resource assets, but not under different price and extraction scenarios. Colombia is one of the relatively small number of countries that reports the volume and value of natural resources on the government’s balance sheet (as at 31 December 2016 a total value of COP 45.4 billion). This was broken down as shown in Table 19. For Ecopetrol’s oil and gas reserves, the proven reserves were calculated in accordance with US Securities and Exchange Commission standards and methodologies. Almost all reserves (99 percent) were independently audited. For the National Hydrocarbon Agency (ANH) reserves, the price was calculated in accordance with Decree 324/2010, which establishes market prices for the valuation. Data for the minerals sector is consolidated by the National Mining Agency (ANM). Minerals include coal, gold, emeralds, iron, and nickel.

Table 19.

The Value of Natural Resource Assets on the Government’s Balance Sheet

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Source: Colombia: The Consolidated Financial Statements 2015.

119. Data are also published on the volume and value of the previous year’s sales and fiscal revenue from oil and gas. The 2016 MFMP contained a discussion of Ecopetrol’s fiscal and financial results for 2015, including a table showing its fiscal balance (with comparative data for the previous four years).62 This included disclosure of dividends to the nation, income tax, and royalties. Data on the volume of oil and gas sales are available in Ecopetrol’s quarterly and annual reports.63 Contracts for concessions are published on ANH’s web site. However, estimates are not published on the volume and value of natural resource assets under different price and extraction scenarios.

120. The 2016 MFMP describes the evolution and use of oil and gas revenues. It discusses historical episodes of boom and bust cycles in Colombia, and the use of resources from the recent boom, identified as the period 2011-2015. Oil and gas revenues were obtained through tax revenue from the oil sector, Ecopetrol dividends to the central government, and royalties to subnational government through the SGR. It illustrates the major impact on the fiscal accounts of the decline in oil prices and revenues, equivalent to 1.9 percent of GDP over the period 2013-2016.

121. Colombia achieved candidate status for the Extractive Industries Transparency Initiative in 2014. Since then there have been two reports, the most recent being for 2014-2015.64 That report found no significant discrepancies in the reconciliation of payments made by companies with receipts by government.65

3.2.7 Environmental risks


122. Colombia is exposed to significant fiscal risks from disasters. Hazards include low frequency, high impact natural events such as earthquakes, tsunamis, volcanic eruptions, seismic activity and landslides, as well as high-frequency, low-to-medium impact disasters such as floods and landslides. In addition to large-scale loss of life and property, these create large fiscal risks given the uncertainty of their occurrence, damages, and fiscal impacts. The earthquake in the coffee-growing region in 1999 imposed damages amounting to 1.84 percent of GDP. The MHCP (Risk Directorate) estimates a contingent obligation in the event of a disaster at 1.4–1.8 percent of GDP for an earthquake of 1 in 250 years.

123. The government discloses extensive information on the fiscal impacts of past disasters. Table 20 shows the range of measures taken with respect to natural disasters, including coordinated action between institutions, international cooperation, budget transfers, contributions to the Fondo de Calamidades (Disaster Fund), credits from multilateral banks, tax policy decision, and contingent credits.

Table 20.

Fiscal Impacts of Major Disasters, Financing, and Policy Responses

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Source: Mapa de Riesgos Fiscales de la Nacion, Director General of Public Credit, Ministry of Finance and Public Credit, 2015.

124. Disaster risk management strategies commenced in the 1980s following major disasters. This included establishment of a National Disaster Fund in 1984.66 In 1998 the National Plan for Disaster Prevention and Assistance was enacted, while in 2001 constitutional laws were adopted that directed resources to disaster prevention and assistance. In 2001, the government introduced a new line item in the investment category, disaster prevention and response, to the national government’s annual budget. In 2004, a US$260 million external credit line was put in place to partially finance a program for the reduction of fiscal vulnerability to natural disasters over the 2005-2015 period. Following the 2010-2011 El Nino flooding, a Catastrophe Drawdown Option (CAT DDO) of US$ 150 million was negotiated.67

125. Colombia is also implementing a national strategy for financing the fiscal impacts of disasters. In 2012, a Financial Strategy to Reduce the State’s Fiscal Vulnerability when faced with a Natural Disaster was introduced. It attempts to shift disaster risk financing further from ex-post financial instruments (e.g. budget transfers, tax increases), to ex ante financing (e.g. insurance). The strategy involves a layering approach, from use of contingency budgets and reserves for financing risks from low impact, high frequency disasters, through budget reallocation, borrowing and contingent credit for intermediate risks, to risk transfer for passing high-risk layers to reinsurance and capital markets (Figure 19). The strategy is based on sound principles, but its efficacy in an event needs further testing.68

Figure 19.
Figure 19.

A Layered Approach to Disaster Risk Financing

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: MHCP Risk Directorate.

3.3. Fiscal Coordination

3.3.1 Subnational governments


126. The monitoring of SNGs’ financial performance has substantially improved since the financial crisis.69 The national government, for example, is required to submit to Congress in July each year a report on the financial viability of SNGs. These reports are published by the MHCP and the DNP on their websites. They include various indicators of financial performance, as well as information on the execution of budgets by SNGs. Similarly, a quarterly monitoring of the fiscal performance of a large sample (about 80 percent) of SNGs is undertaken by the MHCP, and is one of the inputs into the Ministry’s macro-financial programming, but these data are not yet published.70 Sectoral ministries and the DNP also publish annually a categorization of risk in the use of SGP resources and public hospitals.

127. A sound framework to ensure subnational fiscal sustainability was put in place following problems of over-borrowing and excessive expenditure growth during the 1990s.71 To increase the central government’s control over subnational debt, the so-called “Traffic Light Law” was adopted (Law 358 of 1997). Under this law, SNGs were given a rating based on their ratios of debt to payment capacity. SNGs rated in the red-light zone were prohibited from borrowing, and those in the green-light zone are permitted to borrow up to limits based on debt sustainability calculations. Intermediate cases (the yellow-light zone) were required to obtain permission from the MHCP to borrow. These rules were modified by Law 795 of 2003 (on fiscal responsibility) to eliminate the yellow zone. The rating of individual SNGs can be upgraded or downgraded if their performance improves or deteriorates. In addition, departments and large municipalities must get a satisfactory credit rating from rating agencies before they borrow. SNGs are included within the coverage of the fiscal responsibility law (FRL) (Section 2.3.1), and must comply with the provisions of national laws relating to medium-term financial planning, and the preparation, approval, and implementation of the budget (Law 003 of 2011). In addition, the legal framework includes quantitative limits for operating expenses (Law 617 of 2000), specific rules for dealing with financial insolvency (Law 550/99), and, specific provisions relating to financial planning, budgeting and accountability (Law 819 of 2003).

128. The national government is not authorized to guarantee the domestic debt operations of SNGs. It may grant guarantees for territorial entities to contract external debt, but such operations are rare and must comply with a rigorous approval process. Additionally, SNGs must demonstrate that projects to be financed through borrowed resources are economically viable and consistent with policy priorities established in the PND.

129. The unified FRL imposes strict sanctions on SNGs for their non-compliance with national legislation. Should SNGs breach the limits imposed by the FRL, they will be prohibited from borrowing. They also must adopt a fiscal-rescue package to regain viability over the next two years. The law also prohibits lending by the national government to SNGs or guaranteeing an SNG’s debt if the entity is in violation of Law 617 or Law 358, or if it has debt service arrears to the government. In cases of non-compliance, the credit contract is deemed invalid and borrowed funds must be restituted promptly (Article 21 of the FRL).

130. The policy measures described above have led to a considerable improvement in the financial performance of SNGs. The debt to GDP ratio for SNGs has halved since the late 1990s to reach 4–5 percent of GDP in the last three years, two-thirds of which is domestic. Across municipalities there are large variations in debt levels: 40 percent of the debt of municipalities in 2015 was held by Bogota and 22 percent by Medellin, and all but five of the municipalities held virtually no debt. The credit rating of municipalities has also improved: municipalities with an “A” rating increased from 82.6 percent in 2012 to 96 percent in 2015.72

131. Nevertheless, some challenges remain. Currently, 30 SNGs are implementing an adjustment plan per Law 550 of 1989.73 Adjustments depend on the severity of the cases and the progress made by SNGs in implementing reforms. In extreme cases, the national government may take over the administration of an SNG’s finances or step in to deal with cases where SNGs are failing to provide required services (by making payments directly from resources earmarked for transfer to SNGs), especially in areas such as education and health.

3.3.2 Public corporations


132. As in many countries, the liabilities of public corporations are a potential source of fiscal risks for the Colombian government. As of December 2015, the liabilities of public corporations presented in the financial statement amounted to about 18.2 percent of GDP. The perimeter of the public corporations varies widely in the available documentation.74 The MHCP’s General Directorate for SOEs (DGPE), created in December 2015, monitors a portfolio that includes all enterprises where the MHCP has a direct ownership (minority and majority stakes). The scope of this monitoring excludes public corporations owned by SNGs. The evaluation of this indicator is based on the portfolio managed by the DGPE (Box 5).

Legal Form of Colombian SOEs

There are two main categories of Colombian SOEs as defined by law:

  • Industrial and Commercial State Companies (Empresas Industriales y Comerciales del Estado – EICEs), which, following article 85 of Law 489 of 1998, are statutory corporations wholly owned by the State and whose origin and norms are established by law. They undertake activities of an industrial or commercial nature and of economic management under private law, except in the cases established by the law.

  • Mixed-Ownership Companies (Sociedades de Economía Mixta or SEMs) in which the State has a stake. These entities can take any legal form, and are generally governed by the norms applicable to the private sector.

This breakdown is nuanced by additional criteria:

  • The law establishes that SEMs in which the state holds a stake of 90 percent or more are to be considered as EICEs and must adopt the norms governing EICEs.

  • Social State Companies (Empresas Sociales del Estado or ESEs) are wholly owned by the state but follow a different legal framework than the one applicable to EICEs. Created by the central government or by subnational bodies, their purpose is the direct provision of healthcare services.

  • As established by the Constitutional Court, some types of mixed ownership utility companies (Empresas de Servicios Públicos or ESPs) are considered SOEs. Law 142 of 1994 states that: i) mixed public service companies are those in which the state, subnational bodies or their decentralized bodies have stakes of 50 percent or more; and ii) privately owned public service companies are those in which a majority stake is held by the private sector (or by entities created by international conventions that opt to be subject to private sector rules).

Source: Lehuedé, H. (2013), “Colombian SOEs: A Review Against the OECD Guidelines on Corporate Governance of State-owned Enterprises”, OECD Corporate Governance Working Papers, No. 12, OECD Publishing.

133. The concentration of the state-owned enterprise (SOE) portfolio is important, with Ecopetrol dominating its performance. Due to its recent creation, the DGPE currently oversees 36 corporations that are fully-owned by the national government, but will ultimately manage the entire portfolio of 119 entities in which the national government has ownership interest. As of end 2016, the valuation of this sub-portfolio is estimated at COP 54 trillion, and that of the total portfolio is estimated at COP 62 trillion. The sectoral breakdown of this sub-portfolio, as well as financial indicators, demonstrate the weight of Ecopetrol (Figure 20). The financial position of the public corporations appears strong despite fluctuations in the net profit of Ecopetrol (Figure 21).75

Figure 20.
Figure 20.

SOE Portfolio

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: Financial accounts of the SOEs, and Colombian authorities.Notes: Total income of the 36 SOEs overseen by the DGPE in 2016: COP 79 Trillion (9 percent of GDP)). Total income without Ecopetrol: COP 32 Trillion (3.6 percent of GDP)). Consolidated balance sheet end 2016: COP 230 Trillion. Consolidated balance sheet end 2016 without Ecopetrol: COP 109 Trillion.
Figure 21.
Figure 21.

Evolution of the Return on Equity (ROE) of the SOEs’ Portfolio

Citation: IMF Staff Country Reports 2018, 250; 10.5089/9781484372159.002.A001

Source: DGPE and Colombian authorities.

134. The budget provides information on main transfers to national public corporations, but information on some other direct and indirect support to corporations is not publicly available. Transfers also occur from public corporations to the government. For instance, dividends paid by the 36 corporations currently overseen by the DGPE amounted to COP 10.12 billion for FY 2013, COP 5.67 billion for FY 2014, COP 0.58 billion for FY 2015 and COP 1.30 billion for FY 2016. Transfers also occur among public corporations (such as arrears or capital injections). While some of this information is publicly disclosed by the corporations individually, an overall picture of direct and indirect transfers between the government and public corporations, as well as the amounts received by each entity, is neither available nor published.

135. While occasionally mentioned in companies’ and fiscal reports, public corporations’ quasi-fiscal activities are not systematically identified nor evaluated in totality. The MFMP carries a discussion of the financial performance of BanRep and Fogafin, the two major entities engaged in quasi-fiscal activities. In addition, the 2014 MFMP carried a box describing the quasi-fiscal activities of these two entities, but this information was discontinued in subsequent years. Examples of public policy activities carried by the public corporations also include social projects undertaken by public corporations in the transportation sector or collection of pension contributions or payment of pensions by Colpensiones.

136. The financial performance of individual public corporations is monitored and publicly reported, but there is no detailed analysis of the overall performance of the state’s public corporations as a whole. The DGPE monitors quarterly financial statements of the 36 public corporations in which the MHCP has a majority stake. The DGPE intends to publish an annual report detailing the missions, operations, and financial situation of the public corporations under its umbrella, starting in June 2017. Since budget execution of regional and municipal public corporations is not reported in the budget execution report, an analysis of the overall performance of the state’s public corporations is currently unavailable in Colombia. Last, a general ownership policy has been endorsed by CONPES and published for the national SOEs.76

3.4. Conclusions and Recommendations

137. Colombia’s fiscal risk analysis and management practices meet good or advanced practices in many areas, especially compared to other countries’ practices against the FTC. Colombia’s practices exhibit a high degree of quantification of specific fiscal risks, including estimation of expected costs, and a high degree of allowance for the impact of specific risks in the annual budget or in earmarked financial reserves.

138. In response to past crises, Colombia has put in place comprehensive and transparent frameworks for managing contingent liabilities. Natural disasters over the last thirty years have prompted a strategic approach to disaster risk financing. The crises of the late 1990s led to comprehensive reform of the management of fiscal risks from subnational governments, the financial sector, the state’s participation in the oil and gas sector, and credit guarantees and other explicit contingent liabilities. The MHCP’s Risk Directorate, established in the late 1990s, has contributed to an extensive quantification of risks.

139. There are some areas where Colombia’s performance is relatively weak. The main weakness is the absence of publication of a comprehensive overview of all specific fiscal risks, albeit the gap between current and good practice is not large. Other areas in need of strengthening include analysis and disclosure of macroeconomic risks, projections of long-term fiscal sustainability, disclosure of a comprehensive picture of all PPPs, and publication of a regular overview of public corporations.

140. There are some areas where it would be relatively easy to expand the disclosure of fiscal risks. The MHCP is already planning to expand the coverage of fiscal risks in the annual MFMP, and for the 2018 budget will introduce a discussion of risks from disasters. It would be relatively easy for the subsequent budget to add an overview of subnational governments, given the risk management framework and extensive monitoring and reporting of fiscal risks from that source. Similarly, a discussion of financial sector soundness and the management of financial sector risks would also be relatively easy to produce. The recent creation of DGPE, and production of a report for internal purposes on the SOEs’ financial performance and position, provide a sound basis for publishing this information.

141. Based on the above assessment, the evaluation highlights the following priorities for improving the transparency of fiscal risk disclosure and management:

  • Recommendation 3.1: Expand and refine the disclosure of fiscal risks:

    • Present an annual Fiscal Risk Statement with the MFMP to Congress.

    • Publish an annual overview of the financial performance and position of public corporations.

    • Publish alternative macro-fiscal scenarios, including a combined macroeconomic and specific fiscal risk shock; present probabilistic forecasts of key fiscal aggregates.

    • Present a comprehensive disclosure on all PPPs.

    • Disclose the public policy purpose and the beneficiaries of guarantees.

    • Consider a change to the way in which legal risks to the state are disclosed to reduce the possibility of moral hazard.

    • Publish reports on risks surrounding financial asset and liabilities

    • Update the debt strategy.

  • Recommendation 3.2: Strengthen the management of fiscal risks by:

    • PPPs: ensuring that all projects are appraised in comparison to financing the project through the government budget.

    • Strengthening internal high-level oversight of fiscal risks within MHCP through a coordinating mechanism across directorates, and regular in-year reporting to the Minister of Finance on the evolution of fiscal risks and recommended mitigating actions.

    • Regularly monitoring risks from the financial sector

  • Recommendation 3.3: Expand the disclosure of the long-term sustainability of public finances by publishing long-term projections of the sustainability of social security and public pension schemes over at least 30 years.

Table 21.

Summary Assessment of Fiscal Risks Management and Disclosure

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Annex I. Colombia Detailed Assessment Against FTC

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