Colombia’s independent fiscal watchdog expects a 2026 deficit equal to 7.8% of GDP, as the country clears a congressional review step for up to €497 million, about US$556 million, in German state-bank loans to help fund its budget. The loans would ease government financing needs, but they haven’t arrived; their interest rates and repayment schedules remain undisclosed.
The Finance Ministry said Wednesday, 7 October, that the Interparliamentary Public Credit Commission had approved three loans from KfW, Germany’s state development bank. CONPES, Colombia’s top economic and social policy council, had also approved them. A ministerial resolution must still authorize the signing of the contracts. Disbursements are expected at the end of 2026.
The Cost of Borrowing
The loans are untied, so the government can use the funds anywhere in the 2026 budget. The ministry described them as German support for reforms on social inclusion and climate change. It said KfW will charge roughly two percentage points less than markets demand on Colombia’s euro-denominated bonds.
The ministry hasn’t disclosed the loans’ interest rates, maturities, grace periods or how the total is divided among the three contracts. It said their rate, term and grace period compare well with other options and will save money on debt service. Approval clears the way for signing; it doesn’t mean the government has received the funds.
Colombia’s 10-year peso bonds yielded 13.13% on Tuesday, 6 October, up from 11.98% on 6 August, La República reported, citing market data. The paper said that was the highest yield in Latin America, above Brazil’s 12.77%. The U.S. 10-year Treasury yielded 5.28% on Wednesday, according to the U.S. Treasury.
A Budget Shortfall
The government spends about COP 40 trillion, or US$12.3 billion, a month and collects about COP 29 trillion, or US$9.0 billion, according to ministry figures released Monday, 28 September. That leaves a monthly shortfall of about US$3.4 billion. The KfW loans would cover roughly five days of it.
La República reported that the Autonomous Fiscal Rule Committee expects the 2026 deficit to reach 7.8% of GDP. The newspaper said the ministry projects a deficit of 7.2% for this year and 9.4% for 2027. The Finance Ministry’s figures describe the gap between monthly spending and revenue; the article does not identify proposed spending cuts or changes to tax revenue.
Finance Minister Miguel Gómez Martínez said the authorization reflected “the national government's commitment to managing the necessary resources.” He linked the loans to financing the budget Congress approved.
Rescue Plan and IMF Talks
On 28 September, the government asked the International Monetary Fund to begin an Article IV consultation, the Fund’s regular review of a member’s economy. Gómez Martínez said the government had inherited a very serious fiscal situation from the previous administration, the leftist government of Gustavo Petro, who left office in August.
La República reported that his successor, conservative President Abelardo de la Espriella, plans a fiscal rescue law that had not yet reached Congress. A Finance Ministry team led by Technical Vice Minister Juan Sebastián Betancur and macroeconomic policy director Sammy Libos began talks in Washington on Monday, 5 October. El Tiempo reported that the talks were scheduled to run through Friday, 9 October, and could be a first step toward IMF support programs and financing instruments.
No request for an IMF loan has been announced. Whether the talks will lead to a credit line or program isn’t known. Fedesarrollo, a Bogotá think tank, said a credible fiscal plan could cut interest rates by 250 to 300 basis points, Portafolio reported. The Banco de la República was due to set interest rates on Friday, 30 October.