Colombia has cleared a congressional review step to borrow up to €497 million, about US$556 million, from Germany’s state development bank, KfW, for its 2026 budget. The country’s independent budget watchdog expects a deficit of 7.8% of GDP next year. The approval opens the way to sign three loan contracts, but the money hasn’t arrived. Disbursements are expected at the end of 2026.
Who Controls the Funds
The Interparliamentary Public Credit Commission, the congressional panel that reviews Colombia’s foreign borrowing, approved the loans, the Finance Ministry said Wednesday, 7 October. CONPES, Colombia’s top economic and social policy council, had also approved them. A ministerial resolution must still authorize the signing of the three contracts.
The loans are untied. The government can use the money anywhere in the 2026 budget, rather than on a specified project. The Finance Ministry described the borrowing as German support for reforms on social inclusion and climate change. The reported account includes no demographic figures or statements from popular opposition to the loans.
Finance Minister Miguel Gómez Martínez said, “This authorisation reflects the national government’s commitment to managing the necessary resources.” He linked the loans to financing the budget Congress approved. The reported approvals place the borrowing within Colombia’s national budget process, while bringing a German state development bank into the government’s financing plans.
The Fiscal Shortfall
The government spends about COP 40 trillion, or about US$12.3 billion, a month and collects about COP 29 trillion, or about US$9.0 billion, according to figures the ministry gave Monday, 28 September. That leaves a monthly shortfall of about US$3.4 billion. The KfW loans would cover roughly five days of it.
The Autonomous Fiscal Rule Committee expects the 2026 deficit to reach 7.8% of GDP, La República reported. The ministry projects a deficit of 7.2% for this year and 9.4% for 2027, the newspaper said. Those figures frame the German borrowing as a contribution to a much larger budget financing gap, not a solution to it.
The Finance Ministry 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 loans. It said the rate, term, and grace period compare well with other options and will save money on debt service.
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 Latin America’s highest yield, above Brazil’s 12.77%. The U.S. 10-year Treasury yielded 5.28% on Wednesday, according to the U.S. Treasury.
IMF Review and Market Pressure
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. His successor, conservative President Abelardo de la Espriella, plans a fiscal rescue law that hadn’t yet reached Congress, La República reported.
A Finance Ministry team has been in Washington since Monday, 5 October, for talks scheduled to run through Friday, 9 October, El Tiempo reported. Technical Vice Minister Juan Sebastián Betancur and macroeconomic policy director Sammy Libos lead the team. El Tiempo described the talks as a possible first step toward IMF support programs and financing instruments. No request for an IMF loan has been announced. It isn’t known whether the talks will lead to a credit line or program.
Fedesarrollo, a Bogotá think tank, said a credible fiscal plan could cut interest rates by 250 to 300 basis points, Portafolio reported. The official exchange rate weakened to 3,238.88 pesos per dollar on Thursday, 8 October, from 3,216.01 a day earlier. The Banco de la República was due to set interest rates on Friday, 30 October.