Colombia is increasingly in debt abroad. According to the latest data from the Bank of the Republic, as of December 2022, the Total external debt of the country reached 184,118 million dollarsthe highest figure reached, which represents 53.4 percent of the gross domestic product (GDP).
The set of obligations that Colombia has towards other countries or institutions had an increase of 2.06 percent compared to the data from last November (180,394 million dollars) and shot up 7.48 percent compared to the same period of the previous year. (171,303 million dollars).
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This means that in December the external debt of the country grew 3,724 million dollars, which represents the largest monthly increase registered since August 2021: 120 million daily, more than triple the rate of 35 million daily during the year.
The rise in November was 2,461 million dollars and that in October was 821 million dollars. In total, in 2022, it increased by 12,815 million dollars.
The problem is that as Colombia is indebted to foreigners in dollars, By converting these accounts to Colombian pesos, the country is subject to the fluctuations of the exchange rate. If the US currency rises, the country’s financial commitments are further increased; and if it goes down, it goes down.
For example, if we do that with the average rate of the dollar in December, which was 4,788.91 pesos, we can say that what Colombia owed abroad that month reached 875.6 billion pesos.
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With this, it could be indicated that each Colombian is currently owing 17.02 million pesos of external debt and that only in December each person was left owing 345,555 pesos more. This taking into account population projections that indicate that the country has 51.61 million people.
Private debt grows more
External debt is defined as the set of obligations that a country has towards non-residents. This is made up of public debt, which is contracted by the National Government, and private, by private agents such as companies.
Of the total of 184,118 million dollars as of December 2022, the majority belongs to the public sector, with 104,643 million dollars, which represents an increase of 2.91 percent compared to November and an increase of 2.20 percent compared to to a year ago.
The remaining 79,475 million dollars are private debt and grew 0.97 percent compared to November of last year and another 15.3 percent compared to the same period of the previous year.
In addition, as a percentage of the gross domestic product (GDP), the external debt represents 53.4 percent. Of this total, 30.4 percent is from the public sector and 23.1 percent is from private debt.
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Colombia borrows abroad in dollars.
The reasons
according to Sergio Olarte, Chief Economist Scotiabank Colpatria, Colombia’s external debt, as a whole, increased significantly last year, but it rose much more on behalf of the private sector due to the fact that interest rates abroad for a large part of the companies that can borrow in the abroad are more favorable due to the rapid rise in local rates. For this reason, the expert explains that many companies preferred to contract credits abroad, somehow assuming the exchange risk, which was more profitable than borrowing at very high rates, and that also helped to finance the current account deficit in Colombia. .
“What will happen is that these credits have to be paid, so that will generate demand for dollars to the extent that the debts come due, unless you begin to realize a business in which the companies are exporters and not need to demand dollars, because naturally they already have them. Different from what type of companies were the ones that got into debt, if they have income in dollars or not, a depreciation could be forced in the future, but what has been seen is that a good part of them does export, ”he said.
José Ignacio López, Executive Director of Economic Research at CorficolombianaHe says that the external debt has been negatively affected by the situation of the devaluation of the peso and the increases in interest rates.
“The constant debt is a bad inheritance for the following generations because it is transferring a burden that will eventually have to be paid. If they haven’t noticed the levels either and one would prefer to have lower indicators, they are worrisome. I think that the discussion now is the interest rates that the country is paying and what we have seen there is a tightening of financial conditions with an increase in the risk premium, ”he said.
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Government commitment
The government of Gustavo Petro has spoken of its commitment to reduce the Nation’s debt levels and to honor the fiscal rule. According to José Roberto Acosta, director of Public Credit, the latest Financial Plan published last December says that the fiscal rule will be exceeded in 2023, since the consolidated deficit will be 3.8 percent of GDP (below the 4.2 percent estimated percent), and a primary surplus of 0.6 percent of GDP will also be achieved.