Colombian finances adjust to oil crisis

During a presentation to the media in Bogotá, Colombian Finance Minister Mauricio Cárdenas commented on the country’s updated Medium Term Financial plan, which was published on Friday. The plan projects that Colombia’s fiscal deficit will grow 2.4% in 2014 to 3% this year, and still further to 3.6% of GDP in 2016.

Minister Cárdenas said, “It wouldn’t be a good idea to force a reduction in debt when the economy is adjusting to lower oil income. The great advantage of the fiscal rule is that it allows us to gradually accommodate this new reality of lower oil revenue, even as it postpones a little the reduction of the debt to GDP ratio.”

In addition to the statement regarding Colombia’s widening debt-to-GDP ratio, the Colombian Finance Minister announced that his ministry estimates that Colombian GDP will grow by 4.4% in both 2015 and 2016. The country’s fiscal rule committee assumed a long-term price of Brent crude oil at $85.6 in 2015 and $81.5 in 2016 in making its calculations.

In oil-related news, Colombian business journal La República reported that Colombian oil companies are calling on the country’s government to provide financial incentives to stimulate off shore oil exploration in the country. By way of context, the journal explained that offshore oil wells have some benefits over onshore wells, namely that they avoid social conflicts with local communities, but suffer from much higher costs and slower payoffs than onshore wells.

Campetrol president Rubén Darío Lizarralde explained the immediate importance of stimulating offshore oil exploration: “Although we see that offshore exploration is important, we cannot forget that we have reserves for just 6.4 more years, so if we don’t explore and quickly find onshore oil, we will be at least 4 years without oil. That is to say, we will have to import oil at that point, as offshore exploration can take 9 to 11 years until production, while onshore can take between 4 and 6.”