Colombia will elect a new president this Sunday, but regardless of who wins, economists, policymakers, and investors say the next leader will have little room to maneuver on economic policy — hampered by serious fiscal problems and a fragmented Congress that could block major reforms.
Voters face a choice between right-wing lawyer Abelardo De La Espriella and leftist senator Ivan Cepeda, two candidates with starkly different blueprints for Latin America’s fourth-largest economy.
Financial markets have rallied behind De La Espriella, a political outsider who has vowed to shrink the size of the government by 40%, expand the tax base, and lower corporate taxes to stimulate private-sector job creation. He also wants to revive oil exploration, permit fracking to push production close to 1.3 million barrels per day, and take a tougher stance against guerrilla and criminal organizations.
“The Colombian state as it is currently structured is financially unviable,” De La Espriella said in a recent speech.
Colombian financial assets surged after De La Espriella won the first round of voting with 43.7% compared to Cepeda’s 40.9%. Investors interpreted the outcome as signaling a potential departure from the policies of outgoing President Gustavo Petro — a Cepeda ally whose tenure saw expanded social programs and gains in manufacturing, tourism, and agriculture.
“The market has moved to largely price an Abelardo victory even before the second round,” said Thys Louw, emerging market fixed income portfolio manager at Ninety One. “If Abelardo should win, the market reaction will undoubtedly still be positive … as the perception would be that he will have a mandate to start reversing damage to the fiscal side and investment that was done under Petro.”
Cepeda, for his part, has pledged to build on Petro’s economic and social agenda with an emphasis on reducing poverty. His plan includes raising taxes on the wealthiest individuals and largest corporations, while keeping a ban on new oil and coal exploration — though he remains open to gas and mining development.
“Let us make a tax pact, a fiscal pact, so we do not have to get to a reform that may be, well, unpopular with sectors of the economy,” Cepeda told Reuters last week.
Colombia’s recovery from the COVID-19 pandemic has been driven largely by consumer spending, wage growth, and government expenditure, while private investment has stayed weak and the oil and mining industries have lost steam.
The country’s economy expanded by 2.6% last year — below the pre-pandemic average of 4%, according to official figures. Private investment remains below pre-COVID levels following a steep 13.4% contraction in 2023, which was Petro’s first complete year in office.
Alejandro Cuadrado, global head of foreign exchange and Latin America strategy at BBVA, noted that the Colombian peso has already absorbed more than half of its potential upside. He warned that markets may be overestimating how much fiscal improvement De La Espriella could realistically achieve.
“The challenge is high, even if the market reacts well to a potential De La Espriella victory,” Cuadrado said, pointing out that limited congressional support would constrain the candidate’s ability to make fiscal adjustments.
Colombia’s public debt currently stands at roughly 60% of GDP. Analysts and credit ratings agencies warn that weak government revenue combined with elevated spending will make it difficult to hit the fiscal deficit target of 5.3% of GDP this year.
To prevent a default, the incoming president must cut spending by $5.6 billion in 2027 and by $20 billion over a full four-year term — equivalent to four percentage points of GDP — according to Juan Carlos Ramirez, head of the Autonomous Fiscal Rule Committee.
“If spending keeps rising and revenues do not improve, there comes a point when those debts become unpayable,” Ramirez told Reuters.
Colombia’s sovereign credit rating was downgraded last year after the government lifted caps on spending and debt. Both S&P and Fitch pushed the country further into junk-bond territory.
“Colombia has a track record of tax reforms, but a new reform is not guaranteed. In fact, De La Espriella has pledged to cut taxes, and while Cepeda supports reforms to raise revenue, he could struggle to push them through Congress, as happened during the Petro administration,” Fitch stated.
Market volatility could increase if the election results are disputed. Cepeda raised concerns about alleged irregularities in the first round before ultimately accepting the outcome, while De La Espriella has spoken out against what he described as pressure from armed groups.
Central bank board member Bibiana Taboada told Reuters that investment has shifted toward capital markets and away from productive industries due to legal uncertainty, insecurity, and extortion.
“Whoever reaches the presidency will find multiple challenges, one of them being to get the economy’s productive capacity growing again,” she said. “It will be fundamental to generate confidence that the macroeconomic stability that had characterized Colombia will return.”
Some Colombian companies that had been exploring growth opportunities abroad are now reconsidering investing at home as the election raises hopes for a policy change, according to Paul Dmitriev, co-portfolio manager and senior analyst at Global X.
“No corporate was doing any capex domestically,” Dmitriev said of conditions earlier in the Petro administration. “And now … there’s been this revival, and, ‘okay, I see opportunity for change, and I see an opportunity to invest domestically.’”
Nelson Castaneda of energy industry group Campetrol said that any revival of energy investment would require institutional stability and a long-term strategy, calling such a restart “fundamental to guarantee the country’s energy security and sovereignty.”
Deutsche Bank economists said a Cepeda victory would likely weigh on confidence in Colombia’s economic prospects, while a De La Espriella administration might be able to build a working congressional coalition to pursue fiscal adjustments — though probably not enough to fully stabilize the national debt.
