Colombia’s Tax Revenue Surge Reduces 2012 Financing Needs

Colombia plans to raise less money in the local bond market next year, and expects its 2012 budget deficit to narrow more than it originally expected, as strong economic growth boosts tax revenue.

Colombia plans to auction 18.4 trillion ($9.3 billion) of peso bonds next year, according to a revised 2012 financing plan announced today by Finance Minister Juan Carlos Echeverry. In June, the government forecast it would need to raise 20 trillion pesos in the local market. The consolidated budget deficit, which includes states, municipalities and state-run companies, should fall to 1.8 percent of gross domestic product in 2012 from a projected 2.9 percent of GDP this year, Echeverry said.

“The economy has been very dynamic,” Echeverry told reporters today in Bogota. “We are reducing our deficit even as we invest more.”

Quickening economic growth and rising foreign direct investment are bolstering tax revenue and reducing the government’s financing needs. Echeverry said today that tax collection surged 25 percent to 84 trillion pesos this year.

Latin America’s fifth-largest economy may grow as much as 6 percent in 2011, the fastest pace since 2007, according to the central bank. Echeverry said today that Colombia’s economy may grow 5.1 percent in 2012.

Overseas Bonds

The strong growth, more than investment-grade rivals Brazil and Mexico, has given the government a “healthy amount” of cash holdings to pay for bonds maturing overseas at the beginning of next year, Echeverry said. The government is in no hurry to sell $3 billion of bonds it plans to issue overseas in 2012, he added.

A military offensive against guerrilla groups has increased security in the last decade in the Andean nation, opening up vast swathes of the countryside for companies to explore for oil, coal and gold. Foreign direct investment may reach a record $12 billion this year, up from $9.5 billion in 2010, central bank chief Jose Dario Uribe said Nov. 11.

Congress in June passed legislation, known as the fiscal rule, that will allow the nation to capitalize on the resource boom, cut its budget deficit and create a fund to cushion the economy during crises. It targets a central government budget deficit of no more than 2.3 percent of gross domestic product in 2014 and 1.9 percent of GDP in 2018.

The yield on Colombia’s benchmark 10 percent bonds due in July 2024 has fallen 56 basis points so far this year to 7.6 percent. The peso has dropped 1.4 percent this year to 1,934.25 per U.S. dollar.

Colombia is targeting a central government budget deficit next year equal to 3 percent of GDP, Echeverry said.

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