Colombia's Government May Cut Budget Deficit Estimate

By Guillermo Parra-Bernal and Patricia Hidalgo

Sept. 18, 2006  (Bloomberg) -- Colombia's government will probably trim its budget deficit estimate for this year as faster economic growth boosts tax revenue, Finance Minister Alberto Carrasquilla said.

The government will probably revise down the target later this year to about 1 percent of gross domestic product from 1.5 percent now, he said. Colombia had a balanced budget in 2005 for the first time in more than a decade after record prices for oil, the nation's biggest export, increased revenue.

``We are sure this will be a year of smaller-than-forecast budget shortfalls,'' Carrasquilla said in an interview in Singapore, where he is attending the International Monetary Fund and World Bank meetings. ``Our initial forecasts will be bettered.''

Last month, Carrasquilla said the government will let its $600 million, 18-month standby agreement with the International Monetary Fund lapse because of improved government finances that are easing the nation's needs for funding. Colombia plans to use proceeds from the sale of a stake in its state oil company, and all the shares it owns in lender Bancafe SA and natural gas company Ecogas, to slash national debt, Carrasquilla said.

In a bid to cut spending and boost tax receipts, the government is pushing legislation to cap local government transfers and lower personal and corporate tax rates while increasing the number of goods subject to value-added tax. Local government transfers and pensions account for about 47 percent of the central government's spending.

``Colombia is clearly benefiting from an expanding economy and high oil prices abroad which is boosting revenue,'' said Alvaro Camaro, a partner at Bogota-based investment firm Valores Gomez Asociados. ``What is needed now is for the tax and local government transfers bills to be approved by Congress in order to control the central government's deficit which is too high.''

Colombia expects the central government's deficit to widen to 5 percent this year from 4.8 percent in 2005.

Colombia's economy, South America's fourth-largest, may expand about 5 percent this year, central bank President Jose Dario Uribe said in a separate interview today.

To contact the reporter on this story: Guillermo Parra-Bernal in Singapore at at gparra@bloomberg.net

Last Updated: September 18, 2006 12:52 EDT