Part 5 of a six-part series on capital costs and economic competitiveness in Latin America
As Colombians head toward a presidential runoff on June 21, the country’s deepening fiscal crisis has moved to the center of the campaign. File Photo by Carlos Ortega/EPA
As Colombians head toward a presidential runoff on June 21, the country’s deepening fiscal crisis has moved to the center of the campaign.
The debate is overdue. Under the outgoing Petro administration, public spending jumped from about 18.7% of gross domestic product in 2019 to nearly 24% in 2024, according to government figures.
The fiscal deficit widened from 4.2% of GDP in 2023 to 6.8% in 2024, the highest in three decades outside the pandemic. Public debt now stands at roughly 61% of GDP, and the central bank has raised its benchmark interest rate to 11.25% to contain inflation. Whoever wins on June 21 will inherit a country whose talent far exceeds its capital.
Colombia has one of Latin America’s most valuable assets: its people. Its young professionals are educated and ambitious, with a growing command of English, software and the global rhythms of innovation. The country is already a natural nearshoring destination for U.S. and European companies drawn by cultural proximity, compatible time zones and competitive costs.
Yet Colombian talent remains expensive in capital terms. Fiscal uncertainty and high interest rates raise the cost of financing and discourage the quality investment that could multiply the country’s potential.
The answer does not lie in more subsidies or industrial plans directed from Bogotá. It lies in a coherent package of pro-market reforms that restores fiscal discipline, frees private initiative and turns Colombian talent into a magnet for abundant, affordable capital.
The central pillar must be fiscal discipline. Public spending has grown faster than revenue for years, pushing the state toward heavier borrowing and raising the risk premium paid by the whole economy. A credible government would pursue primary surpluses and send a clear signal to markets: Colombia pays its debts and keeps its commitments.
When the state spends less than it collects on a structural basis, interest rates can fall and the cost of capital can decline for everyone. The gains are especially important for companies that want to invest in talent and technology.
Alongside fiscal restraint, Colombia urgently needs a more competitive tax system. At 35%, the statutory corporate rate exceeds Chile’s 27% and Peru’s 29.5% by a substantial margin. The system has also become a maze of deductions and exemptions that often rewards those who can afford good tax advisers more than those who create jobs. Simplifying the regime would allow more capital to flow into productive projects rather than into tax avoidance.
A company that pays less in taxes can reinvest more and scale faster.
Labor reform is equally important. Non-wage costs, especially payroll charges and severance obligations, turn what should be an opportunity into a luxury. A more flexible labor market need not weaken rights. Done properly, it can make them more sustainable by encouraging formal hiring and long-term growth.
Such reform would allow technology startups to expand without fearing that payroll obligations will become unmanageable at the first sign of difficulty. The result could be more formal employment and higher real wages over time. It would also create a healthier ecosystem for young talent to launch new ventures without unnecessary obstacles from day one.
A carefully designed incentive regime for technology, nearshoring services and data centers could also help. The purpose should not be discretionary subsidies or political favoritism. It should be a clear and temporary framework tied to measurable results, similar in spirit to Costa Rica’s free zone regime, which uses performance conditions to attract foreign direct investment while limiting open-ended commitments.
Colombia should also accelerate trade opening. Unilateral reductions in tariffs on capital goods and technology, combined with new agreements in Asia, would further integrate Colombia into global value chains. A country that imports cheaper inputs and exports sophisticated services multiplies its productivity.
Protectionism, by contrast, keeps costs artificially high and limits Colombian talent’s ability to serve markets beyond its borders.
Infrastructure and energy also require a stronger private-sector push. A serious program of concessions in transport infrastructure and electricity generation would free public resources while bringing private managerial efficiency. When the state becomes an impartial regulator rather than an operator, investment flows and reliability improves.
Colombia has the potential to become a net exporter of clean energy. What is missing is a framework that gives private capital the confidence to develop that potential.
No reform works without a solid rule of law. Enforceable property rights and real access to international arbitration reduce perceived political risk. Investors are not asking for eternal guarantees. They are asking for stable and predictable rules.
When foreign capital no longer demands excessive risk premiums, financing costs fall across the economy.
If Colombia moves decisively in this direction, it can restore fiscal discipline, simplify taxes, open trade and strengthen respect for property. That would turn its main comparative advantage into an engine of sustained growth.
Talent would no longer be an underused resource. It would become the asset that attracts abundant, affordable capital. Interest rates would converge toward levels seen in more stable economies. Local company valuations would rise. Bogotá and Medellín could compete more seriously with the region’s leading technology hubs.
There is nothing magical about this. It is basic economics. When risk falls and the right incentives are in place, capital flows to where talent lives.
Colombia has the talent. It only needs the reforms that allow capital to follow.
César Addario Soljancic is an economist specializing in public finance with decades of experience advising governments and institutions across Latin America and the Caribbean. Throughout his career, he has led 69 capital-market issuances in 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.
