## Colombia: Fiscal Transparency Evaluation (cr18250-colombiafte) ## Source details **Canonical URL:** [Colombia: Fiscal Transparency Evaluation (cr18250-colombiafte)](https://www.imf.org/-/media/files/publications/cr/2018/cr18250-colombiafte.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18250-colombiafte.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18250-colombiafte.pdf.json) --- ### PREFACE — mission, mandate, stakeholders - Mission mandate and objectives: - Responded to a request from the Colombian Ministry of Finance and Public Credit (MHCP). - Objective: evaluate Colombia’s fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis management practices against the 2014 IMF Fiscal Transparency Code (FTC). - Prepared an action plan to improve fiscal transparency. - Composition and timeframe: - Fiscal Affairs Department (FAD) mission visited Bogotá April 19–May 3, 2017. - Mission led by Manal Fouad; team included Sandeep Saxena, Richard Allen, Felipe Bardella, Murray Petrie, Adrien Tenne. - Stakeholders and meetings: - Met Minister Mauricio Cardenas Santamaria; Vice-Ministers Maria Ximena Cadena and Andrés Escobar Arango; Senator Arleth Casado; Director of Macroeconomic Policy Andrés Mauricio Velasco; senior officials from MHCP, National Planning Department (DNP), Office of the Comptroller General (CGR), General Accounting Office (CGN), National Infrastructure Agency (ANI), Ministry of Mining and Energy, Ministry of Transportation, National Procurement Agency, Agency for the Legal Defense of the State, inter-sectoral fiscal statistics technical group, Banco de la República, Colpensiones, Fogafin; Ms. Camila Pérez (Fedesarrollo); Mr. Andrés Hernández Montes (Transparency Colombia). - Donor engagement: - Briefed donors at end of visit; SECO organized donors’ meeting with World Bank and IADB participation. - Acknowledgments: - Gratitude to Colombian authorities; special thanks to Diana Escobar; interpreters Alicia Escovar, Beatriz Canal, Anette Schorr. ### Executive summary — overview, strengths, weaknesses, institutional context - Scope: - Assessment against FTC Pillars I–III: fiscal reporting; budgeting and forecasting; fiscal risk disclosure/management. - Overall findings: - Several advanced practices, but more than half of assessed practices are at basic or not met levels. - Main drivers of gaps: report fragmentation, inconsistent classifications, incomplete disclosure of internally produced information. - Key strengths: - Pillar II (forecasting and budgeting) is strongest: half of related indicators assessed as advanced. - Advanced: orderliness of legislative process; adequacy of powers and information to Congress; credibility of economic and fiscal forecasts; medium-term forecasts and policy orientation; strong medium-term fiscal framework (MFMP). - Pillar I strengths: advanced coverage of fiscal institutions in reports; timeliness of annual financial statements; good coverage of stocks, tax expenditures, internal consistency checks. - Pillar III strengths: advanced management/disclosure of risks from government guarantees, financial sector exposure, environmental disasters; budget contingencies and SNG risks managed well. - Main weaknesses and gaps: - Fiscal reporting: inconsistent classification systems; incomplete transition to international accounting standards; limited recognition of pension and PPP liabilities; weak comparability between budget, outturn, and financial statements. - Fiscal risk management: lack of disclosure of internally available information on macroeconomic scenarios, long-term projections, public corporations. - Forecasting and budgeting: fragmentation (lack of budget unity); gaps in transparency and management of multiyear public investment projects; weak public participation; weak performance indicators for service delivery. - Four FTC principles not meeting basic requirements, including: frequency of in-year reporting; absence of harmonized budget classification; forecast reconciliation; management of specific fiscal risks. - Fiscal institutional context: - Fiscal Responsibility and Transparency Law requires a 10-year fiscal plan. - Numerical fiscal rule (adopted 2012): central government structural deficit of 1 percent of GDP, or less, from 2022; declining transition path between 2012 and 2021. - MFMP contains multiannual primary balance targets guiding budget decisions. - Public sector exposures: - Unitary but decentralized republic; regional/local administrations undertake large share of spending. - Non-financial public corporations significant: over 15 percent of GDP in expenditure; half by Ecopetrol. - Prominent fiscal risks: - Terms-of-trade shocks; long-term impact of PAYGO pension scheme; proliferation of PPPs (notably without direct government contributions); medium-term costs/uncertainties from the peace agreement; public investment management challenges and regional infrastructure access gaps. - Action plan: - Annex II provides prioritized sequencing; some reforms already underway. ### Key recommendations — fiscal reporting (Pillar I) - Recommendation 1.1: Complete reforms to develop a harmonized classification system. - First step: unify national government budget and accounting classifications; deepen economic classification; apply consistently in budget formulation and execution. - Subsequent: harmonize economic classification with classification for fiscal and national account statistics; unify/standardize classifications used by territorial entities; ensure compatibility with national chart of accounts. - Recommendation 1.2: Improve timeliness of the quarterly fiscal bulletin. - MHCP to publish a reporting calendar assigning responsibilities to general directorates. - Central bank to provide financing data more timely. - Consider reviving the monthly central government fiscal balance report to fill gaps. - Recommendation 1.3: Continue transition to international accounting standards aiming for full compliance within a reasonable period. - Refine accounting and consolidation methodology; strengthen internal controls (especially subnational); enhance subnational data quality. - Recognize in operating statement flows relating to the PAYGO pension scheme; recognize employee-related pension liabilities and PPP-related liabilities in balance sheet; improve asset/liability valuation; develop related-party transaction information base. ### Key recommendations — budgeting and forecasting (Pillar II) - Recommendation 2.1: Review which extrabudgetary activities should be brought on budget and fully disclosed. - Cover royalties budget; revenues, expenditures and financing of extrabudgetary units (EBUs); absorption of earmarked revenues within general budget revenues. - Recommendation 2.2: Enhance the medium-term budget framework (MGMP) to align with advanced practice. - Review MGMP and annual budget preparation practices; integrate MGMP with annual budget; produce more credible outer-year forecasts; implement improvements gradually with an action plan. - Recommendation 2.3: Improve management and disclosure on public investment projects. - Make multiyear obligations data publicly available for individual projects; publish expanded summary data in the MFMP; subject all PPP projects to appraisal against direct budget financing using a standard methodology; amend procurement law to record/report procurement modalities; review departures from open competitive tendering. - Recommendation 2.4: Publish analytical work reconciling different vintages of macroeconomic and fiscal forecasts that MHCP carries out for internal use. - Other budgeting priorities: - Consider releasing the Citizen’s Budget in July alongside annual budget proposal to improve public participation. - Integrate performance indicators and results-based frameworks into MGMP and annual budget on a step-by-step basis. ### Key recommendations — fiscal risks (Pillar III) - Recommendation 3.1: Expand and refine disclosure of fiscal risks. - Present an annual Fiscal Risk Statement with the budget proposal to Congress. - Include: financial performance/position of public corporations; alternative macro-fiscal scenarios; comprehensive disclosure of all PPPs; public policy purpose and beneficiaries of guarantees; reports on risks surrounding financial assets/liabilities. - Recommendation 3.2: Strengthen management of fiscal risks. - Appraise PPP projects versus budget financing; establish internal high-level oversight of fiscal risks within MHCP via a coordinating mechanism across directorates; regular in-year reporting to the Minister of Finance on evolution of fiscal risks and mitigating actions; monitor financial sector risks more systematically. - Recommendation 3.3: Expand disclosure of long-term sustainability analysis. - Publish long-term projections of sustainability of social security and public pension schemes over at least 30 years. - Implementation sequencing (planned activities and schedule highlights): - 3.1.3 Publish alternative macro-fiscal scenarios and develop probabilistic forecasts. - 3.1.4 Present comprehensive disclosure on all PPPs. - 3.1.5 Disclose public policy purpose and beneficiaries of guarantees. - 3.1.6 Consider changes to legal-risk disclosure to reduce moral hazard. - 3.1.7 Publish reports on risks surrounding financial assets and liabilities. - 3.1.8 Update the debt strategy. - 3.2 Establish coordination mechanism across MHCP General Directorates and in-year reporting to Minister; 3.2.3 monitor financial sector risks regularly. - 3.3 Publish long-term (over at least 30 years) projections for social security and public pension schemes. ### Fiscal reporting — coverage, timing, quality, integrity (selected findings) - Main fiscal reports (selected): - Monthly budget execution reports (CGR) — commitment basis, budget classification. - Monthly DIAN revenue collection reports — cash basis by tax type. - Monthly DNP investment reports — execution of investment budget. - Quarterly fiscal bulletins (MHCP DGPM & BanRep) — modified cash-based consolidated fiscal balance of NFPS; consolidates Fogafin and BanRep quasi-fiscal balance. - Quarterly debt management reports (DGCPTN) — central government debt stocks/flows. - Annual state of public finance (CGR) — cash/modified cash coverage across subsectors. - Annual consolidated financial statements (CGN) — accrual basis using national accounting standards adapting to IPSAS; based on CHIP submissions. - Annual public debt reports (CGR) — detailed debt stocks/flows and DSA. - Annual GFS questionnaire (CAEFP) jointly by MHCP and CGN — GFSM 2014 presentation using bridge tables from chart of accounts. - Coverage of institutions (2015): - Public sector comprised 3,822 institutional entities; accounted for public expenditure equivalent to about 50.8 percent of GDP. - CUIN maintained by CIEFP; CGN’s 2015 financial statements covered 95 percent of public sector entities and 90 percent of public sector expenditures; exclusions mainly part of Colpensiones payments and NFPC investments. - Subsector composition (2015, CUIN): Budgetary central government (BCG) 102 entities; Extrabudgetary central government 140 entities; State and local governments 1,644 entities; Social security sector 29 pension funds plus health system and 9 health centers; Public corporations 74 financial + 1,822 non-financial corporations. - Coverage of stocks (2015, percent of GDP): - Non-financial assets: 52 - including subsoil assets: 5.7 - buildings, structures, land: 33.2 - Financial assets: 89.6 - debt securities: 24.6 - shares and equity of corporations: 18.4 - currency and deposits: 9 - accounts receivable: 29.9 - Reported liabilities: 112 - debt securities: 38 - loans: 14 - accounts payable: 27.7 - Net worth: 29.6 - Net financial worth: - 22.4 - Gaps in stock coverage (key figures and statements): - Pension liabilities not fully recorded; CGN resolution 633 determined gradual incorporation to be concluded by 2029: - In 2015 almost half the liability was recorded (5.9 percent of GDP); other half (6.7 percent of GDP) reported as a memorandum item. - PPP-related liabilities likely underreported; estimated PPP reporting gap: 1.4 percent of GDP. - Buildings and fixed assets recorded at historical cost not market value; MHCP conducting central government fixed asset inventory. - CGR audits indicated net underestimation in 2015: assets underestimated by COP 9.7 trillion and liabilities underestimated by COP 12.9 trillion; consolidation weaknesses with unreconciled related-party balances of COP 43.2 trillion. - Coverage of flows — cash vs accrual adjustments and impact (values presented exactly as in source): - Accrual of pension liabilities: 2.0 percent of GDP every year. - Annual investment in PPP could reach 0.8 percent of GDP. - Reported adjustments and revised balances (percent/GDP and values as in source): - NFPS Overall Balance (below-the-line, modified-cash, Cierre Fiscal) -3.4 - Cash-accrual adjustments on recognized transactions -4.0 - Central government -0.8 - Social security -0.4 - States and municipalities -0.3 - Non-financial public corporations -2.5 - NFPS Net Lending/Borrowing -7.4 - Coverage adjustments - financial corporations0.9 - Public Sector Net Lending/Borrowing -6.5 - Additional accrual adjustments - Accrual of pension entitlements -2.0 - PPP investment -0.8 - Augmented Public Sector Net Lending/Borrowing FTE -9.3 - Effect on deficits: - On an accrual basis NFPS deficit would reach 7.4 percent of GDP, 4 percentage points higher than currently reported in fiscal reports. - Expanding coverage to include financial corporations would reduce the deficit by 0.9 percentage point. - Incorporating pension entitlements and PPP contracts would turn public sector net lending/borrowing into a deficit of around 9.3 percent of GDP. - Central government transfers consolidated into recurrent expenditure (e.g., transfers to Colpensiones and health) amounted to around COP 20 trillion in 2015 and expected to grow. - Comparability and harmonization issues: - Multiplicity of reports (MHCP, CGR, CGN) differ in coverage, accounting bases, and classifications. - Financial statements and budget execution follow national classification; fiscal statistics historically GFSM 1986 while GFS questionnaire aligned with GFSM 2014. - CIEFP tasked with harmonizing classification systems; target to achieve full compliance with GFSM 2014 by 2020. - Frequency and timeliness: - Quarterly fiscal bulletin compiled with lag of more than a quarter; FTC requires more timely in-year reporting. - Constitution Article 354 requires audited consolidated financial statements within six months of year-end; CGN deadlines met. - Quarterly fiscal bulletin should be compiled/published at least within three months of reference period; aim to produce monthly within one month medium term. - Revisions and disclosure: - Major revisions disclosed in Fe de Erratas in quarterly fiscal bulletin without explanations or bridge tables. - MHCP updates online databases retroactively; fiscal statistics updated as provisional to final but changes not reported. - To date no revision affected compliance with fiscal rule. - Statistical integrity and institutional arrangements: - Colombia disseminates fiscal statistics per SDDS since 2000. - CGN’s compilation limited by chart of accounts and accounting practices; CGN lacks systematic consistency checks. - Recommendation: entrust responsibility for fiscal statistics to a specific agency and strengthen CIEFP. - Priority: integrate budget execution and accounting via harmonized chart of accounts and full interoperability between SIIF and CHIP. - External audit and IPSAS transition: - CGR abstained from opinion on consolidated financial statements in 2015 due to inadequate evidence; audited 95 entities representing 87 percent of public sector assets in 2015; over half (49) of these received qualified/adverse opinions. - CGR to adopt INTOSAI standards by 2018. - CGN published IPSAS transition action plan up to 2019; Resolution 743/2013 operational in 2015 for incorporated public corporations; Resolution 414/2014 in force 2016 for unincorporated corporations; implementation for general government units postponed from 2018 to 2019 (Resolutions 533/2015 and 113/2016). - Strengthen internal controls at subnational level; improve CHIP interoperability and data validation. ### Budgeting and forecasting — fragmentation, MGMP, forecasting performance, public investment - Budget fragmentation and coverage: - Four separate budgets: central government budget (PGN); royalties budget (SGR); subnational government budgets; budgets of 29 public corporations (CONFIS approved). - SGP and SGR transfer approximately 10 percent of GDP to subnational governments. - State and local governments account respectively for around 10 percent and 20 percent of total general government expenditure (net of intra-government transfers). - NFPCs account for over 15 percent of GDP in expenditure; half by Ecopetrol; about one-third pertains to hospitals/health providers. - PGN excludes some 111 EBUs representing about 10 percent of central government revenues and spending. - Table 9 (EBUs): Number of EBUs — 2014: 110; 2015: 111. Annual spending by EBUs (COP billion) — 2014: 25,081; 2015: 25,151. Total spending by PGN (COP billion) — 2014: 257,400; 2015: 245,330. Spending by EBUs as ratio of PGN spending (percent) — 2014: 9.74; 2015: 10.25. - Macroeconomic forecasting performance (exact figures): - MFMP includes forecasts ten years ahead; Financial Plan presented in December and revised in March. - One-year-ahead real GDP mean deviation: 0.1 percentage points (2009-2016); 1.0 percentage points (2012-2016). - Mean absolute deviation 2009-2016: 1.3 percentage points. - One-year-ahead inflation average deviation: minus 0.8 percentage points (2009-2016); minus 1.5 percentage points (2013-2016). - Revenue forecasts recent optimistic bias: averaging about 0.6 percent of GDP in past three years. - Central government one-year-ahead spending forecasts average deviation: 0.1 percentage points (2009-2016). - Comparative one-year-ahead forecasts of Real GDP Growth, 2013-2015 (percent): - Actual: 2013: 4.9; 2014: 4.4; 2015: 3.1. - Authorities (MHCP): 2013: 4.8; 2014: 4.7; 2015: 4.8. - IMF: 2013: 4.4; 2014: 4.2; 2015: 4.5. - World Bank: 2013: 4.5; 2014: 4.3; 2015: 4.5. - Consensus: 2013: 4.3; 2014: 4.5; 2015: 4.6. - Medium-Term Budget Framework (MGMP) features and limitations: - MGMP (2016 example) sets macro-fiscal context based on MFMP; projects medium-term spending for 2017-2020; sets indicative spending ceilings for 29 sectors for budget year and three additional years. - Gaps: focus on investment spending only; different sector classification than annual budget; no breakdown by economic category or program; out-year ceilings substantially revised and not credible; MGMP and annual budget preparation largely separate. - Revisions to medium-term expenditure ceilings (COP billion; percent change in final row as in source): - 2013 vintage: Outturn 144.4; Change (percent) +19.9. - 2014 vintage: Outturn 156.0; Change (percent) +24.4. - 2015 vintage: Outturn 163.4; Change (percent) +15.4. - 2016 vintage: Outturn 167.3; Change (percent) +6.4. - Public investment management and PPPs: - PND contains planned public investment project details over four years; POAI discloses only budget-year appropriations. - DNP maintains SPI (national budget-financed projects) and RUAPP (PPP database) but without multiyear fiscal obligation details for all projects. - MFMP provides total spending on public investment for next 30 years with year-by-year spending for early years; authorized multiyear commitments (vigencias futuras) disclosed for major projects but lifecycle estimates limited (except for PPPs). - Project appraisal: DNP-approved methodology required for economic/financial appraisals; results of appraisals not publicly available; no public sector comparator for PPP vs budget financing. - Procurement and contracting: - High direct contracting: in 2016, 40 percent of contracts by value procured through direct award. - 2015 PEFA: more than 50 percent of contracts in 2014 used direct contracting method in five large ministries. - Orderliness and timeliness of budget process: - Legal framework comprehensive: Constitution; Organic Budget Law Law 38/1989; Law 152/1994; Law 819/2003; Law 1473/2011; Law 1508/2012 (PPPs), etc. - Timetable generally complied with: budget submission to Congress five months before fiscal year; approval two months before start of fiscal year; full details available by end-December. - Congressional debate phases and MFMP submission described in budget calendar. - Public participation, performance orientation: - No formal system of performance-based budgeting; programmatic classification incomplete; PEFA PI-8 rating D+ for performance information. - DNP developing results-oriented framework with World Bank; Manual of Classification of Public Investment Version 2.0 (Feb 2017) includes 29 sectors, 163 programs, 1,500–1,800 projects. - MHCP publishes Citizens’ Guide to the Budget (Presupuesto Ciudadano) after budget approval; Guide only in Spanish and not subject to public consultation during preparation. - Credibility and independent evaluation: - Consultative Council prepares methodology for calculating structural deficit; MHCP publishes compliance report in June alongside MFMP; CGR publishes annual report on fiscal situation in August. - Supplementary budgets and budget amendments follow Law 38/1989 and Decree 111/1996; generally Congress approves changes; supplementary appropriations require certification of resource availability. - Changes to approved budgets (COP Trillions; percent change as in source): - 2016: Original Budget 216, Final Budget 210, Change -3% - 2015: Original Budget 216, Final Budget 208, Change -4% - 2014: Original Budget 203, Final Budget 197, Change -3% - 2013: Original Budget 186, Final Budget 189, Change 2% - 2012: Original Budget 165, Final Budget 166, Change 1% - Forecast reconciliation: - MFMP contains limited discussion/reconciliation of successive vintages; MHCP’s March Financial Plan presents new fiscal estimates but not reconciliation or quantified impacts of macro or policy changes. - Recommendation: include reconciliation tables in MFMP breaking down differences into policy, macro determinants, other factors. ### Fiscal risk analysis and management — exposures, contingencies, sectoral risks - Pillar III focus: - Disclosure/analysis of fiscal risks from government guarantees, PPPs, natural disasters, financial sector; coordination across central government, SNGs, public corporations. - Macroeconomic risks: - Oil revenues contributed approx. 2.5 percent of GDP to annual central government revenues between 2011 and 2014; 1.6 percent of GDP between 2004 and 2010. - MFMP presents sensitivity analysis (exchange rate, oil price, production, inflation); limited alternative scenario analysis of central government debt (+/- 1 percentage point GDP impact). - Suggested: expand MFMP to include detailed stress scenarios, stochastic analysis, disaggregate by level of government. - Specific fiscal risks — selected figures (Table 16 entries presented exactly as in source): - Selected explicit fiscal risks: - Contingent liabilities: Legal claims against the state — Gross exposure: 96; Percent of GDP (2015): 6.95; Estimated expected cost: 20.9; Percent of GDP (2015): 12 - Debt guarantees — Gross exposure: 0.9; Percent of GDP (2015): 2.6; Estimated expected cost: 51.3; Percent of GDP (2015): 1.83 - Contingent obligations in PPP contracts — Gross exposure: 15.3; Percent of GDP (2015): 3; Estimated expected cost: 6.4; Percent of GDP (2015): 0.2 - Callable capital — Gross exposure: 1.9; Percent of GDP (2015): 0.4 - Civil servant retroactive severance — Percent of GDP (2015): 83.9; Estimated expected cost percent of GDP (2015): 10.5 - Natural disasters — Gross exposure: 3; Estimated expected cost percent of GDP (2015): 0.3 - Total selected explicit fiscal risks — Gross exposure: 207.75; Percent of GDP (2015): 26; Estimated expected cost: 74.4; Percent of GDP (2015): 9.2 - Selected implicit fiscal risks: - Disasters and other environmental risks — Gross exposure: 33; Percent of GDP (2015): 4.12 - Public corporations — Gross exposure: 228; Percent of GDP (2015): 28.5 - Subnational governments — Gross exposure: 39; Percent of GDP (2015): 4.9 - Total selected implicit fiscal risks — Gross exposure: 300; Percent of GDP (2015): 37.5 - Memorandum: Pensions — Gross exposure: 839; Percent of GDP (2015): 104.7 - Notes: financial statements’ Table 3.95 reports contingent liability from legal claims as COP1,300 trillion (162% of GDP); MHCP excludes very low probability large claims from gross exposure/expected cost calculations. - PPPs: - CONPES sets maximum annual authorization for APP scheme implementation currently 0.4 percent of GDP (vigencias futuras ceiling for PPPs); no limit on stock of PPP obligations. - APPIP-SRP legal/contractual risks: expected costs are paid into FCEE; realized APPIP-SRP risks cannot be funded from Contingency Fund and are met from increased tolls or project restructuring. - Renegotiation record: in 25 concessions assessed, 430 contract changes with fiscal cost of USD $56,000 billion and 131 additional years of delays; DNP estimates renegotiations 1993-2010 had average cost equivalent to 280 percent of initial cost. - Guarantees and contingency funds: - Contingency Fund (FCEE) established by Law 448 of 1998; FCEE components as of December 2015 accumulated balance: infrastructure 83%; guarantees 16%; legal claims 1%. - Table 17 — Contingency Reserves/Funds (COP billion and percent of total expenditure): - Contingency Fund (FCEE): 2012: 8,576 (8.0); 2013: 12,997 (7.8); 2014: 20,682 (5.8); 2015: 19,596 (5.9); 2016: 18,203 (6.4); 2017: 18,981 (6.4) - Disaster Relief Reserve: 2012: 514 (0.31); 2013: 177 (0.09); 2014: 237 (0.12); 2015: 289 (0.14); 2016: 254 (0.12); 2017: 86 (0.04) - Inter-ministerial Reserve: 2012: 46 (0.03); 2013: 48 (0.03); 2014: 70 (0.04); 2015: 48 (0.02); 2016: 43 (0.02); 2017: 43 (0.02) - Credit guarantees exposure (Table 18, Trillion COP): - 2015: Number of Guarantees 78; Gross Exposure 6.95; Expected value 1.83; FCEE Balance (Guarantee Component) 0.170 - 2014: 98; 5.85; 1.82; 0.140 - 2013: 103; 4.20; 0.88; 0.116 - 2012: 117; 4.40; 0.98; 0.098 - 2011: 124; 4.30; 1.04; 0.075 - 2010: 162; 4.10; 1.22; 0.052 - As of end-December 2015, 78 outstanding credit guarantees benefiting 24 entities; total exposure COP 6.95 trillion; as of December 31, 2016 guarantees component of FCEE balance COP 219 billion; cumulative payments since 1998 COP 0.59 trillion. - Financial sector and Fogafin (values exactly as in source): - Fogafin insured deposits up to COP 20 million until April 2017; raised to COP 50 million per person per eligible institution in April 2017. - As of January 2017, based on then applicable ceiling, Fogafin estimated to insure 98 percent of 52 million accounts with potential liability about 6 percent of GDP. - As of January 2017 Fogafin’s reserves stood at less than 2 percent of GDP, covering 30.7 percent of insured deposits; reserves represent 4.1 percent of total deposits, below Fogafin’s targeted range 4.9–5.9 percent. - April 2017 change in insured deposit size expected to add COP 312 billion in contingent liabilities. - As of Q3 2016 capital adequacy 17.6 percent. - Natural resources and environmental risks: - Government publishes annual estimates of volume/value of natural resource assets; as at 31 December 2016 total value COP 45.4 billion. - ANH and ANM valuation figures for exploration and exploitation presented in Table 19 (COP billions as in source): ANH value under exploration 71.0; ANM 31.9; ANH accumulated exhaustion 46.7; ANM accumulated exhaustion 10.8; ANH net value under exploitation 24.3; ANM net value under exploitation 21.1. - 2011–2015 oil boom decline impacted fiscal accounts equivalent to 1.9 percent of GDP over 2013-2016. - MHCP Risk Directorate estimates contingent obligation for a 1-in-250-year earthquake at 1.4–1.8 percent of GDP. - Subnational governments (SNGs): - Monitoring improved since financial crisis; MHCP submits annual report to Congress in July on SNG viability. - MHCP quarterly monitoring covers about 80 percent of SNGs (data not yet published). - Legal frameworks: Law 358 of 1997 (“Traffic Light Law”), Law 550 of 1999 (insolvency), Law 617 of 2000, Law 819 of 2003, Law 003 of 2011. - SNG debt to GDP ratio halved since late 1990s to reach 4–5 percent of GDP in last three years; two-thirds domestic. - Currently 30 SNGs implementing adjustment plans per Law 550 of 1989. - Public corporations (SOEs): - Liabilities of public corporations in financial statement ~18.2 percent of GDP (end-2015). - DGPE oversees 36 corporations fully-owned by national government; ultimately manage portfolio of 119 entities. - Valuation end-2016: - DGPE sub-portfolio: COP 54 trillion. - Total portfolio: COP 62 trillion. - Income and balance sheet 2016: - Total income of 36 SOEs: COP 79 Trillion (9 percent of GDP). - Total income without Ecopetrol: COP 32 Trillion (3.6 percent of GDP). - Consolidated balance sheet end 2016: COP 230 Trillion. - Consolidated balance sheet end 2016 without Ecopetrol: COP 109 Trillion. - Dividends from 36 corporations: - FY 2013: COP 10.12 billion - FY 2014: COP 5.67 billion - FY 2015: COP 0.58 billion - FY 2016: COP 1.30 billion - Information gaps: no published overall picture of direct/indirect transfers between government and public corporations; quasi-fiscal activities not systematically evaluated. - DGPE intends to publish an annual report on corporations starting June 2017. ### Assessment summary and priority actions (selected summary assessments from Pillars) - Coverage of Institutions: Advanced — annual financial statements cover entire public sector; sectorization needs alignment with GFSM 2014. - Coverage of Stocks: Good — statements cover most assets/liabilities but exclude some; high importance to recognize employee-related pension liabilities and PPP projects together 8.1 percent of GDP (Rec 1.3). - Coverage of Flows: Basic — partial coverage; high importance: major omissions include social contributions to PAYGO pension scheme and Colpensiones pension payments (Rec 1.3). - Frequency of In-Year Reporting: Not Met — reports prepared quarterly with a lag of more than a quarter; high importance to produce more timely (Rec 1.2). - Timeliness of Annual Financial Statements: Advanced — published within six months of year-end. - Classification: Not Met — budget, accounting and statistical classifications need harmonization (Rec 1.1). - Historical Revisions: Basic — revisions reported but without explanations; low importance to explain major revisions with bridge tables. - Statistical Integrity: Basic — disseminated per international standards but need full alignment with GFSM 2014 and systematic consistency checks. - External Audit: Basic — audited by independent auditor but recent statements received a disclaimer; high importance to improve credibility and internal controls (Rec 1.3). - Comparability: Basic — reports not prepared on a comparable basis; should present reconciliations of key aggregates. ### Key statistics and fiscal snapshot (2015, percent of GDP; Public Sector Financial Overview, GFSM 2014 basis) - Revenue (Consolidated): 30.9 - Revenue (Central Gov. budgetary): 18.6 - Expenditure (Consolidated): 35.6 - Expenditure (Central Gov. budgetary): 22.6 - Expense (Consolidated): 32.4 - Net operating balance (Consolidated): 0.5 - Net lending/borrowing (Consolidated): -6.5 - Total Assets (Consolidated): 141.5 - Total Liabilities reported (a) (Consolidated): 112.0 - Unreported Liabilities (b) (Consolidated): 8.1 - Total Liabilities (a)+(b) (Consolidated): 120.0 - Net Worth (Consolidated): 21.5 - Memorandum: PAYGO General pension scheme (Régimen de Prima Media - RPM) stock of pension entitlements: 92.1 *Source: cr18250-colombiafte — IMF Fiscal Transparency Evaluation mission, April 19–May 3, 2017 (excerpts).* ### PREFACE _________________________________________________________________________________________ 6 ### PREFACE ### Mission mandate and objectives - The mission responded to a request from the Colombian Ministry of Finance and Public Credit (MHCP). - Objective: to evaluate Colombia’s fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis management practices against the standards set by the 2014 version of the IMF’s Fiscal Transparency Code. - The mission also prepared an action plan to further improve fiscal transparency. ### Composition and timeframe - A mission from the Fiscal Affairs Department (FAD) of the International Monetary Fund (IMF) visited Bogotá during the period April 19–May 3, 2017 to conduct a Fiscal Transparency Evaluation. - The mission was led by Manal Fouad and included Sandeep Saxena (both FAD), Richard Allen, Felipe Bardella, Murray Petrie, and Adrien Tenne (all FAD experts). ### Stakeholders and meetings - The mission met with: - Minister of Finance and Public Credit, Mr. Mauricio Cardenas Santamaria - Vice-Ministers Ms. Maria Ximena Cadena and Mr. Andrés Escobar Arango - Senator Arleth Casado, representing the Economic Committee of the Congress - Director of Macroeconomic Policy, Mr. Andrés Mauricio Velasco - Senior officials from the MHCP, the National Planning Department, the Office of the Comptroller General of the Republic, the General Accounting Office, the National Infrastructure Agency, the Ministry of Mining and Energy, the Ministry of Transportation, National Procurement Agency, Agency for the Legal Defense of the State, the technical group of the inter-sectoral committee on fiscal statistics, Central Bank (Banco de la República), Colpensiones, and Fogafin - Ms. Camila Pérez from Fedesarrollo - Mr. Andrés Hernández Montes from Transparency Colombia ### Donor engagement - The mission briefed donors at the end of the visit. - SECO organized the donors’ meeting, which included representatives from the World Bank and IADB. ### Acknowledgments - The mission extended its gratitude to the Colombian authorities for outstanding cooperation and frank discussions. - Special thanks were given to Diana Escobar for her efforts to organize meetings and for her insights on fiscal issues in Colombia. - Thanks were also given to interpreters Alicia Escovar, Beatriz Canal, and Anette Schorr for their exceptional service. *Source: PREFACE (cr18250-colombiafte) — IMF Fiscal Transparency Evaluation mission, April 19–May 3, 2017.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overview - This fiscal transparency evaluation (FTE) assesses fiscal transparency practices in Colombia against the first three pillars of the IMF’s Fiscal Transparency Code (FTC): - Pillar I: fiscal reports provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance. - Pillar II: budgets and underlying fiscal forecasts provide a clear statement of budgetary objectives and policy intentions, and comprehensive, timely, and credible projections of the public finances. - Pillar III: governments disclose, analyze, and manage risks to the public finances and ensure effective coordination of fiscal decision-making across the public sector. - Colombia has strengthened fiscal institutions since the late 1990s, including the Fiscal Responsibility and Transparency Law in 2003. - The FTE finds relatively high scores in several areas of the FTC but identifies more than half of practices as either at a basic level or not met, driven by report fragmentation, inconsistent classifications, and incomplete disclosure of internally produced information. ### Key strengths (observed performance) - Fiscal forecasting and budgeting (Pillar II) is the strongest area: - Half of related indicators are assessed as advanced, including: - Orderliness of the legislative process and adequacy of powers and information available to Congress. - Credibility of economic and fiscal forecasts. - Medium-term forecasts and policy orientation; a strong medium-term fiscal framework (MFMP) with comprehensiveness, clarity, and quantified objectives. - Fiscal reporting (Pillar I) strengths: - Advanced coverage of fiscal institutions in fiscal reports. - Timeliness of annual financial statements. - Good coverage of stocks, tax expenditures, and internal consistency checks. - Fiscal risk analysis and management (Pillar III) strengths: - Advanced management and disclosure of risks from government guarantees, financial sector exposure, and environmental disasters—performing well above comparable and higher-income countries. - Budget contingencies and risks related to subnational governments are managed well. ### Main weaknesses and gaps - Over half of assessed practices are at basic or not met levels. Salient issues include: - Fiscal reporting weaknesses: - Inconsistent classification systems. - Incomplete transition to international accounting standards. - These affect credibility of data (full recognition of pension and PPP-related liabilities) and comparability between budget, outturn, and financial statements. - Fiscal risk management weaknesses: - Lack of disclosure of internally available information on macroeconomic scenarios, long-term projections, and public corporations. - Forecasting and budgeting weaknesses: - Fragmentation (lack of budget unity). - Gaps in transparency and management of multiyear public investment projects. - Weak public participation and weak performance indicators for service delivery. - Four principles do not meet basic requirements, including: - Frequency of in-year reporting. - Absence of a harmonized budget classification system. - Forecast reconciliation and management of specific fiscal risks also do not meet basic practice. - These gaps limit full alignment with OECD standards despite the progress (Colombia was welcomed as an OECD member on May 25, 2018). ### Fiscal institutional context and risks - Legal/institutional framework highlights: - Fiscal Responsibility and Transparency Law requires a 10-year fiscal plan. - Numerical fiscal rule (adopted 2012) stipulates a central government structural deficit of 1 percent of GDP, or less, from 2022 onwards, with a declining transition path between 2012 and 2021. - MFMP contains multiannual primary balance targets guiding budget decisions and measures. - Public sector structure and exposures: - Colombia is a unitary but decentralized republic; regional and local administrations undertake a large proportion of public spending. - Non-financial public corporations are significant: over 15 percent of GDP in expenditure, half of which is by Ecopetrol. - Prominent fiscal risks identified: - Exposure to unfavorable terms-of-trade shocks. - Longer-term impact of the defined-benefit PAYGO pension scheme. - Proliferation of PPPs, notably those without direct government contributions. - Medium-term fiscal costs and uncertainties associated with the recent peace agreement. - Challenges in public investment management: infrastructure investment lags peers and access to quality infrastructure differs greatly across regions, contributing to regional income inequality. ### Recommendations and action priorities - An action plan (Annex II) is provided to prioritize and sequence reforms; some reforms are already underway. - Fiscal reporting recommendations: - Recommendation 1.1: Complete reforms to develop a harmonized classification system. - First step: unify national government budget and accounting classifications; deepen economic classification and consistently apply it in budget formulation and execution. - Subsequent reforms: harmonize economic classification with classification used for compiling fiscal and national account statistics; unify and standardize classifications used by territorial-level entities and make them compatible with the national chart of accounts. - Recommendation 1.2: Improve the timeliness of the quarterly fiscal bulletin. - First step: MHCP should publish a reporting calendar with responsibilities assigned to general directorates for releasing reports by due dates. - The central bank should provide financing data more timely. - To fill reporting gaps, MHCP could consider reviving the monthly central government fiscal balance report. - Recommendation 1.3: Continue transition to international accounting standards aiming for full compliance within a reasonable period. - Require refining accounting and consolidation methodology, strengthening internal controls (particularly at subnational level), and enhancing subnational data quality. - Successful classification reforms should aid financial statements and consolidation. - Budgeting and forecasting recommendations: - Recommendation 2.1: Review which extrabudgetary activities should be brought on budget and fully disclosed in budget documents. - Cover royalties budget; revenues, expenditures and financing of extrabudgetary units; absorption of earmarked revenues within general revenues of the budget. - Recommendation 2.2: Enhance the medium-term budget framework (MGMP) to align with advanced principles and practices. - Reform elements: review existing MGMP and annual budget preparation practices; better integrate MGMP with annual budget process; produce more credible outer-year forecasts. - Recommendation 2.3: Improve management and disclosure of information on public investment projects. - Recommendation 2.4: Publish existing analytical work on reconciliation of different vintages of macroeconomic and fiscal forecasts. - Fiscal risks recommendations: - Recommendation 3.1: Expand and refine disclosure of fiscal risks. - Present an annual Fiscal Risk Statement with the budget proposal to Congress to meet advanced standards. - The statement should include: financial performance and position of public corporations; alternative macro-fiscal scenarios; comprehensive disclosure of all PPPs. - Recommendation 3.2: Strengthen management of fiscal risks. - Include appraisal of procuring projects by PPPs versus financing through the budget; appraisal and internal high level oversight of fiscal risks within MHCP via a coordinating mechanism across directorates; regular in-year reporting to the Minister of Finance on evolution of fiscal risks and mitigating actions. - Monitor financial sector risks more systematically. - Recommendation 3.3: Expand disclosure of long-term sustainability analysis of public finances. - Publish long-term projections of sustainability of social security and public pension schemes over at least 30 years. ### Key statistics and fiscal snapshot (2015, in percent of GDP) - The assessment includes a Public Sector Financial Overview, 2015 (estimates in accordance with the GFSM 2014, adopting the accrual basis to the extent possible). Selected line items as presented: - Revenue (Consolidated): 30.9 - Revenue (Central Gov. budgetary): 18.6 - Expenditure (Consolidated): 35.6 - Expenditure (Central Gov. budgetary): 22.6 - Expense (Consolidated): 32.4 - Net operating balance (Consolidated): 0.5 - Net lending/borrowing (Consolidated): -6.5 - Total Assets (Consolidated): 141.5 - Total Liabilities reported (a) (Consolidated): 112.0 - Unreported Liabilities (b) (Consolidated): 8.1 - Total Liabilities (a)+(b) (Consolidated): 120.0 - Net Worth (Consolidated): 21.5 - Memorandum: PAYGO General pension scheme (Régimen de Prima Media - RPM) stock of pension entitlements: 92.1 *Source: EXECUTIVE SUMMARY, cr18250-colombiafte - EXECUTIVE SUMMARY* ### 8. This remainder of this report is organized as follows: Chapter II provides a detailed ### cr18250-colombiafte - 8. ### Organization of the remainder of the report - Chapter II: detailed evaluation of fiscal reporting (Pillar I). - Chapter III: evaluation of fiscal forecasting and budgeting (Pillar II). - Chapter IV: evaluation of disclosure and management of fiscal risks (Pillar III). - An Action Plan with suggested priorities and sequencing to implement the recommendations is annexed to the report. ### Fiscal reporting: purpose and assessment dimensions - Fiscal reports should provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance. - This chapter assesses Colombia’s fiscal reporting against the first pillar of the IMF’s FTC, focusing on four dimensions: - Coverage of public sector institutions, stocks and flows; - Frequency and timeliness of reporting; - Quality, accessibility, and comparability of fiscal reports; - Reliability and integrity of reported fiscal data. ### Main fiscal reports (selected) - Monthly budget execution reports produced by the CGR: compare budget estimates, adjusted appropriations and outturn of expenditures on a commitment basis, using the budget classification. - Monthly revenue collection reports published by the tax directorate (DIAN): present monthly tax collection on a cash basis by tax type. - Monthly investment reports published by the national planning department (DNP): present detailed analysis of the execution of investment budget. - Quarterly fiscal bulletins produced jointly by the MHCP General Directorate of Macroeconomic Policy (DGPM) and Central Bank (Banco de la República (BanRep)) and published by the MHCP: present a modified cash-based consolidated fiscal balance of the non-financial public sector (NFPS) — the main fiscal indicator used for policy analysis. The report also consolidates Fogafin and the quasi-fiscal balance of the BanRep. - Quarterly debt management reports published by the General Directorate of Public Credit and National Treasury (DGCPTN): present detailed information on stocks and flows (issuance/redemption) of the central government debt, including breakdown by counterpart residency, currency, and maturity. - Annual state of public finance report produced by the CGR: contains revenue and expenditure data covering the central government, the social security operations, the subnational governments, the non-financial public corporations and the central bank. Revenue compiled on a cash basis and expenditure on a modified cash basis. - Annual consolidated financial statements produced by the CGN: based on accounting data submitted quarterly via CHIP; statements prepared on an accrual basis using national accounting standards adapting to IPSAS. - Annual public debt reports produced by the CGR: detailed information on stocks and flows of the entire public sector debt and subsectors; includes a debt sustainability analysis under different macroeconomic scenarios. - Annual government finance statistics (GFS) questionnaire (CAEFP) jointly prepared by the MHCP and CGN: follows GFSM 2014 presentation, uses bridge tables by CIEFP that map the national chart of accounts to GFS codes; includes statement of operations and balance sheet for the general government sector (GG). ### Coverage of fiscal reports — institutions - In 2015 the public sector comprised 3,822 institutional entities that together accounted for public expenditure equivalent to about 50.8 percent of GDP. - CUIN (Clasificación entidades según código Único Institucional) categorizes entities according to GFSM 2014 guidelines; CUIN is maintained by CIEFP and published on CGN’s website. - Subsector composition in 2015 (following CUIN): - Budgetary central government (BCG): 102 entities (23 ministries and departments, 7 agencies, 7 funds, 65 other public establishments). - Extrabudgetary central government: 140 entities (6 professional councils; 37 corporations; 38 national funds; 25 institutes; 17 universities). - State and local governments: 1,644 entities (143 state-level budgetary and extrabudgetary entities; 1,501 local-level entities including 1,103 municipalities). - Social security sector: 29 pension funds plus health insurance system and 9 health centers. - Public corporations: 74 financial and 1,822 non-financial corporations. - Colombia publishes financial statements covering the entire public sector; CGN’s annual financial statements are presented in three volumes: consolidated public-sector statements, national government financial statements, and subnational (territorial) statements. - The 2015 financial statements covered 95 percent of public sector entities and 90 percent of public sector expenditures. Exclusions mainly related to part of Colpensiones pension payments and investments undertaken by non-financial public corporations. ### Coverage of stocks (balance sheet) — strengths and detailed statistics - The consolidated balance sheet and the annual GFS questionnaire provide detailed information on financial and non–financial assets and liabilities, as well as net worth of all subsectors. - 2015 balance sheet breakdown (percent of GDP): - Non-financial assets: 52 percent of GDP, including 5.7 percent of GDP in subsoil assets and 33.2 percent of GDP in buildings, structures, and land. - Financial assets: 89.6 percent of GDP, including 24.6 percent of GDP in debt securities, 18.4 percent in shares and equity of corporations, 9 percent in currency and deposits, and 29.9 percent in accounts receivable. - Reported liabilities: 112 percent of GDP, including 38 percent of GDP in debt securities, 14 percent of GDP in loans, and 27.7 percent of GDP in accounts payable. - Net worth: 29.6 percent of GDP. - Net financial worth: - 22.4 percent of GDP. ### Coverage of stocks — gaps and weaknesses - The CGN public sector balance sheet does not fully reflect all government assets and liabilities or their market values. Key gaps include: - Pension liabilities: - Not fully recorded; only part of the liabilities related to public service pension schemes prior to the 1993 reform are recorded. - CGN’s resolution 633 determined gradual incorporation to the balance sheet to be concluded by 2029. - In 2015, almost half of the liability was recorded (5.9 percent of GDP); the other half (6.7 percent of GDP) was reported as a memorandum item. - PPP-related financial liabilities are likely underreported: - Limited information in the balance sheet because Colombia does not fully comply with IPSAS 32 methodology. - ANI is working to adopt international accounting standards for 4G PPP contracts (from 2015); 3G contracts (2011–2015) will be reviewed; 1G and 2G contracts (up to 2011) will not change. - The size of this PPP reporting gap is estimated to be 1.4 percent of GDP. - Valuation of fixed assets: - Buildings, structures and other fixed assets are recorded at historical cost while GFSM recommends market value; market valuation could alter the non-financial asset position. - MHCP is conducting an inventory of central government fixed assets to better evaluate condition and update records. - The CGR’s audits have regularly indicated under- and/or over-estimation of assets and liabilities: - Led to an adverse opinion on the 2013 accounts and abstention on the 2015 accounts. - In 2015 CGR found net underestimation of assets (1.2 percent of GDP) and liabilities (1.6 percent of GDP), with notable inconsistencies in tax receivables and litigation. ### Comparability and harmonization issues - Multiplicity of reports from MHCP, CGR, and CGN differ in coverage of institutions, stocks, and flows, use different accounting bases, and follow different classification standards. - Financial statements and budget execution reports follow national classification; fiscal statistics follow older GFSM 1986 while the GFS questionnaire is aligned with GFSM 2014. - Lack of harmonized subsector definitions and absence of a cash flow statement in financial statements limit comparability and utility for policy analysis and public debate. - Colombia is progressively moving towards full adoption of GFSM 2014 guidelines with a target of achieving full compliance by 2020; an inter-sectorial commission (CIEFP) is tasked with harmonizing classification systems to enable coherent and timely fiscal reports. *Source: cr18250-colombiafte - 8. (excerpt)* ### 18. Taking a more comprehensive view of the public sector balance sheet would ### 18. Taking a more comprehensive view of the public sector balance sheet would ### Summary findings on consolidated public sector balance sheet - Initial estimates of the fully consolidated public sector balance sheet suggest an estimated negative net financial worth of around 30.5 percent of GDP and a net worth in 2015 of about 21.5 percent of GDP, comparable to Peru. - The change in the reported fiscal position is mainly due to the inclusion of pension and PPP-related liabilities in the balance sheet. - A re-evaluation of some of the main assets and liabilities (e.g., fixed assets, pension liabilities) and assessment of PPP-related liabilities is needed to fully reflect Colombia’s fiscal position. - A probability-based analysis (building on historical recovery trends) could be performed to better assess the value of accounts receivables. ### Pension system: structure and fiscal implications (Box 1) - Constitutional and legislative framework: - Constitution (Art. 48) defines universal availability of pension benefits subject to conditions. - Law 100/1993 introduced the general pension system (Sistema General de Pensiones), modified by Laws 797/2003, 812/2003, 923/2004, and Legislative Act 01/2005. - The system cannot be modified except by Congress through a Legislative Act. - Two alternative mandatory schemes for formal workers: - Régimen de Prima Media – RPM: public defined-benefit scheme operated almost entirely by Colpensiones; contribution rate is 16 percent of wage (three-fourth borne by employers and one-fourth by employees); operates on a PAYGO basis; shortfalls met by government budgetary transfers. - Ahorro Individual con Solidaridad: defined contribution individual capitalization scheme operated by private financial corporations (AFPs); contribution rate is 16 percent. - Additional schemes mainly covered by the central government budget: - Régimenes Empleadores: non-contributory schemes covering civil servants who entered before 1993; pensions paid partly from general budget. - UGPP (Unidad de Gestión Pensional y Parafiscales): manages pensioners belonging to dissolved entities under employer’s pension regime. - Aggregate actuarial liabilities: - The total actuarial pension liability in Colombia, considering the general pension system, Régimenes Empleadores and UGPP, reached COP 839 trillion (104.7 percent of GDP) in 2015. - Detailed actuarial liability breakdown (COP trillion / % of GDP as presented): - Sistema General de Pensiones 73892.1 - Régimen de Prima Media - Colpensiones 55569.4 - Teachers10212.8 - National Police405.0 - Military personnel 374.7 - Congress' employees3 0.3 - Régimenes Empleadores - before 1993 739.2 - Ecopetrol 101.3 - Parapat-Telecom101.2 - Other536.6 - UGPP283.5 - TOTAL839104.7 - Statistical treatment under GFSM 2014: - For defined-benefit schemes: treatment depends on beneficiaries. If beneficiaries are the general population (social security), the link between benefits and contributions is not considered sufficiently strong to give rise to a financial claim by contributors; liabilities are not recorded but net implicit obligations should be presented as a memorandum item. Employment-related schemes are considered contractual liabilities and are recorded. - Under this criterion, actuarial liabilities of Régimenes Empleadores and UGPP would be recognized as firm liabilities in public sector financial statements. - Viewing the general pension system as social security would imply actuarial liabilities of the entire general pension system (92.1 percent of GDP) are treated as contingent liabilities and disclosed. ### Coverage of flows (accrual vs cash) and impacts on fiscal balances - Current practice and omissions: - Colombia’s fiscal reports mainly used for policy decisions are prepared on a modified cash basis while financial statements are on accrual but not complete. - Annual financial statements cover accrual flows (accounts payable/receivable, depreciation, revaluations, exchange rate variation) but major omissions include social contributions to the PAYGO pension scheme and pension payments made by Colpensiones. - Some accrued flows related to pension liabilities (Régimenes Empleadores and UGPP) and PPPs are partially reported. - Estimated cash-to-accrual adjustments (based on limited data): - The accrual of pension liabilities amounts to 2.0 percent of GDP every year. - Annual investment in PPP could reach 0.8 percent of GDP. - Reported adjustments and revised balances (values presented exactly as in source): - NFPS Overall Balance (below-the-line, modified-cash, Cierre Fiscal) -3.4 - Cash-accrual adjustments on recognized transactions -4.0 - Central government -0.8 - Social security -0.4 - States and municipalities -0.3 - Non-financial public corporations -2.5 - NFPS Net Lending/Borrowing -7.4 - Coverage adjustments - financial corporations0.9 - Public Sector Net Lending/Borrowing -6.5 - Additional accrual adjustments - Accrual of pension entitlements -2.0 - PPP investment -0.8 - Augmented Public Sector Net Lending/Borrowing FTE -9.3 - Effect on deficits: - Recognizing these additional accrued expenses would increase Colombia’s public sector deficit. - On an accrual basis, the NFPS deficit would reach 7.4 percent of GDP, 4 percentage points higher than currently reported in fiscal reports. - Expanding coverage to include financial corporations would reduce the deficit by 0.9 percentage point. - Incorporating pension entitlements and PPP contracts would turn public sector net lending/borrowing into a deficit of around 9.3 percent of GDP. - Other reporting gaps: - Central government transfers to pension funds (e.g., Colpensiones) and to the health insurance system are not explicitly reported and are consolidated into a recurrent expenditure line in the quarterly fiscal bulletin (Cierre Fiscal), hindering reconciliation with Colpensiones and the health system. - Such transfers amounted to around COP 20 trillion in 2015 and are expected to grow. ### Tax expenditures: coverage, scale, and recommendations - Current coverage and magnitude: - Annual estimates of main central government tax expenditures are published in the MFMP. - In 2015, estimated revenue losses from tax expenditures amounted to about COP 62,392 billion (7.8 percent of GDP or 54 percent of tax revenue). - Losses concentrated in finance and insurance activities, energy and mining industries, and general tax expenditures that apply to public administration, defense and social security. - Fiscal costs of VAT exclusions increased by more than half between 2011 and 2015 (per MFMP). - Assessment and governance gaps: - Tax expenditure estimates cover central government only; no coverage of taxes levied by subnational governments. - No explicit budgetary limit on the size of tax expenditures. - Most tax expenditures related to income tax and VAT are not subject to any time limit; time limits can be extended by law. - Number of tax expenditures has grown substantially without thorough ex-ante or ex-post analysis of total fiscal cost or economic impact. - MFMP’s cost analysis is static and does not account for behavioral changes. - Recommendations: - Introduce explicit controls and budgetary objectives for the size of tax expenditures. - Generalize use of cost-efficiency analysis to compare tax expenditures and direct subsidies and to assess value-for-money. ### Frequency, timeliness, classification, and internal consistency of fiscal reports - Frequency and timeliness of in-year reports: - Several in-year reports are produced by MHCP general directorates but none meets FTC coverage and timeliness requirements. - Quarterly fiscal reports by DGPM provide comprehensive revenues, expenditures, and financing for central government and combined public sector but are produced with a lag of more than a quarter. - Timeliness affected by reconciliation delays between MHCP and Central Bank; stronger cooperation needed. - Other reports (monthly DGPPN expenditure execution, DIAN tax collections, DGCPTN debt reports, DNP investment execution) are higher frequency and timely but provide partial views only. - Timeliness of annual financial statements: - Constitution (Article 354) requires audited consolidated financial statements within six months of fiscal year end. - CGN must submit consolidated financial statements to CGR by May 15; these deadlines are met. - CGR’s report is placed before Congress in July; financial statements and audit report are published on CGN and CGR websites respectively. - Classification: - Lack of a harmonized classification system based on international standards is a major weakness; no consistent application of economic, functional or program classifications that meets international standards. - Budget classified by institutions and economic nature of expenditure per Organic Budget Law; investment budget lacks economic classification of programs/projects; functional classification provided at a broad level but deviates at lower levels. - Financial statements follow different classification designed for accounting standards; a bridge table maps accounting classification to GFSM. - MHCP-led CIEFP has begun work to harmonize classifications; action plan and technical working groups active on six areas including sectoral classification of entities, harmonization of classification systems, measurement of public debt, social protection boundaries, integrated classification for territorial entities, and consolidation of accounts. - Early achievements: establishment of a Bureau led by CGN with DANE and MHCP to develop classification of public sector institutions; comprehensive list of public entities coded using CUIN; draft economic classification of budget aligned with GFSM 2014 and IPSAS; policy note to be submitted to CONPES in second half of 2017. - Internal consistency: - Fiscal reports present two of three reconciliations demanded: above-the-line deficit reconciled with below-the-line financing (statistical discrepancy reported) and debt issuance/stock information available though not explicitly reconciled. - Statistical discrepancies have been significant in some years and need more rigorous reconciliation. - Reconciliation table (COP Billions) presented exactly as in source: - Year Fiscal Balance Financing Discrepancy - 2016 -19,681 -19,037 644 3% - 2015 -26,417 -27,163 746 3% - 2014 -13,807 -13,724 83 1% - 2013 -7,003 -6,247 756 11% - 2012 3,581 1,862 1,719 48% - 2011 13,604 12,585 1,019 7% *Source: FTEs; Annual Consolidated Financial Statements, 2015, on GFSM 2014 basis; MFMP; MHCP.* ### 32. Major revisions to fiscal data are disclosed, but no further explanations or bridge ### 32. Major revisions to fiscal data are disclosed, but no further explanations or bridge ### Revisions, disclosure and timeliness - Major revisions to fiscal data are disclosed in a short section—Fe de Erratas—in the quarterly fiscal bulletin (Cierre Fiscal), but without an explanation of the changes or bridge tables between old and new figures. - Such revisions have had a minor impact on the final fiscal balance. - The MHCP updates retroactively its online databases containing fiscal aggregates. - Fiscal statistics are also updated as they move from provisional to final status; however, in this case, the changes are not reported. - To date, no revision has affected the compliance with the fiscal rule. - The quarterly fiscal bulletin is the only report that provides a comprehensive view of fiscal operations; it needs to be compiled and published at least within three months of the reference period, and over the medium term the aim should be to produce this report every month, within one month of the reference period. ### Statistical integrity and institutional arrangements - Colombia has disseminated fiscal statistics in line with the IMF’s Special Data Dissemination Standards (SDDS) since 2000; Colombia subscribed to the SDDS in 1996 but met all SDDS requirements only in 2000. - Colombia has been submitting data to the IMF’s GFS Yearbook under the GFSM 2014 reporting format; however, there is room for improvement in compliance with the GFSM guidelines. - Accuracy of the CGN’s compilation procedures is limited by the structure of the chart of accounts and current accounting practices. - The CGN does not perform consistency checks in a systematic manner; systematic checks would improve classification of units and/or statistical treatments of operations, particularly reciprocal transactions within subsectors. - Checks should be undertaken against other sources of fiscal data, i.e., external sector and monetary statistics, national accounts and cash-based fiscal statistics compiled by the DGPM. - Entrusting responsibility to produce fiscal statistics to a specific government agency, and if possible to a professionally independent body, would align with international good practice and improve the score under the Code. - Multiplicity of agencies compiling and publishing fiscal data using different data sources, methodologies and reporting practices can create confusion and be detrimental to transparency objectives. - CIEFP has been working to improve inter-agency coordination; the committee should receive strong institutional support and have access to all resources needed to carry out its activities. - Regarding the medium-term action plan, priority should be given to integrating budget execution and accounting by: i) harmonizing the chart of accounts and codification of both systems; and ii) ensuring full interoperability between SIIF and CHIP. ### External audit, accounting standards and audit findings - The CGR—the supreme audit institution—has not been in a position to certify financial statements in two recent years. - In 2015, while the CGR certified the reasonableness of the treasury balance, it abstained from providing an opinion on the consolidated financial statements due to the lack of adequate evidence to judge the reasonableness of several accounts. - During 2015 the CGR audited 95 entities representing 87 percent of the total public sector assets. - Of these 95 audited entities, over half (49)—representing 46 percent of the total assets and 27 percent of total liabilities of the 95 audited entities—received a qualified or adverse opinion. - CGR’s audit observations included: lack of adequate explanation of changes due to adoption of new accounting standards (Resolution 743 of 2013); large accounts payable including those pertaining to Colpensiones; weaknesses in the consolidation process resulting in large unreconciled related-party balances of COP 43.2 trillion; incorrect representation of assets (net underestimation by COP 9.7 trillion) and liabilities (net underestimation by COP 12.9 trillion). - The CGR expects to complete its adoption of the international organization of supreme audit institutions (INTOSAI) auditing standards by 2018. - Colombia is undertaking a gradual transition to IPSAS; the CGN published in 2013 an action plan with an implementation schedule up to 2019. - Resolution 743/2013 became operational in 2015 for incorporated public corporations. - Resolution 414/2014 came into force in 2016 for unincorporated corporations. - Implementation for general government units, originally scheduled for 2018, was postponed to 2019 (Resolutions 533/2015 and 113/2016). - Strengthening internal controls, particularly at the sub-national level, is important to improve the quality of financial statements and avoid recurrence of audit qualification. - Improve interoperability between CHIP and information systems used by subnational entities, including public corporations at subnational level. - Pursue universal introduction of financial information systems at subnational levels. - Improve data validation and controls in CHIP. ### Comparability of fiscal data and reporting plans - Fiscal reports are prepared by different agencies with divergent institutional coverage, accounting base and methodology, and classification; reports score low on comparability. - There are at least three distinct reporting plans: - Reports such as the MFMP, quarterly fiscal bulletin, and the annual compliance report focus on fiscal aggregates broken down by subsectors and follow GFSM 1986 economic classification. - The annual budget, DGPPN’s monthly budget execution reports, DNP’s monthly report on execution of investment projects, and CGR’s reports follow the budget classification. - The CGN’s annual financial statements are prepared on an accrual basis using the accounting classification to meet accounting standards and for compiling GFS data. - Due to coverage and methodological differences, deficit figures and other main fiscal aggregates disclosed in these reports differ from each other. - Improving comparability would require presenting reconciliation tables for the main fiscal aggregates between different reporting plans: - Financial statements could include a reconciliation of main aggregates with the annual fiscal bulletin. - GFS and the CGR’s budget execution reports should present a reconciliation with outturns reported in the fiscal bulletin and with the annual financial statements. ### Conclusions, key weaknesses and priorities - Strengths: - Accrual-based annual financial statements consolidate the entire public sector and are available within six months of the year-end. - Colombia has made progress in adapting national accounting standards to international accounting standards, bringing public sector liabilities and assets, including sub-soil assets, onto its balance sheet. - Independent audit by CGR and disclosure of tax expenditures complement financial statements and facilitate policy analysis. - Key weaknesses: - Lack of a well-developed and harmonized classification system limits comparability and constrains analytical use. - Delay in publishing a comprehensive in-year fiscal report; the quarterly fiscal bulletin has a lag of more than a quarter. - Financial statements have methodological gaps: partial recognition of pension and PPP-related liabilities results in the balance sheet understating liabilities by 8.1 percent of GDP. - Operating statement excludes significant flows relating to the public pension scheme and annual accrual of pension liabilities, causing underreporting of the deficit. - Integrity of fiscal reports scores low; technical improvements could address integrity concerns. - Priorities and recommendations: - Recommendation 1.1: Continue reforms to develop a harmonized classification system. - Unify national government budget and accounting classifications. - Deepen and consistently apply the economic classification in budget formulation and execution. - Harmonize economic classification with classification used for compiling fiscal and national account statistics; unify and standardize classifications used by territorial-level entities; make them compatible with national chart of accounts. - Recommendation 1.2: Improve timeliness of the quarterly fiscal bulletin. - MHCP should publish a reporting calendar with responsibilities assigned to its general directorates. - The central bank should provide financing data more timely. - MHCP could consider reviving monthly central government fiscal balance reports to fill reporting gap. - Recommendation 1.3: Complete transition to international accounting standards and aim for full compliance in a timebound manner. - Recognize in the operating statement flows relating to the PAYGO pension scheme. - Recognize in the balance sheet all employee-related pension liabilities and PPP-related liabilities. - Improve valuation of assets and liabilities in accordance with international standards. - Develop an information base on related-party transactions to facilitate consolidation. - Strengthen internal controls at subnational entities to enhance data quality submitted by them. - Summary assessment highlights: - Coverage of Institutions: Advanced — annual financial statements cover the entire public sector; sectorization needs full alignment with GFSM 2014. - Coverage of Stocks: Good — annual financial statements cover most assets and liabilities but exclude some; High importance to recognize employee-related pension liabilities and PPP projects together 8.1 percent of GDP (Rec 1.3). - Coverage of Flows: Basic — partial coverage; High importance: major omissions include social contributions to the PAYGO pension scheme and pension payments made by Colpensiones (Rec 1.3). - Frequency of In-Year Reporting: Not Met — reports prepared quarterly with a lag of more than a quarter; High importance to produce more timely (Rec 1.2). - Timeliness of Annual Financial Statements: Advanced — published within six months of year-end. - Classification: Not Met — budget, accounting and statistical classifications need harmonization (Rec 1.1). - Historical Revisions: Basic — revisions reported but without explanations; Low importance to explain major revisions with bridge tables. - Statistical Integrity: Basic — disseminated according to international standards but need full alignment with GFSM 2014 and systematic consistency checks. - External Audit: Basic — audited by independent auditor but recent statements received a disclaimer; High importance to improve credibility and internal controls, particularly subnational (Rec 1.3). - Comparability: Basic — reports not prepared on a comparable basis and should present reconciliations of key aggregates. *Source: cr18250-colombiafte - 32. Major revisions to fiscal data are disclosed, but no further explanations or bridge* ### 48. This chapter assesses the quality of Colombia’s fiscal forecasting and budgeting ### cr18250-colombiafte - 48. This chapter assesses the quality of Colombia’s fiscal forecasting and budgeting ### Comprehensiveness of Budget Documentation — Coverage and Budget Unity - Budget fragmentation: four separate types of budgets: - central government budget (PGN) — gross revenues, expenditures, and financing of central government ministries and agencies; approved by Congress. - royalties budget (Sistema General de Regalias, SGR) — receipt and allocation of natural resource revenues; approved by Congress every two years. - budgets of subnational governments (governorates, departments, and municipalities) — approved by local legislatures. - budgets of 29 public corporations — approved by the Supreme Council for Fiscal Policy (CONFIS). - Subnational reliance and scale: - The SGP and the SGR transfer approximately 10 percent of GDP in resources to subnational governments. - State and local governments account respectively for around 10 percent and 20 percent of total general government expenditure (net of intra-government transfers). - Non-financial public corporations: - Over 15 percent of the GDP in expenditure; half of that is by Ecopetrol; about one-third pertains to hospitals and health service providers. - Extrabudgetary units (EBUs): - The PGN excludes some 111 extrabudgetary units (EBUs), which represent about 10 percent of total revenues and spending by the central government. - Table 9 (central government EBUs): Number of extrabudgetary units — 2014: 110; 2015: 111. Annual spending by EBUs (COP billion) — 2014: 25,081; 2015: 25,151. Total spending by PGN (COP billion) — 2014: 257,400; 2015: 245,330. Spending by EBUs as a ratio of PGN spending (percent) — 2014: 9.74; 2015: 10.25. - Earmarking and social security: - Earmarked revenues account for some 7 percent of total central government revenues, and full information is disclosed in the budget documents. - The social security system (healthcare, retirement pensions) is outside the PGN, apart from annual transfers to meet any deficit; the MFMP includes a chapter on social security finances and the government publishes a half-yearly social security bulletin. ### Macroeconomic Forecasting — Methods and Performance - Forecast instruments and timing: - The MFMP includes forecasts of key macroeconomic aggregates (including GDP, inflation, current account balance, and commodity prices) ten years ahead. - The MFMP is generally updated in the second half of the year; the Financial Plan is first presented in December and usually revised in March. - Forecast accuracy and biases: - One-year-ahead real GDP mean deviation: 0.1 percentage points between 2009-2016; 1.0 percentage points between 2012-2016. - Mean absolute deviation 2009-2016: 1.3 percentage points. - One-year-ahead inflation average deviation: minus 0.8 percentage points between 2009-2016; minus 1.5 percentage points between 2013-2016. - Revenue forecasts recent optimistic bias: averaging about 0.6 percent of GDP in the past three years. - Central government one-year-ahead spending forecasts average deviation: 0.1 percentage points between 2009-2016. - Comparative one-year-ahead forecasts of Real GDP Growth, 2013-2015 (percent): - Actual: 2013: 4.9; 2014: 4.4; 2015: 3.1. - Forecasts — Authorities (MHCP): 2013: 4.8; 2014: 4.7; 2015: 4.8. - Forecasts — IMF: 2013: 4.4; 2014: 4.2; 2015: 4.5. - Forecasts — World Bank: 2013: 4.5; 2014: 4.3; 2015: 4.5. - Forecasts — Consensus: 2013: 4.3; 2014: 4.5; 2015: 4.6. ### Medium-Term Budget Framework (MTBF / MGMP) — Design and Limitations - MGMP features (2016 example): - Sets macroeconomic and fiscal context based on MFMP. - Analyzes fiscal constraints in the medium term. - Assesses objectives of government programs and projects (drawn largely from the PND). - Projects medium-term spending plans for 2017-2020, broken down by investment and operating expenses. - Sets indicative spending ceilings for 29 sectors for the forthcoming budget year and three additional years. - Gaps relative to good practice: - Focus on investment spending; no full coverage of all expenditures. - Different sector classification than annual budget; harmonization under discussion. - No breakdown by economic category or program in the MGMP. - Indicative ceilings for out-years have been substantially revised in recent years and do not provide a credible planning basis. - Preparation processes for MGMP and the annual budget are largely separate; no published reconciliation with previous year’s MGMP projections. - Revisions to medium-term expenditure ceilings, 2013 to 2016 (COP billion) — changes in estimates of total spending made in successive vintages of the MGMP; final row measures percent difference between outturn spending and initial estimate made four years previously: - 2013 vintage: Out-year 3 estimate 120.4; Out-year 2 estimate 117.9; Out-year 1 estimate 127.8; Budget year estimate 138.6; Outturn 144.4; Change (percent) +19.9. - 2014 vintage: Out-year 3 estimate 125.4; Out-year 2 estimate 134.1; Out-year 1 estimate 145.6; Budget year estimate 155.4; Outturn 156.0; Change (percent) +24.4. - 2015 vintage: Out-year 3 estimate 141.6; Out-year 2 estimate 148.6; Out-year 1 estimate 159.5; Budget year estimate 167.3; Outturn 163.4; Change (percent) +15.4. - 2016 vintage: Out-year 3 estimate 157.3; Out-year 2 estimate 166.2; Out-year 1 estimate 169.8; Budget year estimate 167.3; Outturn 167.3; Change (percent) +6.4. ### Public Investment Management and PPPs — Information, Appraisal, and Procurement - Public investment information: - The PND contains planned public investment project details over a four-year period (costs, start and end dates, program and sector classification). - The POAI provides aggregate and individual planned investment spending, but only amounts to be appropriated for the budget year are disclosed. - The DNP maintains a project database (SPI) for national budget-financed projects and a PPP database (RUAPP), but without multiyear fiscal obligation details for all projects. - MFMP (Chapter VI) provides total spending on public investment projects for the next 30 years with year-by-year spending for early years; presents authorized multiyear expenditure commitments (vigencia futuras) for major projects but not spending already incurred or remaining lifecycle estimates (except for PPPs). - Project appraisal and selection: - Standard requirement for economic and financial appraisals using DNP-approved methodology; no differentiation by project size. - Results of project appraisals are not made publicly available before or after approval. - No promulgated public sector comparator methodology to assess PPP mode versus direct government investment. - Large number of unsolicited PPP projects appear to be approved with limited review of merits. - Procurement practices: - High percentage of direct contracting: in 2016, 40 percent of contracts by value were categorized as procured through direct award. - Contracts within the “special regime” may also be procured through direct awarding; procurement data does not distinguish methods within the special regime. - 2015 PEFA assessment: more than 50 percent of contracts in 2014 used the direct contracting method in five large ministries. ### Orderliness and Timeliness of the Budget Process — Legal Framework and Deadlines - Fiscal legislation and legal framework: - Comprehensive framework established in the Constitution, organic laws (e.g., Law 38 of 1989 and Law 179 of 1994), Law 152 of 1994 on national development planning, and lower-level decrees and resolutions; more than 20 principal laws and decrees summarized in Annex III. - The legal framework covers budgeting, development planning, fiscal transparency, fiscal reporting, and aspects of fiscal risk management including PPPs. - Congress’s amendment powers: Congress may not increase any spending proposals made by the executive and may only decrease items of spending with the approval of the MHCP. - Timeliness and compliance: - The legal framework sets a clear timetable for budget preparation and approval that has been regularly complied with. - Budget submission to Congress and public availability: five months before the start of the fiscal year. - Budget approval and publication: two months before the start of the fiscal year (full details available by end-December). - Congressional debate phases: (i) June/July discussion of fiscal policy, tax reform issues and budget ceilings (MFMP submission); (ii) August/September examination of expenditure proposals by sector, entity, programs and investment projects. - Recent PEFA Report gives the 2016 budget law a high rating against international standards for disclosure of key fiscal information. *Source: Authorities, FAD staff, MHCP, DNP, National Public Procurement Agency, PEFA assessment as presented in the chapter.* ### 66. Procedures and the disclosure of information related to other aspects of fiscal ### cr18250-colombiafte - 66. Procedures and the disclosure of information related to other aspects of fiscal ### Legal deadlines, procedures, and disclosure - Procedures and disclosure related to fiscal policy and national development planning are subject to strictly enforced legal deadlines applying to the MHCP, the DNP, CONFIS, CONPES, the MGMP (Section 2.1.3), and the MFMP, fiscal policy objectives and the fiscal rule (Section 2.3.1). - Legal requirements define operational procedures including: - issuance of budget circulars to spending ministries; - setting and notification of spending ceilings; - release of data to the public. - The Presidential Message on the Budget satisfies all disclosure requirements established in law and meets all basic elements set out in the PEFA framework, and seven of the eight additional elements. (PEFA report pages 32-34) ### Budget calendar (submission and approval) - April, first week: Submission of a consolidated preliminary budget proposal to Congress - June 15: Submission of the MFMP to Congress - July 29: Submission of a draft budget law to Congress - August 15: The two economic committees of Congress decide whether the proposed budget complies with the organic budget law - September 25: The economic committees approve the Budget proposals - October 20: Congress approves the budget law - October 31: Budget Law is signed by the President and published in the Official Gazette - December 31: Completion of the “liquidation” procedure by the executive - Note: The two economic committees cover economic policy and revenue issues (Committee #3) and the budget (Committee #4). They deliberate in joint sessions, but vote separately. - Note: During the “liquidation” process congressional ceilings are converted into detailed line item appropriations. - Source: MHCP, PEFA Reports for 2009 and 2015, FAD staff. ### Policy orientation and fiscal rule - 2003 Fiscal Transparency and Responsibility Law (Law 819): - Required national government and SNGs to present each year a MFMP as the main instrument of macro-fiscal programming; - MFMP must present a consistent 10-year macroeconomic framework including multiannual primary balance targets to guarantee fiscal sustainability. - Controls on SNG spending and borrowing substantially tightened. - “Fiscal sustainability” was added as an amendment to the Constitution in 2011. - 2012 fiscal rule: - Structural deficit target of 1 percent of GDP from 2022 onwards with transition period between 2012 and 2021. - Intermediate targets: 2.3 percent of GDP in 2014 and 1.9 percent of GDP in 2018. - Requirement that in each intervening year the structural deficit must be lower than in the previous year. - Escape clause allows deviation if output falls below potential or oil prices fall below long-term trend; government has not used this provision. - Since establishment, the rule has been adhered to. - Consultative Council (independent review process): - Responsible for preparing methodology for calculating the structural deficit and measuring compliance. - Comprises nine independent members, including chairs of the two Congressional economic committees. - Presents a report to the government in April with projections of potential output and oil prices, and the structural deficit over a 15-year period. - In June, MHCP publishes, alongside the MFMP, a report on compliance using calculations agreed with the Council. - MHCP Fiscal Plan and reporting: - MHCP prepares an annual Fiscal Plan: preliminary version in December and revised version in March. - Fiscal Plan presents fiscal projections one year ahead and assesses fiscal policy developments and progress in implementing the fiscal rule. - MHCP holds regular consultations with government counterparts and the central bank, and four meetings per year with the Congress to discuss fiscal developments. - CGR publishes in August an annual report on the fiscal situation including assessment of macroeconomic outlook, macroeconomic forecasts, fiscal policy developments and the fiscal rule, debt sustainability, and quality of fiscal data. - Risks to rule adherence: - Fedesarrollo reported uncertainties from the Peace Agreement could increase the deficit by about 0.5 percent of GDP. - Fedesarrollo estimates a likely fiscal gap of some 2.0-2.5 percent of GDP by 2022 on current policies which the next government will need to offset to avoid breaching the fiscal rule. - Challenges include ensuring sustainable modifications to healthcare and the pension system (see Section 3.1.2). ### Performance information and results orientation - No formal system of performance-based budgeting has been developed; policymakers use varied information, especially for capital investment projects. - National budget lacks a comprehensive programmatic classification; information on outputs/outcomes of public service delivery is limited. - Budget execution reports contain little information on impact and performance of public expenditure policies and projects. - PEFA findings: - No evidence that information on resources received by front-line service delivery units is systematically collected by responsible ministries. - PEFA indicator PI-8 on Performance Information for Service Delivery: Colombia assigned a D+ rating. - DNP and other work underway: - DNP preparing with the World Bank a results-oriented framework for planning, monitoring, and evaluating investment projects; framework not yet completed, tested, or implemented. - DNP’s Manual of Classification of Public Investment, Version 2.0, February 2017: framework includes classification of sectors (29), programs (163), and projects (1,500-1,800). - DNP published performance assessments on efficiency and effectiveness of service delivery. - CGR has released management audits and sector policy analyses focusing on non-financial performance of investment projects. - CGR’s Report on the General Account of the Budget and Treasury, 2015 includes performance analysis for sectors such as agriculture, defense and security, housing, road and freight transportation, and regional infrastructure. ### Public participation and transparency - Citizens’ Guide to the Budget (Presupuesto Ciudadano): - Published after budget approval each year, accessible form centered on graphics. - 2017 Guide included information on total revenues and expenditures for the budget year, macroeconomic assumptions, sectoral allocation of spending, transfers to SNGs, annual budget calendar, per capita subnational transfers from the Sistema General de Participation, and social spending by sector on groups such as children and older adults. - Guide published only in Spanish and the website is the only dissemination channel; government has not consulted the public on its content. - Public consultation and engagement: - Government does not engage or consult the public during preparation of the annual budget; some opportunity for public input exists during Congress’s consideration. - Open Budget Survey 2015: public participation rated weak during the executive stage, limited during the legislative stage, and adequate with respect to the CGR. - DNP conducts public consultations every four years in the preparation of the multiannual PND. - Colombia achieved candidate status for the Extractive Industries Transparency Initiative (EITI) in 2014. - MHCP conducts public consultations on draft decrees within its remit and published a citizen participation strategy in 2014. - MHCP maintains a Transparency Portal; the site received 89,062 visits from January 2017. - MHCP publishes some fiscal data in open data format. ### Credibility, independent evaluation, and in-year changes - Independent evaluation arrangements: - Consultative Council (Law 1473 of 2011) defines methodology and parameters for operation of the fiscal rule and authorizes MHCP’s compliance report prior to submission to Congress. Law requires government consult the Committee if the fiscal rule is to be suspended. - BanRep is invited by Congress to present its opinion on government macroeconomic and fiscal forecasts and the MFMP during budget deliberations. - CGR, under its constitutional “fiscal oversight” function, provides ex-post assessment in its “State of Public Finance” report of government macroeconomic and fiscal forecasts, external/internal macroeconomic developments, and detailed analysis of fiscal performance. - Supplementary budgets: - Amendments to the approved budget follow Law 38 of 1989 and Decree 111 of 1996 and are published on MHCP’s website. - Generally only Congress can approve changes—additions or transfers across budget lines—to the annual budget law; in certain cases powers are delegated to the government exercised through decrees and resolutions. - Reallocations across ministries or programs are not permissible without Congressional approval. - Supplementary appropriations permitted only after establishing additional funding sources and certification by the CGN or head of budget of availability of resources. - Budget laws, decrees, and resolutions authorizing revisions are published on MHCP’s website; CGR’s budget execution report consolidates all changes comparing outturn with original and revised budgets. - Government has largely maintained credibility of the original budget; changes in total budget appropriations have been relatively small with reductions in each of the past three years due to revenue shortfalls. - Changes to approved budgets (COP Trillions) — Table 14: - Year 2016: Original Budget 216, Final Budget 210, Change -3% - Year 2015: Original Budget 216, Final Budget 208, Change -4% - Year 2014: Original Budget 203, Final Budget 197, Change -3% - Year 2013: Original Budget 186, Final Budget 189, Change 2% - Year 2012: Original Budget 165, Final Budget 166, Change 1% - Source: MHCP. - Forecast reconciliation: - MFMP contains very limited information and discussion about revisions to successive vintages of medium-term forecasts of revenue, expenditure, and financing. - MHCP’s March Financial Plan update presents and discusses new fiscal estimates for past and current fiscal years but does not provide reconciliation of projections or quantify impact of macroeconomic or new policy developments. - MHCP annual report on compliance with the fiscal rule is backward-looking and does not discuss medium-term fiscal forecasts. - MHCP (DGPM) produces some reconciliation analysis for internal use. - Inclusion of reconciliation tables in the MFMP—breaking down differences in successive vintages into impacts of policy changes, macroeconomic determinants, and other factors—would improve credibility of macroeconomic and fiscal forecasts. ### Conclusions and recommendations (summary of findings) - Strengths and alignment with good practice: - Fiscal forecasting and budgeting practices meet basic or advanced practices in many areas and compare favorably with peers and some advanced countries. - Legal framework is comprehensive though complex; budget documentation is comprehensive and timely. - Fiscal policy framework anchored in a fiscal rule in place since 2012 and adhered to, with macroeconomic and fiscal forecasts soundly based and largely free from systemic bias. - Independent assessment arrangements aligned with international good practice. - In-year budget adjustment procedures tightly defined in law and well-documented. - Areas for improvement: - High fragmentation of the budget: budgets for royalties, SNGs, public corporations, and social security are separate from the central government’s budget; many extrabudgetary entities and earmarked revenues. - Use of performance information in preparing and monitoring the PND and investment projects is developing; results-based framework largely absent from the PGN. - Weaknesses in planning, appraisal, and execution of public investment projects, including PPPs. - MGMP preparation largely decoupled from the annual budget process; budgets for investment and recurrent spending prepared separately; indicative spending ceilings substantially revised. - Many elements of advanced medium-term budgeting practices are missing. - No information currently published on reconciliation of current forecasts with previous vintages. *Italic: Source — Colombia: Procedures and the disclosure of information related to other aspects of fiscal policy and national development planning (excerpt).* ### 83. Based on the above assessment, the following recommendations could improve ### cr18250-colombiafte - 83. Based on the above assessment, the following recommendations could improve ### Recommendations to improve transparency in budgeting and forecasting - Recommendation 2.1: Undertake a review to assess which extrabudgetary activities should be consolidated within the PGN, and fully disclosed in the budget documents. This review should cover: - the SGR; - the revenues, expenditures and financing of EBUs; and - the absorption of earmarked revenues within the general revenues of the budget. - Recommendation 2.2: Enhance the medium-term budget framework to align it with advanced principles and practices. Key elements and steps: - Prepare and implement reform gradually, starting with a thorough review of existing practices in preparing the annual budget and the MGMP, and how international good practice could inform a future MGMP. - Develop an action plan for implementing improvements in the MTBF over the next few years. - Important elements will include: - Integrating the processes of preparing the annual budget and the MGMP. - Harmonizing the definitions of capital and recurrent spending with international standards. - Building a robust system of making forward estimates of spending. - Incorporating on a step-by-step basis, elements of performance indicators and results-based framework into the annual budget/MGMP. - Recommendation 2.3: Improve the management of and disclosure of information on public investment projects. Priority actions: - Make data publicly available (on DNP’s website) on the multiyear obligations of all individual public investment projects, including the original approved budget, expenditure to date, and the remaining approved expenditure by year. - Publish expanded summary data in the MFMP on the multiyear obligations of public investment projects financed from the national budget, covering a larger number of individual projects. - Subject all PPP projects, including those categorised as not requiring a public contribution, to an assessment of the relative merits of the PPP mode of procurement compared to public investment through the national budget, using a standard methodology. - Amend the procurement law to enable recording and reporting of procurement modalities within the special regime. - Review the extent and legitimacy of departures from open and competitive tendering. - Recommendation 2.4: Disclose the analytical work on the reconciliation of different vintages of macroeconomic and fiscal forecasts that the MHCP carries out for internal use. ### Budgeting and forecasting: assessments, issues, and priorities - Public participation: - Colombia’s rating for public participation in the budget process is weak. - Consideration: Release the Citizen’s Budget in July, at the same time as the annual budget proposal is presented to Congress. - Table 15: Summary Assessment of Fiscal Forecasting and Budgeting — key points (principle : assessment ; issues and importance ; recommendation if listed) - Budget Unity: Basic: Budgets for royalties, EBUs, and social security are outside the PGN. High: The highly fragmented budget discourages effective decision making, and is not transparent. Recommendation 2.1. - Macroeconomic Forecasts: Advanced: Forecasts are soundly based; optimism bias is relatively low. Low: Fiscal projections have been quite reliable, but forecasting methodology could be improved. - Medium-Term Budget Framework: Basic: Colombia publishes an MTBF, but many elements of advanced practice are missing. High: A rolling medium-term framework with other advanced features would support a sustainable fiscal strategy. Recommendation 2.2. - Investment Projects: Basic: Colombia scores poorly on disclosure of project data, economic appraisal, and competitive tendering. High: Infrastructure projects are key to sustainable development. Colombia’s performance lags behind competitors. Recommendation 2.3. - Fiscal Legislation: Advanced: Legislation is comprehensive but complex. Low: Areas that require strengthening include performance-based budgets, PPPs, and public procurement. - Timeliness of budget documents: Advanced: The annual budget is approved two months before the start of the new fiscal year. Low: Opportunities for improving documentation, e.g., information on EBUs, royalties, and social security. - Fiscal Policy Objectives: Advanced: Colombia adopted an FRL; the numerical fiscal rule in place since 2012 has been adhered to. Medium: Adherence to the fiscal rule could prove challenging in next few years as fiscal pressures increase. - Performance Information: Basic: A results-based framework is being developed by the DNP, but is largely absent from the budget. Medium: Introduction of performance-based budgeting could be part of the development of the MGMP. - Public Participation: Basic: Some elements in place, but limited public discussion of the budget and fiscal issues. Medium: Public could be given more opportunity to comment on fiscal policy and participate in budget debates. - Independent Evaluation: Advanced: Several effective mechanisms have been established to evaluate the government’s budgetary and fiscal policies. Low: Existing arrangements are similar to an Independent Fiscal Council. - Supplementary Budget: Advanced: Mechanisms for in-year budget adjustments are tightly defined in law, and effective. Low: Budget execution is actively monitored and enforced to not exceed budget ceilings. - Forecast Reconciliation: Not met: MHCP carries out analysis to reconcile forecasts, but does not publish the results. Medium: Revisions of forecasts are regular and relatively significant. Recommendation 2.4. ### Fiscal risks: disclosure, analysis, and management (Pillar III summary) - Focus of the pillar: - General arrangements for disclosure and analysis of fiscal risks. - Reporting and management of risks arising from specific sources (government guarantees, PPPs, natural disasters, the financial sector). - Coordination of fiscal decision-making across central government, local governments, and public corporations. - Macroeconomic risks (3.1.1): - Colombia is exposed to macroeconomic volatility which poses sizeable risks to the budget. - Over the last decade, Colombia’s nominal GDP growth volatility was lower than in most neighboring countries, but wide variations in economic growth occurred in part due to oil price volatility. - Between 2011 and 2014 oil revenues contributed approximately 2.5 percent of GDP to annual central government revenues, against 1.6 percent of GDP between 2004 and 2010. - MFMP practices: - The MFMP presents sensitivity analysis of fiscal forecasts to macroeconomic assumptions (exchange rate, oil price and production, inflation). - The MFMP displays a limited alternative scenario analysis of the evolution of the central government debt over the next ten years, estimating the impact of a change in GDP forecasts by +/- 1 percentage point. - Suggested improvements: - Expand MFMP analysis to present more detailed short- and medium-term fiscal outcomes under macroeconomic stress scenarios and stochastic analysis. - Discuss channels through which macroeconomic scenarios affect main spending and revenue items. - Disaggregate analysis by level of government, given the weight of local and regional governments. - Include (i) the impact of random shocks to fiscal outcomes based on their historical distribution and (ii) impact of combined macroeconomic and specific fiscal risk shocks. - Specific fiscal risks (3.1.2): Not met - Definition: Specific fiscal risks arise from narrow and identified sources of uncertainties; include explicit and implicit risks. - Colombia regularly publishes detailed information on explicit contingent liabilities in the MFMP, as required by the Fiscal Transparency and Responsibility Law (2003). - Contingent liabilities covered: PPP contracts, public credit guarantees, legal action against the state, callable capital in international financial institutions; with a section also on pension and civil service severance exposures (non-explicit debt). - Legal claims against the state: - Between 2000-2015 payments for judgements and reconciliations amounted to a cumulative COP8.4 trillion (in 2012 pesos), and have been increasing. - Creation in 2012 of the National Agency for Legal Defense of the State; it has developed a detailed database of claims and payments and supports MHCP Risk Directorate in developing improved risk quantification methodologies. - Disclosure concern: - Appropriations for expected payments are included in the budgets of 160 individual entities in the national budget, raising concern that disclosing expected cost by entity could prejudice legal defense. - Other countries disclose legal action on a gross basis across central government and accompany disclosure with a disclaimer that reporting does not indicate acknowledgement of liability. - MFMP disclosure gaps: - MFMP disclosure on risks falls short of a summary of the main specific risks to the fiscal position. - Important risks not covered in the MFMP include those from disasters, debt management, public corporations, subnational governments, and the private financial sector. - MHCP intends to progressively expand coverage of risks in the MFMP, starting in the 2017 MFMP with discussion of risks from natural disasters. - Short- to medium-term explicit risks highlighted: - The peace process; - Fiscal impacts of recent tax reforms; - Regional instability; - Uncertainty over the amount of the annual budget transfer required to Colpensiones due to forecasting difficulties for numbers switching from private schemes to the public scheme. - Recommendation: Publish an annual Fiscal Risk Statement alongside the annual budget to summarize main fiscal risks, the government’s fiscal risk management strategy, recent progress, and priority areas for risk mitigation. MHCP Risk Directorate could compile the statement. - Institutional strengthening suggestions: - Introduce an in-year (e.g. quarterly) risk report submitted to MHCP management. - Establish a high-level inter-directorate coordination mechanism anchored by the Risk Directorate. ### Selected fiscal risks and key figures (Table 16 highlights) - Table 16: Selected Fiscal Risks of the Central Government — (columns: Risk | Gross exposure COP trillion | Percent of GDP (2015) | Estimated expected cost COP trillion | Percent of GDP (2015)) - Selected explicit fiscal risks: - Contingent liabilities: Legal claims against the state - Gross exposure: 96 - Percent of GDP (2015): 6.95 - Estimated expected cost: 20.9 - Percent of GDP (2015): 12 - Debt guarantees - Gross exposure: 0.9 - Percent of GDP (2015): 2.6 - Estimated expected cost: 51.3 - Percent of GDP (2015): 1.83 - Contingent obligations in PPP contracts - Gross exposure: 15.3 - Percent of GDP (2015): 3 - Estimated expected cost: 6.4 - Percent of GDP (2015): 0.2 - Callable capital - Gross exposure: 1.9 - Percent of GDP (2015): 0.4 - Other explicit risks: - Civil servant retroactive severance - Gross exposure: - - Percent of GDP (2015): 83.9 - Estimated expected cost: - - Percent of GDP (2015): 10.5 - Natural disasters - Gross exposure: 3 - Percent of GDP (2015): - - Estimated expected cost: - - Percent of GDP (2015): 0.3 - Total selected explicit fiscal risks - Gross exposure: 207.75 - Percent of GDP (2015): 26 - Estimated expected cost: 74.4 - Percent of GDP (2015): 9.2 - Selected implicit fiscal risks: - Disasters and other environmental risks - Gross exposure: 33 - Percent of GDP (2015): 4.12 - Fogafin’s unfunded liabilities - (entry combined with above in table as displayed) - Public corporations - Gross exposure: 228 - Percent of GDP (2015): 28.5 - Subnational governments - Gross exposure: 39 - Percent of GDP (2015): 4.9 - Total selected implicit fiscal risks - Gross exposure: 300 - Percent of GDP (2015): 37.5 - Memorandum item: risks to medium- to long-term fiscal sustainability - Pensions - Gross exposure: 839 - Percent of GDP (2015): 104.7 - Health - Gross exposure: ? - Percent of GDP (2015): ? - Notes and contextual figures (as presented in table footnotes): - The figure in the notes to the financial statements (Table 3.95) for the contingent liability from legal claims is COP1,300 trillion (162% of GDP). MHCP excludes some very large claims considered very low probability from its gross exposure and expected cost calculations. - The expected costs for concessions and APP projects are paid into the FCEE. By law, realized APPIP-SRP project risks cannot be funded from the Contingency Fund, they are to be met from increased tolls or project restructuring. - Obligations to provide additional share capital in International Financial Institutions if requested. Data from section 8.1.5, 2016 MHCP. - As at end 2016, the gap between Fogafin’s reserves and total guaranteed deposits. - The actuarial liability for the defined benefit pensions, from the balance sheet and notes to the financial statements. - 2016 MFMP forecasts a transfer from the general budget to the health system of 0.25% of GDP per year over the next decade. - The Disaster Fund (Fondo de Calamidades) balance at December 2014 was COP52 billion. *Source: Colombian authorities and FAD staff estimates; material extracted from the provided IMF content unit.* ### Box 3. Possible Structure and Content of an Annual Fiscal Risk Statement ### Box 3. Possible Structure and Content of an Annual Fiscal Risk Statement ### Macroeconomic Risks and Budget Sensitivity - Discuss the macroeconomic forecasting record in recent years. - Present sensitivity of fiscal aggregates to variations in key economic parameters, with explanation of underlying mechanisms. - Present alternative macro-fiscal scenarios; probabilistic fiscal forecasts. - Note from MFMP: GDP growth +/- 1 percentage point (footnote reference). ### Public Debt - Sensitivity of public debt levels and debt servicing costs to variations in key parameters. - Government’s debt management strategy and performance against the strategy; debt sustainability analysis. - Policy and institutional framework for government borrowing and on-lending: projected statement of inflows, outflows, and balances; nonperforming loans. - Reported consolidated public sector balance sheet (2015): liabilities about 112 percent of GDP; financial and nonfinancial assets around 141.5 percent of GDP. - Over the last decade, liabilities have increased by 126 percent (see Section 1.1.2). - Government borrowing authorized by law (Law 80/1993); specific debt rules for SNGs; law 1508 / 2012 and decree 1467 / 2012 set a limit on the total annual payments related to PPPs. - MFMP provides information on debt structure, interest rate and exchange rate risk exposure; quarterly debt report published for the central government (Informe trimestrial – Seguimiento de Deuda del Gobierno Nacional). - Gaps: report presents main characteristics of public debt but does not discuss related risks; no published asset and liability management report; medium-term debt management strategy published in 2013 has not been updated; no published strategy for asset and liability management; non-financial assets and subnational assets are not covered by a management strategy. ### Other short- to medium-term fiscal risks - Civil service scheme exposures. - Elements with an unusual degree of uncertainty, e.g., recent tax or social security reforms, regional instability. - Long-term liabilities (pensions, health): MFMP presents pension and health spending projections over next ten years and analyses impact of past measures on net present value of future pension liabilities. - Pension system: MFMP discusses evolution over ten years of future costs and annual budget transfers required to ensure equilibrium of the pension system. - In 2017, this transfer is expected to amount to 4 percent of GDP, and is forecast to decrease gradually to 3.5 percent of GDP in 2027 (Figure 15). - Health system (SGSSS): 2016 MFMP discusses negative fiscal impact of Law 1571 / 2015 and presents a probabilistic approach to its future equilibrium depending on efficiency and resource generation. - Recommendation: Good and advanced practices require assessment of fiscal sustainability over a longer period and publication of multiple scenarios; liabilities due to the pension scheme need disclosure in a longer timeframe. Multiple scenario analysis over the next thirty years should be published, presenting alternative paths for macroeconomic, demographic and oil price parameters. - Note: upcoming presentation in the 2017 MFMP of investments required over a 15-year period (until 2031) for implementing the peace agreement (mission recognizes ongoing efforts of the MHCP). ### Contingent Liabilities - Government’s gross exposure to contingent liabilities—especially central government guarantees; include expected costs as feasible; disclosure of rationale, criteria, and beneficiaries. - Financial sector: past and current explicit government support to the financial sector; deposit insurance scheme details and an assessment of risks from the wider financial sector. - Legal action against the central government: past claims and settlements, and the gross value of current claims, with a disclaimer that reporting the risk does not indicate government acknowledgement of liability. - Disasters: fiscal impacts of disasters and other environmental hazards; strategies for disaster risk reduction and disaster risk financing. - Disclosure practice: MFMP and consolidated financial statements disclose exposure from credit guarantees and other contingent liabilities; scope for enhancement to provide itemized lists and transaction-flow details. ### Public-Private Partnerships (PPPs) - Summary of current and planned PPP program (all types of PPPs); quantum of expenditure required to meet infrastructure needs in context of public investment program; policy and management framework and rationale for PPPs. - Total rights, obligations and other exposures; expected annual receipts and payments over life of contracts; treatment of PPPs in accounting and fiscal reporting. - Cumulative overall exposure from government’s current announced PPP program; features of some signed PPPs, gross exposure from guarantees and similar instruments. - Colombia PPP classification: (i) concessions, (ii) standard PPPs (APPs), and (iii) Private Initiative Projects without public financial contribution (APPIP­SRP). For FTC purposes, all three are considered PPPs. - Historical evolution: first generation concessions from 1994 retained most risks with public sector and included minimum income guarantees; later generations transferred some risks to private sector; fourth generation (4G) introduced in National Development Plans 2010–2014 and 2014–2018 to close infrastructure gap, especially roads. - APPIP-SRP have assumed increasing importance; risks to be managed by project restructuring or increases in tolls. - Legal framework strengthened: Contingency Fund Law 448 of 1998 and decree 1849 of 1999; Law 1150 of 2007; Law 1169 of 2007; Law 1508 of 2012 and regulatory decrees 1467 of 2012 and 100 of 2013. - Renegotiation record: many earlier PPP contracts were renegotiated at high fiscal cost. - DNP estimates: PPP renegotiations in road concession projects during 1993-2010 involved high fiscal costs. - The average cost of renegotiations was equivalent to 280 percent of the initial cost of the contract. - In 25 concessions assessed, there have been 430 changes in contracts, with a fiscal cost of USD $56,000 billion and 131 additional years of delays. - Information published: detailed project-level information on contingent liabilities in concession and APP contracts by wave is included in MFMP (Section 8.1.2); Chapter 7 defines maximum annual authorizations for multiyear commitments under APP scheme for 2015 to 2046. - Gaps: no published information on government’s rights in PPP contracts nor on expected future annual receipts; more information exists on multiyear obligations in PPP projects than on public investment projects financed from national budget. ### Public Corporations - Policy framework: ownership policy, pricing, dividends. - Direct and indirect support between government and public corporations; any quasi-fiscal activities. - Financial performance and position of the sector and the largest corporations. - Financial performance and position of state-owned financial institutions. ### Subnational Governments - Legal framework for intergovernmental fiscal relations. - Summary of aggregate subnational government financial performance and financial position. - Specific SNG borrowing rules referenced (section 3.3.1). ### Risk Management — Budgetary Contingencies - Budget includes provisions for contingencies with clear access criteria defined in law. - Three specific instruments for managing contingencies: - A contingency fund (FCEE) established by Law 448 of 1998, managed by a special trust; spending averaging 6-8 percent of total budget spending in recent years (Table 17). FCEE has three components: infrastructure, guarantees, and recently added legal claims component. Unspent resources accumulate and can be disbursed in later years. Fund managers report annually on opening/closing balances and inflows/outflows. MFMP includes elaborate discussion on fund operations. - As of December 2015, relative share of FCEE components in accumulated balance: infrastructure (83%); guarantees (16%); legal claims (1%) (footnote reference). - A Disaster Relief Reserve established as a budget appropriation; resources managed by the Disaster Relief Agency. - A general budget reserve (FONDO Inter-ministerial) established under Law 38 of 1989; used to make payments relating to other budget contingencies; payments must be approved by CONPES. - Other mechanisms: emergency spending under supplementary budgets, budget reallocations, and allocations for each agency to settle cost of pending law suits. - Because they are budget appropriations, monthly reports on Disaster Relief Reserve and Inter-ministerial Reserve are issued per general budget execution requirements. - Provisions for contingencies under the three instruments have been adequate in recent years. - Table 17. Contingency Reserves/Funds in the Budget (COP billion, and in percent of total expenditure): - Contingency Fund (FCEE): - 2012: 8,576 (8.0) - 2013: 12,997 (7.8) - 2014: 20,682 (5.8) - 2015: 19,596 (5.9) - 2016: 18,203 (6.4) - 2017: 18,981 (6.4) - Disaster Relief Reserve: - 2012: 514 (0.31) - 2013: 177 (0.09) - 2014: 237 (0.12) - 2015: 289 (0.14) - 2016: 254 (0.12) - 2017: 86 (0.04) - Inter-ministerial Reserve: - 2012: 46 (0.03) - 2013: 48 (0.03) - 2014: 70 (0.04) - 2015: 48 (0.02) - 2016: 43 (0.02) - 2017: 43 (0.02) - Source: MHCP. ### Risk Management — Management of Assets and Liabilities - Government produces a consolidated public sector balance sheet including most conventional assets and liabilities. - No published asset and liability management report; absence of discussion of risks (liquidity, interest rate, exchange rate, credit, concentration). - No updated medium-term debt management strategy since 2013; no published strategy for asset and liability management. - Recommendation: define and publish an annually updated strategy for asset and liability management covering objectives, implementation strategy, market and balance-sheet risk management, liquidity and interest rate risk management, and diversification of exchange rate risks. - No published strategy for managing most non-financial assets recorded in balance sheet or public sector assets not owned by central government; recommendation to include non-financial assets (land, buildings, infrastructure), financial assets and liabilities of social security and insurance funds, and SNGs. ### Risk Management — Guarantees - Government manages credit guarantees within legal limit of US$4.5 billion (or equivalent) (Decree 2681). - Decree 2681 prohibits guarantees to private individuals, public entities that have defaulted on prior commitments, and internal payment obligations of subnational entities; guarantees cannot be given for credits already contracted without a sovereign guarantee. - Guarantees extended after MHCP risk analysis using credit rating from external agency to determine default probability and loss-given-default. - Guarantees are valued using price differential between similar guaranteed and non-guaranteed debt as proxy; risk-based fee levied; beneficiaries required by law to post collaterals up to 120 percent of credit value. MHCP monitors beneficiaries and reassesses fees annually. - FCEE provides first buffer for guarantee payments. - As of December 31, 2016, guarantees component of FCEE balance: COP 219 billion. - Cumulative payments since inception in 1998: COP 0.59 trillion. - Disclosure on guarantees: - As of end-December 2015, 78 outstanding credit guarantees benefiting 24 entities; total exposure COP 6.95 trillion. - Over 80 percent of guarantee exposure is from foreign currency denominated debt. - Of total exposure, 88 percent is from AAA and AA+ rated entities; 5.5 percent ($ 288 million) from entities rated CCC. - MHCP estimates present value of contingencies over 2016-2027 to be COP 1.83 trillion (0.22 percent of GDP). - MFMP shows balance in FCEE (COP 0.17 trillion) for each beneficiary (2015 figures). - Table 18. Exposure from Credit Guarantees (Trillion COP): - 2015: Number of Guarantees 78; Gross Exposure 6.95; Expected value 1.83; FCEE Balance (Guarantee Component) 0.170 - 2014: 98; 5.85; 1.82; 0.140 - 2013: 103; 4.20; 0.88; 0.116 - 2012: 117; 4.40; 0.98; 0.098 - 2011: 124; 4.30; 1.04; 0.075 - 2010: 162; 4.10; 1.22; 0.052 - Source: MHCP; MFMP 2011-2016. - Recommendation: MFMP could include a detailed itemized list of all credit guarantees with (1) brief description, intended purpose, beneficiaries, expected duration; (2) government’s gross financial exposure and expected payments; (3) contributions received by the FCEE; (4) payments made during and up to the year in settlement of called guarantees, claims established, and recoveries; and (5) any receivables from counter claims. Separate existing and new guarantees and show changes to existing guarantees. *Source: FAD staff; content extracted from the IMF staff report material.* ### 114. There is a quantitative limit on the flow of new PPP obligations. To limit the fiscal ### cr18250-colombiafte - 114. There is a quantitative limit on the flow of new PPP obligations. To limit the fiscal ### Public-private partnerships (PPPs) — quantitative limit - The MFMP includes a ceiling for future cash appropriations related to PPP contracts (vigencias futuras for PPPs). - The CONPES defines the maximum annual amount of authorizations for the implementation of projects under the APP scheme, currently 0.4 percent of GDP. - There is no limit on the stock of PPP obligations. ### Financial sector — direct government exposure and deposit insurance - The general government’s direct exposure to the financial sector is limited through a deposit guarantee fund, Fogafin, and some 14 financial institutions. - Fogafin is financed by contributions from the financial sector but is implicitly guaranteed by the government. - Insurance coverage: Until April 2017 Fogafin insured individual deposits up to COP 20 million by person and by eligible financial institutions; in April 2017 the insured deposit size was raised to COP 50 million per person per eligible institution. - As of January 2017, based on the then applicable ceiling, Fogafin was estimated to provide insurance cover to 98 percent of the 52 million accounts with a potential liability of about 6 percent of GDP. - As of January 2017, Fogafin’s reserves stood at less than 2 percent of GDP, covering 30.7 percent of insured deposits, in line with the international benchmark of about 20-40 percent. - Fogafin’s reserves represent 4.1 percent of total deposits, below Fogafin’s targeted range of 4.9–5.9 percent. - The April 2017 change in the size of the insured deposits is expected to result in only a moderate increase of COP 312 billion in the government’s contingent liabilities. - Since the late 1990s financial crisis, Fogafin has only been called on two occasions, for a limited total amount. - As of the third quarter of 2016, capital adequacy was 17.6 percent, well-above the regulatory minimum. - The concentration of the banking system around four main banks may pose specific threats if a systemic financial crisis were to occur. ### Financial sector oversight and disclosure - The Central Bank’s semiannual Financial Stability Report includes assessment of financial sector developments and risks, and presents aggregate results of macroprudential stress tests and macroeconomic scenarios, but does not report fiscal liabilities and risks. - The government does not disclose any analysis of its total fiscal exposure to the financial sector and the risks around this exposure. ### State-Owned Financial Institutions (Box 4) — exposure and composition - The national government is exposed through direct ownership of 14 institutions and indirect/subnational participations through various funds. - Special Official Institutions (Instituciones Oficiales Especiales) often target a policy objective; most are (second-tier) public development banks or special funds. - Supervision of public financial institutions follows the same rules as the private sector. - Example: Fiduprevisora manages different funds for the public sector (such as FOMAG, el Fondo Nacional de Gestion del Riesgo de Desastres – FNGDR –, and the contingencies fund) and may warrant closer scrutiny in a fiscal risk assessment. - Aggregate asset figures and market shares (as of end 2015): - Bank – 1: COP 23.1 trillion; Banco Agrario de Colombia 4.5 percent of total banking assets; Circa 5 percent market share. - Special Official Institutions - 8: COP 36.2 trillion (+ 5.05% y.o.y); includes Bancoldex, Findeter, Finagro, Icetex, Financiera de Desarrollo Nacional, Fondo Financiero de Proyectos de Desarrollo, Fondo Nacional del Ahorro, Fondo Nacional de Garantias; 4.5 percent of GDP. - Trust Companies - 3: COP 0.4 trillion; Fiduprevisora, Fiducoldex, Fiduagragria; 15.8 percent of total assets of trust companies; 11.3 percent of market share in terms of fiduciary assets. - Insurance companies – 2: COP 5.0 trillion; La Previsora Compañía de Seguros, Positiva; 1 percent of GDP. - Footnotes: - Some companies are subsidiaries of public financial companies but are presented as distinct entities due to role and specificities. - In 2016, La Previsora de Seguros had a market share of 6 percent and Positiva a market share of 10 percent. ### Natural resources — reporting and valuation - Colombia publishes annual estimates of the volume and value of major natural resource assets on the government’s balance sheet (as at 31 December 2016 a total value of COP 45.4 billion). - Table 19 (value on government balance sheet): - ANH (oil and gas) — Value of resource under exploration: COP 71.0 billion. - ANM (minerals) — Value of resource under exploration: COP 31.9 billion. - ANH accumulated exhaustion of resource under exploitation: COP 46.7 billion. - ANM accumulated exhaustion of resource under exploitation: COP 10.8 billion. - ANH net value of resources under exploitation: COP 24.3 billion. - ANM net value of resources under exploitation: COP 21.1 billion. - For Ecopetrol’s oil and gas reserves, proven reserves were calculated in accordance with US Securities and Exchange Commission standards and methodologies; almost all reserves (99 percent) were independently audited. - For ANH reserves, price was calculated in accordance with Decree 324/2010. - Minerals data consolidated by the National Mining Agency (ANM) include coal, gold, emeralds, iron, and nickel. - Data also published on the volume and value of the previous year’s sales and fiscal revenue from oil and gas; 2016 MFMP contains Ecopetrol’s fiscal and financial results for 2015 with comparative data for the previous four years, including dividends to the nation, income tax, and royalties. - Contracts for concessions are published on ANH’s web site. - Estimates are not published on the volume and value of natural resource assets under different price and extraction scenarios. - The 2016 MFMP discusses oil and gas revenues evolution and use; identifies the period 2011-2015 as the recent boom. - The decline in oil prices and revenues had a major impact on fiscal accounts, equivalent to 1.9 percent of GDP over the period 2013-2016. - Colombia achieved candidate status for the Extractive Industries Transparency Initiative in 2014; two reports have been produced, most recent for 2014-2015, which found no significant discrepancies in reconciliation of company payments with government receipts. ### Environmental risks and disaster fiscal exposure - Colombia is exposed to significant fiscal risks from disasters: low frequency, high impact events (earthquakes, tsunamis, volcanic eruptions, seismic activity, landslides) and high-frequency, low-to-medium impact disasters (floods, landslides). - The 1999 earthquake in the coffee-growing region imposed damages amounting to 1.84 percent of GDP. - The MHCP (Risk Directorate) estimates a contingent obligation in the event of a disaster at 1.4–1.8 percent of GDP for an earthquake of 1 in 250 years. - The government discloses extensive information on fiscal impacts of past disasters and measures taken (coordination, international cooperation, budget transfers, contributions to the Fondo de Calamidades, multilateral bank credits, tax policy decisions, contingent credits). - Historical disaster financing and policy responses (selected events and actions) include: - Popayan earthquake 1983: central govt transfers of COP 21 billion; creation of the Fund; credits contracted for approx. USD$50 m; targeted tax incentives. - Nevado del Ruíz Volcano 1895: presidential transfers to RESURGIR contributed with around COP 362 billion; credits contracted for RESURGIR; targeted tax incentives. - Middle Atrato earthquake 1992: presidential transfers; contributed with around COP 6 billion. - Tierra-dentro earthquake 1994: presidential transfers; targeted tax incentives. - Earthquake 1999: presidential transfers for COP 970,076; credits contracted for COP 611,397; financial transactions tax created. - Flooding 2010-2011: presidential transfers exceeded COP 2 trillion; ‘Colombia Humanitaria’ Account contributions > COP 4 Trillion; tax on financial transactions maintained; CAT DDO of US$ 150 m. - In 2012, a Financial Strategy to Reduce the State’s Fiscal Vulnerability when faced with a Natural Disaster was introduced, adopting a layering approach from contingency budgets and reserves (for low impact, high frequency disasters), through budget reallocation/borrowing/contingent credit (intermediate risks), to risk transfer (reinsurance and capital markets) for high-risk layers. - The strategy is based on sound principles but its efficacy in an event needs further testing. ### Fiscal coordination — subnational governments (SNGs) - Monitoring of SNGs’ financial performance has substantially improved since the financial crisis. - The national government must submit to Congress in July each year a report on the financial viability of SNGs; these reports are published by the MHCP and the DNP and include indicators of financial performance and budget execution by SNGs. - The MHCP undertakes quarterly monitoring of fiscal performance for a large sample (about 80 percent) of SNGs; these data are not yet published. - Sectoral ministries and the DNP publish annually a categorization of risk in the use of SGP resources and public hospitals. - A framework to ensure subnational fiscal sustainability was put in place after 1990s over-borrowing and excessive expenditure growth: - Law 358 of 1997 (“Traffic Light Law”) rates SNGs on ratios of debt to payment capacity; red-light zone prohibited from borrowing; green-light zone permitted to borrow up to limits; yellow zone required MHCP permission (yellow zone later eliminated by Law 795 of 2003). - Departments and large municipalities must get a satisfactory credit rating from rating agencies before borrowing. - SNGs are covered by the fiscal responsibility law (FRL) and must comply with medium-term financial planning and budgeting laws (Law 003 of 2011). - Legal framework includes quantitative limits for operating expenses (Law 617 of 2000), rules for financial insolvency (Law 550/99), and provisions on financial planning, budgeting and accountability (Law 819 of 2003). - The national government is not authorized to guarantee domestic debt operations of SNGs; it may grant guarantees for external debt, but such operations are rare and must meet rigorous approval. - The unified FRL imposes strict sanctions on SNGs for non-compliance; sanctions include prohibition from borrowing, requirement to adopt a fiscal-rescue package to regain viability over the next two years, prohibition on national government lending or guaranteeing if in violation of Law 617 or Law 358, or if it has debt service arrears to the government; in cases of non-compliance credit contracts are deemed invalid and borrowed funds must be restituted (Article 21 of the FRL). - Outcomes: - SNG debt to GDP ratio has halved since the late 1990s to reach 4–5 percent of GDP in the last three years, two-thirds of which is domestic. - Across municipalities, 40 percent of municipal debt in 2015 was held by Bogota and 22 percent by Medellin; all but five municipalities held virtually no debt. - Municipalities with an “A” credit rating increased from 82.6 percent in 2012 to 96 percent in 2015. *Source: cr18250-colombiafte (excerpt).* ### 131. Nevertheless, some challenges remain. Currently, 30 SNGs are implementing an ### cr18250-colombiafte - 131. Nevertheless, some challenges remain. Currently, 30 SNGs are implementing an ### Subnational governments (SNGs) - Currently, 30 SNGs are implementing an adjustment plan per Law 550 of 1989. - Adjustments depend on the severity of the cases and the progress made by SNGs in implementing reforms. - In extreme cases, the national government may: - take over the administration of an SNG’s finances, or - make payments directly from resources earmarked for transfer to SNGs to deal with cases where SNGs are failing to provide required services (especially education and health). - The decision to invoke the adjustment process under Law 550 is voluntary for the territorial entities and implies the fulfillment of requirements for their admission by the MHCP; the national government, through the MHCP, acts only as mediator between the territorial governments and their creditors. The application of Law 550 avoids a national bailout of subnational governments with insolvency problems. ### Public corporations (SOEs) — size, composition, and monitoring - As of December 2015, the liabilities of public corporations presented in the financial statement amounted to about 18.2 percent of GDP. - The perimeter of public corporations varies across available documentation. - The MHCP’s General Directorate for SOEs (DGPE), created in December 2015, monitors a portfolio that includes all enterprises where the MHCP has a direct ownership (minority and majority stakes); this scope excludes public corporations owned by SNGs. - The DGPE currently oversees 36 corporations that are fully-owned by the national government, but will ultimately manage the entire portfolio of 119 entities in which the national government has ownership interest. - Valuation (end-2016): - Valuation of the DGPE sub-portfolio: COP 54 trillion. - Valuation of the total portfolio: COP 62 trillion. - Income and balance sheet (2016): - Total income of the 36 SOEs overseen by the DGPE in 2016: COP 79 Trillion (9 percent of GDP). - Total income without Ecopetrol: COP 32 Trillion (3.6 percent of GDP). - Consolidated balance sheet end 2016: COP 230 Trillion. - Consolidated balance sheet end 2016 without Ecopetrol: COP 109 Trillion. - Concentration: Ecopetrol dominates portfolio performance; financial position of public corporations appears strong despite fluctuations in Ecopetrol’s net profit. - Dividends from the 36 corporations overseen by the DGPE: - FY 2013: COP 10.12 billion - FY 2014: COP 5.67 billion - FY 2015: COP 0.58 billion - FY 2016: COP 1.30 billion - Transfers and information gaps: - Transfers occur from public corporations to the government and among public corporations (e.g., arrears, capital injections). - An overall picture of direct and indirect transfers between the government and public corporations, and the amounts received by each entity, is neither available nor published. - Quasi-fiscal activities: - Quasi-fiscal activities of public corporations are occasionally mentioned but are not systematically identified nor evaluated in totality. - The MFMP carried discussion of financial performance and quasi-fiscal activities of BanRep and Fogafin; a 2014 MFMP box described these activities but this information was discontinued in subsequent years. - Examples of quasi-fiscal or public policy activities include social projects in transportation, collection of pension contributions, or payment of pensions by Colpensiones. - Monitoring and reporting: - The DGPE monitors quarterly financial statements of the 36 public corporations in which the MHCP has a majority stake. - DGPE intends to publish an annual report detailing missions, operations, and financial situation of the public corporations under its umbrella, starting in June 2017. - Budget execution of regional and municipal public corporations is not reported in the budget execution report; an analysis of the overall performance of the state’s public corporations is currently unavailable in Colombia. - A general ownership policy has been endorsed by CONPES and published for the national SOEs. ### Fiscal risk assessment: strengths and gaps - Strengths and advanced practices: - Colombia’s fiscal risk analysis and management practices meet good or advanced practices in many areas, especially versus the FTC. - High degree of quantification of specific fiscal risks, including estimation of expected costs, and allowance for the impact of specific risks in the annual budget or in earmarked financial reserves. - Comprehensive and transparent frameworks for managing contingent liabilities established in response to past crises; strategic approach to disaster risk financing. - The MHCP’s Risk Directorate, established in the late 1990s, has contributed to extensive quantification of risks. - Main weaknesses and areas needing enhancement: - Absence of publication of a comprehensive overview of all specific fiscal risks. - Weaknesses include: - Analysis and disclosure of macroeconomic risks. - Projections of long-term fiscal sustainability. - Disclosure of a comprehensive picture of all PPPs. - Publication of a regular overview of public corporations. - Other gaps: - Risks surrounding financial assets and liabilities are not disclosed and analyzed. - Present disclosure of legal risks to the state can create moral hazard concerns. - Present disclosure of guarantees lacks information on public policy purpose and beneficiaries. - Areas where disclosure can be expanded relatively easily: - MHCP plans to expand coverage of fiscal risks in the annual MFMP and for the 2018 budget will introduce a discussion of risks from disasters. - Subsequent budgets could add an overview of subnational governments given the existing risk management framework and monitoring. - A discussion of financial sector soundness and management of financial sector risks would be relatively easy to produce. - The DGPE’s internal report on SOEs’ financial performance provides a sound basis for publishing information on public corporations. ### Conclusions and prioritized recommendations - Overall conclusion: - Colombia performs well in many aspects of fiscal risk management and disclosure but should strengthen publication and comprehensiveness of disclosures in several areas. - Priority recommendations (from Recommendation 3.1, 3.2, 3.3): - Recommendation 3.1: Expand and refine the disclosure of fiscal risks: - Present an annual Fiscal Risk Statement with the MFMP to Congress. - Publish an annual overview of the financial performance and position of public corporations. - Publish alternative macro-fiscal scenarios, including a combined macroeconomic and specific fiscal risk shock; present probabilistic forecasts of key fiscal aggregates. - Present a comprehensive disclosure on all PPPs. - Disclose the public policy purpose and the beneficiaries of guarantees. - Consider a change to the way in which legal risks to the state are disclosed to reduce the possibility of moral hazard. - Publish reports on risks surrounding financial asset and liabilities. - Update the debt strategy. - Recommendation 3.2: Strengthen the management of fiscal risks by: - PPPs: ensuring that all projects are appraised in comparison to financing the project through the government budget. - Strengthening internal high-level oversight of fiscal risks within MHCP through a coordinating mechanism across directorates, and regular in-year reporting to the Minister of Finance on the evolution of fiscal risks and recommended mitigating actions. - Regularly monitoring risks from the financial sector. - Recommendation 3.3: Expand the disclosure of the long-term sustainability of public finances by publishing long-term projections of the sustainability of social security and public pension schemes over at least 30 years. ### Summary assessment highlights (select comparisons and ratings as presented) - Macroeconomic Risks: Basic. MFMP presents sensitivity analysis but very limited discussion of alternative macroeconomic scenarios. Importance: High. Recommendation: Rec 3.1. - Specific Fiscal Risks: Not Met. MFMP provides detailed information on selected contingent liabilities but lacks a comprehensive summary. Importance: High/Medium. Recommendations: Rec 3.1; Rec 3.2. - Long-Term Fiscal Sustainability Analysis: Basic. MFMP presents only ten-year forecasts. Importance: High. Recommendation: Rec 3.3. - Budget Contingencies: Good. Contingencies represent about 7 per cent of total PGN and are adequate for present needs. Importance: Low. - Asset and Liability Management: Basic. Government borrowing authorized by law and periodic reports published, but risks surrounding financial assets and liabilities not disclosed and analyzed. Importance: High. Recommendation: Rec. 3.1. - Guarantees: Advanced. Gross exposure and expected cost of guarantees regularly published and stock controlled. Importance: Low. Recommendation: Rec 3.1. - PPPs: Basic. Substantial information published on PPP projects, but not on government rights or expected annual future receipts. Importance: High. Recommendations: Rec 3.1; Rec 3.2. - Financial Sector Exposure: Advanced. Limited government support to the financial sector; authorities regularly assess financial sector stability. Importance: Low. Recommendation: Rec 3.2. - Natural Resources: Basic. Annual data published on sales and fiscal revenues, but not different price and extraction scenarios. Importance: Low. - Environmental Risks: Advanced. Information published on fiscal impacts of past disasters; national disaster risk financing strategy being implemented. - Subnational Governments (Fiscal Coordination): Good. Financial condition and performance published annually; legal limit on borrowing. Importance: Low. - Public Corporations (Fiscal Coordination): Basic. Information published on main budget transfers to corporations but no published analysis of the sector as a whole. Importance: High. Recommendation: Rec 3.1. *Source: IMF staff assessment as presented in the provided chapter content.* ### 1.4 Integrity ### 1.4 Integrity ### Purpose - Fiscal statistics and financial statements should be reliable, subject to external scrutiny, and facilitate accountability. ### 1.4.1 Statistical Integrity - Fiscal statistics are disseminated in accordance with international standards - Fiscal statistics are compiled by a specific government agency and disseminated in accordance with international standards. - Fiscal statistics are compiled by a professionally independent body and disseminated in accordance with international standards. ### 1.4.2 External Audit - An independent supreme audit institution publishes an audit report on the reliability of the government’s annual financial statements. - An independent supreme audit institution publishes an audit report stating whether the government’s annual financial statements present a true and fair view of its financial position and without a disclaimer or adverse audit opinion. - An independent supreme audit institution publishes an audit report consistent with international standards which states whether the government’s annual financial statements present a true and fair view of its financial position and without major qualifications. ### 1.4.3 Comparability of Fiscal Data - At least one fiscal report is prepared on the same basis as the fiscal forecast/budget. - Fiscal forecast/budget and outturn are comparable plus the outturn is reconciled with either the fiscal statistics or final accounts. - Fiscal forecast/budget and outturn are comparable plus the outturn is reconciled with both fiscal statistics and final accounts. *cr18250-colombiafte - 1.4 Integrity* ### 3. Fiscal Risk Analysis and Management ### 3. Fiscal Risk Analysis and Management ### Planned activities and schedule - Schedule grid spans: Year 1, Year 2, Year 3, Year 4 with half-year markers H1 H2 H1 H2 H1 H2 H1 H2. - Activities and deliverables (numbered as in source): - 3.1.3 Publish alternative macro-fiscal scenarios, including a combined macroeconomic and specific fiscal risk shock; overttime develop and present probabilistic forecasts of the fiscal aggregates. - 3.1.4 Present a comprehensive disclosure on all PPPs. - 3.1.5 Disclose the public policy purpose and the beneficiaries of guarantees. - 3.1.6 Consider changing the way in which legal risks to the state are disclosed to reduce the possibility of moral hazard. - 3.1.7 Publish reports on risks surrpunding financial assets and liabilities. - 3.1.8 Update the debt strategy. - 3.2 Strengthen internal high level oversight of fiscal risks within MHCP. - 3.2.1 Establish a coordination mechanism across General Directorates. - 3.2.2 Establish regular in-year reporting to the Minister of Finance on the evolution of fiscal risks and recommended mitigating actions. - 3.2.3 Monitor regulalrly the financial sector risks. - 3.3 Develop and publish long term(over at least 30 years) projections of the sustainability of the social security and public pension schemes. ### Key recommendations and policy actions - Publish alternative macro-fiscal scenarios and progressively develop probabilistic fiscal forecasts. - Improve transparency and disclosure: - Comprehensive disclosure on all PPPs. - Disclose public policy purpose and beneficiaries of guarantees. - Publish reports on risks surrounding financial assets and liabilities. - Consider changes in disclosure of legal risks to reduce moral hazard. - Strengthen governance and oversight within MHCP: - Establish coordination mechanism across General Directorates. - Establish regular in-year reporting to the Minister of Finance on fiscal risks and recommended mitigating actions. - Monitor financial sector risks regularly. - Update and maintain strategic frameworks: - Update the debt strategy. - Develop and publish long-term (over at least 30 years) projections for social security and public pension schemes. ### Scheduling particulars emphasized in source - Implementation timeframe indicated across: Year 1, Year 2, Year 3, Year 4 with half-yearly (H1/H2) milestones. - Long-term projection requirement: "over at least 30 years". ### Annex III — Main Legal Provisions on Budgeting, Planning, and Public Finance - Constitution 1991 and 2001, 2007, and 2011 amendments - Art. 334, 338, 339, 345-355, 356-364 Art. 267, 268 and 354 Art. 354 under Title XII on development plans, the budget, the distribution of resources and jurisdictions, and the social purpose of the state and public services - Law 38 of 1989 and Law 179 of 1994 - Organic Budget Law - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=14811 - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=14941 - Law 152 of 1994 - Organic National Development Plan Law - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=327 - Law 225 of 1995 - Norms related to budget planning, budget preparation and budget performance - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=14940 - Law 819 of 2003 - Fiscal Transparency and Responsibility Framework and Medium-Term Fiscal Framework (MFPP) - http://www.secretariasenado.gov.co/senado/basedoc/Law_0715_2001.html - Decree 4370 of 2005 and Decree 1068 of 2015 - Medium-Term Expenditure Framework (MGMP) - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=62502 - Law 1473 of 2011 - Fiscal Rule - http://www.secretariasenado.gov.co/senado/basedoc/Law_1473_2011.html - Law 1508 of 2012 and subsequent Decrees - Management and control of PPPs - http://www.secretariasenado.gov.co/senado/basedoc/Law_1508_2012.html - Law 1530 of 2012 - Organization and functioning of the General Royalty System - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=47474 - Decree 1608 of 2015 - Fiscal reports on regional and local governments - http://www.minhacienda.gov.co/HomeMinhacienda/ShowProperty?nodeId=/OCS/MIG_49210604.PDF - Law 358 of 1997 - Subnational indebtedness - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=3423 - Law 550 of 1999 - Financial insolvency regime - http://www.minhacienda.gov.co/HomeMinhacienda/ShowProperty?nodeId=%2FOCS%2FMIG_5944648.PDF - Laws 715 of 2001 and 1176 of 2007 - Sistema General de Participation (SGP) for distributing resources among subnational entities - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=4452 - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=28306 - Laws 617 2000, 819 of 2003 and 1483 of 2011 - Regulatory framework of fiscal responsibility, transparency and accountability - http://www.minhacienda.gov.co/HomeMinhacienda/ShowProperty?nodeId=%2FOCS%2FMIG_5898671.PDF - http://www.minhacienda.gov.co/HomeMinhacienda/ShowProperty?nodeId=%2FOCS%2FMIG_12752602.PDF - Law 1530 2012 - Use and distribution of royalties stemming from exploitation of non-renewable natural resources - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=47474 - Decree 3402 of 2007 and 1536 of 2016 - Reporting of financial information by subnational entities - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=26475 - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=27693 - Law 448 of 1998 and Decree 423 of 2001 - Management of contingent liabilities of state entities - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=6091 - Law 298 of 1996 - Establishment of the General Accounting Office (GAO) - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=15071 - Resolution 354 of 2007 - Establishment of the Public Accounting Regime (RCP) - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=26612 - Law 42 of 1993 - Establishment of the financial control system - http://www.alcaldiabogota.gov.co/sisjur/normas/Norma1.jsp?i=289 *Source: cr18250-colombiafte - 3. Fiscal Risk Analysis and Management* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18250-colombiafte.pdf_