By Nelson Bocanegra and Rodrigo Campos
BOGOTA/NEW YORK, June 16 (Reuters) – Whoever is elected Colombia’s next president in a Sunday vote will have limited room to carry out his economic agenda, economists, policymakers and investors said, citing mounting fiscal problems and a divided Congress which could make it hard to pass economic reforms.
Colombians will choose this week between right-wing lawyer Abelardo De La Espriella and leftist senator Ivan Cepeda, whose plans for Latin America’s fourth-largest economy sharply diverge.
Financial markets are rooting for De La Espriella, a political outsider who has promised to reduce the size of the state by 40%, broaden the tax base and cut corporate taxes to promote private employment. He also wants to restart oil exploration, allow fracking to nearly double production to 1.3 million barrels per day and take a harder line against guerrillas and criminal groups.
“The Colombian state as it is currently structured is financially unviable,” he said in a recent speech.
Colombian assets rallied after De La Espriella won the first round with 43.7% of the vote to 40.9% for Cepeda. Investors viewed the result as boosting the likelihood of a shift away from the policies of outgoing President Gustavo Petro, a Cepeda ally whose supporters have cheered expanded social programs and success in bolstering manufacturing, tourism and agriculture.
“The market has moved to largely price an Abelardo (De La Espriella) victory even before the second round,” said Thys Louw, emerging market fixed income portfolio manager at Ninety One. “If Abelardo should win, the market reaction will undoubtedly still be positive … as the perception would be that he will have a mandate to start reversing damage to (the fiscal side) and investment that was done under Petro.”
Cepeda has pledged to deepen Petro’s economic and social reforms, with a focus on reducing poverty. He would raise taxes on the wealthiest Colombians and largest companies, while maintaining a ban on new oil and coal exploration, though he is open to gas and mining development.
“Let us make a tax pact, a fiscal pact, so we do not have to get to a reform that may be, well, unpopular with sectors of the economy,” Cepeda told Reuters last week.
Colombia’s post-COVID economic recovery has relied heavily on consumption, rising wages and public spending. Private investment remains weak and the oil and mining sectors have lost momentum.
Colombia’s economy grew 2.6% last year, which was below the pre-pandemic 4% average, official data showed. Despite small increases in 2024 and last year, private investment remains below pre-COVID levels after a sharp 13.4% contraction in 2023, Petro’s first full year in power.
Alejandro Cuadrado, global head of foreign exchange and Latin America strategy at BBVA, said the local peso had already priced in more than half of its potential upside. He said the market may overestimate how much fiscal adjustment De La Espriella could deliver.
“The challenge is high, even if the market reacts well to a potential De La Espriella victory,” Cuadrado said. He noted that De La Espriella would probably have limited support in Congress, giving him less room for fiscal adjustment.
Colombia’s public debt is about 60% of GDP. Analysts and ratings agencies say weak government revenue and high spending will make it difficult to meet its fiscal deficit target of 5.3% of GDP this year.
To avoid default, the new president needs to cut spending by $5.6 billion in 2027 and by $20 billion over a four-year term, equal to four points of GDP, Juan Carlos Ramirez, head of the Autonomous Fiscal Rule Committee (CARF) said.
“If spending keeps rising and revenues do not improve, there comes a point when those debts become unpayable,” Ramirez told Reuters.
MULTIPLE CHALLENGES
Ratings agencies downgraded Colombia’s sovereign credit rating last year after the government suspended limits on spending and debt. S&P and Fitch pushed Colombia deeper into junk territory.
“Colombia has a track record of tax reforms, but a new reform is not guaranteed. In fact, De La Espriella has pledged to cut taxes, and while Cepeda supports reforms to raise revenue, he could struggle to push them through Congress, as happened during the Petro administration,” Fitch said.
Markets could become more volatile if there is a contested election. Cepeda questioned alleged first round irregularities before accepting the results. De La Espriella has decried alleged pressure by armed groups.
Investment has shifted toward capital markets and away from productive sectors because of legal uncertainty, insecurity, and extortion, central bank board member Bibiana Taboada told Reuters.
“Whoever reaches the presidency will find multiple challenges, one of them being to get the economy’s productive capacity growing again,” she said. “It will be fundamental to generate confidence that the macroeconomic stability that had characterized Colombia will return.”
Some Colombian companies that had sought growth abroad are again considering domestic investment as the election raises the prospect of a policy shift, said Paul Dmitriev, co-portfolio manager and senior analyst at Global X.
“No corporate was doing any capex domestically,” Dmitriev said of a visit earlier during Petro’s administration. “And now … there’s been this revival, and, ‘okay, I see opportunity for change, and I see an opportunity to invest domestically’.”
Revival of energy investments would require institutional stability and long-term vision, said Nelson Castaneda of energy industry group Campetrol. He called a restart “fundamental to guarantee the country’s energy security and sovereignty.”
A Cepeda victory would likely hurt confidence in Colombia’s economic outlook, Deutsche Bank economists said, while a De La Espriella government could form a working legislative coalition to deliver a macroeconomic adjustment, though likely not enough to stabilize debt.
(Reporting by Rodrigo Campos in New York and Nelson Bocanegra in Bogota; Editing by Julia Symmes Cobb and David Gregorio)
By Nelson Bocanegra and Rodrigo Campos | Reuters | © Copyright Thomson Reuters 2026.
