On August 28, 2024, Colombian President Gustavo Petro announced that the government and banks in Colombia reached an agreement to invest $13.6 billion USD into the country’s housing, manufacturing, agricultural, civil well-being, and tourism sectors for the next 18 months. Despite such a historic agreement between the state and banks, the current administration’s history of economic mismanagement and threats against Congress might jeopardize this new investment plan, otherwise known as “El Pacto por el Crédito”.

Petro’s investment strategy has forced Colombia to spend above its widening deficits, as his prioritization of public transport and social services since 2023 has worsened the country’s general government balance relative to its total revenue. Despite total government revenue as a percentage of GDP increasing since 2022 (rising from 16.3% in 2022 to approximately 19.1% in 2024), that does not indicate that the state is utilizing the revenue it’s generated wisely. In fact, Colombia’s general government balance worsened, with the deficit increasing from -4.2% of GDP in 2023 to -5.3% in 2024, matching the deficit level of -5.3% in 2022. By engaging in deficit spending, Petro is forcing the government to borrow more loans from the loanable funds market, which could endanger innovation in the private sector via crowding out, where personal consumption of goods and services and investments by businesses are reduced by the government borrowing more. Although investing 13.6 billion dollars USD in Colombia sounds good on paper, Petro’s economic mismanagement casts doubt on the success of initiatives like “El Pactor por el Crédito”. 

In preparation to execute “El Pacto por el Crédito,” Petro threatened a fiscal crisis against Congress if it did not raise the debt ceiling. In June 2024, Colombia’s Senate and House of Representatives approved a request from the president to raise the debt ceiling to 17.6 billion USD, surpassing former President Ivan Duque’s $14 billion emergency increase to mitigate the pandemic’s impact in 2020. Before approving the request, Petro conveyed to Congress that Colombia could continue paying its deficits or create a fiscal emergency if Congress did not approve raising the debt ceiling. While the banks partnered in “El Pacto por el Crédito” can help offset some of the state debt, Petro threatening a fiscal emergency against Colombia’s legislature reveals how he might coerce his agenda against his new economic partners, potentially risking the successful execution of “El Pacto por el Crédito”.

Moreover, Petro aims to cut public funding for Entidades Promotoras de Salud (EPS), an asset of Colombia’s robust public healthcare system. Ranked by the World Health Organization as the twenty-second most efficient healthcare system in the world, EPS has covered 65% of the population from 1993 to 2003. Despite its importance for public healthcare, corruption charges on August 8, 2024, against the EPS Board of Directors prompted Petro to respond on X, “…[EPS] used the public debt to subsidize the payrolls of the largest businessmen in the country. Now it is time to pay that debt by reducing public investment”. While EPS should be held accountable by the state, Petro's threat to cut public spending for EPS raises concerns about his dedication to public investment. Petro’s health reform suggests an intent to exert control over Colombia’s public health insurance, which could create inefficiencies in the system, decreased innovation, and limited responsiveness to local needs. Petro’s priority of maintaining power could mean seizing control from his new banking partners in “El Pacto por El Crédito”

Despite a historic $13.6 billion investment plan, Gustavo Petro’s ongoing economic mismanagement and strained relationships with Congress cast doubts on the potential effectiveness of “El Pacto por el Crédito”. If Colombia is to return to stability, the Petro administration should consider initiatives outside of “El Pacto por el Crédito”, such as increasing productivity via policies that favor private investment. Specifically, the government should engage in reforms that incentivize private investments, such as lowering the corporate tax rate and overhauling Colombia’s tax system, which will help Colombia pay off its debt. Colombia has a unique position to do more to address its tax system and create a stable framework for years to come if it utilizes its financial resources to solve ongoing problems instead of creating new ones.