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Bond Market News
Colombia Invokes Escape Clause Amid Widening Deficit
June 16, 2025
Colombia invoked an “escape clause” in order to suspend borrowing limits after forecasting its largest fiscal deficit since the pandemic. The finance ministry worsened its deficit estimate to 7.1% of GDP from the initial 5.1% for 2025, following weaker than expected revenues. The escape clause allows them to suspend their long-standing fiscal rule that limits budget spending and government debt, under exceptional circumstances. This is set to translate into plans of raising overseas debt sales this year to $6bn from $3.6bn previously. Experts have cautioned that suspending the rule could send a negative market signal, increase borrowing costs and harm fiscal sustainability.
The government also plans to increase taxes and raise its target for auctions of local peso bonds as per sources, but has not announced spending cuts yet. Bloomberg notes that the cost of insuring Colombian debt against default (i.e., via credit default swaps) is higher than that of some nations with lower sovereign ratings.
Colombia’s dollar bonds continued to trade weaker with its 7.375% 2037s are trading at 94.7, yielding 8.1%.
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