Cash-strapped Colombia proposes $6.5 bln long-shot tax reform

BOGOTA (Reuters) - The Colombian government on Monday presented a tax reform bill to Congress to raise 26.3 trillion pesos ($6.54 billion), intended to finance the government's 2026 spending, Finance Minister German Avila said.

The government is facing a severe fiscal crunch a year out from legislative and presidential elections scheduled for next August.

The upcoming campaign season, according to analysts and politicians, threatens the tax reform's prospects in Congress, where President Gustavo Petro's government has limited support.

Petro warned in July that if the tax reform is not approved by Congress, the government would finance the budget with more debt.

The reform amount disclosed on Monday is higher than the 19 trillion pesos ($4.73 billion) that the Finance Ministry announced in June during the presentation of Colombia's Medium-Term Fiscal Framework.

Facing declining revenues, the government suspended Colombia's fiscal rule in June, which had established limits on public spending and debt since 2011. This forced the Finance Ministry to raise its fiscal deficit target for this year to 7.1% of GDP, higher than the previous 5.1% of GDP.

For 2026, the fiscal deficit target was set at 6.2% of GDP. Ratings agencies S&P and Moody's in response downgrade Colombia's debt rating by one notch.