How this year’s high Brent price could impact public finances in 2023

This year the National Government made its fiscal accounts under the assumption that the benchmark Brent oil barrel would average US$70. This despite the fact that since the beginning of the year, the reference crude oil for Colombia has been above that price and has even reached more than US$97.

At the time, José Manuel Restrepo, Minister of Finance, pointed out that the motivation for this decision was to be prudent.

According to calculations by the US Energy Information Administration (EIA), in the first half of the year the average Brent barrel would be US$88 and US$83 for the whole of this year. According to Munir Jalil, director of economic research at BTG Pactual, this average price would mean revenues of US$1.556 billion more than expected by the Government.

This taking into account that for each additional US$1 in the value of the barrel, the income would be US$130 million more. Khalil estimates that this could mean an additional $5 to $6 billion.

Juan Pablo Espinoza, Bancolombia’s chief economist, pointed out that this difference will not have any impact this year since it will materialize until 2023 when Ecopetrol delivers the profits obtained this year.
This may have a positive impact on the nation’s finances. Jalil pointed out that although there are large spending needs, this could help reduce the fiscal deficit, whose goal for 2023 is -1.40%.

However, Juan Camilo Pardo, an analyst at Corficolombiana, considers that its positive effect will be partial. On the one hand, oil represents 10% of the country’s income, which undoubtedly means more revenue. However, there are factors that reduce its impact.

This is due to the fact that although revenues increase, it is also worth remembering that the deficit of the Fuel Price Stabilization Fund (Fepc) is over $10 billion.

This means that despite the fact that there will be higher revenues, the account that the State has with Ecopetrol has also grown.

Espinoza pointed out in this regard that as oil prices increase, the value of fuels will also increase and therefore this fund could grow its account receivable, even up to $12 billion.

Analysts also point out that production has fallen in recent years, in 2021 it fell 5.7% compared to 2020 and was over 736,000 barrels per day. This reflects that despite having a better price, the country is less able to take advantage of the boom.

“With greater production, a greater amount could be collected, more jobs would be generated, foreign investment would increase and the added value of the sector would rise,” said Pardo.

Espinoza added that this positive effect of the higher price of a barrel of crude oil will be diluted by another factor. “Colombia is capable of exporting surplus oil that is much smaller than what we generated before, because we produced more and consumed less,” he stressed.

Therefore, what the Government would receive could be much less.

Despite this, what they do consider is that it will have a positive effect on attracting investment to the country. Jalil pointed out that this good moment will undoubtedly make it attractive for companies to invest in Colombia. As a consequence, production could also increase and the country would have better benefits. For this year, it is projected that $183 billion will be raised, that is, $22.8 billion more than the amount of 2021. If the assumption of between $5 and $6 billion is added, the income could increase to $188 or $189 billion.

Analysts maintain that the factors of production and the Fepc could affect the optimism of this higher collection.