Colombian Regions Rejoice as Decentralization Plan Takes Shape
Colombia’s territorial entities are celebrating a landmark victory, as Congress green-lights a sweeping reform to the General Participation System (SGP). This move promises to dramatically increase the share of national income flowing to local governments, bringing Colombia closer to the decentralized model envisioned in its 1991 Constitution.
The change, championed by the National Government and Minister of the Interior Juan Fernando Cristo, aims to give regions greater fiscal independence. While current transfers from the national government amount to just over 20% of its income, the reform promises to boost this figure to 39.5%. This shift won’t happen overnight but will be implemented gradually over 12 years as responsibilities are transferred to the regions.
"This is perhaps the most important constitutional reform passed since 1991," Minister Cristo proclaimed. "As friends of decentralization, we had concerns from a fiscal point of view, but these have been addressed."
Economists Question Fiscal Prudence
Despite the celebratory mood among regional leaders, the reform has sparked concerns within the nation’s economic community. Prominent economists and research institutions, including the Bank of the Republic, have voiced reservations about the potential fiscal risks.
Former Finance Minister José Antonio Ocampo, speaking for a group of former finance ministers and the current minister, Ricardo Bonilla, argues that "this generates serious fiscal risks" due to the reform’s prioritization of resource allocation over the defined roles of regional and national governments. "Decentralization must be encouraged as stated in the 1991 Constitution, but in a logical manner and without creating significant fiscal risks," Ocampo warned.
Luis Fernando Mejía, executive director of the economic think tank Fedesarrollo, echoed these concerns: "It has a negative impact on the sustainability of public commitments," he stated.
Mejía cautioned that the reform lacks provisions for strengthening regional income streams, institutional capacities, and transparency mechanisms. He warned, "The impact of this agreement must be related to the increase in the risk of public finance, the risk of the country, that is, an increase in the interest rates of the public debt and also a decline in the price of other assets… we should not be surprised by the increased pressure on the dollar."
Adding to the unease, the Republic Bank’s analysts sounded the alarm before the reform’s passage, cautioning against the risk of "increasing public debt" and potential strain on fiscal stability.
A Balancing Act:
The success of the SGP reform hinges on the simultaneous development of a "Capabilities Law," which would delineate the specific responsibilities delegated to regional authorities within a timeframe of 2025-2026. This dual approach aims to ensure regions are equipped with both the resources and the capacity to effectively manage their expanded role in service delivery and program execution. Rodrigo Villalba, Governor of Huila, hailed the reform as a long-awaited step towards righting historical imbalances: "The 1991 Constitution provided for a General Participation System and resources would be transferred to the departments up to 48% of the current income, but with reforms in 2001 and 2007 ‘it was them to waste, and there was a regressive situation… we saw very few resources, a lot of mediocrity.’"
The Colombian government faces a delicate balancing act: empowering regional governments while safeguarding the nation’s fiscal health. The coming years will test whether this ambitious reform can indeed deliver on its promise of a more equitable and decentralized Colombian landscape.
