Colombia Court Orders Petro to Return Emergency Funds

The Constitutional Court of Colombia has ordered the government of President Gustavo Petro to return funds collected during a state of economic emergency that was recently declared unconstitutional. This ruling represents a significant financial challenge for the administration, which is already grappling with a strained national budget and legislative hurdles in passing fiscal reforms.

The court had previously struck down the emergency declaration, which was originally intended to raise 11 trillion pesos (approximately $3.07 billion) to cover budget shortfalls. According to a source at the National Tax and Customs Directorate, the government had already collected 1.67 trillion pesos ($467 million) through decrees issued under the emergency powers. Unlike previous instances where similar rulings were not retroactive, the court has now mandated that these specific funds be returned to taxpayers.

The state of emergency allowed the executive branch to bypass Congress to implement fiscal measures. These included a tax on liquid assets over 2.1 billion pesos, a specialized income tax for the financial industry, and a 19% tax applied to gambling, alcoholic beverages, and certain luxury goods like motorcycles and aircraft. This judicial decision comes at a time when the economy is facing significant headwinds. In June, the Ministry of Finance adjusted the 2025 fiscal deficit target upward to 7.1% of GDP, a sharp increase from the original 5.1%. In response to the widening gap, Finance Minister German Avila recently announced a new tax reform proposal valued at 16 trillion pesos ($4.47 billion) to be presented to Congress. The administration faces a narrow timeline to secure approval for this new funding before the legislative session concludes.