Medellín Residents Feel the Pinch as Fiscal Crisis Drives Up Borrowing Costs
Medellín, Colombia – A deepening fiscal crisis is directly impacting the wallets of residents in Medellín and Antioquia, with rising interest rates on loans and mortgages making it increasingly difficult for individuals and businesses to thrive, according to a new report by Crowe CO.The report highlights a concerning trend: the city’s economic growth is outpacing income gains for its citizens.
“The deficit today are more taxes tomorrow. The hidden tax is inflation, which measures the cost of living,” explains Lia Heenan, director of global Corporate Advisory at Crowe CO, summarizing the situation. “People sometimes do not notice, but pay it in each extract, in each loan and in each purchase that finances.”
The core issue stems from the Colombian government’s increasing need to borrow money due to dwindling state funds. To attract lenders, higher interest rates are offered, a cost that is then passed down through the entire financial system. This translates to more expensive credit cards, mortgages, and business loans for consumers and entrepreneurs alike. The report specifically notes difficulties accessing financing, with “housing credits that do not go down, more expensive productive loans and banks that make more and more obstacles to finance” entrepreneurs.
The situation is further complicated by recent downgrades from international credit rating agencies. In June, S&P lowered Colombia’s rating to ‘BB,’ and Moody’s followed suit, citing ”overflowing expense and insufficient income.” These downgrades increase the country’s debt risk, further driving up borrowing costs for everyone.
Antioquia,heavily reliant on industry,construction,and trade fueled by credit,is especially vulnerable.The report warns of a “domino effect” - more expensive credit leading to less investment and a slower economic recovery.
Crowe CO offers seven recommendations to help Medellín residents protect their finances:
* Debt Consolidation: Transfer high-interest consumer card or credit debt (over 20%) to a loan with a lower, fixed rate.
* Mortgage Review: evaluate converting mortgages denominated in UVR (Unidad de Valor Real) to a fixed rate in Colombian pesos to shield against inflation.
* Pre-Reform Savings: Adjust expenses and increase liquidity in anticipation of a potential new tax reform.
* Asset Liquidation: Convert unused inventory into cash to manage operations or pay down debt.
* Debt Prudence: Exercise caution with new debt, pausing large purchases or credit applications if the dollar or interest rates rise.
* Fiscal Discipline Advocacy: support clear and credible fiscal goals from the government to help lower interest rates.
The report underscores the urgency of addressing the fiscal imbalance to prevent further strain on the financial well-being of Medellín’s citizens and businesses.The escalating costs of borrowing are not merely financial figures, but a tangible burden felt in everyday expenses and economic opportunities.
