(Bloomberg) -- The Colombian Senate voted to approve a constitutional reform aimed at increasing government transfers to regional authorities, ignoring warnings that the bill may be fiscally unsustainable.
Lawmakers approved the reform in the sixth of eight required debates for it to become law. It now needs two additional votes in the lower house, where the government holds a majority.
The bill mandates that the government will increase transfers to cities and provinces from the current 26% of its revenue to 39.5% over 12 years, starting in 2027. This represents a modification from the original proposal, which called for transfers of 46.5% of fiscal revenue over 10 years.
Finance Minister Ricardo Bonilla had requested a lower threshold of 37% and suggested extending the implementation period to 15-20 years, but senators chose to disregard his concerns. The finance chief didn’t take part in Tuesday’s debate.
The constitutional reform also requires a separate bill to clarify the responsibilities of regional governments to prevent overlap with duties of the central government.
While this reform does not require the government’s fiscal approval since it is a constitutional amendment, it will face scrutiny in the constitutional court once it receives final approval.
As the bill wound its way through Colombia’s Congress, a selloff in Colombian assets has deepened. Investors are now grappling with the potential for a further deterioration in the already fragile fiscal accounts.
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