The Inter-American Development Bank (IDB) approved a $500 million loan for the Program to Support Sustainable and Equitable Fiscal Policies in Colombia, which aims to boost equity and long-term fiscal and environmental sustainability.

Through this program, Colombia will work to establish a more equitable and effective tax system and advance its environmental and decarbonization strategy. The program will benefit the Colombian people as a whole by making more resources available for social investment and reducing the environmental footprint.

Colombia is noted for its sound macroeconomic and fiscal management, but it now must address the significant challenges of enhancing the redistributive capacity of its fiscal policy and increasing tax collection in line with the country's level of development.

"To tackle its development challenges, Colombia needs a highly effective tax system that minimizes poorly designed incentives, promotes tax compliance, helps reduce inequality, and bolsters tax revenues to ensure medium-term sustainability," said Mario F. Sanginés, the team lead for the IDB project.

This program also seeks to close gender gaps, which deepen social inequality, by identifying and addressing gender biases in tax regulations. In pursuit of the same goal, it will also work to produce tax statistics and propose public policy measures to identify and correct these gaps.

Although Colombia has used some fiscal policy tools to advance environmental objectives, the country has the opportunity to give fiscal management a more central role in its strategy to decarbonize the economy. This program will promote fiscal measures that discourage the use of fossil fuels and environmentally degrading products.

The $500 million loan has 19.15-year repayment period, a six-year grace period, and an interest rate based on the Secured Overnight Financing Rate (SOFR).