UPDATE 1-Colombia will abandon fiscal deficit limits until 2022

(Adds government comments, context)

BOGOTA, June 15 (Reuters) - Colombia’s Fiscal Rule Advisory Committee has unanimously agreed to suspend government deficit limits until 2022 so that the government has more space to meet the fiscal needs created by the coronavirus pandemic, the government said on Monday.

In May the committee approved widening the deficit limit to 6.1% of gross domestic product (GDP) after earlier increasing it to 4.9% in April. The government expects the economy to contract by 5.5% this year as measures to halt the spread of coronavirus batter Colombia’s economy.

The Andean country has reported more than 53,000 coronavirus cases and 1,726 deaths.

“Although the parameters that are usually used to calculate the fiscal deficit include a cyclical component, the extraordinary magnitude of current shocks make that component insufficient,” the government said in a statement.

The fiscal rule, put in place in 2011, is designed to block deterioration in public finances and is seen as key for Colombia to maintain investor confidence.

Following a request from the government, the committee agreed to suspend the rule during 2020 and 2021, after which the government must implement a fiscal policy permitting the return to a deficit in line with the fiscal rule’s parameters from 2022.

A national lockdown declared by President Ivan Duque in late March is expected to lift on July 1. While some restrictions have been lifted in recent weeks, thousands of businesses have been shuttered, leading to rising unemployment.

In April, unemployment in Colombia hit an historic 23.5% in urban areas, equivalent to more than 4 million people out of work, as the government promised further aid measures to help those most affected. (Reporting by Oliver Griffin; Editing by Muralikumar Anantharaman)