IMF Executive Board Concludes 2021 Article IV Consultation with Colombia

March 23, 2021

Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Colombia on March 19, 2021.

Colombia has been hit hard by the pandemic, but the policy response has been timely and well-coordinated. COVID-19 has taken a severe social and economic toll, including more than 60,000 deaths. Over 5 million jobs were temporarily affected and GDP contracted by 6.8 percent in 2020, the largest recession on record in Colombia. The authorities used the flexibility afforded by their very strong policy framework to deliver a coordinated and timely response to the exceptional shock. Alongside a crisis mitigation fund created to aid the pandemic response, emergency measures have supported the health care sector, households and businesses. A flexible exchange rate, monetary policy accommodation and liquidity support, temporary suspension of the fiscal rule and macroprudential measures mitigated the fallout from the pandemic. A national vaccination program to cover most of the population started in February.

A gradual recovery is underway with growth expected to rebound to around 5 percent in 2021. Under staff assumptions for declining infections, rising vaccinations and limited lockdowns, GDP is projected to recover gradually this year, although it is not projected to return to pre-pandemic levels until the second half of 2022. Labor markets have partly rebounded with unemployment declining from its peak although local lockdowns have recently dampened employment gains. Both external and domestic risks to growth remain tilted to the downside. The current account deficit is projected to widen to 3¾ percent of GDP on account of higher growth and imports picking up. External financing needs are expected to remain elevated. However, as non-oil FDI recovers and public borrowing needs decline, the share of private capital flows in external financing is expected to increase. Finally, Colombia’s unwavering efforts to integrate Venezuelan migrants into the economy, most recently by granting them Temporary Protective Status, should raise Colombia’s potential growth in the medium term.

Executive Board Assessment [2]

Directors recognized Colombia’s very strong policy frameworks and track record, allowing a well-executed and timely policy response to the COVID-19 pandemic. Noting the still nascent recovery amid considerable uncertainty and downside risks, Directors emphasized the need for sustained policy support in the near term, while safeguarding financial stability and medium-term fiscal sustainability.

Directors took note of the temporary suspension of the fiscal rule to accommodate emergency spending to support the health care sector, households, and firms. As the pandemic subsides, emergency measures should be gradually removed. Directors welcomed the planned fiscal reform, anchored in durable revenue mobilization and improved tax administration. They agreed that a return to the fiscal rule would safeguard the fiscal framework and anchor medium-term adjustment and public debt sustainability. In doing so, Directors stressed the importance of striking the right balance between flexibility and credibility. They encouraged the authorities to consider enhancements to the fiscal framework and its implementation.

Directors welcomed the central bank’s actions to provide liquidity and the balanced use of regulatory and supervisory flexibility to support credit through the downturn. While monetary policy can be eased further, if needed, there is a need for continued vigilance in financial supervision and use of macroprudential policies to safeguard financial stability. Directors also welcomed the authorities’ commitment to maintain a flexible exchange rate. They noted that Colombia’s first-ever purchase under the Flexible Credit Line (FCL) complemented public and external financing and helped maintain strong external buffers. Directors welcomed the authorities’ intention to treat remaining access under the FCL as precautionary. Continued accumulation of reserves over time would help preserve reserve coverage.

Directors encouraged continued efforts to promote employment, inclusive growth, and external competitiveness, by implementing the National Development Plan and Peace Accords. They commended the authorities for their efforts to integrate Venezuelan migrants into the economy. Directors also acknowledged the progress on governance and transparency, and encouraged sustained efforts to strengthen the anti-corruption and AML/CFT frameworks.

Table 1. Colombia: Selected Economic and Financial Indicators

I. Social and Demographic Indicators

Population (million), 2019

50.3

Unemployment rate, 2019 (percent)

9.7

Urban population (percent of total), 2019

81.1

Physicians (per 1,000 people), 2018

2.2

GDP, 2020

Adult illliteracy rate (ages 15 and older), 2018

4.9

Per capita (US$)

5,393

Net secondary school enrollment rate, 2018

77.5

In billion of Col$

1,002,587

Gini coefficient, 2019

52.6

In billion of US$

271

Poverty rate, 2019

35.7

Life expectancy at birth (years), 2018

77.1

Mortality rate, (under 5, per 1,000 live births), 2018

14.2

II. Economic Indicators

Projections

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

(In percentage change, unless otherwise indicated)

National income and prices

Real GDP

2.1

1.4

2.6

3.3

-6.8

5.1

3.6

4.0

3.8

3.8

3.6

Potential GDP

3.0

2.9

3.0

3.1

-2.0

2.7

2.8

2.9

3.0

3.1

3.2

Output Gap

0.6

-0.8

-1.2

-1.0

-5.9

-3.7

-2.9

-1.9

-1.1

-0.4

0.0

GDP deflator

5.1

5.1

4.6

4.0

1.4

3.0

3.1

3.2

3.3

3.4

3.5

Consumer prices (average)

7.5

4.3

3.2

3.5

2.5

2.1

2.6

2.7

2.8

2.9

2.9

Consumer prices, end of period (eop)

5.7

4.1

3.1

3.8

1.6

2.5

2.6

2.7

2.8

2.9

3.0

External sector

Exports (f.o.b.)

-11.7

16.8

11.7

-4.7

-21.0

24.9

4.5

3.7

3.5

4.0

4.1

Imports (f.o.b.)

-16.9

2.3

12.1

2.5

-18.5

16.4

4.2

5.4

5.0

5.1

4.6

Export volume

-0.2

2.6

0.6

3.1

-10.1

6.3

6.5

4.5

3.4

3.6

3.5

Import volume

-3.5

1.0

5.8

7.3

-16.0

7.8

5.9

5.2

3.5

3.5

3.3

Terms of trade (deterioration -)

3.6

9.3

5.9

-1.7

-11.8

8.0

0.0

0.0

-0.3

-0.7

-0.4

Real exchange rate (depreciation -) 1/

-4.7

5.7

0.6

-9.1

-11.1

NA

NA

NA

NA

NA

NA

Money and credit

Broad money

9.5

6.4

5.7

10.0

-3.0

11.1

9.5

9.9

9.9

9.9

9.7

Credit to the private sector

7.7

12.8

6.8

11.6

2.8

9.4

10.9

11.3

11.3

11.4

11.3

Policy rate, eop

7.5

4.8

4.3

4.3

1.8

NA

NA

NA

NA

NA

NA

(In percent of GDP)

Central government balance 2/

-4.0

-3.6

-4.8

-2.5

-7.7

-9.5

-4.4

-3.5

-2.9

-2.5

-2.4

Central government structural balance 3/

-3.3

-2.6

-2.3

-2.2

-6.4

-8.0

-3.5

-3.0

-2.7

-2.4

-2.3

Consolidated public sector (CPS) balance 4/

-2.2

-2.4

-4.5

-1.9

-6.8

-8.6

-3.3

-2.9

-1.8

-1.6

-1.5

CPS non-oil structural primary balance

0.0

-0.1

-1.2

-0.8

-4.4

-5.6

-0.6

-1.1

-0.5

-0.4

-0.3

CPS fiscal impulse

-3.3

0.1

1.0

-0.4

3.6

1.3

-5.1

0.5

-0.6

-0.1

0.0

Public debt sector gross debt 5/

49.8

49.4

53.6

52.3

62.8

64.2

64.3

63.5

61.4

59.3

57.2

Gross domestic investment

23.2

21.6

21.2

21.5

18.8

19.2

19.8

20.5

20.8

20.8

20.8

Gross national savings

18.6

18.2

17.1

17.1

15.5

15.4

16.0

16.6

16.8

16.9

16.9

Current account (deficit -)

-4.5

-3.4

-4.1

-4.4

-3.3

-3.8

-3.9

-3.9

-3.9

-3.9

-3.9

External Financing Needs

13.2

13.5

14.2

15.1

17.4

16.3

15.2

15.4

16.1

15.6

15.5

External debt 6/

49.4

47.2

46.6

49.9

64.4

62.4

61.9

61.1

60.2

59.2

58.3

Of which: public sector 6/

31.9

30.3

29.0

30.0

39.3

38.2

37.5

36.3

34.2

32.6

31.5

(In percent of exports of goods and services)

External debt service

66.6

72.0

68.9

75.1

109.3

88.4

80.2

81.3

85.2

83.8

84.5

Interest payments

11.1

10.7

10.5

14.2

16.8

14.9

15.3

15.1

14.8

15.0

15.2

(In billions of U.S. dollars; unless otherwise indicated)

Exports (f.o.b.)

34.1

39.8

44.4

42.4

33.5

41.8

43.7

45.3

46.9

48.8

50.8

Of which: Petroleum products

10.8

13.3

16.8

16.0

8.8

13.5

13.4

13.3

12.9

12.9

13.0

Gross international reserves 7/

46.2

47.1

47.9

52.7

58.5

60.7

61.6

62.4

63.3

64.4

65.5

Share of ST debt at remaining maturity + CA deficit

113

103

100

116

124

132

124

113

111

108

104.5

Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and IMF staff estimates.

1/ Based on bilateral COL Peso/USD exchange rate.

2/ Includes one-off recognition of previously unrecognized accounts payable worth 1.9 percent of GDP in 2018 and central bank profits. For 2021 includes privatization

receipts worth 1.1 percent of GDP that, under GFSM 1986 which is used by the authorities, produces a headline deficit of -8.4 percent of GDP.

3/ IMF staff estimate, excludes one-off recognition of arrears.

4/ Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and statistical discrepancy. For 2021 includes privatization receipts, see 2/

above.

5/ Includes Ecopetrol and Banco de la República's outstanding external debt.

6/ Current account deficit plus amortization due including holdings of locally issued public debt (TES).

7/ Excludes Colombia's contribution to FLAR; includes valuation changes of reserves denominated in currencies other than U.S. dollars.



[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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