IMF Executive Board Concludes 2023 Article IV Consultation with Colombia
IMF News, March 23, 2023
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- Published: March 23, 2023
Growth, inflation, and external balance
- Colombia’s economy grew at 7.5 percent year-on-year in 2022.
- Headline inflation reached 13.3 percent year-on-year in February 2023.
- The current account deficit widened from 5.6 percent of GDP in 2021 to 6.2 percent of GDP in 2022.
- The economy is transitioning toward a more sustainable growth path supported by tightened macroeconomic policies.
- The cooling of the economy is expected to:
- Bring inflation towards the central bank’s target by end-2024.
- Narrow the current account deficit gradually to its historical average (about 4 percent of GDP), with the bulk financed through foreign direct investment.
Risks and external buffers
- Downside risks are elevated, notably:
- Sharper-than-anticipated tightening of global financial conditions with negative effects on commodity prices, capital flows, and domestic demand.
- Domestic risks related to sequencing and communication of reforms and the need to keep macro policies sufficiently tight to reduce internal and external imbalances.
- The two-year Flexible Credit Line (FCL) arrangement approved in April 2022 provides access amount equivalent to SDR7.1557 billion (about US$9.8 billion) on a precautionary basis, enhancing external buffers and resilience.
Executive Board assessment and policy messages
- Directors agreed with the thrust of the staff appraisal: the economy is moving from a robust recovery to sustainable growth, but downside risks remain elevated.
- Fiscal policy:
- Directors welcomed the strong fiscal adjustment in 2022 and the planned adjustment in 2023, noting these go beyond the consolidation required by the fiscal rule.
- The planned adjustment was seen as balancing deficit reduction while using progressive tax reform to increase social spending.
- Authorities’ commitment to implement fiscal rules was welcomed.
- Many Directors recommended improving fiscal balances slightly beyond the fiscal rule path in the coming years to reduce financing needs, strengthen convergence of public debt to its medium-term anchor, build buffers, and durably reduce external imbalances. A few Directors did not see a need for tightening beyond the fiscal rule in the medium term.
- Continued efforts to gradually remove distortive fuel subsidies remain important.
- Monetary policy:
- Directors commended the central bank’s decisive monetary policy tightening consistent with its inflation-targeting framework.
- They welcomed the commitment to maintain a tight monetary stance until price pressures and inflation expectations are on a firm downward trend, and emphasized the importance of effective central bank communication.
- External sector and exchange rate:
- Directors noted the external position is sustainable and that the flexible exchange rate should continue to facilitate external adjustment, provided financial stability is not compromised.
- The FCL was noted as continuing to provide additional external buffers against tail-risks and enhancing market confidence.
- Financial sector and structural reforms:
- While the financial sector remains resilient, Directors emphasized close monitoring of risks and emerging vulnerabilities and encouraged continued progress on the 2022 FSAP recommendations supported by Fund technical assistance.
- Directors were encouraged by the objectives of healthcare, pensions, and labor market reforms, urging prudent implementation to preserve fiscal and financial stability.
- They commended the authorities’ objective of reducing reliance on oil and coal and noted that a successful transition requires a well-communicated and gradual plan balancing domestic energy needs, foreign exchange generation capacity, and the global transition to a low-carbon economy.
- Continued advancement on governance and anti-corruption was encouraged.
Key social, demographic, and selected economic indicators (as reported)
- Population (million), 2022. Projection: 51.6
- Unemployment rate, 2022 (SA, percent): 11.3
- Urban population (percent of total), 2020: 81.4
- Physicians (per 1,000 people), 2018: 3.8
- Adult illiteracy rate (ages 15 and older), 2020: 4.4
- Per capita (US$): 6,665
- Net secondary school enrollment rate, 2018: 77.5
- In billion of Col$: 1,463,873
- Gini coefficient, 2021: 52.3
- In billion of US$: 344
- Poverty rate, 2021: 39.3
- Life expectancy at birth (years), 2019: 76.8
- Mortality rate, (under 5, per 1,000 live births), 2020: 13.2
Selected macroeconomic projections and indicators (annual percent changes or levels as labeled)
- Real GDP: 2019: 3.2; 2020: -7.3; 2021: 11.0; 2022: 7.5; 2023: 1.0; 2024: 1.9; 2025: 2.9; 2026: 3.3
- Potential GDP: 2019: 2.1; 2020: -1.2; 2021: 5.0; 2022: 4.8; 2023: 2.7; 2024: 2.5; 2025: 2.4; 2026: 3.1
- Output Gap: 2019: -0.2; 2020: -6.4; 2021: -1.0; 2022: 1.6; 2023: -0.8; 2024: 0.0
- GDP deflator: 2019: 4.0; 2020: 1.5; 2021: 7.7; 2022: 14.2; 2023: 8.0; 2024: 3.9; 2025: 3.0
- Consumer prices (average): 2019: 3.5; 2020: 10.2; 2021: 10.9; 2022: 5.4
- Consumer prices, end of period (eop): 2019: 5.6; 2020: 13.1; 2021: 8.4
- Nominal GDP (In Col$ trillion): 2019: 1,060; 2020: 998; 2021: 1,193; 2022: 1,464; 2023: 1,595; 2024: 1,690; 2025: 1,791; 2026: 1,907; 2027: 2,029; 2028: 2,160
- Exports (f.o.b.): 2019: -5.4; 2020: -20.5; 2021: 32.3; 2022: 39.8; 2023: -9.5; 2024: 0.4; 2025: 1.7
- Imports (f.o.b.): 2019: 2.3; 2020: -18.5; 2021: 37.7; 2022: 26.2; 2023: -8.1; 2024: -0.4; 2025: 1.1; 2026: 2.8
- Terms of trade (deterioration -): 2019: -2.3; 2020: -1.6; 2021: 5.3; 2022: 19.7; 2023: -10.7; 2024: -4.5; 2025: -2.5; 2026: -2.0; 2027: -1.4; 2028: -1.5
- Real exchange rate (depreciation -) 2/: 2019: -5.9; 2020: -7.7; 2021: -3.2; 2022: -4.8
- Broad money: 2019: 10.0; 2020: 10.3; 2021: 13.6; 2022: 11.2; 2023: 6.4; 2024: 6.9; 2025: 7.0
- Credit to the private sector: 2019: 11.6; 2020: 12.5; 2021: 16.8; 2022: 7.1; 2023: 7.4
- Policy rate, eop: 2019: 4.3; 2020: 1.8; 2021: 12.0
- Central government balance 3/ (In percent of GDP): 2019: -7.8; 2020: -5.5; 2021: -3.8; 2022: -3.6; 2023: -3.4; 2024: -3.0; 2025: -2.9; 2026: -2.8
- Central government structural balance 4/: 2019: -6.1; 2020: -4.6; 2021: -3.7; 2022: -2.2
- Consolidated public sector (CPS) balance 5/: 2019: -6.9; 2020: -7.1; 2021: -6.6; 2022: -1.8; 2023: -1.9
- CPS non-oil structural primary balance: 2019: -4.3; 2020: -4.9; 2021: -2.1; 2022: -0.5
- CPS fiscal impulse: 2019: 0.8; 2020: 0.6; 2021: -0.3; 2022: 0.7; 2023: -0.1
- Public sector gross debt 6/: 2019: 52.4; 2020: 65.7; 2021: 64.0; 2022: 63.6; 2023: 62.0; 2024: 61.1; 2025: 60.9; 2026: 60.1; 2027: 59.2; 2028: 58.3
- Gross domestic investment: 2019: 21.4; 2020: 19.1; 2021: 19.0; 2022: 21.8; 2023: 20.8; 2024: 21.0; 2025: 22.0; 2026: 22.3; 2027: 22.4
- Gross national savings: 2019: 15.6; 2020: 13.3; 2021: 16.4; 2022: 17.1; 2023: 17.9; 2024: 18.2; 2025: 18.4
- Current account (deficit -): 2019: -3.5; 2020: -5.6; 2021: -6.2; 2022: -5.1; 2023: -4.1; 2024: -4.0
- External Financing Needs 7/: 2019: 15.3; 2020: 18.1; 2021: 17.6; 2022: 18.3; 2023: 18.7; 2024: 17.8; 2025: 17.7
- External debt: 2019: 50.1; 2020: 66.6; 2021: 62.2; 2022: 63.0; 2023: 68.1; 2024: 68.3; 2025: 67.9; 2026: 66.8; 2027: 65.9; 2028: 65.4
- External debt service (In percent of exports of goods and services): 2019: 77.8; 2020: 113.0; 2021: 84.9; 2022: 63.8; 2023: 77.7; 2024: 86.6; 2025: 85.4; 2026: 90.0; 2027: 91.9; 2028: 90.1
- Interest payments (In percent of exports of goods and services): 2019: 14.7; 2020: 17.0; 2021: 13.5; 2022: 14.3; 2023: 15.5; 2024: 15.2
- Gross international reserves (In billion of U.S. dollars; unless otherwise indicated): 2019: 40.7; 2020: 42.7; 2021: 59.8; 2022: 54.1; 2023: 53.5; 2024: 53.7; 2025: 54.6; 2026: 55.5; 2027: 57.2
- Of which: Petroleum products: 2019: 16.0; 2020: 8.8; 2021: 18.9; 2022: 16.3; 2023: 15.4; 2024: 14.5; 2025: 14.1
- Gross international reserves 8/: 2019: 52.7; 2020: 58.5; 2021: 58.0; 2022: 56.7; 2023: 57.8; 2024: 59.1; 2025: 60.4; 2026: 61.8
Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and IMF staff estimates.