IMF Executive Board Concludes 2018 Article IV Consultation with Colombia
IMF News, April 30, 2018
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- Published: April 30, 2018
Overview and 2017 Assessment
- On April 27, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Colombia.
- In 2017, adequate policy management:
- Brought Colombia near completion of its adjustment to large external shocks while further advancing inclusive growth.
- Resulted in moderated economic growth as private investment and consumption weakened in line with lower national income.
- Saw some delays in the infrastructure agenda that contributed to the decline in private investment.
- Continued fiscal consolidation guided by the fiscal rule, contributing to the narrowing of the current account deficit.
- Benefited from some recovery in oil and non-oil exports.
- Used proceeds of the structural tax reform to help protect public investment and social expenditure.
- Experienced a rapid decline in inflation toward the target as past shocks dissipated; the central bank’s easing cycle supported the recovery observed in the second part of the year while protecting the anchoring of inflation expectations.
- Achieved improvements in social indicators with both poverty and income inequality decreasing in 2017.
- External and financial context in 2017:
- Current account deficit declined to 3.4 percent of GDP and continued to be financed by FDI to a large extent.
- Portfolio inflows moderated somewhat but remained ample, with further increases in foreign participation in the local government debt market.
- The banking system weathered the economic slowdown well.
- Planned implementation of the conglomerates law in 2018 will improve the regulatory and supervisory framework including management of corporate and overseas risks.
Outlook and Risks
- Colombia’s outlook:
- Is characterized as favorable, with continued efforts to advance structural reforms expected to foster economic diversification and productivity growth.
- Economic growth is expected to rebound strongly in 2018 and further over the medium-term, led by strengthening investment and exports.
- The combined impact of the structural tax reform, a brighter outlook for oil prices, and the authorities 4G infrastructure agenda will underpin investment while reducing Colombia’s relatively large infrastructure gap.
- Continued efforts to reduce trade barriers and some recovery in global growth will help sustain strong export growth.
- Implementation of the peace agreement will promote regional development and reduce inequality.
- Risks:
- Remain to the downside and stem in part from still sizeable external financing needs.
- Colombia remains exposed to a sharp tightening of global financial conditions.
- Risk of escalation of trade or geopolitical tensions.
Executive Board Assessment and Recommendations
- Directors commended:
- The authorities for strong macroeconomic management and improvements to the policy framework, which secured the needed adjustment, strengthened recovery, and reduced poverty and income inequality.
- Directors’ views and recommendations:
- Acknowledged that while the outlook is positive, vulnerabilities persist from potential sudden tightening of global financial conditions and geopolitical/trade tensions.
- Welcomed the authorities’ commitment to maintain very strong policies and ambitious structural reforms to address remaining vulnerabilities, ensure macroeconomic stability, and foster sustainable and inclusive growth.
- Highlighted that structural reforms should focus on raising productivity and potential growth, including:
- Implementation of the Fourth Generation infrastructure projects and the peace agreement to advance priorities such as improving the business environment, tackling labor market informality, providing high quality education, and promoting infrastructure investment.
- Lowering barriers to international trade.
- Agreed that placing public debt on a declining path is an appropriate fiscal target and would allow fine tuning of the consolidation pace as guided by the fiscal rule.
- Welcomed the achievement of the 2017 deficit target despite weaker-than-expected growth.
- Encouraged focus on improving tax administration, noting that associated revenue gains will create space for public investment.
- Highlighted the need for a comprehensive pension reform to increase coverage and progressivity.
- Welcomed improvements in the monetary policy framework to refine the central bank’s decision making and, combined with clear communications, preserve anchoring of inflation expectations.
- Noted that the current monetary policy stance should be conducive to a recovery in activity and that reducing the rate further in line with inflation expectations could be warranted if the recovery faltered.
- Agreed that the flexible exchange rate regime has served Colombia well and should remain the first line of defense against global shocks and help accumulate adequate buffers.
- Noted the banking system’s resilience amid the slowdown due to effective financial supervision and ample capital and liquidity.
- Welcomed recent regulatory measures to homogenize banks’ loan restructuring practices and to bring regulation closer to Basel III standards, including implementation of the conglomerates law.
Colombia: Selected Economic Indicators (annual and other measures)
- National Income and Prices (annual percentage changes, unless otherwise indicated)
- Real GDP: 2016 = 2.0; 2017 = 1.8; 2018 (Proj.) = 2.7
- Consumer price index (period average): 2016 = 7.5; 2017 = 4.3; 2018 (Proj.) = 3.5
- Consumer price index (end of period): 2016 = 5.8; 2017 = 4.1; 2018 (Proj.) = 3.4
- GDP deflator: 2016 = 4.9; 2017 = 4.8; 2018 (Proj.) = 3.3
- Terms of trade (deterioration -): 2016 = -3.0; 2017 = 7.9; 2018 (Proj.) = 1.7
- Real effective exchange rate (depreciation -): 2016 = -4.7; 2017 = 2.8; 2018 (Proj.) = 0.6
- Public finances (in percent of GDP, unless otherwise indicated)
- Central government balance: 2016 = -4.0; 2017 = -3.6; 2018 (Proj.) = -3.1
- Combined public sector: 2016 = -2.8; 2017 = -2.9; 2018 (Proj.) = -2.5
- Public debt 1/: 2016 = 50.4; 2017 = 50.2; 2018 (Proj.) = 49.9
- External Sector
- Current account (deficit -): 2016 = -4.3; 2017 = -3.4; 2018 (Proj.) = -2.6
- External debt: 2016 = 49.6; 2017 = 47.5; 2018 (Proj.) = 46.6
- Of which: Public sector: 2016 = 32.1; 2017 = 30.5; 2018 (Proj.) = 30.0
- GIR in percent of short-term debt: 2016 = 115.3; 2017 = 135.3; 2018 (Proj.) = 126.4
- Savings and Investment (in percent of GDP)
- Gross domestic investment: 2016 = 24.7; 2017 = 23.4; 2018 (Proj.) = 23.6
- Gross national saving: 2016 = 20.4; 2017 = 20.0; 2018 (Proj.) = 21.0
- Money and credit (12-month percentage changes, unless otherwise indicated)
- Broad money (M2): 2016 = 11.5; 2017 = 4.2; 2018 (Proj.) = 9.8
- Credit to the private sector: 2016 = 7.7; 2017 = 11.0; 2018 (Proj.) = (not provided)
- Interest rate (90-day time deposits; percent per year) — Nominal: 2016 = 6.9; 2017 = 5.3
IMF Press Release No. 18/154 — IMF Communications Department, April 30, 2018.