## Colombia: Staff Concluding Statement of the 2020 Article IV Mission _IMF News, February 21, 2020_ ## Source details **Canonical URL:** [Colombia: Staff Concluding Statement of the 2020 Article IV Mission](https://www.imf.org/en/news/articles/2020/02/21/mcs-022120-colombia-staff-concluding-statement-of-the-2020-article-iv-mission) ## Other formats - [Markdown version](/en/news/articles/2020/02/21/mcs-022120-colombia-staff-concluding-statement-of-the-2020-article-iv-mission/index.md) - [Structured JSON version](/en/news/articles/2020/02/21/mcs-022120-colombia-staff-concluding-statement-of-the-2020-article-iv-mission/index.json) - [Bundle manifest](/en/news/articles/2020/02/21/mcs-022120-colombia-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json) ## Bibliographic details - Published: February 21, 2020 --- ### Resilient growth and macro overview - Colombia’s economy expanded by 3.3 percent in 2019. - Forecast to grow by 3.4 in 2020 led by internal demand. - Domestic demand—including from substantial migration inflows from Venezuela—lifted growth while the external deficit widened, largely financed through stable FDI. - Current account deficit widened to an estimated 4.4 percent of GDP in 2019. - Lower commodity prices, partly attributable to the Novel Coronavirus outbreak, are expected to keep the external deficit at around this level in 2020. - The IMF’s Flexible Credit Line (FCL) provides additional buffers. ### Migration and labor market implications - Over 2 million arrivals from Venezuela in recent years. - Estimated annual fiscal costs of around ½ percent of GDP in the near term. - Migrant inflows boosted economic growth by around ¼ percent in 2019. - Migrants have largely been absorbed by the informal sector with little evidence of labor displacement thus far. - Potential gains from migration depend on the speed of migrant integration into the formal economy. - Promoting formal employment remains a priority given high structural unemployment, informality, and migration inflows. ### External imbalances and financing - Strong internal demand and lackluster exports widened external imbalances. - Higher remittances and tourism receipts partly offset the worsening trade balance. - The external deficit should continue to be comfortably financed by buoyant FDI and relatively resilient portfolio inflows given very favorable global financial conditions. - Vulnerabilities: increased external financing needs raise exposure to downside scenarios (steep fall in commodity prices, sharp rise in risk premia, renewed trade tensions, prolonged Coronavirus outbreak, regional tensions, spillovers from Venezuela). ### Financial sector and credit cycle - Business credit is recovering; consumer credit is rapidly expanding. - Financial system solvency and liquidity have remained strong; NPLs have declined since their peak in 2018. - Mission supports additional provisioning requirements to mitigate risks associated with consumer loans, currently being considered by the SFC. - Continued vigilant and proactive supervision recommended to ensure problem assets remain sufficiently provisioned and to monitor risks of overborrowing and potential future NPL build-up. ### Monetary policy and reserves - Headline inflation is projected to end 2020 near the 3 percent target. - With economic slack, core inflation close to target, and well-anchored inflation expectations, monetary policy can remain moderately accommodative. - Accommodation can be gradually withdrawn as the recovery materializes and if downside risks to growth recede. - While it was operating, the central bank’s reserve accumulation program purchased USD 2.8 billion and accumulated returns of USD 2.3 billion in 2019, enhancing reserve adequacy. - Further reserve accumulation should be considered, market conditions permitting. - Exchange rate flexibility should remain the first line of defense against external shocks. ### Fiscal policy, transparency, and arrears - Authorities’ 2020 target reduces the headline and structural deficit and saves some space provided by the Fiscal Rule Consultative Committee. - Planned reduction of the 2020 headline deficit target to 2.2 percent of GDP is appropriate given robust domestic demand and a wider external deficit. - Over the medium term, fiscal adjustment beyond the 2019 Medium Term Fiscal Framework will be required to adhere to the fiscal rule. - Increasing structural revenues by 2-3 percent of GDP would help meet future deficit targets, as well as growth and inclusiveness challenges. - Mission welcomes recent tax collection improvements and authorities’ focus on spending efficiency, including better targeting of subsidies. - Further measures could include elimination of preferential regimes for particular sectors and broadening of the tax base while protecting vulnerable groups. - Authorities recognized previously unrecognized public expenditures under the 2018-2022 National Development Plan and put in place a strategy for clearing arrears through a combination of cash deposits and issuance. - Authorities plan to strengthen provisioning and spending mechanisms: managing legal claims, auditing and control of health expenditures, and improved fiscal accounting by subnational governments and state-owned enterprises. - Public debt, including recognized arrears, should decline as a share of GDP if fiscal targets are met. ### Structural reforms and competitiveness - Regulations under the Conglomerates Law go into effect starting in early 2020, including added resources for SFC oversight and implementation of Basel III definitions of capital ratios in 2020. - Maintaining heightened supervisory vigilance is appropriate during the transitional period. - A Financial Sector Assessment Program (FSAP) will be undertaken later this year to review financial frameworks, oversight, and soundness. - Growth Law and national consultations aim to address inequality concerns; deeper inclusion challenges require more fundamental structural reforms. - Priority reform areas: tackling regional disparities, boosting inclusive growth under the NDP and the Peace Agreement, meaningful pension reform (including expansion of the social pillar Colombia Mayor and removing regressive subsidies for higher-income pensions), and reducing non-tariff barriers. - Civil works execution and 4G infrastructure investments should reduce transportation costs and help boost exports, especially if complemented with a reduction in non-tariff barriers. ### Key risks and policy priorities - Downside risks have risen: steep commodity price falls, sharp rise in risk premia, renewed trade tensions, more widespread Coronavirus outbreak, Venezuela crisis spillovers, regional social tensions. - Domestic risks: renewed strikes and work stoppages, deterioration of labor market conditions, shortfalls in mobilizing revenue that could force large cuts in social and infrastructure spending. - Policy mix recommendations: - Maintain moderately accommodative monetary stance while monitoring inflation and labor market recovery. - Preserve and consider further reserve accumulation; keep exchange rate flexibility. - Anchor fiscal policy to the fiscal rule, pursue revenue-enhancing measures and spending efficiency reforms to increase structural revenues by 2-3 percent of GDP. - Strengthen financial supervision, provisioning for consumer credit, and implement Basel III definitions and Conglomerates Law regulations with vigilance. - Advance structural reforms to enhance external competitiveness, formal employment, and inclusion. *Colombia: Staff Concluding Statement of the 2020 Article IV Mission, February 21, 2020 — International Monetary Fund.* --- ## References - [Colombia and the IMF](http://www.imf.org/external/country/COL/index.htm) - [República Bolivariana de Venezuela and the IMF](http://www.imf.org/external/country/VEN/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Mission Concluding Statements](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2020/02/21/mcs-022120-colombia-staff-concluding-statement-of-the-2020-article-iv-mission_