IMF Executive Board Concludes 2020 Article IV Consultation with Colombia
IMF News, April 17, 2020
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- Published: April 17, 2020
Summary of findings
- The Executive Board concluded the Article IV consultation with Colombia.
- Colombia’s economy remained resilient in 2019, with economic growth of 3.3 percent in 2019 supported by immigration from Venezuela, private and public investment, inward remittances, higher real wages, and increased supply of consumer credit.
- Real GDP is projected to contract by -2.4 percent in 2020, Colombia’s first recession since 1999.
- Growth is projected to rebound in 2021 and to remain around 3½ percent over the medium term, supported by the 2019 domestic demand growth drivers including the boost from migration flows.
- Demand-led growth widened the current account deficit to -4.3 percent in 2019, increasing external vulnerabilities before the Covid-19 and oil shocks hit in 2020.
Executive Board assessment and policy stance
- Directors commended the authorities for very strong policy frameworks and track record, and for efforts to support and integrate migrants from Venezuela.
- Directors noted heightened uncertainty due to the COVID‑19 pandemic and its severe economic impact.
- Directors welcomed early actions to mitigate the spread of COVID‑19 and the creation of a crisis mitigation fund to support the health sector, households and businesses.
- In light of the pandemic, Directors encouraged countercyclical spending and the use of all available fiscal space to provide further support.
- Directors supported maintaining a flexible exchange rate as the first line of defense against external shocks.
- Directors agreed monetary policy should remain accommodative and that further easing may be needed, provided inflation expectations remain anchored.
- Directors supported the central bank’s actions to support market liquidity and funding, and urged continued regulatory and supervisory flexibility and use of appropriate macroprudential policies.
- Once the crisis abates, Directors emphasized calibrating the policy mix to support recovery, enhance resilience, and rebuild buffers.
- Directors welcomed the authorities’ strong commitment to the fiscal rule and to enhancing transparency.
- To safeguard social spending and public investment, Directors encouraged additional revenue mobilization over the medium term through higher structural taxes and improvements to tax administration.
- Directors encouraged further efforts to tackle informality, integrate migrants to increase productivity, and enhance external competitiveness.
Economic indicators and projections (selected)
- Real GDP: 2.5 (2018); 3.3 (2019); -2.4 (2020, Proj).
- Consumer price index (period average): 3.2 (2018); 3.5 (2019); 3.5 (2020, Proj).
- Consumer price index (end of period): 3.2 (2018); 3.8 (2019); 3.2 (2020, Proj).
- GDP deflator: 4.5 (2018); 4.3 (2019); 4.2 (2020, Proj).
- Terms of trade (deterioration -): 5.8 (2018); 0.1 (2019); -8.9 (2020, Proj).
- Real effective exchange rate (depreciation -): 0.6 (2018); -9.1 (2019); n.a. (2020, Proj).
Public finances (percent of GDP)
- Central government balance 1/: -4.8 (2018); -2.5 (2019); -2.3 (2020, Proj).
- Combined public sector 1/: -4.5 (2018); -2.1 (2019); -2.3 (2020, Proj).
- Public debt 2/: 53.8 (2018); 52.9 (2019); 57.8 (2020, Proj).
Notes:
- 1/ Includes central bank profits. For 2018, it includes recognition of accounts payable worth 1.9 percent of GDP.
- 2/ Includes Ecopetrol and Banco de la Republica's outstanding external debt.
External sector and vulnerabilities
- Current account (deficit -): -3.9 (2018); -4.3 (2019); -4.7 (2020, Proj).
- External debt: 46.6 (2018); 49.8 (2019); 59.2 (2020, Proj).
- Of which: Public sector external debt: 28.9 (2018); 30.1 (2019); 35.5 (2020, Proj).
- Gross international reserves (GIR) in percent of short-term debt: 106.4 (2018); 112.7 (2019); 106.9 (2020, Proj).
- Gross domestic investment: 21.3 (2018); 22.3 (2019); 19.1 (2020, Proj).
- Gross national saving: 17.4 (2018); 18.0 (2019); 14.5 (2020, Proj).
Money, credit, and financial indicators
- Broad money (M2) (12-month percent change): 5.7 (2018); 10.0 (2019); 4.4 (2020, Proj).
- Credit to the private sector (12-month percent change): 6.8 (2018); 11.6 (2019); 4.7 (2020, Proj).
- Interest rate (90-day time deposits, percent per year, nominal): 4.5 (2018); 4.5 (2019); n.a. (2020, Proj).
Policy recommendations (summarized)
- Use all available fiscal space to provide countercyclical support during the pandemic, including the crisis mitigation fund supporting health, households, and businesses.
- Maintain a flexible exchange rate as first defense against external shocks.
- Keep monetary policy accommodative and consider further easing if inflation expectations remain anchored.
- Continue regulatory and supervisory flexibility and deploy macroprudential policies to address financial market volatility.
- After the crisis, appropriately calibrate fiscal and monetary policy to rebuild buffers and enhance resilience.
- Mobilize additional revenue over the medium term through higher structural taxes and improvements to tax administration to safeguard social spending and public investment.
- Continue efforts to reduce poverty and inequality, tackle informality, and integrate migrants to increase productivity and external competitiveness.