IMF Executive Board Concludes 2022 Article IV Consultation with Colombia
IMF News, March 28, 2022
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- Published: March 28, 2022
Overview
- The Executive Board concluded the Article IV consultation with Colombia on March 25, 2022, including discussion of the Financial Sector Assessment Program (FSAP) findings.
- Authorities’ policy framework strengths highlighted: flexible exchange rate, central bank credibility under inflation targeting, effective financial sector supervision and regulation, a medium-term fiscal rule, and strong institutions.
- Authorities used macroeconomic flexibility to deliver a coordinated pandemic response; Colombia’s economic recovery in 2021 was among the fastest in the region.
Economic Outlook and Projections
- Above-potential growth is expected around 5¾ percent in 2022, led by robust household consumption and continued recovery of investment and exports.
- Output gap is projected to close by 2022H1.
- Over the medium term, GDP growth is expected to converge to potential growth of about 3½ percent.
- Projected reduction in current account deficit due to higher prices of key commodity exports: from -5.7 percent of GDP in 2021 to -3.3 and -3.4 percent of GDP in 2022 and 2023, respectively.
Inflation and Monetary Policy
- Inflation continues rising led by supply-side shocks amid strong demand.
- Higher inflation is expected to persist and will likely remain above the upper limit of the central bank’s tolerance band (4 percent) throughout 2022, with upside risks.
- Inflation is projected at around 6¾ by end-2022.
- Executive Directors agreed that an accelerated monetary tightening is appropriate to reduce inflationary pressures and safeguard the credibility of the monetary policy framework.
- Directors emphasized that policy decisions should remain data-driven and accompanied by clear communication.
- Directors welcomed the authorities’ commitment to maintain a flexible exchange rate and encouraged continued international reserve accumulation over time.
- The Flexible Credit Line was noted as providing additional buffers and enhancing market confidence.
Fiscal Policy and Public Finances
- Directors commended improved public finances and strong commitment to maintain fiscal credibility.
- Recommendations included: save revenue windfalls, control spending, and phase out exceptional support measures as conditions allow.
- The Social Investment Law, including a new debt anchor, is recognized as an important step to strengthen the fiscal framework.
- Directors stressed the need for deeper fiscal reforms to secure new revenue sources and enhance spending efficiency to safeguard key social programs and public investment while further reducing debt.
External Sector
- Current account deficit and external balances: projected sizable reduction in deficit driven by commodity price increases.
- Directors encouraged reserve accumulation to maintain reserve adequacy and insure against external liquidity risks.
Financial Sector and FSAP Findings
- Banking system entered the COVID-19 pandemic from a position of relative strength; authorities mounted a strong policy and support response.
- Financial system has weathered the pandemic relatively well; overall, banks are largely resilient to solvency and liquidity shocks.
- Need to monitor interconnectedness and contagion given complexity of financial conglomerates and increasing cross-border exposures.
- Bank supervision has been enhanced, including introduction of a comprehensive framework for conglomerates.
- Macroprudential oversight is overall effective, but expansion of some macroprudential tools and data collection is recommended to address leakages and risks from potential rapid household debt growth.
- Crisis management and safety net framework significantly strengthened, but recovery and resolution planning needs further improvements, including for cross-border institutions.
- Directors encouraged implementation of the 2022 FSAP recommendations and underscored the need to enhance data availability, crisis management, and the bank resolution and macroprudential frameworks.
Risks
- External risks tilted to the downside, led by an intensification of the ongoing war in Ukraine.
- Colombia could benefit from higher hydrocarbon prices, but rising and volatile international prices for food and energy and persistent global supply chain disruptions would exacerbate domestic inflationary pressures.
- Global financial market volatility from the conflict or monetary tightening in major economies could shock capital flows.
- New outbreaks of Covid-19 variants could lead to subpar or volatile growth in trading partners.
- Domestic risks also tilted to the downside: uncertainty around domestic evolution of the pandemic and political risks associated with upcoming elections.
Policy Recommendations and Structural Priorities
- Recalibrate policies carefully to:
- Sustain growth momentum.
- Manage inflation.
- Further strengthen public finances.
- Reduce external imbalances.
- Fiscal policy: save windfalls, control spending, phase out exceptional measures, pursue deeper fiscal reforms for revenue and spending efficiency.
- Monetary policy: accelerated tightening, data-driven decisions, clear communication, maintain flexible exchange rate.
- Financial sector: implement FSAP recommendations, enhance data, crisis management, bank resolution, macroprudential frameworks.
- Structural reforms: boost productivity, external competitiveness, greener and inclusive growth; strengthen governance, anti-corruption, and AML/CFT frameworks; implement green strategy, reduce trade barriers, and increase labor force participation.
- Social inclusion: continue efforts to integrate Venezuelan migrants into the economy.
Key Statistics and Selected Projections (as presented)
- Real GDP growth: 2017 1.4; 2018 2.6; 2019 3.2; 2020 -7.0; 2021 10.6; 2022 5.8; 2023 3.6; 2024 3.4.
- Potential GDP: 2017 2.9; 2018 3.0; 2019 3.1; 2020 -2.0; 2021 5.0; 2022 4.4; 2023 3.8.
- Output Gap: 2017 -0.8; 2018 -1.2; 2019 -1.1; 2020 -6.2; 2021 0.1; 2022 -0.1; 2023 0.0.
- GDP deflator: 2017 5.1; 2018 4.6; 2019 4.0; 2020 6.6; 2021 7.5.
- Consumer prices (average): 2017 4.3; 2018 3.5; 2019 2.5; 2020 7.7; 2021 4.2.
- Consumer prices, end of period (eop): 2017 4.1; 2018 1.6; 2019 5.6; 2020 6.9; 2021 4.1.
- Exports (f.o.b., percent change): 2017 16.8; 2018 8.1; 2019 -5.4; 2020 -20.5; 2021 32.3; 2022 47.0; 2023 1.8; 2024 -3.4; 2025 -0.3; 2026 2.2.
- Imports (f.o.b., percent change): 2017 1.9; 2018 12.1; 2019 2.3; 2020 -18.5; 2021 37.7; 2022 16.3; 2023 3.7.
- Export volume: 2017 0.6; 2018 -9.1; 2019 14.7; 2020 1.2; 2021 2.4.
- Import volume: 2017 1.0; 2018 7.3; 2019 -15.9; 2020 17.8; 2021 6.1; 2022 1.1; 2023 2.8.
- Terms of trade (deterioration -): 2017 9.9; 2018 -2.3; 2019 -12.2; 2020 13.4; 2021 26.6; 2022 -11.1; 2023 -6.3; 2024 -1.8; 2025 -1.4; 2026 -0.7.
- Real exchange rate (depreciation -) 2/: 2017 0.7; 2018 -1.9.
- Broad money: 2017 6.4; 2018 5.7; 2019 10.0; 2020 10.3; 2021 12.3; 2022 12.2; 2023 8.5; 2024 7.8; 2025 7.6.
- Credit to the private sector: 2017 12.8; 2018 6.8; 2019 11.6; 2020 11.5; 2021 12.5; 2022 7.9.
- Policy rate, eop: 2017 4.8.
- Central government balance (percent of GDP) 3/: 2017 -3.6; 2018 -4.8; 2019 -2.5; 2020 -7.8; 2021 -8.2; 2022 -6.1; 2023 -3.7; 2024 -2.6.
- Central government structural balance 4/: 2017 -2.2; 2018 -2.1; 2019 -7.3; 2020 -5.8; 2021 -3.9; 2022 -2.7.
- Consolidated public sector (CPS) balance 5/: 2017 -2.4; 2018 -4.5; 2019 -2.9; 2020 -6.9; 2021 -7.2; 2022 -4.4; 2023 -1.3; 2024 -0.9; 2025 -1.0.
- CPS non-oil structural primary balance: 2017 -1.7; 2018 -4.3; 2019 -4.9; 2020 -3.3; 2021 -0.2.
- CPS fiscal impulse: 2017 0.5; 2018 -1.6; 2019 -0.4; 2020 -0.5.
- Public sector gross debt 6/: 2017 49.4; 2018 53.6; 2019 52.4; 2020 65.7; 2021 64.6; 2022 60.6; 2023 59.2; 2024 57.5; 2025 56.3; 2026 54.5; 2027 52.9.
- Gross domestic investment: 2017 21.6; 2018 21.2; 2019 21.4; 2020 19.2; 2021 19.7; 2022 19.0; 2023 18.9; 2024 19.3.
- Gross national savings: 2017 18.4; 2018 17.0; 2019 15.8; 2020 14.1; 2021 15.6; 2022 15.9; 2023 15.1; 2024 15.0; 2025 15.2; 2026 15.4.
- Current account (deficit -): 2017 -3.2; 2018 -4.2; 2019 -4.6; 2020 -5.7; 2021 -3.8.
- External Financing Needs: 2017 13.5; 2018 14.3; 2019 15.3; 2020 17.9; 2021 13.9; 2022 14.8; 2023 14.6.
- External debt 7/: 2017 47.3; 2018 46.7; 2019 50.1; 2020 65.6; 2021 60.3; 2022 58.1; 2023 58.4; 2024 59.1; 2025 59.0; 2026 58.6; 2027 58.2.
- External debt service (percent of exports of goods and services): 2017 73.7; 2018 70.8; 2019 77.8; 2020 113.0; 2021 87.0; 2022 59.5; 2023 62.6; 2024 72.1; 2025 73.1; 2026 72.8.
- Interest payments (percent of exports of goods and services): 2017 10.7; 2018 16.4; 2019 12.9; 2020 10.2; 2021 11.2; 2022 12.6; 2023 13.2; 2024 13.1.
- Exports of goods and services (billion of U.S. dollars): 2017 39.8; 2018 43.0; 2019 40.7; 2020 42.7; 2021 62.8; 2022 64.0; 2023 61.8; 2024 61.6; 2025 63.2.
- Of which: Petroleum products (billion of U.S. dollars): 2017 13.3; 2018 16.0; 2019 8.8; 2020 23.5; 2021 22.4; 2022 19.9; 2023 18.5.
- Gross international reserves (billion of U.S. dollars) 8/: 2017 47.1; 2018 47.9; 2019 52.7; 2020 58.5; 2021 60.2; 2022 61.5; 2023 62.9; 2024 64.2; 2025 65.1; 2026 65.9.
- Share of ST debt at remaining maturity + CA deficit: 2017 102; 2018 99; 2019 113; 2020 106; 2021 125; 2022 119; 2023 104; 2024 103; 2025 99.7; 2026 102.6.
IMF Communications Department — Press Release No. 22/96, March 28, 2022.