IMF Executive Board Concludes 2024 Article IV Consultation with Colombia

IMF News, March 28, 2024

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Real GDP is expected to expand by 1.1 percent in 2024.
Inflation is expected to gradually fall to around 5 percent (y/y) by end-2024.
The current account deficit is projected to stabilize around 3.0 percent of GDP in 2024.
The economy has transitioned from an overheated post-pandemic position to more sustainable levels of activity and domestic demand following a sharp growth slowdown in 2023.
Prudent and appropriately tight macroeconomic policies over the last two years supported a marked reduction in domestic and external imbalances built up during 2021-22.

Downside risks to the outlook are elevated.
External risk sources: intensification of geopolitical tensions, tighter global financial conditions, and disruptions to supply chains, which could adversely impact Colombia’s growth and inflation.
Domestic risk sources: a stronger El Niño, weaker private demand, miscalibration of policies, or reform uncertainties could hinder economic activity and/or lead to higher inflation.
The two-year Flexible Credit Line (FCL) arrangement approved in April 2022 provides additional external buffers: access amount equivalent to SDR7.1557 billion (about US$9.8 billion).

Directors commended the authorities for very strong macroeconomic policies and policy frameworks that facilitated a marked reduction in domestic and external imbalances despite a challenging environment.
Directors highlighted that the FCL supports resilience by providing additional external buffers against tail risks and enhancing market confidence.
Directors commended fiscal consolidation efforts over the past two years and the continued gradual removal of distortive fuel subsidies.
Directors welcomed the authorities’ continued commitment to the fiscal rule.
Directors commended the central bank’s tight monetary policy stance, which contributed to a significant decline in the inflation rate.
Directors agreed that the financial sector remains resilient but noted rising NPLs and recommended continued close monitoring of risks.
Directors emphasized the importance of reforms to boost productivity and support the energy transition, and they noted the authorities’ objective of reducing reliance on oil and coal.

Fiscal policy:
- Take proactive steps to scale back current spending plans while protecting the vulnerable, given risks posed by the 2024 fiscal plan.
- Reorient public expenditures toward investment to facilitate the energy and climate transition and enhance potential growth.
- Continued commitment to the fiscal rule.
Monetary and exchange rate policy:
- Maintain a cautious and data-driven monetary policy normalization with effective communication to better anchor inflation expectations.
- Continue to operate a flexible exchange rate regime to facilitate external adjustments.
- Central bank should proactively build additional international reserves.
Financial sector and structural reforms:
- Continue close monitoring of financial sector risks and progress on implementing the 2022 FSAP recommendations.
- Manage potential financial stability risks from the proposed pension reform.
- Implement reforms aimed at lifting productivity and encouraging private investment.
- Design reforms to healthcare, pensions, and labor markets within existing policy frameworks while preserving fiscal and financial stability and balancing equity and efficiency considerations.
- Advance a well designed and executed energy transition and export diversification plan.
- Step up efforts to strengthen governance and transparency and mitigate corruption risks.

Population (million), 2023. Projection: 51.0
Unemployment rate, Dec. 2023 (NSA, percent): 10.2
GDP per capita (US$), 2023: 7,168
Real GDP (percent change): 2020: -7.2; 2021: 10.8; 2022: 7.3; 2023: 0.6; 2024: 1.1; 2025: 2.5; 2026: 3.0
Potential GDP (percent change): 2023: 2.3; 2024: 2.0; 2025: 2.2
Output Gap (percent of GDP): 2023: -0.2; 2024: -1.3; 2025: -0.8; 2026: 0.0
Consumer prices, end of period (eop): 2020: 5.7; 2021: 13.2; 2022: 9.3; 2023: 5.3
Current account (deficit - percent of GDP): 2020: -3.4; 2021: -5.6; 2022: -6.2; 2023: -2.7; 2024: -3.0; 2025: -3.3; 2026: -3.5; 2027: -3.6
Public sector gross debt (percent of GDP): 2020: 65.7; 2021: 64.0; 2022: 60.1; 2023: 52.5; 2024: 54.4; 2025: 55.7; 2026: 55.4; 2027: 55.2; 2028: 54.5
Gross international reserves (USD billion): 2019–2023 entry for 2023: 59.1; projections: 2024: 60.4; 2025: 61.2; 2026: 61.8; 2027: 62.4; 2028: 63.2; 2029: 64.1
Gross domestic investment (percent of GDP): 2023: 12.8; 2024: 12.9; 2025: 14.5; 2026: 14.7; 2027: 14.6; 2028: 14.4
Private consumption (percent of GDP): 2023: 76.5; 2024: 76.4; 2025: 75.8; 2026: 75.3; 2027: 74.9
Central government (CG) balance (percent of GDP): 2020: -7.8; 2021: -8.1; 2022: -5.3; 2023: -4.3; 2024: -4.5; 2025: -3.9; 2026: -3.7; 2027: -3.1
Central government structural balance (percent of GDP): 2020: -6.3; 2021: -7.6; 2022: -5.5; 2023: -4.8; 2024: -5.1; 2025: -4.4; 2026: -3.8

Press Release No. 24/99 — March 28, 2024, IMF Communications Department.