Colombia: Staff Report for the 2014 Article IV Consultation

IMF Staff Country Reports, May 28, 2014

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Colombia’s economic performance has been robust, underpinned by a very strong policy framework.
Last year, real GDP grew by 4.3 percent, with low inflation.
The country has a strong external position; the financial system is sound; and fiscal policy remains guided by a structural fiscal balance rule.
The authorities intend to undertake an ambitious infrastructure program to be executed through public-private partnerships.

Real GDP growth is projected to converge to potential (about 4½ percent) in 2014.
Inflation is expected to remain within the 2–4 percent target range.
The medium-term outlook is favorable, but risks are tilted to the downside.
Major external risks identified:
- a decline in oil prices;
- a deterioration in global financial conditions;
- volatility from the normalization of monetary policy in the U.S.
Colombia’s important and growing ties with the global economy increase exposure to external shocks.

The current policy mix is broadly adequate.
As the ongoing economic recovery takes hold, monetary and fiscal policies are expected to shift to a more neutral stance.
Colombia continues to rely on a flexible exchange rate to absorb external shocks.
The authorities are taking advantage of abundant foreign inflows, primarily foreign direct investment, to strengthen their international reserve buffer.

Key challenge: sustain strong and inclusive growth with macroeconomic stability.
Important policy actions:
- adhere to the fiscal consolidation plan, supporting it with revenue mobilization;
- address the infrastructure gap, without increasing fiscal risks;
- enhance the social security system by increasing coverage and improving equity, and containing health care costs;
- address remaining weaknesses in financial sector supervision;
- foster financial inclusion.