IMF Executive Board Concludes 2012 Article IV Consultation with Colombia

Public Information Notice (PIN) No. 13/12
February 4, 2013

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2012 Article IV Consultation with Colombia is also available.

On January 23, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Colombia.1


Colombia’s economy has been resilient to the adverse global shocks of recent years. A very strong policy framework and skillful policy management provided the authorities with policy space to undertake effective countercyclical measures to mitigate the impact of the global crisis of 2008-09. Output growth rebounded strongly in 2010 and rose to almost 6 percent in 2011, supported by sound macroeconomic policies, favorable terms of trade, and Flexible Credit Line arrangements. As the output gap closed, the central bank raised the policy rate from 3 percent at end-2010 to 5.25 percent in February 2012.

During 2012 growth is expected to have moderated to below its estimated potential rate of 4½ percent, largely reflecting the lagged impact of countercyclical policies, supply shocks, and weaker external demand. Headline inflation fell to 2.4 percent (year-on-year) by end-year, from 4 percent in late 2011. Following several years of robust economic expansion, the unemployment rate declined to 9.2 percent at end 2012 (from more than 17 percent in 2002). The external current account deficit remained broadly unchanged at 3 percent of GDP despite the moderation in growth and the high export prices; large imports and profit repatriations by multinational firms seem to have been key contributing factors. The current account deficit continued to be more than covered by large net inflows of foreign direct investment, putting upward pressure on the peso and leading to a balance of payments surplus that is likely to exceed US$5 billion.

The macroeconomic policy stance during 2012 was broadly neutral. The fiscal stance, measured in terms of the non-oil balance, is estimated to have been broadly the same as in 2011, and the public debt ratio is projected to fall to 33½ percent. The monetary tightening of 2011, combined with higher provisioning requirements, helped rein in the rate of growth of bank credit. Amidst an economic slowdown that was more pronounced than anticipated, the central bank lowered the policy rate by 100 basis points to 4.25 percent in the second half of the year.

The financial health of Colombia’s credit institutions appears sound. The banking system remains well-capitalized and profitable; nonperforming loans are low and well-provisioned; and funding is stable, relying mostly on domestic deposits. The Financial Superintendency effectively supervises all financial institutions, and is taking steps to strengthen supervision further.

In 2013, Colombia’s real GDP growth is projected to be around its estimated potential rate while inflation is projected to remain close to the midpoint of the central bank’s target range. The external current account deficit is expected to remain at about 3 percent of GDP. Spillovers from the global turmoil have been limited so far. However, Colombia remains vulnerable to a sharp growth slowdown in trading partners, a steep drop in oil prices, or a sharp rise in global risk aversion.

Executive Board Assessment

Executive Directors commended the Colombian authorities for their strong policy framework and skillful macroeconomic management, supported by the Flexible Credit Line (FCL) arrangement, which have helped increase resilience to adverse shocks and maintained strong growth and low inflation. Directors recognized that spillovers from the global turmoil had been limited so far, but noted that the economy remains vulnerable to a steep drop in oil prices, a sharp growth slowdown in trading partners, and a sharp rise in global risk aversion. They considered, however, that Colombia appears well positioned to address the important medium-term challenges facing the economy.

Directors agreed that the broadly neutral policy stance planned for 2013 is appropriate, and that the 2013 budget is in line with medium-term fiscal consolidation plans. They concurred that, in the context of a flexible exchange rate regime, there is room for further monetary easing if downside risks materialize. A comfortable level of international reserves, reinforced by the FCL arrangement, and low ratios of external and public debt provide additional buffers. Directors noted the staff’s assessment that the exchange rate is broadly in line with fundamentals.

Directors commended the authorities for the recently approved tax reform and their plans to reform the pension system. Most Directors encouraged the authorities to consider a more ambitious fiscal consolidation plan, focused on increasing non-commodity revenues, which could help mitigate the appreciation pressures, build buffers against adverse commodity price shocks, and create fiscal space for improving public infrastructure.

Directors noted the soundness of the financial system, which appears resilient to a wide range of shocks and is effectively supervised, although concentration risks remain a source of fragility. They urged the authorities to step up their efforts to improve the risk-based approach to supervision in line with Pillar 2 of the Basel II framework, promote the de jure independence and legal protection of supervisors, strengthen the financial safety net, guard against concentration risks, and extend supervisory and regulatory powers to holding companies of financial institutions. Directors emphasized the need to continue making progress in financial deepening to entrench financial stability further and reduce the risks from concentration.

Looking ahead, Directors considered that Colombia’s strong policy frameworks bolster its ability to address medium-term challenges, including the uncertain global environment, high unemployment and income inequality, high reliance on commodity-based revenues, and low labor productivity. Addressing these challenges will require decisive actions to boost competitiveness, reduce the high rates of informality, increase national saving, and diversify exports.

Colombia: Selected Economic Indicators
            Prel. Proj.
  2006 2007 2008 2009 2010 2011 2012 2013
  (Annual percentage changes, unless otherwise indicated)

National Income and Prices


Real GDP

6.7 6.9 3.5 1.7 4.0 5.9 4.3 4.4

Consumer price index (period average)

4.3 5.5 7.0 4.2 2.3 3.4 3.2 2.9

Consumer price index (end of period)

4.5 5.7 7.7 2.0 3.2 3.7 2.4 3.0

GDP deflator

5.8 5.0 7.6 3.4 3.6 6.9 3.5 1.9

Terms of trade (deterioration -)

2.5 3.9 10.3 -10.0 10.0 13.4 5.3 -4.9

Real effective exchange rate (depreciation -)

-1.0 7.7 0.4 5.2 5.5 4.0 ... ...
  (In percent of GDP, unless otherwise indicated)

Public finances


Central government balance

-3.4 -2.7 -2.3 -4.1 -3.9 -2.8 -2.0 -2.2

Combined public sector

-0.7 -0.7 -0.1 -2.7 -3.3 -1.9 -0.8 -1.2

Public debt 1/

36.8 32.7 30.9 36.7 36.9 36.0 33.5 32.4

External Sector


Current account (deficit -)

-1.9 -2.8 -2.9 -2.1 -3.1 -3.1 -3.1 -3.1

External debt

25.0 21.2 19.7 23.2 22.7 23.2 22.5 22.5

Of which: Public sector

16.4 13.7 12.5 16.0 13.9 13.1 13.3 13.5

GIR in percent of short-term debt

147.6 198.7 207.3 242.5 194.7 157.7 166.4 168.7

Savings and Investment


Gross domestic investment

22.4 23.0 23.5 22.4 22.0 23.5 23.8 23.4

Gross national saving

20.5 20.2 20.6 20.3 19.0 20.4 20.7 20.2
  (12-month percentage changes, unless otherwise indicated)

Money and credit


Broad money (M2)

18.0 17.4 18.5 8.1 11.5 18.9 10.1 10.2

Credit to the private sector

35.6 25.6 14.0 0.9 6.8 22.9 13.5 13.1

Interest rate (90-day time deposits; percent per year)



6.8 9.0 10.1 4.1 3.5 5.1


   2.3 3.3 2.4 2.1 0.3 1.4

Sources: Colombian authorities; and IMF staff estimates and projections.

1/ Includes Ecopetrol and Banco de la Republica's outstanding external debt.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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