As of late, political risk has not weighed as heavily as expected on investment flows into Colombia [...]
Colombia’s public finances have come under the spotlight in recent years amidst recurrent adverse external shocks, rising social spending pressures, ongoing challenges in raising revenues, persistent (optimistic) biases in fiscal planning and, as of late, the back loading of fiscal consolidation plans following the Covid-19 shock [...]
The deterioration of public accounts in Colombia can be explained as much by cyclical factors than structural ones. It is also symptomatic of a greater difficulty in enacting an ambitious fiscal reform especially in the face of rising social tensions in the country. Although public finances are unlikely to improve decisively in the short term, the country exhibits a number of strengths that should help contain the build-up of risks in the medium term [...]
When looking at Colombia’s creditors by residence and type of institution over the past 10 years, we observe three main dynamics at play: first, non-residents have increased their exposure to the sovereign in both relative terms but also in absolute terms as the general government’s debt burden has increased by 20 percentage points of GDP in the intervening time. Second, most of that increase has been driven by larger holdings from foreign non-banks (i.e [...]
Colombia is coming off a four year macroeconomic adjustment, orchestrated by a large terms of trade shock following the end of the commodity super cycle in 2014. Colombia made a number of policy adjustments to deal with the shock and since 2017, the economy has largely corrected allowing the current account balance to narrow, the fiscal balance to improve and inflation to converge towards the target. However, the intensification of the Venezuelan migrant crisis is challenging fiscal accounts [...]
Colombia is Latin America’s 4th largest economy and 2nd most biodiverse country in the world. It has abundant natural resources including oil, coal, coffee, flowers, gold, emerald, nickel, silver, sugarcane etc. Agriculture (6.3% of GDP) is diversified and a large employer. The economy also has a sizeable industrial sector (about 27% of GDP) with strong manufacturing activities in textile, food products, automobile assembly, cement production, refined petroleum and chemical products. In 2019, Colombia gained admission to the OECD (formalized in 2020), a testimony to its efforts towards structural reforms in recent years.
Over the past decade, Colombia’s macroeconomic performance has been one of the strongest in Latin America. Growth has averaged 3.3% over the period and inflation has largely been under control. Economic performance however remains strongly tied to commodity prices as evidenced by the country’s severe macroeconomic adjustment in 2014-15 following the crash in oil prices. While fiscal accounts have gradually become less dependent on oil revenues, external accounts have continued to rely a lot on hydrocarbons: oil and coal products still make up about 50% of exports, and direct investment is also highly concentrated in extractive industries. Exposure to the United States (Colombia’s largest trading partner) and episodes of large capital outflows also constitute sources of vulnerability in the economy.
