Informe Completo FMI - Colombia 2024

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IMF Country Report No.

24/82

COLOMBIA
2024 ARTICLE IV CONSULTATION—PRESS RELEASE;
March 2024 STAFF REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR COLOMBIA
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2024 Article IV consultation with
Colombia, the following documents have been released and are included in this package:

• A Press Release summarizing the views of the Executive Board as expressed during its
March 27, 2024 consideration of the staff report that concluded the Article IV
consultation with Colombia.

• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on March 27, 2024, following discussions that ended on
February 14, 2024, with the officials of Colombia on economic developments and
policies. Based on information available at the time of these discussions, the staff
report was completed on March 8, 2024.

• An Informational Annex prepared by the IMF staff.

• A Statement by the Executive Director for Colombia.

The documents listed below have been or will be separately released.

Selected Issues

The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services


PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org

International Monetary Fund


Washington, D.C.

© 2024 International Monetary Fund


PR24/99

IMF Executive Board Concludes 2024 Article IV Consultation


with Colombia
FOR IMMEDIATE RELEASE

Washington, DC – March 28, 2024: The Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation 1 with Colombia on March 27, 2024

With the sharp growth slowdown in 2023 from an overheated post-pandemic position, the
Colombian economy has reached more sustainable levels of economic activity and domestic
demand. This has been underpinned by appropriately tight macroeconomic policies over the
last two years, which have supported an impressive reduction in domestic and external
imbalances built up during 2021-22.

The Colombian economy is set to continue its transition toward a more sustainable level of
demand and economic activity with domestic imbalances continuing to narrow further in 2024.
Real GDP is expected to expand by 1.1 percent and inflation to gradually fall to around 5
percent (y/y) by end-2024 on the back of prudent macroeconomic policies. Meanwhile, the
current account deficit is projected to stabilize around 3.0 percent of GDP this year.

Although risks to the outlook remain elevated and to the downside, Colombia’s very strong
economic fundamentals, policies, and policy frameworks support its resilience. On the external
front, risks emanate from an intensification of geopolitical tensions, tighter global financial
conditions, and disruptions to supply chains, which could adversely impact Colombia’s growth
and inflation. Domestically, 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, with access amount equivalent to
SDR7.1557 billion (about US$9.8 billion) approved in April 2022, provides additional external
buffers against tail risk scenarios on a precautionary basis, enhancing Colombia’s already
strong resilience.

Executive Board Assessment2

Executive Directors commended the authorities for their very strong macroeconomic policies
and policy frameworks, which have facilitated a marked reduction in domestic and external
imbalances despite a challenging environment. Directors highlighted that the Flexible Credit
Line (FCL) further supports resilience by providing additional external buffers against tail risks
and enhancing market confidence. Noting the downside risks to the outlook, Directors
emphasized the importance of continued careful calibration of macroeconomic policies to
durably reduce remaining imbalances, while also advancing Colombia’s social agenda.

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.
2 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:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
2

Structural reforms aimed at boosting productivity and supporting the energy transition would
also be important.

Directors commended the fiscal consolidation efforts in the past two years as well as the
continued gradual removal of distortive fuel subsidies. They also welcomed the authorities’
continued commitment to the fiscal rule. Noting that the fiscal plan for 2024 poses risks,
Directors broadly encouraged the authorities to take proactive steps to scale back current
spending plans while protecting the vulnerable. Directors underscored that this would help
lower borrowing costs and also support disinflation efforts. Reorienting public expenditures
toward investment would also facilitate the energy and climate transition and enhance
potential growth.

Directors commended the central bank’s tight monetary policy stance which resulted in a
significant decline in the inflation rate. Moving forward, a cautious and data driven monetary
policy normalization remains important with effective communication to better anchor inflation
expectations. Directors also agreed that Colombia’s flexible exchange rate regime should
continue to facilitate external adjustments and welcomed the central bank’s plan to proactively
build additional international reserves.

Directors agreed that the financial sector remains resilient and recommended continued close
monitoring of risks, including given rising NPLs, and encouraged continued progress in
implementing the 2022 FSAP recommendations. They emphasized that managing potential
financial stability risks from the proposed pension reform would be important.

To boost sustainable medium term growth, Directors recommended reforms aimed at lifting
productivity and encouraging private investment. They emphasized that reforms to healthcare,
pensions, and labor markets should be designed within the existing policy frameworks, while
preserving fiscal and financial stability, and balancing equity and efficiency considerations.
Directors commended the authorities’ objective of reducing the country’s reliance on oil and
coal and noted the importance of a well designed and executed energy transition and export
diversification plan. They also encouraged the authorities to step up efforts to further
strengthen governance and transparency, and mitigate corruption risks.
3

Table 1. Colombia: Selected Economic and Financial Indicators, 2020-29


I. Social and Demographic Indicators

Population (million), 2023. Projection 51.0 Unemployment rate, Dec. 2023 (NSA, percent) 10.2
Urban population (percent of total), 2022 82.1 Physicians (per 1,000 people), 2021 2.4
GDP, 2023 Adult illiteracy rate (ages 15 and older), 2020 4.4
Per capita (US$) 7,168 Net secondary school enrollment rate, 2018 77.5
In billion of Col$ 1,572,658 Gini coefficient (national), 2022 55.6
In billion of US$ 365.8 Poverty rate (national), 2022 36.6
Life expectancy at birth (years), 2021 72.8
Mortality rate, (under 5, per 1,000 live births), 2021 12.8

II. Economic Indicators

Estimate1 Projections
2020 2021 2022 2023/ 2024 2025 2026 2027 2028 2029

(In percentage change, unless otherwise indicated)

National Income and Prices


Real GDP -7.2 10.8 7.3 0.6 1.1 2.5 3.0 3.0 3.0 3.0
Potential GDP -1.1 4.8 4.6 2.4 2.3 2.0 2.2 3.0 3.0 3.0
Output Gap -6.4 -1.0 1.6 -0.2 -1.3 -0.8 0.0 0.0 0.0 0.0
GDP deflator 1.5 7.8 14.9 6.3 5.6 3.0 3.0 3.0 3.0 3.0
Consumer prices (average) 2.5 3.5 10.2 11.7 6.4 3.6 3.0 3.0 3.0 3.0
Consumer prices, end of period (eop) 1.6 5.7 13.2 9.3 5.3 3.0 3.0 3.0 3.0 3.0

External Sector
Exports (f.o.b.) -20.5 32.3 39.2 -11.7 -2.3 0.5 2.5 2.3 3.2 3.6
Imports (f.o.b.) -18.5 37.7 26.3 -17.1 -0.2 3.1 3.4 3.8 3.7 3.6
Current account (deficit -) -3.4 -5.6 -6.2 -2.7 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Terms of trade (deterioration -) -2.1 6.6 25.0 -5.2 -2.0 -1.2 -1.4 -0.5 -1.1 -0.5
Real exchange rate (depreciation -) 2/ -7.7 -3.2 -4.7 6.1
Central Government
Revenue -11.2 16.9 33.6 24.1 5.9 5.4 7.0 7.3 5.7 6.5
Expenditure 16.4 19.5 14.8 14.8 11.1 1.8 4.1 6.1 4.8 4.3

Money and Credit


Broad money 10.3 13.6 4.8 3.9 4.4 5.4 6.1 6.2 6.2 6.2
Credit to the private sector -0.8 12.5 5.9 4.0 4.5 5.8 6.4 6.5 6.5 6.5

(In percent of GDP)

Public Sector
Central government (CG) balance 3/ -7.8 -8.1 -5.3 -4.3 -5.3 -4.5 -3.9 -3.7 -3.5 -3.1
Central government structural balance 4/ -6.3 -7.6 -5.5 -4.8 -5.1 -4.4 -3.9 -3.8 -3.6 -3.1
Consolidated public sector (CPS) balance 5/ -6.9 -7.0 -6.1 -2.6 -3.2 -3.0 -2.7 -2.5 -2.3 -2.0
CPS non-oil structural primary balance -4.3 -4.9 -4.6 -0.9 -0.2 0.0 -0.2 0.0 -0.1 -0.2
CPS fiscal impulse (excluding Social Security) 6/ 2.3 1.0 -1.2 -2.2 -1.3 -0.3 0.2 -0.2 0.1 0.2
Public sector gross debt 7/ 65.7 64.0 60.1 52.5 54.4 55.6 55.7 55.4 55.2 54.5
External Financing Needs 8/ 18.0 17.6 19.3 15.6 15.5 16.2 16.7 16.8 16.7 15.6
External debt 66.6 61.6 60.3 59.7 57.5 56.6 57.1 57.3 57.5 57.1
Of which: public sector 6/ 42.7 39.9 37.4 36.0 34.9 34.8 35.0 34.9 34.7 34.7

Memorandum Items
Gross domestic investment (in percent of GDP) 19.1 18.9 19.7 12.8 12.9 14.5 14.7 14.6 14.6 14.4
Gross national savings (in percent of GDP) 15.7 13.3 13.6 10.1 9.9 11.2 11.4 11.1 11.0 10.8
Gross international reserves (USD billion) 9/ 58.5 58.0 56.7 59.1 60.4 61.2 61.8 62.4 63.2 64.1
Private consumption (in percent of GDP) 71.3 73.8 76.1 76.5 76.4 75.8 75.3 74.9 74.9 74.9
Public consumption (in percent of GDP) 17.2 17.1 16.1 16.1 15.8 15.7 15.5 15.4 15.4 15.4
Private investment (in percent of GDP) 14.4 14.1 14.8 13.3 13.7 14.7 15.4 15.8 15.8 15.9
Public investment (in percent of GDP) 3.5 4.8 4.9 4.5 3.6 3.3 3.3 3.4 3.5 3.5
Share of ST debt at remaining maturity + CA deficit 106 89 103 101 95 89 85.9 82.8 85.3 84.0
CG primary expenditures (in percent of GDP) 20.2 19.7 17.2 19.1 19.5 18.9 18.6 18.6 18.8 18.8
CPS primary expenditures (in percent of GDP) 30.6 31.1 29.7 30.8 29.2 28.5 28.2 28.2 28.3 28.4

Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and IMF staff estimates.
1/ Estimate for monetary sector variables and fiscal sector variables (consolidated public sector-CPS) .
2/ Multilateral real effective exchange rate. Annual variation (average).
3/ For 2021 excludes privatization receipts worth 1.1 percent of GDP that, under GFSM 1986 which is used by the authorities, produces a headline deficit of -7 percent of GDP.
4/ IMF staff estimate, excludes one-off recognition of arrears.
5/ Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and statistical discrepancy. For 2021 excludes privatization receipts, see 3/ above.
6/ To control for valuation effects, it excludes changes
in Social
7/ Security
Includes balances.
Ecopetrol, Fogafin, and Finagro.
8/ Includes foreign holdings of TES; does not include Banco de la República's outstanding external debt.
9/ Excludes Colombia's contribution to FLAR; includes valuation changes of reserves denominated in currencies other than U.S. dollars.
3

Table 1. Colombia: Selected Economic and Financial Indicators, 2020-29


I. Social and Demographic Indicators

Population (million), 2023. Projection 51.0 Unemployment rate, Dec. 2023 (NSA, percent) 10.2
Urban population (percent of total), 2022 82.1 Physicians (per 1,000 people), 2021 2.4
GDP, 2023 Adult illiteracy rate (ages 15 and older), 2020 4.4
Per capita (US$) 7,168 Net secondary school enrollment rate, 2018 77.5
In billion of Col$ 1,572,658 Gini coefficient (national), 2022 55.6
In billion of US$ 365.8 Poverty rate (national), 2022 36.6
Life expectancy at birth (years), 2021 72.8
Mortality rate, (under 5, per 1,000 live births), 2021 12.8

II. Economic Indicators

Estimate1 Projections
2020 2021 2022 2023/ 2024 2025 2026 2027 2028 2029

(In percentage change, unless otherwise indicated)

National Income and Prices


Real GDP -7.2 10.8 7.3 0.6 1.1 2.5 3.0 3.0 3.0 3.0
Potential GDP -1.1 4.8 4.6 2.4 2.3 2.0 2.2 3.0 3.0 3.0
Output Gap -6.4 -1.0 1.6 -0.2 -1.3 -0.8 0.0 0.0 0.0 0.0
GDP deflator 1.5 7.8 14.9 6.3 5.6 3.0 3.0 3.0 3.0 3.0
Consumer prices (average) 2.5 3.5 10.2 11.7 6.4 3.6 3.0 3.0 3.0 3.0
Consumer prices, end of period (eop) 1.6 5.7 13.2 9.3 5.3 3.0 3.0 3.0 3.0 3.0

External Sector
Exports (f.o.b.) -20.5 32.3 39.2 -11.7 -2.3 0.5 2.5 2.3 3.2 3.6
Imports (f.o.b.) -18.5 37.7 26.3 -17.1 -0.2 3.1 3.4 3.8 3.7 3.6
Current account (deficit -) -3.4 -5.6 -6.2 -2.7 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Terms of trade (deterioration -) -2.1 6.6 25.0 -5.2 -2.0 -1.2 -1.4 -0.5 -1.1 -0.5
Real exchange rate (depreciation -) 2/ -7.7 -3.2 -4.7 6.1
Central Government
Revenue -11.2 16.9 33.6 24.1 5.9 5.4 7.0 7.3 5.7 6.5
Expenditure 16.4 19.5 14.8 14.8 11.1 1.8 4.1 6.1 4.8 4.3

Money and Credit


Broad money 10.3 13.6 4.8 3.9 4.4 5.4 6.1 6.2 6.2 6.2
Credit to the private sector -0.8 12.5 5.9 4.0 4.5 5.8 6.4 6.5 6.5 6.5

(In percent of GDP)

Public Sector
Central government (CG) balance 3/ -7.8 -8.1 -5.3 -4.3 -5.3 -4.5 -3.9 -3.7 -3.5 -3.1
Central government structural balance 4/ -6.3 -7.6 -5.5 -4.8 -5.1 -4.4 -3.9 -3.8 -3.6 -3.1
Consolidated public sector (CPS) balance 5/ -6.9 -7.0 -6.1 -2.6 -3.2 -3.0 -2.7 -2.5 -2.3 -2.0
CPS non-oil structural primary balance -4.3 -4.9 -4.6 -0.9 -0.2 0.0 -0.2 0.0 -0.1 -0.2
CPS fiscal impulse (excluding Social Security) 6/ 2.3 1.0 -1.2 -2.2 -1.3 -0.3 0.2 -0.2 0.1 0.2
Public sector gross debt 7/ 65.7 64.0 60.1 52.5 54.4 55.6 55.7 55.4 55.2 54.5
External Financing Needs 8/ 18.0 17.6 19.3 15.6 15.5 16.2 16.7 16.8 16.7 15.6
External debt 66.6 61.6 60.3 59.7 57.5 56.6 57.1 57.3 57.5 57.1
Of which: public sector 6/ 42.7 39.9 37.4 36.0 34.9 34.8 35.0 34.9 34.7 34.7

Memorandum Items
Gross domestic investment (in percent of GDP) 19.1 18.9 19.7 12.8 12.9 14.5 14.7 14.6 14.6 14.4
Gross national savings (in percent of GDP) 15.7 13.3 13.6 10.1 9.9 11.2 11.4 11.1 11.0 10.8
Gross international reserves (USD billion) 9/ 58.5 58.0 56.7 59.1 60.4 61.2 61.8 62.4 63.2 64.1
Private consumption (in percent of GDP) 71.3 73.8 76.1 76.5 76.4 75.8 75.3 74.9 74.9 74.9
Public consumption (in percent of GDP) 17.2 17.1 16.1 16.1 15.8 15.7 15.5 15.4 15.4 15.4
Private investment (in percent of GDP) 14.4 14.1 14.8 13.3 13.7 14.7 15.4 15.8 15.8 15.9
Public investment (in percent of GDP) 3.5 4.8 4.9 4.5 3.6 3.3 3.3 3.4 3.5 3.5
Share of ST debt at remaining maturity + CA deficit 106 89 103 101 95 89 85.9 82.8 85.3 84.0
CG primary expenditures (in percent of GDP) 20.2 19.7 17.2 19.1 19.5 18.9 18.6 18.6 18.8 18.8
CPS primary expenditures (in percent of GDP) 30.6 31.1 29.7 30.8 29.2 28.5 28.2 28.2 28.3 28.4

Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and IMF staff estimates.
1/ Estimate for monetary sector variables and fiscal sector variables (consolidated public sector-CPS) .
2/ Multilateral real effective exchange rate. Annual variation (average).
3/ For 2021 excludes privatization receipts worth 1.1 percent of GDP that, under GFSM 1986 which is used by the authorities, produces a headline deficit of -7 percent of GDP.
4/ IMF staff estimate, excludes one-off recognition of arrears.
5/ Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and statistical discrepancy. For 2021 excludes privatization receipts, see 3/ above.
6/ To control for valuation effects, it excludes changes
in Social
7/ Security
Includes balances.
Ecopetrol, Fogafin, and Finagro.
8/ Includes foreign holdings of TES; does not include Banco de la República's outstanding external debt.
9/ Excludes Colombia's contribution to FLAR; includes valuation changes of reserves denominated in currencies other than U.S. dollars.
COLOMBIA
STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION
March 8, 2024

KEY ISSUES
Context. With the sharp growth slowdown in 2023 from an overheated post-pandemic
recovery, the Colombian economy has reached more sustainable levels of economic activity
and domestic demand, with a marked reduction in domestic and external imbalances owing
to appropriately tight macroeconomic policies. Market confidence has improved, but risk
premia remain high compared to peers. Meanwhile, progress on the social reforms in
Congress has been limited.

Outlook and Risks. Economic growth is projected to slightly increase in 2024 as


macroeconomic policies are gradually normalized. Inflation is set to gradually decline and
reach 3 percent by end-2025. Risks to the outlook have improved but remain elevated and
to the downside. Maintaining the track record of very strong policies would continue to help
support Colombia’s capacity to respond to shocks.

Recommendations. While important gains have been achieved in reducing imbalances,


policies should aim to durably eliminate them while facilitating a smooth convergence of the
economy to potential levels. This will require continuing to gradually normalize
macroeconomic policy stances and advancing on the structural reform agenda to boost
productivity, encourage investment, and diversify the economy.

• Monetary and Exchange Rate Policies. Cuts in the monetary policy rate should continue
with caution with a backloaded pace aiming to bring inflation durably to target by mid-
2025. Further strengthening communication can help more strongly anchor inflation
expectations. The exchange rate should continue to flexibly respond to shocks, as it
appropriately has done, unless disorderly market conditions arise, in line with the
Integrated Policy Framework (IPF). A further gradual strengthening of international
reserves would be appropriate as conditions allow.

• Fiscal Policy. While the underlying fiscal policy stance remains tight, the planned
increases in the overall deficit and debt this year pose fiscal risks. Given revenue
uncertainties, proactively scaling back certain expenditure plans would reduce the risk of
needing to again identify spending cuts later in the year to meet the fiscal rule.
Reorienting expenditures towards investment within this lower spending envelope could
support the energy transition and enhance growth potential.
COLOMBIA

• Financial Sector Policies. While the financial sector has been resilient, continuing to monitor
rising nonperforming loans (NPLs) and maturity risks will be important. Progress should continue
in implementing FSAP recommendations. Thorough analyses of potential implications of the
pension reform on financial stability should help inform reform discussions.

• Social and Structural Reforms. The broad objectives of the administration’s equity and climate
agenda are welcomed. It remains important to design reforms within Colombia’s very strong
policy frameworks and in a manner that addresses problems in the current system while
ensuring alignment of economic incentives and encourages investment. Clear communication
on policy direction and broad political support are essential for the reforms to be durable.
Further advancing structural reforms to enhance productivity and diversify the economy remains
essential.

• Governance. Reform efforts should be complemented with a further strengthening of


governance and transparency and reduction of corruption risks, including through (i) the
development of a comprehensive risk-based anti-corruption strategy; (ii) the continuous
publication of comprehensive and easily accessible income and asset declarations of politically-
exposed persons; and (iii) the public access to effective beneficial ownership information.

2 INTERNATIONAL MONETARY FUND


COLOMBIA

Approved By Discussions took place in Bogotá during January 31-February 14, 2024.
Luis Cubeddu (WHD) The team comprised Ceyda Oner (head), Marco Arena, Vu Chau, and
and Martin Čihák Roberto Perrelli (all WHD), Zoltan Jakab (MCM), and Sergio Rodríguez
(SPR) (SPR). José De Haro (COM) led the press interactions and Alice French
(LEG) led meetings on governance issues. Mr. Betancur (OED) also
participated in the discussions. The mission met with the Central Bank
Governor and Board, and the Minister of Finance, as well as the
Ministers of Health, Environment and Sustainable Development and
senior officials from the Ministries of Labor, Energy and Mines,
Commerce, Financial Superintendency, Financial Guarantee Fund, and
the National Infrastructure Agency. The mission also met with think
tanks, civil society organizations, and private-sector representatives. A
press conference was held at the end of the mission on February 14,
2024. Daria Kolpakova (WHD) provided valuable inputs to the report.
Kristine Laluces and Eliana Porras (all WHD) provided excellent
administrative coordination.

CONTENTS
CONTEXT ________________________________________________________________________________________ 5

RECENT DEVELOPMENTS _______________________________________________________________________ 5

OUTLOOK AND RISKS __________________________________________________________________________ 11

POLICY DISCUSSIONS __________________________________________________________________________ 13


A. Monetary and Exchange Rate Policies: Proceed with Caution, with Exchange Rate Flexibility _ 13
B. Fiscal Policy: Continued Prudent Fiscal Management is Essential______________________________ 14
C. Financial Sector Policies: Reinforcing Resilience _______________________________________________ 16
D. Social and Structural Reforms: Lifting Productivity and Supporting the Energy Transition ____ 18
E. Governance: Further Strengthening Governance and Advancing on the Anti-Corruption
Agenda __________________________________________________________________________________________ 19

STAFF APPRAISAL ______________________________________________________________________________ 21

BOXES
1. Understanding Recent Investment Trends in Colombia ________________________________________ 7
2. Governance and Anti-Corruption Agenda in Colombia: Progress and Challenges _____________ 20

FIGURES
1. Real Sector Developments____________________________________________________________________ 24
2. Labor Market Developments __________________________________________________________________ 25

INTERNATIONAL MONETARY FUND 3


COLOMBIA

3. Inflation and Monetary Policy _________________________________________________________________ 26


4. Current Account Developments _______________________________________________________________ 27
5. Financial Account Developments______________________________________________________________ 28
6. Fiscal Developments __________________________________________________________________________ 29
7. Financial Soundness Indicators ________________________________________________________________ 30

TABLES
1. Selected Economic and Financial Indicators, 2020-29 _________________________________________ 31
2. Summary Balance of Payments, 2022-29 ______________________________________________________ 32
3. Operations of the Central Government, 2022-29 ______________________________________________ 33
4. Operations of the Combined Public Sector, 2022-29 __________________________________________ 34
5. Monetary Indicators, 2022-29 _________________________________________________________________ 35
6. Medium-Term Outlook, 2019-29 ______________________________________________________________ 36
7. Financial Soundness Indicators, 2019-23 ______________________________________________________ 37
8. Indicators of External Vulnerability, 2022-29 __________________________________________________ 38
9. External Debt Sustainability Framework, 2020-29 _____________________________________________ 39
10. External Debt Sustainability: Bound Tests ____________________________________________________ 40
11. Capacity to Repay Indicators Under Adverse Scenario, 2021-2029 ___________________________ 41

ANNEXES
I. Summary of Social Reforms____________________________________________________________________ 42
II. External Sector Assessment, 2023 _____________________________________________________________ 44
III. Risk Assessment Matrix _______________________________________________________________________ 47
IV. Public Debt Sustainability Analysis ___________________________________________________________ 51
V. Implementation of the 2022 FSAP Key Recommendations ____________________________________ 58
VI. Understanding Colombia’s Low Saving Rate _________________________________________________ 69
VII. Energy Transition – Authorities’ Policies _____________________________________________________ 74
VIII. Recommendations of the 2023 Article IV Consultation and Authorities’ Actions ____________ 75

4 INTERNATIONAL MONETARY FUND


COLOMBIA

CONTEXT
1. The Colombian economy is converging to a more sustainable level of economic
activity and domestic demand, with a marked narrowing of imbalances. Appropriately tight
macroeconomic policies over the last two years have allowed for an impressive reduction in
domestic and external imbalances that had built up during 2021-22. Market indicators have
generally improved over the last year, although perceived risk remains high compared to peers.
Macroeconomic policy priorities are to manage the transition to a more sustainable path, durably
eliminating remaining imbalances and gearing up the economy for a more productive, diversified,
lower carbon future. Congressional debates on social reforms continue.

RECENT DEVELOPMENTS
2. The economy slowed sharply in 2023 from an overheated post-pandemic recovery,
stabilizing near its trend at a high level of activity (Figure 1). Real GDP expanded by 0.6 percent
in 2023; a substantial moderation from 7.3 percent in 2022 and the lowest growth rate since the
1990s except for the pandemic downturn in 2020. Notwithstanding the slowdown, real GDP
returned to its pre-pandemic trend by 2023:Q4, after two years of operating well above trend. In
fact, the large positive output gap that had opened up during the post-pandemic recovery closed
during 2023, although estimates of economic slack are subject to high uncertainty. Construction,
manufacturing, and the commerce sectors saw relatively larger declines, while services continued to
be resilient.

Growth and Output Gap GDP Levels Versus Pre-Pandemic Trends


(Percent) (Index, 2019 Q4 = 100)

20 130
18 Output Gap
120
16
GDP annual growth
14 110
12 Domestic demand 100
9.3 annual growth
10
90
8
6 7.3 80
4 70
GDP
2 0.6
60 Private consumption
0 -0.3
Total Investment (exc. inventories)
-2 50

Sources: DANE and IMF staff calculations. Sources: DANE and IMF staff calculations.

INTERNATIONAL MONETARY FUND 5


COLOMBIA

3. The overall trends hide important diverging consumption and investment dynamics.
Private consumption has remained resilient and is now 5 percentage points above its pre-pandemic
trend, in the context of a robust labor market and real wages.1 Meanwhile, investment, which had
been weakening even before the pandemic, has fallen sharply over the past year and now stands
10 percent below its pre-pandemic trend, led more recently by declines in machinery and
equipment investment from post-pandemic peaks. In contrast, longer-term weakness in investment
comes from housing (dwellings) and civil works (other buildings and structures, mainly infrastructure).
The sharp contraction in overall investment likely reflects not only tight policies but also general
uncertainties (see Box 1).

Total Investment by Type Public and Private Investment


(Index, 2017Q1 = 100) (Percent of GDP)

200
27
Private Government Inventories
180

160 22
140
17
120

100 12
80
7
60
Dwellings
40
2
Other Buildings and Structures
20
Machinery & Equipment -3
0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Sources: DANE and IMF staff calculations. Sources: DANE and IMF staff calculations.
Note: Dwellings, Other Buildings and Structures, and Machinery & Equipment
are the three largest items which together account for more than 90
percent of fixed capital formation.

4. The labor market has remained resilient yet has started to soften more recently (Figure
2). Colombia’s labor market was strong during most of 2023, with labor force participation reaching
pre-pandemic levels and unemployment falling well below the pre-pandemic average (around
10 percent) by mid-2023, reflecting in part the strength of the services sector. Labor market
conditions began to soften in the second half of 2023, as unemployment started rising (reaching
10.8 percent by end-2023). The softening was across the board, including women and youth, where
unemployment remains highest.

1 Realwages moderated in the first half of 2023 from a historically high level, though they have started rising again in
recent months as inflation declined.

6 INTERNATIONAL MONETARY FUND


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Box 1. Understanding Recent Investment Trends in Colombia 1/

Since the pandemic, Colombia’s investment recovery Investment in LA5 Countries


has lagged regional peers. After suffering one of the (Index, 2019:Q1=100)
largest drops in investment during the pandemic (second
among the LA5), its recovery has been much slower than 140
peers. Investment only returned to 2019 levels in late-
2022 before declining sharply again in 2023. While part of 120
the recent contraction in investment reflects policy efforts
to dampen overheated demand, lags in Colombia’s 100
investment relative to peers (with similar, albeit earlier,
80
tightening cycles) suggests that additional factors could Colombia
Chile
be weighing on investment. Mexico
60
Peru
One such factor is uncertainty. To study the impact of Brazil
uncertainty (and separate it from the impact of monetary 40
policy), a local projection exercise (Jordà, 2005) is 2019Q1 2020Q1 2021Q1 2022Q1 2023Q1
conducted on historical data of LA5 countries (Brazil,
Chile, Colombia, Mexico, and Perú). Two sources of Sources: WEO and IMF staff elaborations.
uncertainty are studied: politics/institution/policy
uncertainty and macroeconomic uncertainty. While the results confirm the negative impact of tighter
monetary policies on investment, they also suggest that political/policy uncertainty has played an important
role. In the case of Colombia, the increase in the uncertainty index of 2 points during 2021-2022 could
explain more than two-thirds of the investment decline during 2022-23 (while uncertainty instead declined
and contributed positively to investment in other LA5 countries, except for Brazil). However, recent declines
in Colombia’s uncertainty index suggest that investment could improve in the coming years. Unlike political
uncertainty, macroeconomic uncertainty is not found to be important for investment dynamics.

Investment Response to Monetary Policy Investment Response to Policy Uncertainty


(Percent) (Percent)

5 5

3 3

1 1

-1 -1

-3 -3
Quarters after shock Quarters after shock
-5 -5
0 1 2 3 4 5 0 1 2 3 4 5
Sources: WEO, Economist Intelligent Unit (EIU), and IMF staff Sources: WEO, EIU, and IMF staff calculations.
calculations. This chart plots the IRF of investment to a one-point increase
This chart plots the impulse response function (IRF) of in the EIU Politics/Institution risk index and a 68-percent
investment to a one-percent increase in the ex-ante real confidence band.
interest rate and a 68-percent confidence band.

1/
Prepared by Vu Chau.

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5. Social indicators have recovered yet remain below pre-pandemic levels. Colombia had
made progress in reducing poverty over the Poverty and Inequality
two decades before the pandemic (Text chart). (Percent)
After rising sharply with the pandemic, the 80
Poverty rate (new method)
70

poverty rate has returned to pre-pandemic Poverty rate (old method)


Extreme poverty rate (new method) 65
levels by end-2022, but extreme poverty has 60
Extreme poverty rate (old method)
lagged, likely reflecting the persistently high Gini Index (RHS)
60
food inflation during 2022. The recent rise in 40
income inequality, after important declines, 55
reflects a series of factors, possibly including a
20
lasting impact of the pandemic. 50

6. Tight policies facilitated continued 0 45

2010
2002

2004

2006

2008

2012

2014

2016

2018

2020

2022
reductions in headline inflation and
inflation expectations, although core
inflation has been stickier (Figure 3). Source: DANE.
Headline inflation declined from a peak of
13.3 percent (y/y) in March 2023 to 7.7 percent (y/y) in February 2024, led by lower food inflation,
and notwithstanding the effects of the significant but necessary increase in regulated prices. Core
inflation has also declined, albeit more slowly, from 10.6 percent (y/y) in April 2023 to 7.6 percent in
February. Stubbornly high services inflation, which in part is due to high indexation to past inflation,
added to the persistence of both headline and core inflation. That said, one and two-year ahead
inflation expectations have been trending down, reaching 4.8 and 3.5 percent, respectively, in
February.

7. The central bank started reducing monetary policy rates in December. The policy rate
was kept unchanged since April 2023 (at 13.25 percent) until the first two consecutive cuts of 25 bps
each in December and January. This implied a tightening in the policy stance in real (ex-ante) terms
throughout 2023 and kept it tight in early 2024 as inflation (and inflation expectations) continued
declining during the period (Figure 3). In its recent communiques, the central bank reiterated its
objective to bring inflation towards the 3 percent target and conveyed that the economy continues
on the adjustment path necessary for inflation to converge towards the target by the first half of
2025 at the latest.

8. Tight policies also facilitated a significant current account adjustment (Figures 4-5). The
current account deficit narrowed sharply to 2.7 percent of GDP in 2023, from 6.2 percent in 2022,
despite less favorable terms of trade, amid tight policies (à la twin deficits; see Selected Issues Paper,
Chapter 3) and a broad-based import compression. The continued strength of tourism receipts and
remittances as well as lower import services due to the normalization of international shipping costs
also helped improve the current account. The current account deficit was financed by foreign direct
investment (FDI) inflows, which reached 4.8 percent of GDP, helping to more than compensate for
net portfolio outflows, mainly from residents increasing their assets abroad. Meanwhile, the real
effective exchange rate (REER) appreciated about 28 percent in 2023 (end-of-period), partly

8 INTERNATIONAL MONETARY FUND


COLOMBIA

reversing the depreciation in 2022. On a preliminary basis, Colombia’s external position for 2023 is
assessed to be broadly in line with a level consistent with medium-term fundamentals and desired
policy settings (Annex II), with uncertainty surrounding point estimates.

9. International reserves remain adequate. International reserves were relatively unchanged


last year, standing at a comfortable $59.1 billion by end-2023 (119 percent of the ARA metric). Last
December, the central bank announced a plan to gradually accumulate reserves, market conditions
permitting, for up to US$1.5 billion over the next two years, to maintain adequate reserves as access
under the Flexible Credit Line (FCL) is expected to be reduced while global uncertainty is expected to
persist. As of end-January, almost USD 0.2 billion were already purchased under Banrep’s plan.

10. Supported by the recent tax reforms, fiscal consolidation continued in 2023. The
central government’s (CG) overall deficit narrowed from 5.3 percent of GDP in 2022 to 4.3 percent of
GDP last year (Text table and
Selected Fiscal Indicators, 2020-23
Figure 6), largely owing to the
(Percent of GDP)
lagged impact of the 2021-22 2020 2021 2022 2023 (est.)
Central Government
tax reforms, slightly over-
Headline Balance 1/ -7.8 -8.1 -5.3 -4.3
performing the fiscal rule Total Revenue 15.3 15.0 16.2 18.8
deficit limit for the second o/w Tax Revenue 13.1 13.6 14.4 16.7
Expenditure 23.1 23.1 21.5 23.1
consecutive year. Nevertheless, Primary Expenditure 20.2 19.7 17.2 19.1
primary expenditures Interest Payments 2.8 3.3 4.3 3.9
Structural Primary Non-Oil Balance -5.0 -4.9 -2.7 -2.8
(excluding payments to the
Fuel Price Stabilization Fund, Combined Public Sector (CPS)
Headline Balance 2/ -6.9 -7.0 -6.1 -2.6
FEPC) increased by 1.5 ppt of
Total Revenue 26.6 27.2 27.8 32.3
GDP, mostly reflecting Total Expenditure 33.5 34.3 33.9 35.0
increases in social transfers. The Structural Primary Non-Oil Balance -4.3 -4.9 -4.6 -0.9
Fiscal Impulse 3/ ("-" = contractionary) 2.3 1.0 -1.2 -2.2
overall policy stance last year CPS Gross Debt 4/ 65.7 64.0 60.1 52.5
was contractionary, with the Sources: Ministry of Finance and IMF staff estimates.
1/ For 2021, includes privatization receipts that, under GSFM 1986 used by the authorities,
overall combined public sector produces a headline deficit of 7 percent of GDP.
deficit narrowing from 2/ Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and
statistical discrepancy. For 2021, excludes privatization receipts (see 1/ above).
6.1 percent of GDP in 2022 to 3/ To control for valuation effects, it excludes changes in Social Security balances.
4/ Includes Ecopetrol, Fogafin, and Finagro.
2.6 percent of GDP in 2023.2
This consolidation, together with the nominal appreciation of the peso (¶11) and relatively high
inflation, supported a reduction in public debt from 60.1 percent of GDP in 2022 to an estimated
52.5 percent at end-2023, with the currency appreciation contributing about 6¼ ppt of GDP of the
decline. Meanwhile, net CG debt—the medium-term anchor in the fiscal rule—is estimated to have
dropped from 57.9 percent of GDP at end-2022 to an estimated 52.8 percent of GDP, also mainly on
account of the nominal peso appreciation, falling below the 55 percent anchor much earlier than
expected.

2The FEPC deficit declined to 1.1 percent of GDP in 2023 (from 2.7 percent of GDP in 2022) owing to the ongoing
adjustments to gasoline prices, which reached international levels by end-2023.

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11. Improved global sentiment and efforts to reduce domestic imbalances supported a
recovery in Colombian assets prices, although sovereign spreads remain elevated compared
to peers. Last year, the peso appreciated by about 21 percent (y/y) against the USD in nominal
terms (end-of-period), one of the highest appreciations among EMs, largely on account of the
confidence effects related to improvements in the fiscal and external positions, with global factors
playing a less important role. Government bond yields and EMBIG spreads declined to pre-election
levels, though they remain above those of peer countries (Text Charts and Figure 7).

EMBIG Spreads Exchange Rate


(In bps) (Relative to USD; Index, January 2022=100)

600 140
EMBI Spreads Colombia
Peru Brazil
LA4 130 Chile Colombia
500
120

110
400
100

90
300
80

200 70
Dec-2021 Jun-2022 Dec-2022 Jun-2023 Dec-2023 Dec-2021 Jun-2022 Dec-2022 Jun-2023 Dec-2023
1/ LA4 is unweighted average for Brazil, Chile, Mexico, and Peru. Sources: Bloomberg LLP
Note: LA4 is unweighted average for Brazil, Chile, Mexico, and Peru. Sources: Haver Analytics and IMF staff calculations.

Sources: Bloomberg L.P. and IMF staff elaborations.

12. The financial sector remains resilient amid slowing credit growth, rising NPLs, and
regulatory actions (Table 7, Figures 7-8). Credit growth has declined to more sustainable levels
(from 18 percent y/y in August 2022 to about 3.3 percent y/y in December 2023) owing to tight
macroeconomic policies, higher provisioning requirements for consumer loans, and tightened
lending standards. With economic growth slowing sharply, NPLs have been rising, especially in
consumer loans, from 4.5 percent in early 2022 to 8.4 percent in November 2023. As a result, the
provisioning coverage ratio has declined from 136 percent (December 2022) to about 115 percent
(November 2023) but remains adequate.3 Some funding pressures that arose around mid-2023 due
to a culmination of factors, including the full implementation of Net Stable Funding Ratio (NSFR)
regulation, were quickly addressed with the Financial Superintendency (SFC) delaying NSFR’s full
implementation by two years and Banrep providing temporary liquidity in the secondary market.
The banking sector remains liquid and well-capitalized, with the capital adequacy ratio well above
regulatory minimum and the liquid assets to total asset ratio above 17 percent.

3 In late November, the Financial Superintendency issued a norm (Circular Externa 017), which includes a reduction
from 4 to 3 of the indicators to trigger the deaccumulation phase and an extension from 18 to 24 months the period
to rebuild countercyclical provisions.

10 INTERNATIONAL MONETARY FUND


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OUTLOOK AND RISKS


13. The economy is set to continue its transition toward a more sustainable level of
economic activity and demand. Real GDP is expected to grow by 1.1 percent in 2024 on the back
of less-tight macroeconomic policies, and
gradually converge to potential by early Consumption and Investment Shares of GDP
(Percent)
2026. Private consumption growth is
80 25
expected to moderate as the labor market
softens and consumer credit remains tight,
75 20
while private investment is expected to
slowly recover from its depressed levels as 70 15
the direction of policies becomes clearer
and financial conditions normalize (text 65 10
chart). Over the medium-term, real GDP
growth is expected to reach its potential 60 5
growth rate of around 3 percent, supported
by economic gains from large-scale 55 Private Consumption (LHS) 0
Private Investment (RHS)
infrastructure projects (e.g., the fifth Public Investment (RHS)
generation (5G) infrastructure agenda) and 50 -5
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028
the integration of Venezuelan migrants. The
long-term potential growth estimate is Sources: DANE and staff projections.
somewhat lower (¼ ppt of GDP) than
previously estimated, reflecting prolonged weaknesses in investment.

14. In addition, domestic imbalances are expected to narrow further, while the current
account is expected to converge to its medium-term average. The tight but normalizing
macroeconomic policies (see ¶15) are projected to support a gradual reduction in inflation close to
5 percent (y/y) by end-2024 before reaching 3 percent by end-2025. Meanwhile, the current account
deficit is projected to increase to around 3 percent of GDP this year, on account of lower commodity
prices and some recovery in imports driven by slightly higher domestic demand growth, before
converging to its medium-term average of about 3¾ percent of GDP. Over the medium-term the
current account is also supported by continued strength in non-traditional exports (Section D).

15. Fiscal and monetary policies are expected to remain tight during 2024 and fully
normalize afterwards (Tables 3-4). The fiscal stance—measured as the changes in the CPS
structural non-oil primary balances (excluding valuation changes)—is expected to remain in
contractionary territory this year, despite a widening CG balance (see ¶22), before shifting toward a
neutral stance in 2025-26.4 Over the medium term, the overall CPS deficit is projected to converge
to around 2 percent of GDP, with further increases in tax revenues, along with lower subsidies,
investment, and interest expenditures, more than offsetting higher social spending, and lower

4 Other indicators (e.g., the changes in CG non-oil headline and structural primary balances) also show a tight stance.

INTERNATIONAL MONETARY FUND 11


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profits from the state-owned oil- Main Drivers of Medium-Term Fiscal Consolidation
company (see text table and Section (Combined Public Sector, in percent of GDP)
B). Monetary policy is also expected
to remain tight this year, but
increasingly less so, until 2025 (see
Section A).

16. While risks to the outlook


have receded, they remain elevated
and to the downside (Annex III).
Risks to the global economy have
moderated, although they remain
high. An intensification of geopolitical
Sources: Ministry of Finance and IMF Staff Estimates.
tensions around the world could
further tighten global financial conditions, disrupt supply chains, and raise global food prices,
adversely impacting Colombia’s growth outlook and adding to inflation pressures. Tighter global
financial conditions could lead to exchange rate pressures, fuel domestic inflation, risk premia, and
exacerbate growth-inflation trade-offs. Domestically, a stronger-than-expected El Niño could also
hinder economic activity and raise inflation. A miscalibration of the timing and pace of policy rate
cuts could hinder disinflation, jeopardizing central bank credibility. Weaker-than-expected private
demand due to tighter financial conditions and/or a softer labor market also pose downside risks to
growth. While risk premia have declined from last year, uncertainties over the direction of policies
could raise borrowing costs and undermine private investment.

17. In this context, contingency planning and agile policy responses to shocks will remain
essential to preserving Colombia’s macroeconomic stability. Colombia’s adequate buffers
(including the FCL) and its sustained track record of very strong policy implementation should
mitigate risks and continue to support the country’s resilience and capacity to respond to shocks.
Should shocks exacerbate inflationary pressures and/or raise external imbalances, macroeconomic
policies would need to remain tighter for longer to avoid a de-anchoring of inflation expectations
and to contain debt servicing costs. Additional efforts may be necessary to protect the most
vulnerable while respecting the fiscal rule limits.

Authorities’ Views

18. The authorities broadly agree with the characterization of risks. The current balance of
risks is characterized by high levels of uncertainty. On the external front, key risks include
geopolitical tensions, the fragmentation of international trade and the volatility of international
capital markets. While inflation has declined considerably despite significant increases in fuel prices,
upward risks still exist, mainly from climate shocks and the persistence of services inflation. Risks to
GDP growth are to the downside which heighten policy trade-offs. Uncertainty regarding possible
non-linear responses of inflation to aggregate demand and of aggregate demand to the cumulative
effects of monetary tightening is a particular concern.

12 INTERNATIONAL MONETARY FUND


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POLICY DISCUSSIONS
With inflation and borrowing costs still high and growth slowing sharply, macroeconomic policies will
need to be carefully calibrated to durably reduce imbalances, strengthen public finances, and manage
a smooth transition to potential activity levels over the medium term. Monetary policy rate cuts should
proceed with caution and be effectively communicated to continue reducing inflation and expectations
to target. Scaling back expenditure plans to pursue slightly smaller deficits than allowed by the fiscal
rule and reorienting spending towards investment can reduce fiscal risks and borrowing costs, support
a faster normalization of monetary policy, and create space to address climate and social reform
needs. Meanwhile, social reforms should be designed and implemented in compliance with Colombia’s
very strong policy frameworks, addressing problems in the current system while aligning economic
incentives to encourage private investment. Structural reforms should aim to boost productivity and
domestic saving, which are low relative to peers. Reducing dependence on oil and coal will require
carefully calibrated energy transition and export diversification strategies. Reform efforts should be
usefully complemented with further strengthening governance, transparency, and reducing corruption
risks.

A. Monetary and Exchange Rate Policies: Proceed with Caution, with


Exchange Rate Flexibility

19. Monetary policy normalization should proceed with caution and be effectively
communicated to continue reducing inflation and expectations to target. Notwithstanding the
improvements noted above, inflation remains well above peers’ and has shown more persistence
than expected, even after considering the impact of the commendable regulated price adjustments.
Similarly, inflation expectations, while falling, have remained above the central bank’s inflation target
of 3 percent since July 2021. Given upside risks to inflation, including from El Niño and high
indexation, it will be necessary to proceed with caution in future policy rate reductions. Aiming to
bring inflation firmly to the 3 percent target by mid-2025 would strike an appropriate balance
between strengthening credibility while safeguarding economic activity. Achieving this objective
would in turn imply gradually reducing the policy rate in a backloaded way, maintaining a tight
stance as inflation and expectations decline further, while remaining data-dependent and adjusting
the pace of cuts as needed to reach the target within the desired time frame. Enhanced
communication, focusing on the inflation target level and the expected time horizon to bring
inflation to that target, while recognizing risks and uncertainties, can help more strongly anchor
inflation expectations.

20. The flexible exchange rate should continue to play its role as a shock absorber, with
intervention limited to certain circumstances, as guided by the Integrated Policy Framework
(IPF). Colombia’s flexible exchange rate regime is one of the pillars of its inflation targeting
framework and has served the economy well. Against an unfavorable external backdrop, the
exchange rate should continue to adjust flexibly to shocks. In line with the IPF guidance, foreign
exchange market intervention (FXI) should be used only if large shocks lead to disruptive illiquidity,

INTERNATIONAL MONETARY FUND 13


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risk de-anchoring inflation expectations, or there are FX mismatches that pose significant risks to
financial stability. The announced plan to gradually accumulate $1.5 billion in reserves (¶9) is
appropriate and would help keep reserves well within the adequacy range going forward.

Authorities’ Views

21. Banrep shared the view that monetary policy normalization should proceed with
caution. They recognize that while inflation and inflation expectations have been declining
significantly, they remain elevated and are above target. They also see higher near-term risks to
inflation, justifying caution with the pace of future reductions in the policy rate, which will remain
data dependent. They conveyed that monetary policy needs to balance reaching its inflation
objective and safeguarding credibility while also avoiding an unduly contractionary stance. They
noted the high degree of uncertainty in the forecast horizon, which they saw as warranting avoiding
undue specificity in their public communications. The fully flexible exchange rate is seen as a key
pillar of Colombia’s policy framework and would continue playing its shock absorbing role. FXI is
limited to addressing disorderly market conditions and reserve purchases aimed at strengthening
coverage ratios. The authorities noted that Colombia maintains adequate levels of international
reserves and they perceive the IMF’s Flexible Credit Line as a valuable complement to the external
liquidity buffers.

B. Fiscal Policy: Continued Prudent Fiscal Management is Essential

22. The planned increases in the deficit and debt for 2024 pose fiscal risks. Over the past
two years, the fiscal deficits and public debt were lowered significantly, commendably over-
complying with the fiscal rule, and greatly reducing the vulnerabilities built up during the pandemic
years. The 2024 Financial Plan (FP) targets an improvement in the net structural primary balance by
1.2 percentage points (as per the fiscal rule), although the overall deficit is set to increase to
5.3 percent of GDP, and net CG debt to 57 percent of GDP this year, reversing much of the gains
achieved last year when borrowing costs remain high. Behind the larger deficit are ambitious but
uncertain gains from faster resolutions of tax arbitrations and a 1 percentage point of GDP increase
in primary CG expenditures to above pandemic highs, reflecting mostly higher social transfers.5 The
higher CG deficit is projected to increase the CPS deficit to 3.2 percent of GDP in 2024, with public
debt reaching 54.4 percent of GDP, despite the expected reduction of the fuel subsidy account
deficit and higher surpluses of subnational governments. Should revenues fall short of expectations,
expenditure plans would need to be scaled back relative to the Budget law, as done in 2023, to
comply with the fiscal rule. Moreover, reducing primary expenditures over time to the goal in the
Medium-Term Fiscal Framework (MTFF) toward 19 percent of GDP (compared to 20 percent of GDP

5Staff’s baseline projections exclude gains from faster resolutions of tax arbitrations with concomitantly lower
expenditures in 2024 relative to the FP reflecting the fact that the law needed for arbitrations has not advanced in
Congress.

14 INTERNATIONAL MONETARY FUND


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this year) would be difficult given budget rigidities on transfers and may require compressing much-
needed public investment to comply with the fiscal rule.6

23. Proactively scaling back expenditure plans would help lower borrowing costs and
allow monetary policy to normalize faster. While Colombia has some fiscal space and its public
sector debt is assessed to be sustainable with high probability under a wide range of plausible shock
scenarios (Annex IV), borrowing costs have been above that of peers since Colombia lost investment
grade in 2021. In fact, Colombia’s borrowing costs are higher compared to countries with similar
credit ratings (Text Chart). Moreover, assuming a similar currency composition and maturity
structure of the outstanding stock of debt, the favorable real interest rate and growth rate
differential (r-g) that supported debt dynamics in recent years is projected to reverse going forward
(Text Chart).7 As such, scaling back expenditure plans and thereby pursuing slightly smaller deficits
than allowed by the fiscal rule would not only reduce the risk of needing to identify spending cuts
later in the year, but also lower debt and financing needs. Importantly, this strategy would support a
faster normalization of the monetary policy stance, which in turn would help support
competitiveness, lower private sector borrowing costs, and pave the way for Colombia to regain
investment grade in a timely manner. This strategy would also leave space under the fiscal rule to
scale up future spending in the event of negative shocks and to cover the potential costs of the
climate and social reforms (see ¶30 and Section D).

Maturity-Weighted Average Yield on Dollar Bonds Interest Growth Rate Differentials


(Percent) (Percent)

600 15
Frontiers
EM
5
400
Colombia
JOR
PAN -5
TUR ZAF MEX
BHR ARM
200 BRA
MAR PER -15
CHL Nominal implicit interest rate ( i )
SAU Real implicit interest rate ( r )
VNM PHL MYSPOL
Interest-growth rate differentials ( r-g )
0 -25
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029

CCC B BB BBB A AA AAA


Sources: Bloomberg and IMF staff elaborations.
Sources: Haver Analytics, BanRep, Staff Estimates.

6 Transfers are indexed to past and projected revenues, which further increase budget rigidities.
7 Colombia’s r-g averaged about negative 3.8 percent during 2020-23 compared with almost zero during 2005-19.
Staff projects r-g to turn positive over the medium term, reflecting lower GDP deflator and nominal potential growth
rates and a normalization of domestic and foreign interest rates.

INTERNATIONAL MONETARY FUND 15


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24. Reorienting expenditures towards investment, within a scaled back spending


envelope, would support the energy transition and enhance growth potential. Colombia’s
ambitious climate and energy transition plans will require increased public and private investment.
Shifting some of the public spending envelope to infrastructure and climate-related projects would
promote Colombia’s objective of boosting its growth potential and being a global leader in the
climate transition agenda. Within the envelope proposed above, a “spending shift” from current to
capital expenditures would also restore public investment to its historical average. Moreover, fully
eliminating diesel subsidies would generate savings of about 0.5 ppt of GDP per year during 2024-
25, while reducing reliance on fossil fuels in line with Colombia’s climate goals. Reducing budget
rigidities and assessing the quality and targeting of social transfers and public investment could
improve resource allocation and further support social and climate objectives.

Authorities’ Views

25. The authorities reiterated their firm commitment to meet the fiscal rule. They
highlighted the substantial fiscal consolidation in 2022 and 2023, which resulted in an
overcompliance of the fiscal rule targets and reduced debt below the 55 percent of GDP anchor.
They also underscored that the deficit and debt plans in the 2024 Financing Plan (FP) are fully
aligned with the fiscal rule, and revenue projections already include lower gains from tax litigations,
with concomitantly lower spending—relative to both the 2024 Budget Law and last year’s MTFF. The
flexibility afforded by the fiscal rule to handle shocks and one-off transactions is adequate to meet
the fiscal objectives of maintaining debt close to the anchor and underpinning sustainability. While
recognizing that borrowing costs are elevated, they noted the improvements in sovereign spreads
over the last year. They stressed that, during 2024, expenditures will be executed according to the
pace of revenue collections and that budget cuts to comply with the deficit limit, if needed, will be
made during the fiscal year. To this end, the authorities issued a Presidential decree in late February
to improve the efficiency and effectiveness of public resources.8 They noted the importance of
boosting public investment but acknowledged that budget rigidities (e.g., pertaining to current
transfers) limit the scope for spending shifts, often resulting in reliance on public investment cuts to
meet deficit targets.

C. Financial Sector Policies: Reinforcing Resilience

26. Close monitoring of NPLs, household indebtedness, and maturity risks should
continue. As the economy continues its adjustment towards more sustainable growth, NPLs are
likely to continue rising before recovering and household indebtedness will remain elevated,
following a lagged cycle relative to the economic cycle. Developments in NPLs, particularly in
consumer loans, and household indebtedness should be monitored closely. Allowing banks to use
counter-cyclical provisions is a welcome development and creates some breathing space for banks.

8 “The 2024 Expenditure Austerity Plan”, Presidential Decree n. 0199 (February 20, 2024).

16 INTERNATIONAL MONETARY FUND


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27. Potential implications of the pension reform on financial stability should be carefully
analyzed and inform ongoing discussions. The reform that is currently under debate in Congress
envisages redirecting a large portion of workers’ contributions from private pension funds to a
national savings fund (see Annex I). While the governance and investment mandates of the national
savings fund are not yet determined, given the systemically important role private pension funds
play in the financial and capital markets, a careful assessment and debate around the broader
impact of reform proposals (i.e., on the foreign exchange market, the government bond (TES)
market, the external portfolio flows, the banking sector and financial conglomerates) will be critical,
and should inform the debates on the reform to mitigate financial stability risks.

28. The implementation of the 2022 FSAP recommendations and follow up actions should
continue. Notwithstanding increased focus on borrower characteristics in loan origination and
regulations, expanding debt-service-to-income (DSTI) and loan-to-value (LTV) regulations to cover
non-mortgage consumer loans could complement supervisory oversight and bolster systemic
financial stability. Going forward, carefully monitoring banks’ maturity and liquidity risks in
preparation for full NSFR implementation will be important to avoid temporary funding pressures or
maturity bunching. The SFC continues working in the update of definitions of related parties for
each of the industries in accordance with current regulations. Efforts to align large exposure
regulations with Basel III would control credit concentration risks. Regarding cross-border
exposures, SFC is now collecting data on the exposures on foreign counterparties and is working
with counterparts in other countries to fill the information gaps and conduct joint risk evaluations.
After receiving IMF’s technical assistance, a preliminary version of a network analysis model has
been developed, and cross-border contagion risks have been incorporated in both the SFC’s and
Banco de la República’s stress-testing exercises. These efforts should continue to further strengthen
cross-border oversight.

Authorities’ Views

29. The authorities emphasized that proactive supervision along with adequate buffers
allowed credit institutions to absorb the materialization of credit risk last year. The authorities
stressed that banks had built up capital and liquidity above minimum regulatory levels during the
high credit growth period, which has allowed them, together with the countercyclical provisioning
scheme, to absorb the deterioration in asset quality. They conveyed that credit growth has slowed
down significantly in response to a contractionary monetary policy stance and the tightening of
credit standards by banks. They noted that NPLs have increased, although they have moderated
recently for consumer loans. The authorities considered that the adjustment in the credit market and
the deterioration occurred in an orderly manner and as expected. They did not see a need to extend
the toolkit with borrower-based prudential measures, and emphasized that with proactive
supervision, banks with large exposures to borrowers with high debt service have enhanced their
origination processes and are implementing more stringent cutoff points for debt-service ratios,
effectively tightening standards as borrower-based measures would. The authorities explained that
their stress tests show the financial system is highly resilient and is in a solid position to face a tail
risk scenario. Currency mismatches for private sector are low, in their view, facilitating the role of a

INTERNATIONAL MONETARY FUND 17


COLOMBIA

highly flexible exchange rate regime as a shock absorber without compromising financial stability.
Regarding the foreign exposure of Colombia’s financial conglomerates, the authorities noted that
their exposure risk monitoring from local and cross-border exposures will continue and will be
strengthened with the regional stress testing exercises and information sharing with regional
supervisors. The ongoing next phase of regulatory reforms is expected to focus on banking,
supervision, and data protection, including large exposures, open finance, and open data.

D. Social and Structural Reforms: Lifting Productivity and Supporting the


Energy Transition

30. Planned social reforms should be designed within policy frameworks, balancing equity
and efficiency considerations. The broad objectives of the planned social reforms, to increase
equity and inclusion in the society, are welcomed (Annex I). Their design and implementation,
however, must be within Colombia’s policy frameworks, with any fiscal costs fitting within the fiscal
rule. Reforms should also address problems in the current system while at the same time ensuring
that incentives support investment and that changes be clearly communicated to enhance credibility
and safeguard broader stability. To be successful and durable, the reforms should be formulated in
close consultation with relevant stakeholders, with as broad political support as possible.

31. Lifting productivity, which has long stagnated in Colombia, is essential to boosting
potential growth in the medium-term. Colombia’s average total factor productivity (TFP) growth
has declined over the last three decades, although the extent and nature these declines vary across
sectors (see Selected Issues Paper, Chapter 1). Where low, TFP growth appears to be depressed well
below its potential due to resource misallocation between firms. As such, reversing productivity
growth declines will require improving resource allocation, including by streamlining regulations,
lowering labor market rigidity, providing more policy certainty (e.g., on regulated prices), and
removing bottlenecks that keep firms smaller and outside the recorded economy, among others. In
addition, actions are necessary to boost Colombia’s low national saving, which has been well below
the EM average and the level implied by the country’s fundamentals (see Annex VI). Aside from
raising public saving, efforts should continue to deepen capital markets and strengthen
competitiveness.

32. A well-designed and executed energy transition and export diversification plan is vital
to secure medium-term sustainability and resilience. The administration’s goal of reducing
dependence on oil and coal is commendable and rightly a priority given Colombia’s declining fossil
fuel reserves and the ongoing global energy transition. Diversifying exports would be an essential
part of the transition strategy, which requires identifying comparative advantages, upgrading export
quality, further integrating into global value chains, and removing entry barriers, while avoiding
protectionist measures (see Selected Issues Paper 2). Implementing the strategy would require time
and strong partnerships between public and private entities, along with the proper pricing of
energy. The pace and timing of the transition needs to balance achieving climate goals and
preserving growth, fiscal, and external stability.

18 INTERNATIONAL MONETARY FUND


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Authorities’ Views

33. The authorities reaffirmed that the social reforms will be within policy frameworks.
Regarding the pension and healthcare reforms, the authorities conveyed that discussions in
Congress are ongoing, and the goal is to garner as broad support as possible for their approval
before the summer recess. They also confirmed that both draft laws contain provisions that subject
their implementation to budget availability and require them to fit within the medium-term fiscal
framework and the fiscal rule. Elements of the healthcare reform are already being implemented
through decrees (e.g., on expanding access to primary care), given the urgent needs. With respect to
the labor reform, the authorities emphasized that a key objective of the reform is to improve worker
rights and that in considering tradeoffs it would be important to weigh the potential costs of
discouraging formal employment against the potential positive effects the reform would have on
aggregate demand.

34. The authorities reiterated the importance and the urgency of a prudent energy
transition and export diversification strategies to reduce gradually dependence on
hydrocarbons and achieve climate and equity goals. On the energy supply side, they remain
committed not to grant new exploration contracts and rely on existing contracts and enhanced
recovery for hydrocarbon production in the coming years. Diversifying energy production, both by
involving more energy sources (e.g. renewables) and enabling production by other agents (e.g.,
households) in the economy, is an integral part of their strategy, which should also lower the cost of
energy. On the demand side, the strategy includes increasing the use of electric vehicles throughout
the transportation sector. The export diversification strategy is a crucial part of the energy transition
and involves increasing productivity, strengthening production chains, developing new export
sectors, and deepening economic integration with Latin America, the Caribbean, Asia, and Africa. In
addition, the authorities highlighted that current and upcoming large infrastructure projects (5G
agenda) are expected to contribute to reducing logistic costs (as observed for 4G projects),
increasing productivity and international competitiveness.

E. Governance: Further Strengthening Governance and Advancing on the


Anti-Corruption Agenda

35. Reform efforts should be usefully complemented with a further strengthening of


governance and transparency and reducing corruption risks (Box 2). Strengthening governance
and the rule of law and advancing on the anti-corruption agenda remain important priorities, which
would also support improvements in the business and investment climate. Ensuring publication of
asset declarations in line with past good practice, with information detailing assets held domestically
and abroad (as per the model OAS law) is warranted to strengthen accountability of government
officials.9,10 Beneficial ownership declaration should be enhanced by allowing access to information

9 https://www.oas.org/juridico/PDFs/model_law_declaration.pdf
10Beneficial Ownership register is managed by DIAN but it is not publicly available so there are issues with
verification and quality of information submitted.

INTERNATIONAL MONETARY FUND 19


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currently held by DIAN.11/ Ensuring the continuous publication of comprehensive and easily
accessible income and asset declarations of politically exposed persons and providing public access
to effective beneficial ownership information would bring more transparency and accountability to
the public sector. The Secretary of Transparency has led the preparation of a draft of the
Whistleblowing Protection Law, which is scheduled to be discussed in this upcoming parliamentary
session. As per the new development plan, Art. 200, the Secretary of Transparency should focus
efforts on formulating a comprehensive shared risk-based strategy to combat corruption in
collaboration with the control bodies and civil society organizations. Special attention to improving
the advancement of grand corruption cases through the judicial system with enhanced investigation
capacity could demonstrate the state’s resolve in tackling corruption and foster greater trust within
the public.

Authorities’ Views

36. The authorities emphasized that Colombia is committed to continuing to improve


transparency. They noted that an anti-corruption strategy is being developed by the Secretary of
Transparency that will aim to strengthen and coordinate efforts across relevant agencies, including
the control bodies (Procuraduría), Ministry of Justice, and the Prosecutor’s Office (Fiscalía).
Regarding beneficial ownership, the information is currently held at DIAN, but there are ongoing
efforts to expand information access by key agencies. A specific action against non-reporters of
beneficial ownership information is also being developed, and a taskforce to assess judicial
congestion has been set up to tackle backlog issues and review the criminal procedure code. Asset
declarations have been restored partially, albeit data security concerns weigh on some information
not being made public. The authorities acknowledged that the key bottleneck is in the investigative
capacity of processing corruption cases. The authorities are hopeful that the draft Whistleblowing
Protection Law will be enacted, which is scheduled to be discussed in the upcoming parliamentary
sessions.

Box 2. Governance and Anti-Corruption Agenda in Colombia: Progress and Challenges 1/

Recent Progress. Colombia has firmed up a robust legal and institutional anti-corruption framework.
Pursuant to Law 2013 of 2019, public servants must publicly declare information on assets, income, and
conflicts of interest through a governmental portal. The Transparency and Access to Information Law
mandates all government officials to provide clear records on how public funds are spent and disclose
information of public interest to citizens upon request. 2 Law 2195 of 2022 allows for due diligence on
beneficial ownership reporting (albeit compliance and access are still issues to be addressed). The
Comptroller General (Contraloria) has launched the fiscal control and oversight observatory to centralize
information on budget transparency in a consolidated database. A judicial commission has been recently
established to address judicial reform and alleviate judicial congestion. A draft law on protection of
whistleblowers (Bill 291) was submitted to Congress in November 2023 and is set to be tabled in the current
legislative period.

11As per the latest information provided by authorities, only 45 percent of the required taxpayers have provided their
beneficial ownership information to the Registro Unico de Beneficiarios Finales (RUB), and noncompliance sanctions
are still under development.

20 INTERNATIONAL MONETARY FUND


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Box 2. Governance and Anti-Corruption Agenda in Colombia: Progress and Challenges


(concluded)

Corruption Risks. Corruption risks are significant. Public procurement practices, including the influence of
political power in decision making, pose significant governance risks. Political patronage networks appear to
exert strong influence on the allocation of public sector contracts and public private partnerships.3 Natural
resource exploitation also poses significant governance risks related to logging and environmental licensing
in gold mining, oil and gas sectors.4 Customs is a high risk for corruption, where weaknesses can contribute
to facilitating illicit cross-border financial flows (including for illegal gold mining) and transnational
organized crime networks (including for drug trafficking). 5,6 Extensive backlogs in the judiciary system have
caused extended delays on processing corruption cases, raising the perception of impunity. A perception of
politicization of key control and anti-corruption bodies, lack of enforcement of judicial decisions and
excessive use of extra-budgetary funds at the subnational level also contribute to governance risks. 7,8
Remaining Challenges. Challenges remain, particularly in relation to asset declarations and enforcement
efforts. A backsliding on the publication of information in the asset declarations is concerning with
information incomplete and not disaggregated. Extensive backlogs in the judiciary system have caused
delays on processing corruption cases and levels of indictments and conviction in corruption crimes are very
low and do not effectively progress through investigations. This could create perceptions of politicization of
key control bodies and exemption of enforcement for prominent individuals, due to the limited enforcement
of judicial decisions.
1/ Prepared by Alice French (LEG).
2/ Ley de Transparencia y Acceso a la información Pública Nacional 1712 of 2014.
3/ According to Transparencia Colombia’s report, one in four campaign financers at the municipal level are awarded with
public procurement contracts.
4/ See Colombia’s Experience Tackling Subnational Corruption in the Hydrocarbon Sector | Natural Resource Governance
Institute.
5/ See The Gold Standard: Addressing Illicit Financial Flows in the Colombian Gold Sector through Greater Transparency,
Global Financial Integrity, 2021.
6/ National Drug Policy 2023 – 2033 « La Nueva Política de Drogas de Colombia Busca Transformar el Paradigma Hacia la
Protección de la Vida y el Medio Ambiente » (presidencia.gov.co).
7/ OECD Phase 3 follow up report “Implementing the OECD Anti-Bribery Convention in Colombia: Phase 3 Two Year
Written Follow-Up Report.”
8/https://www.sic.gov.co/sites/default/files/files/2023/RESOLUCIO%CC%81N%202986%20DEL%201%20DE%20FEBRERO
%20DE%202023.pdf

STAFF APPRAISAL
37. The Colombian economy has made important strides in reducing domestic and
external imbalances, transitioning to a more sustainable level of economic activity and
demand. Appropriately tight macroeconomic policies have helped reduce inflation, the fiscal deficit,
public debt, excessive credit growth, and the large current account deficit observed in the last two
years. The narrowing of the current account deficit, also supported by tourism and remittances, has
contributed to an improvement of the external position in 2023 relative to 2022, with staff assessing
the external position as being in line with the level implied by medium-term fundamentals and
desirable policies.

INTERNATIONAL MONETARY FUND 21


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38. While risks to the outlook remain on the downside, very strong policies and policy
frameworks continue to underpin Colombia’s resilience and capacity to respond to shocks.
Sharply lower domestic and external imbalances have significantly reduced vulnerabilities, and
sizable buffers reinforce a favorable medium-term assessment even in the face of downside and
elevated risks. The FCL continues to provide additional external buffers against tail risks and
enhances market confidence, further supporting resilience. In this regard, the authorities’
commitment to maintain a sustained track record of very strong policy implementation, including by
carefully calibrating policies to durably eliminate remaining imbalances and strengthening domestic
and external buffers, would further support Colombia’s resilience and capacity to respond to shocks.
Contingency planning and agile policy making will remain necessary.

39. Monetary policy normalization should continue to proceed with caution, while
enhanced communication could help better anchor expectations. Given upside risks to inflation,
future policy rate reductions should proceed with caution and remain data dependent. Aiming to
bring inflation firmly to the 3 percent target by mid-2025 would strike a good balance between
safeguarding economic activity and policy credibility. Focusing policy communications on the
inflation target level and the expected time horizon to bring inflation to that target, while
recognizing risks and uncertainties, could help anchor inflation expectations more strongly. The
exchange rate should continue to flexibly respond to shocks, as it appropriately has done, unless
disorderly market conditions arise, as per the IPF, with gradual and opportunistic purchases to
further strengthen reserve coverage.

40. Continued prudence in fiscal management is necessary given elevated borrowing


costs. The authorities’ unwavering commitment to meeting the fiscal rule is welcomed, as well as the
tight overall public sector fiscal stance this year. That said, the planned increases in the overall deficit
and debt pose fiscal risks. Proactively scaling back expenditure plans rather than relying on ad-hoc
spending restraint would be a more transparent and effective way of implementing the priorities in
the budget while ensuring meeting the fiscal rule. Pursing smaller deficits than implied by the rule
would help lower debt and financing needs at a time when spreads and borrowing costs remain
high, especially relative to peers, and reduce the burden on monetary policy. Given substantial
budget rigidities, standing ready to activate contingency plans will be essential in case revenues fall
short of expectations.

41. Improving the structure of spending to boost public investment should remain a
priority. Reorienting expenditures towards investment, within a scaled back spending envelope,
would support the energy transition and enhance growth potential, including by crowding in private
investment. One way to create budget space for public investment and save scarce public resources
would be to continue removing fuel subsidies, following the exemplary removal of gasoline
subsidies by end-2023. This would also align well with Colombia’s goal of reducing reliance on fossil
fuels.

42. While the banking sector remains resilient, financial stability risks need to continue to
be carefully monitored. As the economy continues to stabilize, NPLs could continue rising,
warranting close monitoring. The countercyclical provisioning framework’s rules-based mechanisms

22 INTERNATIONAL MONETARY FUND


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should be maintained to avoid creating expectations that frameworks can be adjusted at times of
pressure, and with due consultation across stakeholders. Continuing to closely monitor liquidity and
maturity risks and following international best practice in stable funding regulations will be
important for containing funding pressures. Given the systemically important role private pension
funds play in the financial system, a comprehensive analysis of the potential impact of the pension
reform should inform the reform discussions. As further progress is made in enhancing data
coverage, expanding the macroprudential toolkit towards more borrower-based tools would
complement the existing tools and supervisory practices. Continuing to monitor cross-border
exposures, interconnectedness, and contagion risks will be important.

43. Further advancing structural reforms is key to lift productivity and support the energy
transition. The broader objectives of the social reforms to increase equity and inclusion in the
society are welcomed; they should be designed and implemented in compliance with Colombia’s
fiscal frameworks, addressing problems in the current system while ensuring that economic
incentives are well-aligned. Reducing policy uncertainty and improving the business climate,
including by simplifying regulations, lowering labor market rigidity, and removing barriers to entry,
can boost investment and productivity. Higher public and private savings, including through a
deepening of capital markets, can ensure that a greater share of investment is domestically financed.
Meanwhile, export diversification would be an essential part of the energy transition strategy and
will require identifying sectors with comparative advantage and removing market frictions, while
avoiding protectionist measures. Implementing the energy transition strategy would take time and
will need strong partnerships between public and private entities, along with the proper pricing of
energy.

44. Reform efforts should be usefully complemented with a further strengthening of


governance and transparency and reducing corruption risks. Developing a comprehensive anti-
corruption strategy, ensuring the continuous publication of comprehensive and easily accessible
income and asset declarations of politically exposed persons, and providing public access to
effective beneficial ownership information would bring more transparency and accountability.

45. Staff recommends that the next Article IV consultation take place on the standard 12-
month cycle.

INTERNATIONAL MONETARY FUND 23


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Figure 1. Colombia:
Colombia:Recent
Real Sector Developments
Economic Development

The consumption led expansion declined in ...with manufacturing, retail, and construction
experiencing the largest declines.
30 20
Real GDP Growth and Contributions Gross Value Added Growth and Contributions
25 (In percent, y/y change) 15 (In percent, y/y change)
20
10
15
5
10
5 0
0 -5 Private Service
-5 -10 Manufacture
Private consumption
-10 Govt. consumption Construction
Gross investment -15
-15 Public Service
Net exports
-20 Discrepancy
-20 Agri & Mining
GDP growth Gross Value Added
-25 -25
2019Q1 2020Q2 2021Q3 2022Q4 2019Q1 2020Q2 2021Q3 2022Q4

Consumption growth sharply declined... ... and investment registered negative growth rates.
30 50
Investment Growth and Contributions
Consumption Growth and Contributions
25 (In percent, y/y change) 40 (In percent, y/y change)
20 30
15 20
10 10
5 0
0 -10 Intellectual property
Nondurable Goods Cultivated bio resources
-5 -20
Semidurable Goods Machine & Equipment
-10 Services
-30 Other buildings
-15 Consumption growth -40 Dwellings
Gross investment
-20 -50
2019Q1 2020Q2 2021Q3 2022Q4 2019Q1 2020Q2 2021Q3 2022Q4

While GDP growth is declining; however, economic ... with leading indicators still pointing to
activity is still above pre-pandemic levels... additional growth moderation.
140 100 80
Selected High Frequency Indicators Confidence
130 (2019M12=100 unless otherwise noted) (In percent balance, NSA)
80 70
Consumer Confidence 2/
120
60 Business
Man. PMI (RHS) 60
110
40
100 50
20
90
40
0
80
Manufacturing IP -20 30
70
Economic activity indicator 1/
60 -40 20
Apr-19 Dec-19 Aug-20 Apr-21 Dec-21 Aug-22 Apr-23 Dec-23 Feb-20 Oct-20 Jun-21 Feb-22 Oct-22 Jun-23 Feb-24

Sources: Departamento Administrativo Nacional de Estadísticas (DANE); Dirección de Impuestos y de Aduanas


Nacionales (DIAN), La Fundación Para la Educación Superior y el Desarollo; Davidienda, Haver Analytics; and IMF
staff estimates.
1/ Seasonally and working days adjusted.
2/ Balances between favorable and unfavorable responses, in percent.

24 INTERNATIONAL MONETARY FUND


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Figure 2. Colombia:
Figure Labor
2. Colombia: Market
Labor Developments
Market Developments

The level of formal employment has remained …but with some heterogeneity across sectors.
above pre-pandemic levels over the last year...
26 120 2.5
Employment Relative to Dec 2019
Employment Employment (in millions)
24 Relative to Dec 2019 (RHS) 110 2.0 Dec 2021 Dec 2022 Dec 2023
22
100 1.5
20
90 1.0
18
80
16 0.5
70
14 0.0
60

Agriculture

Hospitality

Recreation
Financial serv.
Manufacturing

Retail
Construction

Transport
Comunications

Public sector
Gas/water/elect

Adm. services
Real estate
12

10 50
Jan-21 Aug-21 Mar-22 Oct-22 May-23 Dec-23

Labor force participation rate has mostly recovered The unemployment rate has declined and it
but it is still somewhat below pre-pandemic levels. is slightly below pre-pandemic levels….
68 25 15
Labor Force Particpation Rate Labor Market Overview
66 (Percent. 3-month moving average)
(Percent, seasonally adjusted) 10
20
64
62 5
15
60
0
58
10
56 -5
54
5 Employment growth (RHS)
-10
52 Labor force participation rate growth (RHS)
Unemployment rate
50 0 -15
Aug-20

Aug-21

Aug-22

Aug-23
Dec-19

Dec-20

Dec-21

Dec-22

Dec-23
Apr-20

Apr-21

Apr-22

Apr-23

Aug-19

Aug-20

Aug-21

Aug-22

Aug-23
Dec-19

Dec-20

Dec-21

Dec-22

Dec-23
Apr-20

Apr-21

Apr-22

Apr-23
However, the gap betw
…but it is still higher for women. The informality rate continued to gradually decline.

35 60
Unemployment Rate Labor Informality 1/ Informality rate
30 (Percent, 3-month moving average) (Percent) Informality rate-female
55
Self employment
25 Informality rate-male
50
20
45
15
40
10

5 35
Total Men Women
0 30
Aug-19
Dec-19

Aug-20
Dec-20

Aug-21
Dec-21

Aug-22
Dec-22

Aug-23
Dec-23
Apr-20

Apr-21

Apr-22

Apr-23

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-23
Dec-17

Dec-18

Dec-19

Dec-20

Dec-21

Dec-22

Dec-23

Sources: DANE; Banco de la República; Haver Analytics; and IMF staff estimates.
1/ The reporting of informality data was suspended during the pandemic.

INTERNATIONAL MONETARY FUND 25


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Figure
Figure 5. 3. Colombia:
Colombia: Inflation
Inflation andand Monetary
Monetary Policy
Policy Developments

Inflation peaked in March 2023... ...but the inflation decline has shown a degree of
persistence, especially in core inflation....
16 14
Inflation 13 Inflation
14 (Percent, y/y change) 12 (Percent, y/y change)
BRA Inflation Expectations (next 12 months)
12 11
CHL Headline Inflation
10
MEX Core (excluding food and energy)
10 PER 9
COL 8
8
7
6 6
5
4 4
3
2
2
0 1
Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Dec-22 Feb-24 Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Dec-22 Feb-24

...mainly reflecting the behavior of the serv ices Inflation expectations have declined.
category.
14 16
Inflation Expectations "Yield Curve"
Contribution to Headline Inflation
12 14 (Percent) Dec-2022
(Percent, y/y change)
Goods 12 Dec-2023
10 Service
Regulated 10 Feb-2024
8 Food
Admissible margin 8
6 of deviation Inflation target
6
4
4

2 2

0 0
Jun-17 Oct-18 Feb-20 Jun-21 Oct-22 Feb-24 Through Dec Over the Next Through Dec Over the Next
Current Yr 12M Next Yr 24M

Banrep kept the policy rate unchanged since April 2023 The monetary policy stance became tighter in 2023
until the two consecutive cuts of December and January. and continues to be tight.
14 10
Monetary Policy Rate Monetary Policy Stance and Ex-Ante Policy
12 (Percent) 8 Rate
10 (Percent)
6 Gap between real ex ante
8 policy and real neutral rate
4 Ex-ante real policy rate
6

4 2
2
0
0
-2
-2

-4 -4
Aug-16 Feb-18 Aug-19 Feb-21 Aug-22 Feb-24 Feb-17 Apr-18 Jun-19 Aug-20 Oct-21 Dec-22 Feb-24

Sources: DANE; Banco de la República; Haver Analytics; and IMF staff estimates. X

26 INTERNATIONAL MONETARY FUND


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Figure 4. Colombia: Current Account Developments

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Figure 5. Colombia: Financial Account Developments


Figure 5. Colombia: Financial Account

The current account deficit is financed by robust Portolio flows registered a decline over the last year.
capital inflows, mainly direct investment.
20
Financial Account Portfolio and Other Investment Liability Flows
3
(Percent of GDP) (Billion U.S. dollars)
15 Equity securities
1
Peso-denominated govt. debt
Other govt. borrowing
-1 10
Private borrowing

-3
5
-5
0
-7 Direct investment Portfolio investment
Other investment Change in reserve assets
Financial account
-9 -5
2016 2017 2018 2019 2020 2021 2022 2023 2017Q3 2018Q4 2020Q1 2021Q2 2022Q3 2023Q4

Reserves coverage has remained stable... ...solidly within the ARA range.
25 140 200
Gross International Reserves Reserves as Percent of ARA Metric 1/
(Percent)
20
In months of imports 90 150
In percent of GDP (RHS) Adequacy range
15 In percent of ST liability and CA deficit (RHS)
In percent of broad money (RHS)
40 100
10

-10 50
5

0 -60 0
2016 2017 2018 2019 2020 2021 2022 2023 2016 2017 2018 2019 2020 2021 2022 2023

Net liabilities showed a slight increase, but direct Financial integration has risen in recent years mainly
investment's substantial contribution mitigates risks. on the back of foreign liabilities.
250
International Assets and Liabilities
International Investment Position
(Percent of GDP)
(Percent of GDP) Assets Liabilities
0 200

-20 150

-40 100

-60 Net portfolio and other investment 50


Net direct investment
Net IIP
-80 0
2019-Q2 2020-Q4 2022-Q2 2023-Q4 2019-Q4 2020-Q4 2021-Q4 2022-Q4 2023-Q4

Sources: Banco de la República; DANE; Haver Analytics; Bloomberg; and IMF staff estimates.
1/ Does not include commodity buffers. Uses metric for floating exchange rates.

28 INTERNATIONAL MONETARY FUND


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Figure 6. Colombia: Fiscal Developments

Tax revenues (as a share of GDP) reached a record ...while primary current expenditures expanded faster
high, owing in part to the 2021-22 tax reforms... than inflation at the Central Government level.
25 40
Central Government Revenues Central Government Primary Expenditures
(Percent of GDP) 30 (Annual Real Growth, in Percent)
20
Tax Revenue Non-Tax revenue 20

15 10

0
10
-10

-20
5 Capital expenditures
-30 Primary current expenditures
Total primary expenditures
0 -40
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

With the support from higher taxes and lower Excluding oil revenues, the fiscal impulse was close to
capex, fiscal consolidation continued in 2023. neutral for the CG but contractionary for the CPS. sad
2 7
CG and CPS Headline Balances Fiscal Impulse Based on Non-Oil Balances
(Percent of GDP) (Percent of GDP)
0 5
Central Government <--- Can we make this the tax c
-2 3 Consolidated Public Sector

-4 1

-6 -1

-8 Central Government -3
Consolidated Public Sector
-10 -5
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Together with the consolidation, inflation and peso ...while gross financing needs fell to pre-pandemic
appreciation have supported the decline of debt... levels as of last year.
70 15
CG Net Debt and CPS Gross Debt Gross Financing Needs
65 (Percent of GDP) (Percent of GDP)

60
10
55

50

45
5
40

35 Central Government
Consolidated Public Sector
30 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Sources: Ministerio de Hacienda y Crédito Público; CARF; DANE; and IMF staff estimates.

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Figure 7. Colombia: Financial Soundness Indicators


(End-of-period values)

Sovereign bond yields eased from last year. The credit slowdown impacts all sectors,
especially in the consumer loan segment...
16 20
Government Bond Yield Real Credit Growth 1/
(Percent per annum) 16 (Percent)
14
12
12 10-year USD-denominated bond (COL)
8
10-year Col$-denominated bond
10 4

8 0

-4
6
-8
Commercial
4
-12 Consumer

2 -16
Feb-14 Aug-15 Feb-17 Aug-18 Feb-20 Aug-21 Feb-23 Jan-14 Sep-15 May-17 Jan-19 Sep-20 May-22 Jan-24

...with a decline in mortgage credit and house prices. Household leverage decreased from historically high
levels of debt service burden...
30 45
Housing Price and Mortgage Credit Debt Service to Income Ratio of Households
25 (Percent, y/y change) 40
(Percent)
20 35

Real housing (existing) prices 30


15
Real mortgage credit
25
10
20 Credit establishment and solidarity sector
5
15 Financial Accounts
0
10
-5 5
-10 0
2014Q1
2014Q4
2015Q3
2016Q2
2017Q1
2017Q4
2018Q3
2019Q2
2020Q1
2020Q4
2021Q3
2022Q2
2023Q1
2023Q4

Jun-13

Feb-15

Jun-18

Feb-20

Jun-23
Oct-16

Oct-21
Dec-15
Apr-14

Aug-17

Dec-20
Apr-19

Aug-22
The banking sector experienced an increase in ...partly due to increased demand for longer term
funding costs... deposits.
6 140
Spread of 1 Year Time Deposits to Net Stable Funding Ratio 3/
Government Bond Yields 2/ 130 (Percent)
(Percent)
4 120

110

2 100
Group One 4/
90
Group Two 4/
0 80

70

-2 60
Oct-15 Jun-17 Feb-19 Oct-20 Jun-22 Feb-24 May-21 Nov-21 May-22 Nov-22 May-23 Nov-23

Sources: Banco de la República; BanRep Financial Stability Report; Bloomberg; DANE, Haver Analytics, Superintendencia
Financiera; Tullet Prebon Information; and IMF staff estimates. On 1 April, 2023 the NSFR
1/ Dashed lines indicate the 3 year moving average of the series of the same color.
2/ Spread between 1 year implied cash deposit mid rate (% p.a., Tullet Prebon Information) and zero coupon yield curve
(peso-denominated, 1 year average, % p.a., BanRep).
3/ On 1 April, 2023 the NSFR regulation on deposits between financial intermediaries was implemented, on 6 Sep, 2023
the implementation was suspended for 2 years. Vertical lines correspond to these dates.
4/ Dashed lines of the same color indicate the group limits.

30 INTERNATIONAL MONETARY FUND


COLOMBIA

Table 1. Colombia: Selected Economic and Financial Indicators, 2020-29

I. Social and Demographic Indicators

Population (million), 2023. Projection 51.0 Unemployment rate, Dec. 2023 (NSA, percent) 10.2
Urban population (percent of total), 2022 82.1 Physicians (per 1,000 people), 2021 2.4
GDP, 2023 Adult illliteracy rate (ages 15 and older), 2020 4.4
Per capita (US$) 7,168 Net secondary school enrollment rate, 2018 77.5
In billion of Col$ 1,572,658 Gini coefficient (national), 2022 55.6
In billion of US$ 365.8 Poverty rate (national), 2022 36.6
Life expectancy at birth (years), 2021 72.8
Mortality rate, (under 5, per 1,000 live births), 2021 12.8

II. Economic Indicators

Estimate1/ Projections
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

(In percentage change, unless otherwise indicated)


National Income and Prices
Real GDP -7.2 10.8 7.3 0.6 1.1 2.5 3.0 3.0 3.0 3.0
Potential GDP -1.1 4.8 4.6 2.4 2.3 2.0 2.2 3.0 3.0 3.0
Output Gap -6.4 -1.0 1.6 -0.2 -1.3 -0.8 0.0 0.0 0.0 0.0
GDP deflator 1.5 7.8 14.9 6.3 5.6 3.0 3.0 3.0 3.0 3.0
Consumer prices (average) 2.5 3.5 10.2 11.7 6.4 3.6 3.0 3.0 3.0 3.0
Consumer prices, end of period (eop) 1.6 5.7 13.2 9.3 5.3 3.0 3.0 3.0 3.0 3.0

External Sector
Exports (f.o.b.) -20.5 32.3 39.2 -11.7 -2.3 0.5 2.5 2.3 3.2 3.6
Imports (f.o.b.) -18.5 37.7 26.3 -17.1 -0.2 3.1 3.4 3.8 3.7 3.6
Current account (deficit -) -3.4 -5.6 -6.2 -2.7 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Terms of trade (deterioration -) -2.1 6.6 25.0 -5.2 -2.0 -1.2 -1.4 -0.5 -1.1 -0.5
Real exchange rate (depreciation -) 2/ -7.7 -3.2 -4.7 6.1
Central Government
Revenue -11.2 16.9 33.6 24.1 5.9 5.4 7.0 7.3 5.7 6.5
Expenditure 16.4 19.5 14.8 14.8 11.1 1.8 4.1 6.1 4.8 4.3

Money and Credit


Broad money 10.3 13.6 4.8 3.9 4.4 5.4 6.1 6.2 6.2 6.2
Credit to the private sector -0.8 12.5 5.9 4.0 4.5 5.8 6.4 6.5 6.5 6.5
(In percent of GDP)
Public Sector
Central government (CG) balance 3/ -7.8 -8.1 -5.3 -4.3 -5.3 -4.5 -3.9 -3.7 -3.5 -3.1
Central government structural balance 4/ -6.3 -7.6 -5.5 -4.8 -5.1 -4.4 -3.9 -3.8 -3.6 -3.1
Consolidated public sector (CPS) balance 5/ -6.9 -7.0 -6.1 -2.6 -3.2 -3.0 -2.7 -2.5 -2.3 -2.0
CPS non-oil structural primary balance -4.3 -4.9 -4.6 -0.9 -0.2 0.0 -0.2 0.0 -0.1 -0.2
CPS fiscal impulse (excluding Social Security) 6/ 2.3 1.0 -1.2 -2.2 -1.3 -0.3 0.2 -0.2 0.1 0.2
Public sector gross debt 7/ 65.7 64.0 60.1 52.5 54.4 55.6 55.7 55.4 55.2 54.5
External Financing Needs 8/ 18.0 17.6 19.3 15.6 15.5 16.2 16.7 16.8 16.7 15.6
External debt 66.6 61.6 60.3 59.7 57.5 56.6 57.1 57.3 57.5 57.1
Of which: public sector 6/ 42.7 39.9 37.4 36.0 34.9 34.8 35.0 34.9 34.7 34.7

Memorandum Items
Gross domestic investment (in percent of GDP) 19.1 18.9 19.7 12.8 12.9 14.5 14.7 14.6 14.6 14.4
Gross national savings (in percent of GDP) 15.7 13.3 13.6 10.1 9.9 11.2 11.4 11.1 11.0 10.8
Gross international reserves (USD billion) 9/ 58.5 58.0 56.7 59.1 60.4 61.2 61.8 62.4 63.2 64.1
Private consumption (in percent of GDP) 71.3 73.8 76.1 76.5 76.4 75.8 75.3 74.9 74.9 74.9
Public consumption (in percent of GDP) 17.2 17.1 16.1 16.1 15.8 15.7 15.5 15.4 15.4 15.4
Private investment (in percent of GDP) 14.4 14.1 14.8 13.3 13.7 14.7 15.4 15.8 15.8 15.9
Public investment (in percent of GDP) 3.5 4.8 4.9 4.5 3.6 3.3 3.3 3.4 3.5 3.5
Share of ST debt at remaining maturity + CA deficit 106 89 103 101 95 89 85.9 82.8 85.3 84.0
CG primary expenditures (in percent of GDP) 20.2 19.7 17.2 19.1 19.5 18.9 18.6 18.6 18.8 18.8
CPS primary expenditures (in percent of GDP) 30.6 31.1 29.7 30.8 29.2 28.5 28.2 28.2 28.3 28.4
Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and IMF staff estimates.
1/ Estimate for monetary sector variables and fiscal sector variables (consolidated public sector-CPS) .
2/ Multilateral real effective exchange rate. Annual variation (average).
3/ For 2021 excludes privatization receipts worth 1.1 percent of GDP that, under GFSM 1986 which is used by the authorities, produces a headline deficit of -7 percent of GDP.
4/ IMF staff estimate, excludes one-off recognition of arrears.
5/ Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and statistical discrepancy. For 2021 excludes privatization receipts, see 3/ above.
6/ To control for valuation effects, it excludes changes in Social Security balances.
7/ Includes Ecopetrol, Fogafin, and Finagro.
8/ Includes foreign holdings of TES; does not include Banco de la República's outstanding external debt.
9/ Excludes Colombia's contribution to FLAR; includes valuation changes of reserves denominated in currencies other than U.S. dollars.

INTERNATIONAL MONETARY FUND 31


COLOMBIA

Table 2. Colombia: Summary Balance of Payments, 2022-29


(In percent of GDP)

Projections
2022 2023 2024 2025 2026 2027 2028 2029
Current Account Balance -6.2 -2.7 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Goods balance -3.5 -1.9 -2.1 -2.4 -2.5 -2.6 -2.7 -2.6
Exports, f.o.b. 17.2 14.4 13.3 12.9 12.6 12.3 12.1 11.9
Commodities 11.3 8.6 7.6 7.1 6.8 6.4 6.1 5.8
Fuel 5.4 4.3 4.2 3.8 3.6 3.4 3.2 3.0
Non-fuel 5.9 4.3 3.4 3.3 3.2 3.0 2.9 2.8
Non-traditional exports 4.2 3.9 3.7 3.8 3.8 3.9 4.0 4.1
Other 1.7 2.0 2.0 2.0 2.0 2.0 2.0 2.0
Imports, f.o.b. 20.7 16.3 15.3 15.3 15.1 14.9 14.7 14.5
Consumer goods 4.1 3.3 3.1 3.1 3.1 3.0 3.0 2.9
Intermediate goods 10.1 7.9 7.4 7.4 7.2 7.1 7.0 6.9
Capital goods 6.0 4.7 4.4 4.4 4.4 4.3 4.3 4.3
Other 0.6 0.4 0.4 0.4 0.4 0.4 0.5 0.5
Services balance -1.3 -0.4 -0.4 -0.5 -0.7 -0.7 -0.8 -0.8
Exports of services 3.9 4.2 4.0 3.9 3.8 3.8 3.7 3.6
Imports of services 5.2 4.6 4.4 4.5 4.5 4.5 4.5 4.4
Primary income balance -4.9 -4.0 -3.9 -3.8 -3.6 -3.4 -3.4 -3.4
Receipts 2.0 2.4 2.1 1.9 1.8 1.7 1.7 1.7
Expenditures 7.0 6.4 6.0 5.7 5.3 5.2 5.2 5.2
Secondary income balance 3.6 3.6 3.3 3.4 3.3 3.3 3.2 3.2

Financial Account Balance -5.9 -2.4 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Direct Investment -4.0 -4.5 -3.3 -3.2 -3.2 -3.0 -2.9 -2.9
Assets 1.0 0.3 0.5 0.6 0.7 0.8 1.0 1.1
Liabilities 5.0 4.8 3.7 3.8 3.9 3.9 3.9 3.9
Oil sector 0.8 0.7 0.7 0.6 0.6 0.6 0.6 0.5
Non-oil sectors 4.1 4.1 3.1 3.2 3.2 3.3 3.4 3.4
Portfolio Investment 0.1 2.4 1.8 1.8 0.2 -0.1 -0.3 -0.4
Assets 1.0 2.7 1.5 1.4 1.4 1.5 1.3 1.3
Liabilities 0.8 0.3 -0.3 -0.4 1.2 1.6 1.6 1.6
Equity -0.2 0.0 0.0 0.0 0.0 0.2 0.2 0.2
Debt instruments 1.0 0.3 -0.3 -0.4 1.2 1.4 1.5 1.5
General government 1.5 0.1 0.5 0.1 0.7 0.6 0.6 0.7
Banks -0.4 -0.3 -0.4 -0.2 0.2 0.3 0.4 0.4
Corporates and households -0.1 0.5 -0.4 -0.2 0.2 0.5 0.4 0.4
Derivatives 0.2 -0.7 0.0 0.0 0.0 0.0 0.0 0.0
Other Investments -2.5 -0.1 -1.9 -2.1 -0.6 -0.5 -0.6 -0.6
Assets 1/ 1.2 1.1 -1.1 -1.3 0.2 0.2 0.2 0.3
Liabilities 3.6 1.2 0.8 0.8 0.8 0.8 0.8 0.9
Net use of IMF Credit 0.0 0.0 -0.7 -0.6 0.0 0.0 0.0 0.0
Change in Reserve Assets 0.2 0.5 0.4 0.2 0.1 0.1 0.2 0.2

Net Errors and Omissions 0.3 0.2 0.0 0.0 0.0 0.0 0.0 0.0

Sources: Banco de la República and IMF staff estimates and projections.


1/ Includes liquidation of government assets held abroad of US$ 3 billion in 2020. Of the FCL purchase, US$ 3.9 billion was held abroad as government
international liquidity as at end-2020 for use in 2021.

32 INTERNATIONAL MONETARY FUND


COLOMBIA

Table 3. Colombia: Operations of the Central Government, 2022-29 1/


(In percent of GDP, unless otherwise indicated)

Projections
2022 2023 2024 2025 2026 2027 2028 2029
Total Revenue 16.2 18.8 18.7 18.6 18.8 19.0 18.9 19.0

Current Revenue 2/ 14.5 16.9 16.8 16.9 17.2 17.4 17.4 17.4
Tax Revenue 14.4 16.7 16.7 16.8 17.1 17.2 17.3 17.3
Net income tax and profits 6.5 8.3 8.1 8.2 8.3 8.5 8.5 8.6
Goods and services 6.2 5.5 5.9 5.9 6.1 6.0 6.1 6.0
Value-added tax 6.2 5.5 5.9 5.9 6.1 6.0 6.1 6.0
International trade 0.4 0.3 0.4 0.4 0.4 0.4 0.4 0.4
Financial transaction tax 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Stamp and other taxes 0.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5
Nontax Revenue 1.8 2.1 2.0 1.9 1.7 1.8 1.7 1.7
Property income 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Other 1.6 2.0 1.9 1.8 1.6 1.7 1.6 1.6

Total Expenditure and Net Lending 21.5 23.1 24.0 23.1 22.7 22.7 22.4 22.1

Current Expenditure 17.8 19.4 20.5 20.2 19.8 19.8 19.4 18.9
Wages and salaries 1.9 2.0 2.1 2.1 2.1 2.1 2.1 2.1
Goods and services 0.7 0.7 1.0 1.1 1.1 1.1 1.1 1.1
Interest 4.3 3.9 4.5 4.2 4.1 4.1 3.7 3.2
External 0.8 0.9 1.1 1.2 1.4 1.3 1.0 0.8
Domestic 3.5 3.0 3.4 3.0 2.7 2.8 2.6 2.4
Current transfers 10.9 12.8 13.0 12.8 12.6 12.6 12.6 12.6

Capital Expenditure 3.7 3.6 3.4 2.9 2.9 2.9 3.1 3.2
Fixed capital formation 2.7 2.6 2.4 2.0 2.0 2.0 2.2 2.3
Capital transfers 1.0 1.0 1.0 0.9 0.9 0.9 0.9 0.9

Net Lending 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Overall Balance 3/ -5.3 -4.3 -5.3 -4.5 -3.9 -3.7 -3.5 -3.1

Memorandum Items:
Oil-related revenues 3/ 1.5 2.5 1.1 0.8 0.8 0.8 0.8 0.8
Structural balance 4/ -5.5 -4.8 -5.1 -4.4 -3.9 -3.8 -3.6 -3.1
Primary balance -1.0 -0.3 -0.9 -0.3 0.2 0.4 0.2 0.2
Structural primary non-oil balance -2.7 -2.8 -1.7 -0.9 -0.6 -0.4 -0.6 -0.7
Non-oil balance -6.8 -6.8 -6.4 -5.3 -4.7 -4.5 -4.3 -3.9
Real growth of primary expenditures -2.6 6.9 4.2 -3.3 0.7 3.0 3.7 3.4
Nominal GDP (in Col$ trillion) 1,470 1,573 1,679 1,773 1,881 1,996 2,117 2,246

Sources: Ministry of Finance; Banco de la República; and IMF staff estimates and projections.
1/ Includes central administration only.
2/ Includes tax revenues, telecom and port concessions and other revenues.
3/ Includes income tax payments and dividends from Ecopetrol corresponding to earnings from the previous year.
4/ In percent of potential GDP. Adjusts non-commodity revenues for the output gap and commodity revenues for differentials between estimated
equilibrium oil price and production levels. Adjustments are made to account for fuel subsidy expenditures and the accrual of Ecopetrol dividends.

INTERNATIONAL MONETARY FUND 33


COLOMBIA

Table 4. Colombia: Operations of the Combined Public Sector, 2022-29 1/


(In percent of GDP, unless otherwise indicated)

Estimate Projections
2022 2023 2024 2025 2026 2027 2028 2029

Total Revenue 27.8 32.3 30.6 29.8 29.4 29.6 29.6 29.6
Tax revenue 22.1 25.2 25.4 25.5 25.9 25.9 26.0 26.0
Nontax revenue 5.7 7.1 5.2 4.3 3.6 3.7 3.7 3.6
Financial income 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5
Operating surplus of public enterprises 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Other 2/ 2.9 4.3 2.5 1.5 0.8 0.9 0.9 0.8

Total Expenditure and Net Lending 3/ 33.9 35.0 33.9 32.9 32.3 32.3 32.0 31.7

Current expenditure 29.0 30.5 30.2 29.5 28.9 28.9 28.6 28.1
Wages and salaries 5.2 4.9 5.1 5.1 5.1 5.1 5.1 5.1
Goods and services 3.5 3.3 3.6 3.5 3.5 3.5 3.5 3.5
Interest 4.3 4.3 4.7 4.4 4.1 4.0 3.7 3.3
External 0.6 0.9 1.2 1.3 1.3 1.1 1.0 0.9
Domestic 3.6 3.4 3.5 3.1 2.8 2.9 2.6 2.4
Transfers to private sector 12.3 14.2 13.2 13.3 13.0 13.1 13.2 13.2
Other 4/ 3.8 3.8 3.6 3.2 3.1 3.1 3.0 3.0
Capital expenditure 4.9 4.6 3.7 3.4 3.4 3.4 3.4 3.6

Statistical discrepancy 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Nonfinancial Public Sector Balance -6.2 -2.7 -3.3 -3.1 -2.8 -2.6 -2.4 -2.1
Fogafin balance 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Net cost of financial restructuring 5/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Combined Public Sector Balance -6.1 -2.6 -3.2 -3.0 -2.7 -2.5 -2.3 -2.0
Overall Financing 6.1 2.6 3.2 3.0 2.7 2.5 2.3 2.0
Foreign, net 0.5 1.6 2.2 2.0 1.6 1.7 1.7 1.6
o/w IFIs 0.9 0.4 -0.2 -0.3 0.0 0.0 0.0 0.0
o/w FCL 0.0 0.0 -0.7 -0.7 0.0 0.0 0.0 0.0
Domestic, net 5.5 1.1 1.0 1.0 1.1 0.8 0.6 0.3

Memorandum Items:
Oil-related revenues 6/ 2.8 3.2 1.7 1.4 1.3 1.3 1.3 1.3
Overall structural balance 7/ -6.9 -3.1 -3.0 -2.8 -2.8 -2.6 -2.4 -2.1
Primary balance 8/ -1.8 1.6 1.5 1.4 1.4 1.5 1.4 1.3
Structural primary non-oil balance -4.6 -0.9 -0.2 0.0 -0.2 0.0 -0.1 -0.2
Fiscal Impulse (excluding Social Security) 9/ -1.2 -2.2 -1.3 -0.3 0.2 -0.2 0.1 0.2
Public sector gross debt 10/ 60.1 52.5 54.4 55.6 55.7 55.4 55.2 54.5
Nominal GDP (In Col$ trillion) 1,470 1,573 1,679 1,773 1,881 1,996 2,117 2,246

Sources: Ministry of Finance; Banco de la República; and IMF staff estimates and projections.
1/ The combined public sector includes the central, regional and local governments, social security, and public sector enterprises.
2/ Includes royalties, dividends and social security contributions.
3/ Expenditure reported on commitments basis.
4/ Includes adjustments to compute spending on commitment basis and the change in unpaid bills of nonfinancial public enterprises.
5/ Interest payments on public banks restructuring bonds and mortgage debt relief related costs.
6/ Includes income tax payments and dividends from Ecopetrol that correspond to earnings from the previous year, and royalties to local governments.
7/ In percent of potential GDP. Adjusts non-commodity revenues for the output gap and commodity revenues for differentials between estimated equilibrium oil price and production
levels. Adjustments are made to account for fuel subsidy expenditures and the accrual of Ecopetrol dividends.
8/ Includes statistical discrepancy. Overall balance plus interest expenditures.
9/ To control for valuation effects, it excludes changes in Social Security balances.
10/ Includes Ecopetrol, Fogafin, and Finagro.

34 INTERNATIONAL MONETARY FUND


COLOMBIA

Table 5. Colombia: Monetary Indicators, 2022-29

Estimate2/ Projections
2022 2023 2024 2025 2026 2027 2028 2029

(In billions of Col$, unless otherwise indicated)


Central Bank
Net Foreign Assets 258,455 214,154 253,489 260,816 268,017 273,421 279,480 286,303
Gross official reserve assets 272,757 225,657 264,995 272,325 279,529 284,937 290,999 297,824
In billions of US$ 57 59 60 61 62 62 63 64
Short-term foreign liabilities 0 0 0 0 0 0 0 0
Other net foreign assets -14,302 -11,503 -11,506 -11,509 -11,512 -11,516 -11,519 -11,522
Net domestic assets -103,724 -59,388 -88,215 -84,759 -80,306 -73,280 -66,080 -58,760
Net credit to the public sector 28,885 37,118 55,135 52,975 50,192 45,800 41,301 36,725
Net credit to the financial system 3,454 389 579 556 527 481 433 385
Other -136,063 -96,895 -143,929 -138,290 -131,024 -119,561 -107,814 -95,870
Monetary base 154,731 154,766 165,274 176,057 187,711 200,141 213,400 227,543
Currency in circulation 135,179 134,263 141,531 147,480 154,581 163,596 173,135 183,230
Deposit money banks reserves 19,207 19,947 45,359 48,148 50,965 54,068 57,361 60,854
Other deposits 345 555 555 555 555 555 555 555

Financial System
Net foreign assets 239,565 214,819 245,051 251,907 258,566 263,394 268,843 275,017
In billions of US$ 50 56 56 57 57 58 58 59
Net domestic assets 515,920 558,989 536,218 570,819 613,961 662,944 714,626 769,105
Net credit to public sector 102,339 97,014 103,548 116,086 130,347 142,868 158,738 171,979
Credit to private sector 646,045 671,846 702,040 742,628 790,453 842,148 897,225 955,903
Other net -232,227 -209,581 -269,370 -287,895 -306,839 -322,073 -341,337 -358,778
Broad money 719,789 748,051 781,269 822,726 872,526 926,338 983,469 1,044,122

(Annual percentage change)


Credit to private sector 5.9 4.0 4.5 5.8 6.4 6.5 6.5 6.5
Currency 7.8 -0.7 5.4 4.2 4.8 5.8 5.8 5.8
Monetary base 6.4 0.0 6.8 6.5 6.6 6.6 6.6 6.6
Broad money 1/ 4.8 3.9 4.4 5.4 6.1 6.2 6.2 6.2
(In percent of GDP)
Credit to private sector 44.0 42.7 41.8 41.9 42.0 42.2 42.4 42.6
Currency 9.2 8.5 8.4 8.3 8.2 8.2 8.2 8.2
Monetary base 10.5 9.8 9.8 9.9 10.0 10.0 10.1 10.1
Broad money 49.0 47.6 46.5 46.4 46.4 46.4 46.5 46.5
Memorandum Items:
CPI inflation, eop 13.2 9.3 5.3 3.0 3.0 3.0 3.0 3.0
Nominal GDP (In Col$ trillions) 1,469,791 1,572,658 1,679,432 1,773,168 1,881,153 1,995,716 2,117,255 2,246,196
Sources: Banco de la Republica; and IMF staff estimates and projections.
1/ Broad money includes nonliquid liabilities to the domestic nonfinancial private sector.
2/ Estimate for the financial system.

INTERNATIONAL MONETARY FUND 35


COLOMBIA

Table 6. Colombia: Medium-Term Outlook, 2019-29

Estimate1/ Projections
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
(In percent of GDP, unless otherwise indicated)

Real GDP (in percent change) 3.2 -7.2 10.8 7.3 0.6 1.1 2.5 3.0 3.0 3.0 3.0
Consumer prices (in percent change; eop) 3.8 1.6 5.7 13.2 9.3 5.3 3.0 3.0 3.0 3.0 3.0
Gross national savings 16.8 15.7 13.3 13.6 10.1 9.9 11.2 11.4 11.1 11.0 10.8
Private sector 15.8 19.0 15.4 14.9 8.3 9.5 10.8 10.8 10.3 9.9 9.5
Public sector 1.0 -3.3 -2.1 -1.3 1.8 0.4 0.3 0.5 0.8 1.1 1.3
Gross domestic investment 21.4 19.1 18.9 19.7 12.8 12.9 14.5 14.7 14.6 14.6 14.4
(In percent of GDP, unless otherwise indicated)
Nonfinancial Public Sector 2/
Revenue 29.4 26.6 27.2 27.8 32.3 30.6 29.8 29.4 29.6 29.6 29.6
Expenditure 31.8 33.5 34.3 33.9 35.0 33.9 32.9 32.3 32.3 32.0 31.7
Current expenditure 27.6 29.8 29.2 29.0 30.5 30.2 29.5 28.9 28.9 28.6 28.1
Capital expenditure 4.2 3.8 5.1 4.9 4.6 3.7 3.4 3.4 3.4 3.4 3.6
Primary balance 3/ 0.4 -5.0 -4.8 -1.0 -0.3 -0.9 -0.3 0.2 0.4 0.2 0.2
Overall balance 3/ -3.5 -7.0 -7.1 -6.2 -2.7 -3.3 -3.1 -2.8 -2.6 -2.4 -2.1

Combined public sector balance -2.9 -6.9 -7.0 -6.1 -2.6 -3.2 -3.0 -2.7 -2.5 -2.3 -2.0
External financing 0.9 7.9 2.9 0.5 1.6 2.2 2.0 1.6 1.7 1.7 1.6
Domestic financing 2.0 -1.0 4.1 5.5 1.1 1.0 1.0 1.1 0.8 0.6 0.3

External current account balance -4.6 -3.4 -5.6 -6.2 -2.7 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Trade balance -3.1 -3.3 -4.4 -3.5 -1.9 -2.1 -2.4 -2.5 -2.6 -2.7 -2.6
Exports 12.6 12.0 13.4 17.2 14.4 13.3 12.9 12.6 12.3 12.1 11.9
Imports 15.6 15.2 17.8 20.7 16.3 15.3 15.3 15.1 14.9 14.7 14.5
Financial account balance -4.1 -3.0 -5.2 -5.9 -2.4 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6
Direct Investment -3.4 -2.1 -2.0 -4.0 -4.5 -3.3 -3.2 -3.2 -3.0 -2.9 -2.9
Portfolio Investment 0.0 -0.7 -1.4 0.1 2.4 1.8 1.8 0.2 -0.1 -0.3 -0.4
Other Investments and Derivatives -1.8 -1.8 -2.0 -2.2 -0.8 -1.9 -2.1 -0.6 -0.5 -0.6 -0.6
Change in Reserve Assets 1.0 1.6 0.2 0.2 0.5 0.4 0.2 0.1 0.1 0.2 0.2

Public sector gross debt 4/ 52.4 65.7 64.0 60.1 52.5 54.4 55.6 55.7 55.4 55.2 54.5
Public sector gross debt, excluding Ecopetrol 49.4 61.5 58.8 55.0 48.5 51.2 53.0 53.5 53.3 53.2 52.5

Memorandum Items:
Nominal GDP (in Col$ trillion) 1,060,068 998,471 1,192,634 1,469,791 1,572,658 1,679,432 1,773,168 1,881,153 1,995,716 2,117,255 2,246,196
Sources: Colombian authorities and IMF staff estimates and projections.
1/ Estimate for fiscal variables.
2/ Excludes Ecopetrol.
3/ Includes statistical discrepancy.
4/ Includes Ecopetrol, Fogafin, and Finagro.

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Table 7. Colombia: Financial Soundness Indicators, 2019-23


(In percent, unless otherwise indicated; end-of-period values)

2019 2020 2021 2022 2023M11


Capital Adequacy 1/
Regulatory capital to risk-weighted assets 16.9 19.2 22.2 18.9 17.9
Regulatory Tier 1 capital to risk-weighted assets 11.8 14.4 18.2 15.3 15.1
Capital (net worth) to assets 9.0 9.8 12.2 10.7 10.6

Asset Quality and Distribution


Provisions to nonperforming loans 122.6 125.2 129.7 136.4 115.0
Gross loans to assets 71.2 65.4 69.4 71.4 67.4

Earnings and Profitability


ROAA 2.2 0.9 2.3 2.2 1.2
ROAE 13.2 5.9 14.3 13.7 6.8
Interest margin to gross income 57.5 56.0 58.1 58.6 50.0
Noninterest expenses to gross income 49.6 52.6 48.3 48.7 51.2

Liquidity
Liquid assets to total assets 17.0 19.5 20.1 17.0 17.9
Liquid assets to short-term liabilities 36.6 37.9 37.3 33.9 35.7
Deposit to loan ratio 89.4 98.4 98.2 95.0 100.0

Other
Foreign-currency-denominated loans to total loans 5.2 4.6 5.1 5.0 4.0
Foreign-currency-denominated liabilities to total liabilities 11.8 11.4 11.5 10.8 9.5
Net open position in foreign exchange to capital 2/ 0.9 1.1 0.7 1.1 0.9
Source: Superintendencia Financiera; IMF's Financial Soundness Indicators (FSI).
1/ The large changes in capital adequacy between 2020 and 2021 are mostly due to the adoption of Basel III capital definitions
and risk weights. In early 2022, the spin-off of 75 percent of BAC from Banco de Bogota reduced requirement of credit
institutions by 14.5 tn COP (as of November 2022).
2/ Since January 2016, goodwill and retained earnings started to be recorded in foreign currency. Before January of 2016,
they were recorded in Colombian pesos and weren’t included in the foreign exchange position.

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Table 8. Colombia: Indicators of External Vulnerability, 2022-29 1/


(In billions of US$, unless otherwise indicated)

Projections
2022 2023 2024 2025 2026 2027 2028 2029

Exports of GNFS 73.1 67.8 66.7 67.3 68.9 70.6 72.7 75.1
Imports of GNFS 89.6 76.0 76.2 79.0 82.0 85.3 88.6 91.7
Terms of trade (y/y percent change) 25.0 -5.2 -2.0 -1.2 -1.4 -0.5 -1.1 -0.5

Current account balance -21.4 -9.7 -11.7 -13.3 -14.1 -15.5 -16.7 -17.6
In percent of GDP -6.2 -2.7 -3.0 -3.3 -3.4 -3.5 -3.6 -3.6

Financial account balance -20.5 -8.9 -11.7 -13.3 -14.1 -15.5 -16.7 -17.6
Of which: Foreign direct investment (net) -13.8 -16.2 -12.7 -13.0 -13.2 -13.4 -13.6 -13.9
Of which: Portfolio investment (net) 0.4 8.7 6.8 7.1 1.0 -0.4 -1.3 -1.8

Total external debt (in percent of GDP) 2/ 60.3 59.7 57.5 56.6 57.1 57.3 57.5 57.1
Of which: Public sector (in percent of GDP) 2/ 37.4 36.0 34.9 34.8 35.0 34.9 34.7 34.7
In percent of gross international reserves 367.3 367.2 367.3 370.6 385.8 402.9 420.4 433.0
Short-term external debt (in percent of GDP) 3/ 8.6 8.3 8.1 8.1 8.1 7.9 7.8 7.7
Of which: Public sector (in percent of GDP) 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2
Of which: Private sector (in percent of GDP) 8.3 8.0 7.9 7.8 7.8 7.7 7.5 7.4

Amortization of MLT external debt 26.4 23.1 24.7 27.6 31.7 32.3 32.8 32.7
(in percent of GNFS exports)
External interest payments 16.0 17.8 19.0 18.0 16.8 16.9 17.2 17.4
(in percent of GNFS exports)

Gross international reserves 4/ 56.7 59.1 60.4 61.2 61.8 62.4 63.2 64.1
In months of prospective GNFS imports 9.0 9.3 9.2 9.0 8.7 8.5 8.3 8.1
In percent of broad money 5/ 37.9 30.2 33.9 33.1 32.1 30.8 29.6 30.0
In percent of short-term debt on residual maturity 102.7 101.1 95.5 89.4 85.9 82.8 85.3 84.0
basis plus current account deficit
In percent of ARA (including commodity buffer) 112 106 111 112 108 105 102 101
In percent of ARA (excluding commodity buffer) 126 119 124 124 119 115 111 109

Real effective exchange rate -4.7 6.1 … … … … … …


(percentage change, + = appreciation)
Sources: Banco de la República; and IMF staff estimates and projections.
1/ GNFS stands for goods and nonfactor services; MLT stands for medium and long-term.
2/ Includes foreign holdings of locally issued public debt (TES).
3/ Original maturity of less than 1 year. Stock at the end of the previous period.
4/ IMF definition that excludes Colombia's contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated
in other currencies than U.S. dollars.
5/ Estimated for 2023.

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Table 9. Colombia: External Debt Sustainability Framework, 2020-29


(In percent of GDP, unless otherwise indicated)

Actual Projections
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Debt-Stabilizing
Non-Interest
Current Account 6/
Baseline: External Debt 66.6 61.6 60.3 59.7 57.5 56.6 57.1 57.3 57.5 57.1 -2.3

Change in external debt 16.4 -5.0 -1.2 -0.7 -2.2 -0.8 0.4 0.2 0.2 -0.4
Identified external debt-creating flows (4+8+9) 11.6 -5.5 -2.6 -4.1 0.0 -0.4 -0.5 -0.4 -0.2 -0.1
Current account deficit, excluding interest payments 0.1 2.7 2.8 -0.6 -0.3 0.3 0.6 0.8 0.9 0.9
Deficit in balance of goods and services 4.8 6.3 4.8 2.3 2.5 2.9 3.1 3.3 3.4 3.4
Exports 14.1 16.0 21.2 18.6 17.3 16.8 16.5 16.1 15.7 15.5
Imports 19.0 22.3 26.0 20.9 19.7 19.7 19.6 19.4 19.2 18.9
Net non-debt creating capital inflows (negative) -0.6 -0.9 -3.1 -3.6 -2.4 -2.3 -2.2 -2.3 -2.2 -2.1
Automatic debt dynamics 1/ 12.1 -7.2 -2.3 0.1 2.6 1.7 1.1 1.1 1.1 1.0
Contribution from nominal interest rate 3.3 2.9 3.4 3.3 3.3 3.0 2.8 2.7 2.7 2.7
Contribution from real GDP growth 4.3 -6.1 -4.1 -0.4 -0.6 -1.4 -1.6 -1.6 -1.6 -1.6
Contribution from price and exchange rate changes 2/ 4.5 -4.1 -1.6 -2.8 ... ... ... ... ... ...
Residual, incl. change in gross foreign assets (2-3) 3/ 4.9 0.5 1.4 3.4 -2.2 -0.5 0.9 0.6 0.4 -0.2

External debt-to-exports ratio (in percent) 470.7 385.1 285.2 320.1 332.9 337.0 346.0 356.4 365.6 369.5

Gross External Financing Need (in billions of US dollars) 4/ 46.8 55.2 65.3 55.2 58.4 63.3 68.5 72.0 75.4 78.1
in percent of GDP 17.3 17.3 18.9 15.2 15.1 15.8 16.4 16.4 16.3 16.1

Scenario with Key Variables at their Historical Averages 5/ 10-Year 10-Year 57.5 60.7 65.7 71.1 76.8 81.9 2.5
Historical Standard
Key Macroeconomic Assumptions Underlying Baseline Average Deviation

Real GDP growth (in percent) -7.2 10.8 7.3 0.6 2.8 4.6 1.1 2.5 3.0 3.0 3.0 3.0
GDP deflator in US dollars (change in percent) -9.8 6.3 1.0 4.7 -2.6 10.1 5.0 1.2 1.3 2.1 2.1 2.0
Nominal external interest rate (in percent) 5.5 5.2 6.0 5.8 5.9 0.4 5.8 5.5 5.1 5.0 5.0 4.9
Growth of exports (US dollar terms, in percent) -25.5 33.2 43.5 -7.3 2.2 23.3 -1.6 1.0 2.4 2.5 2.9 3.3
Growth of imports (US dollar terms, in percent) -21.6 38.2 26.4 -15.2 2.2 19.6 0.3 3.6 3.9 4.0 3.9 3.5
Current account balance, excluding interest payments -0.1 -2.7 -2.8 0.6 -1.8 1.6 0.3 -0.3 -0.6 -0.8 -0.9 -0.9
Net non-debt creating capital inflows 0.6 0.9 3.1 3.6 2.1 1.0 2.4 2.3 2.2 2.3 2.2 2.1

Source: IMF staff estimates.


1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms,
g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0)
and rising inflation (based on GDP deflator).
3/ For projection, line includes the impact of price and exchange rate changes.
4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period. Excludes estimated amortization of TES.
5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
6/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of
the last projection year.

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Table 10. Colombia: External Debt Sustainability: Bound Tests1/ 2/


700 (External debt in percent of GDP)
000
000
Baseline and Historical Scenario Interest Rate Shock
(In percent of GDP) (In percent)
100 20 100
Gross financing need under baseline
90 (right scale) 90 Baseline: 5.1
Scenario: 5.3
80 82 15 80
Historical Historical: 5.9
70 70 i-rate
Baseline
shock 58
60 10 60
57 57
50 50 Baseline

40 5 40

30 30

20 0 20
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029

Growth Shock Non-Interest Current Account Shock


(In percent per year) (In percent of GDP)
100 100

90 90 Baseline: -0.7
Scenario: -1.6
80 80
Historical: -1.8
70 Growth 64 70
shock 61
60 60 CA shock
57 57
50 Baseline 50 Baseline
Baseline: 2.9
40 40
Scenario: 0.6
30 Historical: 2.8 30

20 20
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029

Combined Shock 3/ Real Depreciation Shock 4/


100 100

90 90
81
80 80
Combined 70 30 %
70
shock 63 depreciation

60 60
57 57
50 Baseline 50 Baseline

40 40

30 30

20 20
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029

Sources: Country authorities and IMF staff estimates.


1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in
the boxes represent average projections for the respective variables in the baseline and scenario being presented.
Ten-year historical average for the variable is also shown.
2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used
to project debt dynamics five years ahead.
3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
4/ One-time real depreciation of 30 percent occurs in 2024.

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Table 11. Colombia: Capacity to Repay Indicators Under Adverse Scenario, 2021-2029 1/

2021 2022 2023 2024 2025 2026 2027 2028 2029

Exposure and Repayments (In SDR millions)

GRA credit to Colombia 3,750.0 3,750.0 3,750.0 9,030.7 7,155.7 7,155.7 4,472.3 894.5 --
(In percent of quota) 183.4 183.4 183.4 441.7 350.0 350.0 218.7 43.7 --
Charges due on GRA credit 2/ -- -- 455.1 594.6 531.8 440.8 399.6 161.1 16.0
Debt service due on GRA credit 2/ -- -- 455.1 2,469.6 2,406.8 440.8 3,083.0 3,739.0 910.4

Debt and Debt Service Ratios 3/

In percent of GDP
Total external debt 62.2 63.0 61.9 78.7 59.3 59.2 59.4 59.5 59.6
Public external debt 40.6 40.0 37.8 50.0 38.1 37.8 37.6 37.2 37.7
GRA credit to Colombia 1.7 1.5 1.4 4.1 2.4 2.3 1.4 0.3 --

Total external debt service 4/ 13.5 13.6 15.0 18.1 14.9 16.1 15.9 14.6 14.3
Public external debt service 4/ 3.2 1.8 3.0 3.3 1.8 3.3 2.9 1.9 1.9
Debt service due on GRA credit -- -- 0.2 1.1 0.8 0.1 1.0 1.1 0.3

In percent of Gross International Reserves


Total external debt 239.8 285.4 289.0 346.6 347.5 360.5 375.4 389.5 402.9
Public external debt 156.5 181.1 176.5 220.5 223.0 230.6 237.8 244.0 255.2
GRA credit to Colombia 9.2 8.8 8.5 24.3 19.1 19.0 11.7 2.3 --

In percent of Exports of Goods and Services


Total external debt service 4/ 84.8 63.8 81.2 86.9 86.4 96.4 97.6 92.6 93.4
Public external debt service 4/ 20.3 8.5 16.3 16.0 10.6 19.7 17.7 11.9 12.6
Debt service due on GRA credit -- -- 0.9 5.5 4.8 0.9 5.9 7.0 1.7

In percent of Total External Debt


GRA credit to Colombia 2.7 2.3 2.2 5.3 4.1 3.9 2.3 0.4 --

In percent of Public External Debt


GRA credit to Colombia 4.1 3.7 3.6 8.3 6.4 6.1 3.7 0.7 --

Memo Items:
U. S. dollars per SDR (period average) 1.42 1.34 1.33 -- -- -- -- -- --
Oil Price (WEO APSP, US$ per barrel) 69.2 96.4 80.9 79.1 75.3 72.1 69.7 67.8 66.5

Sources: Colombian authorities, Finance Department, World Economic Outlook, and IMF staff estimates.
1/ Assumes full drawing on the current FCL (350 percent of quota) in 2024. The adverse scenario is taken from the 2022 FCL approval: a shock to oil exports
(about 25 percent), reduced disbursements (20 and 30 percent for public and private sectors, respectively), and use of reserves.
2/ Based on interest rate of 5.099 percent (as of January 11, 2024).
3/ Staff projections for external debt, GDP, gross international reserves, and exports of goods and services reflect the adverse, and not the baseline, scenario
under which the full FCL drawing is assumed.
4/ Excluding local-currency government securities TES (which have foreign participation).

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Annex I. Summary of Social Reforms


Healthcare Reform

1. A healthcare reform proposal was submitted to Congress in February 2023 with the aim of
increasing access and coverage of services in rural areas, improving the quality of primary care, and
replacing private insurers with a public system. The draft law is awaiting discussion in the Senate.

2. The current system is a contributory health insurance model where a public institution
collates contributions from formal workers and the government and pays mostly private insurers on
a capitation basis, who in turn purchase services from health care providers. The system has nearly
universal coverage with low out-of-pocket payments and is generally favored by the public, but
access in rural areas remains limited.

3. The draft proposal seeks to create a network of primary care centers throughout the
country to whom payments would go directly from the public fund. The role of private insurers
would be reduced to payment administration. Some analysts have warned that making the
government responsible for paying for the services is likely to politicize healthcare and lead to
governance issues. The reform has been controversial in Congress; the role of private insurers being
a divisive aspect. The authorities estimate that the fiscal cost of the reform could reach close to
0.2 percent of GDP in 2024 and average about 0.8 percent of GDP per year between 2025 and 2033.1

Pension Reform

4. The pension reform, submitted to Congress in March 2023, aims to expand the coverage to
almost the whole retirement-age population, tackling legacy issues related to high informality rates
and long contribution spans. It envisages expanding solidarity pillar for low-income people (transfer
from the budget). It also guarantees a minimum pension to those who do not fully meet the
contribution requirement. The proposal also seeks to improve the system’s progressivity, reduce
subsidies to the defined-benefit scheme (Regimen de Prima Media) managed by the public sector,
and eliminate competition between private and public pensions. The draft law is awaiting a second
round of debates in Congress.

5. The current system is a dual one in which workers must contribute to either the public
defined-benefit scheme or to the private retirement scheme and can switch between the systems
under certain conditions. The system benefits workers with stable formal sector jobs. Fewer than
40 percent of the workforce contributes and about 20 percent of the elderly receive contributory
pensions.

6. The proposal is to move to a single unified system, with complementary public and private
accounts. About 80 percent of future pension contributions would go to the public scheme and be
saved in a new “National Saving Fund” (Fondo de Ahorro del Pillar Contributivo—FPAC). Only

1 See Escenario de Factibilidad de la Reforma de Salud (November,2023).

42 INTERNATIONAL MONETARY FUND


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contributions above a certain income level would go to the private system. The proposal also
includes increasing the currently very small non-contributory social pensions to eliminate extreme
poverty.

7. Regarding fiscal costs of the reform, the authorities estimate that, in comparison with the
scenario without a pension reform, the net present value (NPV) of the impact of the reform is
approximately 74 percent of GDP until 2069 and 126 percent of GDP by 2100.2 The FPAC savings
would reduce these costs to approximately 0.3 percent of GDP per year until 2069 (equivalent to the
fiscal costs of the solidarity pillar) and 2 percent of GDP afterwards (encompassing the costs of all
pillars after the savings of FPAC are exhausted). While many agree that a reform is needed, experts
recommend lowering the threshold of contributions that will go to the public system from 3 to 1-2
minimum wages to limit the increase in pension liabilities. It is also critical to strengthen the
transition regime and to ensure a strong governance and investment mandate for the FPAC.

Labor Reform

8. The labor reform was presented to Congress in mid-March 2023 with the aim of increasing
formal workers’ rights. The draft law is being discussed in a sub-commission in Congress.

9. The draft proposal seeks to grant greater remuneration and protection to formal
employees. This is done through several measures, among which are: (i) the reduction in the
daytime (night shift would start at 7:00 pm); (ii) an increase in the surcharge of Sundays and
holidays, which would gradually go from 75 percent to 100 percent by 2026; and (iii) an increase in
severance pay without just cause, which would go from 30 days' salary for the first year of service
plus 20 days' salary for each additional year, to 45 days' salary for the first year of service plus
45 days' salary for each additional year.

10. Although the objectives are laudable, such changes are likely to add to the already-large
informal economy. A study done by Banrep finds that the draft labor reform, if approved in its
current format, would increase the average labor cost due to both higher salaries (recurrent costs)
and higher compensation (effective in case of unjustified dismissals).3 The study estimates that the
increase in labor costs could reduce formal jobs by 454,000 (in a range between 152,000 and
746,000, depending on the estimated response of formal employment to wage costs), reducing the
formality rate by 2.1 ppt over three to four years.

2 See Concepto de Impacto Fiscal (October, 2023).


3 Estabilidad en el mercado laboral y análisis cuantitativo de algunos impactos del proyecto de ley de reforma laboral
(2023).

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Annex II. External Sector Assessment, 2023


Overall Assessment: Staff assesses that the external position in 2023 is in line with the level implied by
medium-term fundamentals and desirable policies. A tight policy mix has supported a significant contraction
in import volumes which has helped narrow the current account deficit, despite weaker terms of trade. The
external position continues to benefit from a relatively stable and diversified capital flows with a high FDI
component, the negative correlation between the income balance and the trade balance, adequate reserve
coverage, the favorable composition of external debt (e.g., long maturities, sizable peso-denominated debt for
sovereign bonds, high natural and financial hedges for corporate bonds), and a flexible exchange rate that has
continued as a long-serving primary mechanism of adjustment to external shocks.

Potential Policy Responses: Fiscal consolidation should proceed, preferably at a faster pace than dictated by
the fiscal rule, while monetary policy rate cuts should continue with caution to bring inflation and inflation
expectations durably to the target. Reform efforts should continue to boost domestic saving, bolster human
capital, and strengthen competitiveness (i.e., address logistic bottlenecks, lower barriers to entry). In addition,
the energy transition needs to be carefully calibrated to protect Colombia’s very strong policy frameworks and
external sustainability, while efforts continue to diversify the country’s export base.

Foreign Assets and Liabilities: Position and Trajectory

Background. Colombia’s net international investment position (NIIP) at end-2023 reached -52.8 percent of
GDP, broadly unchanged from its end-2022 level (-51.6 percent of GDP). The net increase in FDI was almost
compensated by lower net portfolio liabilities and other net investments. During the previous five years
(2018-2022), the increase in liabilities (up 20 points of GDP driven mainly by FDI) was more than offset by
the increase in assets (up 13 points of GDP, mainly driven by portfolio investment). Excluding FDI, the NIIP
stood at only -3 percent of GDP, smaller in absolute value than the 5-year average (-5 percent of GDP).
Considering only reserve assets and debt liabilities, the net position was -46 percent.
Assessment. Estimated gross external financing needs amounted to 16 percent of GDP for 2023, three
percentage points lower than in 2022. The external stability (ES) approach suggests a need for an external
adjustment. The estimated medium-term current account balance required to stabilize the NIIP at its end-
2023 level is -3.2 percent of GDP, close to the medium-term baseline. The large share of FDI, as well as a net
long foreign currency position, help mitigate any shock to the NIIP.

Reserve
2023 (% GDP) NIIP: -53 Gross Assets: 72 Gross Liab.: 124 Debt Liab.: 63
Assets: 16

Current Account

Background. The current account (CA) deficit adjusted from 6.2 percent of GDP in 2022 to 2.7 percent of
GDP for 2023, amid a tight policy mix and despite weaker terms of trade (down 5 percent y/y). The lower CA
deficit mainly reflected the sharp contraction in goods import volumes (down 12 percent y/y), as well as the
continued strength of tourism receipts (up 22 percent y/y) and remittances (up 7 percent y/y) along with
lower import services on account of the normalization of international freight rates. Reflecting the significant
FDI in Colombia, profit transfers abroad remained an important driver of the deficit, although smaller than in
2022.
Assessment. Model estimates indicate a cyclically adjusted CA norm of -0.7 percent of GDP and a CA gap of
-2.4 percent of GDP for 2023. Identified policy gaps are 1.8 percent of GDP, with the fiscal gaps contributing
1.0 percent of GDP. As in previous exercises (2019-22), adjustments to account for Colombia-specific factors
remain necessary, and involve: (i) reducing the contribution of oil exports to the norm by 1.3 percent of

44 INTERNATIONAL MONETARY FUND


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GDP, given Colombia’s investment needs necessary to boost competitiveness; 1 and (ii) reducing the norm
by an additional 0.5 percent of GDP, given the need to absorb the large stock of migrants from Venezuela. 2
The combined adjustments above reduce the CA gap to -0.6 percent of GDP, with a standard error of +/-0.6
percent of GDP.

2023 (% Estimated Cycl., Adj. EBA CA EBA CA COVID-19 Other Staff CA


GDP) CA: -2.7 CA: -3.1 Norm: -0.7 Gap: -2.4 Adj.: 0.0 Adj.: 1.8 Gap: -0.6

Real Exchange Rate

Background. The average Real Effective Exchange Rate (REER) appreciated 6.1 percent in 2023, following a
depreciation of about 8 percent during 2021-22. The REER is still about 38 percent weaker than in 2014, in
part reflecting declining terms of trade since the earlier commodity boom.
Assessment. Overall, staff judges the REER gap consistent with the CA gap at 3.4 percent, with a range of
uncertainty (+/- 3.5 percentage points). Applying a semi-elasticity of -0.17 to the gap from the CA approach
suggests a REER overvaluation of between -0.2 and 6.9 percent. Under the External Sustainability approach
the implied overvaluation is -0.8 percent. EBA REER approaches estimate an undervaluation of 34.8 percent
(index method) and 15.4 percent (level method).

Capital and Financial Accounts: Flows and Policy Measures

Background. The current account continues to be financed primarily by capital inflows in the form of FDI,
with portfolio inflows or foreign borrowing playing a more minor role. For 2023 net FDI liabilities (inflows)
reached 4.8 percent of GDP, diversified across sectors. Portfolio investment recorded net outflows for 2.4
percent of GDP, as non-residents reduced their exposure to the domestic government debt market (down
0.7 percent of GDP) and residents increased positions overseas (up 1.7 percent of GDP). Short-term debt,
mainly private, represented only 8.3 percent of total external debt, similar to its level in 2022. In 2023 the
government issued sovereign bonds to partially pre-finance 2024 needs and further diversified its foreign
funding sources by borrowing from multilateral institutions.
Assessment. The relative stability of FDI flows, diversification of creditors, very strong policy frameworks,
and uninterrupted market access have underpinned capital inflows, including around periods of stress.
Colombia’s attractiveness as an investment destination should continue to support external investment
flows, particularly as uncertainty around structural reforms, including related to the energy transition,
dissipates, although efforts to improve the investment climate remain essential.

FX Intervention and Reserves Level

Background. Gross international reserves reached $59.1 billion at end-2023, $2.3 billion more than in
2022—mainly from returns on reserve assets. The central bank did not intervene in the FX market during
2023. The central bank announced (in December 2023) a plan to gradually accumulate reserves, market
conditions permitting, for up to US$1.5 billion over the next two years.
Assessment. The flexible exchange rate has served the economy well. It has been the primary mechanism of
adjustment to external shocks. Depreciations have cushioned export receipts, albeit mostly through local-
currency prices owing to dollar-pricing of exports, and aided import compression. Reserve coverage remains
adequate. For 2023, reserve coverage reached 119 percent of the ARA metric, and 106 percent if the
commodity buffer is included.3 Access to unused resources available under Colombia’s FCL provides an
additional liquidity buffer equivalent to 19 percent of the ARA metric. Further reserve accumulation would
help insure against elevated external risks.

INTERNATIONAL MONETARY FUND 45


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1
The contribution of oil exports is adjusted downward to account for Colombia’s investment needs relative to the EBA sample.
As in the 2019, 2020, 2021, and 2022 Article IV reports, this is based on Colombia’s infrastructure gap relative to rivals in export
markets, higher public fixed capital formation, and relatively efficient practices in public investment management.
2
The adjustment is the same as in the 2020, 2021, 2022, and 2023 Article IV, which is consistent with a constant stock of
migrants. The adjustment is lower than in the 2019 Article IV and conservative relative to the adjustment implied by the EBA
model’s population coefficient.
3
To capture the uncertainty in commodity prices, we apply to the baseline oil export values one standard deviation in the oil
price (1980-2023), which is similar to the price volatility embodied in oil option prices.

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Annex III. Risk Assessment Matrix


Risk Assessment Matrix (February)1
Source of Risks (Likelihood in color) Impact Policy Advice for Colombia
Global
Abrupt Global Slowdown or Recession. High. Colombia In a global recession scenario, use
Global and idiosyncratic risk factors cause a would be affected by existing policy space to support the
synchronized sharp growth downturn, with a reduction of global economy and protect the most
recessions in some countries, adverse trade and rising vulnerable, consistent with the
spillovers through trade and financial import prices. Lower inflation targeting framework and
channels, and market fragmentation exports and falling fiscal sustainability. The strength
triggering sudden stops in EMDEs. Medium terms of trade would and mix of the monetary and fiscal
dent growth and response would depend on
exert downward Colombia's cyclical position and the
pressure on the impact of shocks. Allow the
exchange rate. exchange rate to play its role as
shock absorber.

Systemic Financial Instability. High interest Medium. Colombia Use the flexible exchange rate as
rates and risk premia and asset repricing amid is vulnerable to a the first line of defense against
economic slowdowns and political uncertainty sudden exit of external shocks. Targeted liquidity
(e.g., from elections) trigger market foreign investors, interventions, including
dislocations, with cross-border spillovers and which hold a unconventional measures like asset
an adverse macro-financial feedback loop relatively large share purchases, can address disorderly
affecting weak banks and NBFIs. Medium of its sovereign market conditions, as can the use
bonds. The risk is of international reserves, if needed.
mitigated by policy The government needs to continue
buffers, including implementing its medium-term
access to an FCL. fiscal consolidation adjustment
plans to build credibility in the
fiscal framework and reduce further
pressures on sovereign yields.

Monetary policy miscalibration. Amid high High. Spillovers to Use the exchange rate act as a
economic uncertainty, major central banks financial markets shock absorber. Tighten monetary
loosen policy stance prematurely, hindering would affect policy, within the inflation-targeting
disinflation, or keep it tight for longer than Colombia through framework, if inflation is affected by
warranted, causing abrupt adjustments in tighter financial additional price pressures. Use
financial markets and weakening the conditions and fiscal policy to address the shock
credibility of central banks. Medium capital outflows. within the flexibility of the fiscal
framework, including targeting
support to the most vulnerable
using the flexibility of the fiscal
framework.

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Source of Risks (Likelihood in color) Impact Policy Advice for Colombia


Intensification of Regional Conflict(s). Medium. Colombia If inflationary pressures build up,
Escalation or spread of the conflict in Gaza has been negatively extend the tightening cycle within
and Israel, Russia’s war in Ukraine, and/or affected by the war the inflation-targeting framework.
other regional conflicts or terrorism disrupt in Ukraine mainly Allow the exchange rate to play its
trade (e.g., energy, food, tourism, supply through the role as a shock absorber. Provide
chains), remittances, FDI and financial flows, commodity price targeted fiscal support to
payment systems, and increase refugee flows. channel for non-oil vulnerable groups, mindful of the
High products. need to comply with the medium-
term fiscal framework and curb
demand pressures.
Commodity Price Volatility. A succession of High. Colombia Use the flexible exchange rate as
supply disruptions (e.g., due to conflicts, would be affected by the first line of defense against
export restrictions, and OPEC+ decisions) and volatile export and external shocks. If needed, deploy
demand fluctuations causes recurrent import prices. Oil reserves to mitigate the impact of
commodity price volatility, external and fiscal and food price potentially weaker capital outflows.
pressures in EMDEs, cross-border spillovers, shocks feed through Tighten monetary policy if second
and social and economic instability. High to headline and core round effects materialize and/or
inflation. inflation expectations are not well
anchored, mindful of different
effects from the demand and
supply sides as oil exporters.
Reduce reliance on oil-related tax
revenues. Speed up structural
reforms to enhance external
competitiveness and economic
diversification.
Deepening geoeconomic fragmentation. Medium. Reduced Implement structural reforms to
Broader conflicts, inward-oriented policies, global productivity ensure the economy can adjust
and weakened international cooperation result and demand and flexibly to potential
in a less efficient configuration of trade and higher input costs variations/modifications in export
FDI, supply disruptions, protectionism, policy will weigh on demand. Measures could include
uncertainty, technological and payments Colombian reforms to strengthen the business
systems fragmentation, rising shipping and economic growth, climate (e.g., infrastructure, rule of
input costs, financial instability, a fracturing of but potential law, human capital formation),
international monetary system, and lower nearshoring competition, and labor market
growth. High elements (e.g., with reforms to reduce informality and
the U.S.) could have allow for smoother sectoral
a net positive reallocation.
impact.
Colombia Specific Risks
A disorderly transition towards cleaner High. A sudden stop Reprioritize structural reforms to
energy Medium in the exploration enhance external competitiveness
and exploitation of and export diversification. A tighter
oil will have fiscal stance than the one set out by
significant negative the Financing Plan would be
effects on the necessary.
external and fiscal
accounts.

48 INTERNATIONAL MONETARY FUND


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Source of Risks (Likelihood in color) Impact Policy Advice for Colombia


Social Unrest. Persistently high inflation, High. Political Advance reforms to tackle social
including in energy and food, slowing uncertainty and demands, anchored on broad
economic growth, unmet social demands, or social conflict could political support. Continue with
the protracted constitutional reform amplify affect private policies to achieve the inflation
risks of social unrest. Political polarization and investment and target and maintain fiscal
instability weaken policymaking and provoke capital sustainability, while providing
confidence. Medium outflows. A decline targeted support to the most
in political support vulnerable.
for key institutions
and policy
frameworks could
have significant
medium-term
implications.
Missing fiscal rule. Given a decline of Medium. Deviation Comply with the fiscal rule by
expected revenues due to economic or non-complying identifying the necessary spending
deceleration and to court rulings on specific with the fiscal rule cuts, including a reprioritization of
revenue sources (e.g., non-deductibility of would affect fiscal public investment projects, while
royalties), smaller-than-needed spending cuts consolidation and protecting vulnerable population.
increase the risk of non-compliance with the could have a
fiscal rule Low negative market
reaction, which
could raise
borrowing costs.
Monetary policy miscalibration. A High. Increasing the Keep still a higher-for-longer tight
miscalibration in the timing and pace of policy policy rate because monetary policy stance until
rate cuts would jeopardize central bank’s upside risks inflation (headline and core) and
credibility and increase the risk of policy materialize after a inflation expectations are in a firm
reversals. Medium period of a faster- downward trajectory.
than-expected
decline in the rate
could prove to be
costly in terms of
output and
credibility.

Venezuelan recovery. A stronger than High. Historically, Speed up structural reforms and
expected economic recovery in Venezuela and Venezuela has been diversification measures. Continue
a reopening of trade relations. Medium a key trading partner with policies to integrate
for Colombia. A Venezuelan migrants to the labor
reopening would force.
lead to increased
demand for
Colombian exports,
positively affecting
growth and
narrowing the
current account
deficit.

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Source of Risks (Likelihood in color) Impact Policy Advice for Colombia


Potential conflict in the Latin American and Medium. Over the Seek financing and aid to cover for
Caribbean Region. Low last decade, net fiscal costs in assimilating
Colombia have migrants. Use available fiscal
received more than resources within the limits of the
2.5 million migrants fiscal framework. Continue
from Venezuela. An implementing policies to integrate
escalation of a migrants into the labor force and
regional conflict maximize economic benefits.
could increase
migration flows from
Venezuela.
1
The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to
materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the
baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and
“high” a probability between 30 and 50 percent). Non-mutually exclusive risks may interact and materialize jointly.

50 INTERNATIONAL MONETARY FUND


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Annex IV. Public Debt Sustainability Analysis


Figure 1. Colombia: Risk of Sovereign Stress

Mechanical Final
Horizon Comments
signal assessment

Overall … Moderate The overall risk of sovereign stress is moderate. Fiscal consolidation, together with
inflation and the appreciation of the peso, has brought down public debt from 60.1
percent of GDP in 2022 to an estimated 52.5 percent at end-2023. Gross financing
needs have declined too. However, risks associated with commodity prices, exchange
rate, and interest-growth rate differentials may pose challenges to Colombia over the
medium term. Debt stabilization critically depends on meeting the fiscal targets.

Near term 1/ … … …

Medium term Low Moderate The medium-term analysis suggests a low level of risks of sovereign stress over that
time horizon, supported by moderate financing needs. Debt stabilization critically
Fanchart Moderate …
depends on meeting the fiscal targets. Risks associated with commodity prices,
GFN Moderate … exchange rate, and interest-growth rate differentials may pose challenges over the
Stress test Comm. Prices FX … medium term. Hence, staff assesses medium-term risks as moderate.
rate Nat. Disast.

While debt is projected to reach the medium-term debt anchor, a drastic shift away
Long term … Moderate from oil and coal production could affect long-term fiscal sustainability.

Sustainable The projected debt path is expected to stabilize and GFNs will remain at manageable
Sustainability
… with high levels, conditional on the sustained implementation of the fiscal adjustment path set out
assessment 2/
probability by the fiscal rule and medium-term fiscal framework.

Debt stabilization in the baseline Yes

DSA Summary Assessment


Commentary: Public sector debt is assessed to be sustainable with high probability under a wide range of plausible shock
scenarios, with moderate medium- and long-term risks. Realism scenarios suggest that Colombia’s fiscal adjustment and debt
reduction feature close to the median of its peers. Given financing conditions at home and abroad, adherence to the fiscal rule
and sustained implementation of fiscal plans are critical for debt stabilization.

Source: IMF staff.


Note: The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through
exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt necessarily being unsustainable,
and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and
new financing.
1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases
with precautionary IMF arrangements, the near-term assessment is performed but not published.
2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The
mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF
arrangements with normal access, the qualifier indicating probability of sustainable debt ("with high probability" or "but not with high
probability") is deleted before publication.

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Figure 2. Colombia: Debt Coverage and Disclosures


Comments
1. Debt coverage in the DSA: 1/ CG GG NFPS CPS Other
1a. If central government, are non-central government entities insignificant? n.a.
2. Subsectors included in the chosen coverage in (1) above:
Subsectors captured in the baseline Inclusion
1 Budgetary central government Yes
GG: expected

2 Extra budgetary funds (EBFs) No Not applicable


CG

3 Social security funds (SSFs) Yes


NFPS

4 State governments Yes


CPS

5 Local governments Yes


6 Public nonfinancial corporations Yes
7 Central bank No
8 Other public financial corporations Yes
3. Instrument coverage: Currency
Debt Oth acct.
& Loans IPSGSs 3/
securities payable 2/
deposits

4. Accounting principles: Basis of recording Valuation of debt stock


Non-cash Nominal Face value Market
Cash basis
basis 4/ value 5/ 6/ value 7/

5. Debt consolidation across sectors: Consolidated Non-consolidated


Color code: █ chosen coverage █ Missing from recommended coverage █ Not applicable
Reporting on Intra-Government Debt Holdings
Budget. Extra- Social
Holder Nonfin. Central Oth. pub.
central budget. security State govt. Local govt. Total
pub. corp. bank fin corp
Issuer govt funds funds
1 Budget. central govt 0
GG: expected

2 Extra-budget. funds 0
CG

3 Social security funds 0


NFPS

4 State govt. 0
CPS

5 Local govt. 0
6 Nonfin pub. corp. 0
7 Central bank 0
8 Oth. pub. fin. corp 0
Total 0 0 0 0 0 0 0 0 0

1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector.


2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.
3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities.
4/ Includes accrual recording, commitment basis, due for payment, etc.
5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. It reflects the value of the instrument at creation
and subsequent economic flows (such as transactions, exchange rate, and other valuation changes other than market price changes, and
other volume changes).
6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity.
7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date
(reference date). Only traded debt securities have observed market values.

Commentary: The public debt figures reported for Colombia cover the non-financial public sector and the financial public sector
(Finagro and Fogafin). The non-financial public sector covers the central government, regional and local governments,
decentralized entities, and Ecopetrol. Public debt also includes the recognition of public debt arrears stemming from past court
rulings, social security, energy subsidies and liabilities from pension bonds and FOMAG (see IMF Country Report 20/104).
Domestic debt is defined on a currency basis.

Source: IMF staff.

52 INTERNATIONAL MONETARY FUND


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Figure 3. Colombia: Public Debt Structure Indicators

Debt by Currency (Percent of GDP)

80
Projection
70
60
50
40
30
20
10
0
2014 2016 2018 2020 2022 2024 2026 2028 2030 2032
Foreign currency Local currency Local-linked
Note: The perimeter shown is nonfinancial public sector.

Public Debt by Holder (Percent of GDP) Public Debt by Governing Law, 2023 (percent)

80

60

40

20

0
2014 2016 2018 2020 2022
Domestic law
External private creditors
External official creditors Foreign law ex. multilateral
Domestic other creditors
Multilateral
Domestic commercial banks
Note: The perimeter shown is nonfinancial public sector. Note: The perimeter shown is nonfinancial public sector.

Debt by Instruments (Percent of GDP) Public Debt by Maturity (Percent of GDP)

80 80
Proj.
70 70
Proj
60 60

50 50

40 40

30 30

20 20

10 10

0 0
2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029
Residual maturity: 6. years
Marketable debt Nonmarketable debt
≤ 1 year 1-5 years > 5 years

Note: The perimeter shown is nonfinancial public sector. Note: The perimeter shown is nonfinancial public sector.
Commentary: The share of foreign currency debt increased during the pandemic, due in part to the partial
drawdown of the FCL. Over the medium-term, the share of foreign currency debt is expected to converge to
historical averages.

Source: IMF staff.

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Figure 4. Colombia: Baseline Scenario


(Percent of GDP unless indicated otherwise)

Actual Medium-term projection Extended projection


2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Public debt 52.5 54.4 55.6 55.7 55.4 55.2 54.5 54.1 53.5 52.7 52.0
Change in public debt -7.5 1.9 1.1 0.1 -0.3 -0.2 -0.7 -0.4 -0.6 -0.8 -0.7

Contribution of identified flows -6.8 -0.5 1.0 0.0 -0.3 -0.2 -0.6 -0.4 -0.6 -0.7 -0.7

Primary deficit -1.5 -1.4 -1.3 -1.3 -1.4 -1.3 -1.2 -0.9 -0.9 -0.9 -0.9

Noninterest revenues 32.3 30.6 29.8 29.4 29.6 29.6 29.6 29.6 29.6 29.6 29.6

Noninterest expenditures 30.8 29.2 28.5 28.2 28.2 28.3 28.4 28.7 28.7 28.7 28.7

Automatic debt dynamics -5.3 1.3 2.1 0.6 0.6 0.7 0.2 0.5 0.4 0.2 0.2

Real interest rate and relative inflation 1.4 1.9 3.4 2.2 2.2 2.3 1.8 2.1 1.9 1.8 1.7

Real interest rate 0.7 1.2 3.2 2.0 2.0 2.0 1.6 1.9 1.7 1.6 1.6

Relative inflation 0.7 0.7 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Real growth rate -0.4 -0.6 -1.3 -1.6 -1.6 -1.6 -1.6 -1.6 -1.6 -1.6 -1.5…

Real exchange rate -6.3 … … … … … … … … … …


Other identified flows 0.0 -0.4 0.3 0.6 0.6 0.5 0.3 0.0 0.0 0.0 0.0

Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

(minus) Interest Revenues 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other transactions 0.0 -0.4 0.3 0.6 0.6 0.5 0.3 0.0 0.0 0.0 0.0
Contribution of residual -0.7 2.4 0.1 0.1 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0

Gross financing needs 6.5 4.9 5.3 5.9 6.0 6.1 4.8 5.4 5.2 5.0 5.0

of which: debt service 8.0 6.3 6.6 7.2 7.5 7.4 6.0 6.3 6.1 6.0 5.9
Local currency 5.6 3.9 3.9 4.3 4.9 4.8 3.5 3.6 3.4 3.3 3.3

Foreign currency 2.4 2.4 2.7 2.9 2.5 2.7 2.6 2.7 2.7 2.6 2.6

Memo:
Real GDP growth (percent) 0.6 1.1 2.5 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

Inflation (GDP deflator; percent) 6.3 5.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

Nominal GDP growth (percent) 7.0 6.8 5.6 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1

Effective interest rate (percent) 7.6 8.1 9.2 6.8 6.8 6.9 6.1 6.7 6.4 6.1 6.2
Contribution to Change in Public Debt
(Percent of GDP)
20 30
Primary deficit
Projection 20
15
23
Real Interest rate
10 10 and relative
2 -1 inflation
5 0 2 Real GDP growth

0 -16
-10 Exch. rate
depreciation
-5 -20
-12 Other flows
-10
-30
2014 2016 2018 2020 2022 2024 2026 2028 2030 2032
Cumulative
Commentary: Public debt will stabilize, reflecting expectations of a narrowing of primary deficits (driven by sustained primary
surpluses at the central government level) and stable economic conditions.

Source: IMF staff.

54 INTERNATIONAL MONETARY FUND


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Figure 5. Colombia: Realism of Baseline Assumptions


Forecast Track Record 1/ t+1 t+3 t+5 Comparator Group:
Public debt to GDP Emerging Markets, Non-Commodity
Primary deficit Exporter, Program

r-g Color Code:


Exchange rate depreciaton █ > 75th percentile
Optimistic
SFA █ 50-75th percentile

real-time t+3 t+5 █ 25-50th percentile


Pessimistic
Historical Output Gap Revisions 2/ █ < 25th percentile

Public Debt Creating Flows Bond Issuances (Bars, debt issuances (RHS, percent of GDP);
(Percent of GDP) lines, avg marginal interest rates (LHS, percent))

Primary deficit 15 20 5% 10
5+ yr term
10 4% 8
Real interest rate 10
1-5 yr term
and relative inflation 5 3% 6
Real GDP growth 0 0
2% 4 <1 yr term
Exch. rate -5
-10
depreciation -10 1% 2
Residual Spread vs 10-yr
-15 -20 0% 0 US Treas.
Change in public Past 5

5y hist

2025

2028
2024

2026
2027

2029
Next 5 Implied spread,
sector debt years years Laubach rule 4/

3-Year Debt Reduction 3-Year Adjustment in Cyclically-Adjusted


(Percent of GDP) Primary Balance (Percent of GDP)
12 12
Distribution 3/ percentile rank 36 Distribution 3/ percentile rank 51
10 3-year debt reduction 10 3-year adjustment above
3-year reduction above 75th percentile 3-year adjustment 75th percentile
8 8
(5.9 ppts of GDP) (2 ppts of GDP)
Max. 3-year Max. 3-year
6 6
reduction adjustment
4 4

2 2

0 0
-6.5
-5.5

-2.5
-1.5
-7.5

-4.5
-3.5

-0.5
0.5
1.5
2.5
3.5
4.5
5.5
6.5
7.5
-8
-4
0
4
8
-28
-24
-20
-16
-12

12
16
20
24
28

Fiscal Adjustment and Possible Growth Paths Real GDP Growth


(Lines, real growth using multiplier (LHS); bars, fiscal adj. (RHS)) (In percent)
12 3 20 20
Baseline real growth (lhs)
9 Baseline real potential growth (lhs)
2 15 15
In percentage points of GDP

6 10-yr avg. real growth (lhs)


1 10 10
3
In percent

0 0 5 5
Fiscal Adjustment (rhs)
-3 Baseline -1 0 0
-6 Multiplier=0.5
Multiplier=1 -2
-9 -5 -5
Multiplier=1.5 Output gap (rhs)
-12 -3 -10 -10
2019 2020 2021 2022 2023 2024 2025 2026 2013 2015 2017 2019 2021 2023 2025 2027 2029

Commentary: The fiscal adjustment is guided by a fiscal rule and medium-term fiscal framework that are sanctioned by law.
Adherence to the fiscal consolidation path is critical for debt stabilization.
Source: IMF staff.
1/ Projections made in the October and April WEO vintages. Program status not used in creating comparator group due to lack of data.
2/ Calculated as the percentile rank of the country's output gap revisions (defined as the difference between real time/period
ahead estimates
3/ Data cover annual obervations from 1990 to 2019 for MAC advanced and emerging economies. Percent of sample on vertical axis.
4/ The Laubach (2009) rule is a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in the
projected debt-to-GDP ratio.

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Figure 6. Colombia: Medium-Term Risk Analysis


Value Contrib 1/ Percentile in peer group 2/
Final Fanchart (Percent of GDP) Debt fanchart module
80
Fanchart width 42.8 0.6
70
(percent of GDP)
60

Probability of debt non- 14.1 0.1


50
stabilizaiton (percent)
40
5-25 pct 25-50 pct
30 50-75 pct 75-95 pct Terminal debt-to-GDP x 30.9 0.7

Actual Baseline institutions index


20
0 25 50 75 100
2019 2021 2023 2025 2027 2029
Debt fanchart index (DFI) 1.4

Risk signal: 3/ Moderate

Gross Financing Needs (Percent of GDP) Gross financing needs (GFN) module

20 Financing provided by banks Average baseline GFN 5.5 1.9


Actual (percent of GDP)
15 Baseline
Stress scenario Initial Banks' claims on the 9.8 3.2
gen. govt (pct bank assets)
10

Chg. In banks' claims in 12.9 4.3


5 stress (pct banks' assets)
0 25 50 75 100

0
2019 2021 2023 2025 2027 2029 GFN financeability index (GFI) 9.4

Risk signal: 4/ Moderate

Triggered stress tests (stress tests not activated in gray)

Banking crisis Commodity prices Exchange rate Contingent liab. Natural disaster
Medium-Term Index (Index Number) Medium-Term Risk Analysis

0.50 Value
Value (normal) Weight Contribution
0.40
Debt fanchart index 1.4 0.3 0.5 0.2
0.30
GFN finaceability index 9.4 0.2 0.5 0.1
0.20 Medium-term index 0.2
0.10

0.00 Risk signal: 5/ Low


2021 2022 2023 2024 Final assessment: Moderate
Medium-term index Prob. of missed crisis, 2024-2029, if stress not predicted: 9.1 pct.
Low risk Prob. of false alarms, 2024-2029, if stress predicted: 42.0 pct.
High risk

Commentary: The medium-term analysis suggests a low level of risks of sovereign stress over that time horizon, supported by moderate financing
needs. Debt stabilization crticially depends on meeting the fiscal targets. Risks associated with commodity prices, exchange rate, and interest-
growth rate differentials may pose challenges to Colombia over the medium term. Hence, staff assesses medium-term risks as moderate.

Source: IMF staff.

1/ See Annex IV of IMF, 2022, Staff Guidance Note on the Sovereign Risk and Debt Sustainability Framework for details on index calculation.
2/ The comparison group is emerging markets, non-commodity exporter, program.
3/ The signal is low risk if the DFI is below 1.13; high risk if the DFI is above 2.08; and otherwise, it is moderate risk.
4/ The signal is low risk if the GFI is below 7.6; high risk if the DFI is above 17.9; and otherwise, it is moderate risk.
5/ The signal is low risk if the GFI is below 0.26; high risk if the DFI is above 0.40; and otherwise, it is moderate risk.

56 INTERNATIONAL MONETARY FUND


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Figure 7. Colombia: Long-Term Risk Assessment: Large Amortization and Health

Colombia: Long-Term Risk Assessment: Large Amortization

Projection Variable Risk Indication

GFN-to-GDP ratio
Medium-term extrapolation Amortization-to-GDP ratio
Amortization

GFN-to-GDP ratio
Medium-term extrapolation with debt
Amortization-to-GDP ratio
stabilizing primary balance
Amortization

GFN-to-GDP ratio
Historical average assumptions Amortization-to-GDP ratio

Amortization

Overall Risk Indication

GFN-to-GDP Ratio Total Public Debt-to-GDP Ratio

20 100

80
15

60
10
40

5
20

0 0
2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052

2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052
Long run projection Long run projection
Projection Projection
Baseline with t+5 Baseline with t+5
Baseline with t+5 and DSPB Baseline with t+5 and DSPB
Historical 10-year average Historical 10-year average

Colombia: Demographics: Health


GFN-to-GDP Ratio Total Public Debt-to-GDP Ratio
14 70
12 60
10 50
8 40
6 30
4 20
2 10
0 0
2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052

2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052

Baseline: Custom Baseline: Custom


Health (Demographics) Health (Demographics)
Health (Demographics + ECG) Health (Demographics + ECG)

Commentary: The LT analysis suggests low and manageable financing risks (GFN-to-GDP) in all scenarios except the historical
one, which is affected by the pandemic. High amortization risks in the scenarios also reflect the pandemic. LT risks pertaining
to the health module do not account for the impact of the healthcare reform being discussed in Congress. Staff overall
assessment of LT risks is moderate because Colombia's fiscal rule sets a firm debt limit, and the healthcare reform is expected
to attenuate these risks at a moderate fiscal cost to be fully incorporated in the budget.
Source: IMF staff.

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Annex V. Implementation of the 2022 FSAP Key


Recommendations1
Recommendation Time1

Banking Supervision
Introduce necessary legal amendments to strengthen the independence of the SFC: MT
(i) specifying that the Superintendent is appointed for a minimum term and removed
from office only for reasons specified in the law; and (ii) provide explicit legal
protections to the SFC.
Update: The appointment and the condition for removing the Superintendent is regulated
via Decree 1817 issued on September 15 of 2015. The conditions are regulated by the
mentioned decree. However, the minimum term has not yet been regulated by higher
order legislation.

Develop more specific guidance/regulations on concentration, transfer and country MT


risks, related party transactions, internal capital assessment and the IRRBB.
Update:
− External Circular 025, 2022 (November 17, 2022) was issued with explicit instructions on
the Interest Rate Risk on the Banking Book Risk Management (IRRBB). These requirements
were also added to the Internal Risk Management Framework (SIAR, for its Spanish
acronym), which compiles all the instructions regarding the identification, measurement,
control, and monitoring of each risk that financial institutions are expected to manage.
− Concentration risk: The SFC has issued External Circular 003 of 2024, by which it has
established instructions regarding concentration risks in financial institutions.
− Transfer and country risk: The SFC included explicit requirements on the transfer and
country risk management in External Circular 18, 2021 (September 22, 2021), which
compiles each individual risk management framework on a single chapter named SIAR
(Chapter 31 on Integrated Risk Management Framework of the Circular Básica Contable y
Financiera (Basic Accounting and Financial Circular).
− Internal capital assessment and liquidity: Draft regulation on ICAAP and ILAAP was
released for external comments by November 2023. The SFC is currently analyzing the
comments to continue the issuance process this year.
− IRRBB Significant Activity Guide: Since 2023, the SMS has been working with the DRCC
to develop a guide to deepen the supervision of this risk, which addresses the
particularities, including specific criteria that guide the supervision and evaluation
regarding the suitability of the IRRBB management process, by the Joint Supervisory Team.
It is planned to be published in the first semester of 2024.
− External Circular 003 de of 2024 – Large Exposure: By means of External Circular 003 of
2024, the SFC enacted instructions to implement the large exposure Basel standard to
supervised entities to control credit concentration risk in line with Decree 1533 of 2022.

1This Annex gives a factual update on the implementation of FSAP recommendations and contains the views of the
authorities.

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Recommendation Time
Establish a consolidated body of requirements on related-party transactions. ST
Update: Decree 1533 (August 4, 2022) was issued to establish rules for managing large
exposures following the Basel framework. Secondary regulation by SFC was issued on
February 1, 2024 (External Circular 003, 2024). Supervised entities must comply with this
new framework no later than August 4th, 2026.
The SFC has been working on an update to ANNEX 3. RELATED DEFINITIONS AND
REGULATORY LIMITS BY INDUSTRY, which is part of the Comprehensive Supervision
Framework, through which the definitions of related parties are updated for each of the
industries in accordance with current regulations. The update is planned to be published in
the first semester of 2024.
Finally, The URF is working on a decree that will regulate the criteria to identify a related
party of a given bank.

Readjust or determine some parameters used in the computation of the local LCR MT
and NSFR ratios to further align with Basel III requirements and require the local
NSFR ratio to be also calculated at a consolidated level.
Update:
NSFR: According to External Circular 013 of 2023, the SFC defined the "operational
deposits" concept for deposits made by: (i) large customers of the real sector, (ii) open
investment funds, and (iii) supervised financial entities. The SFC requires qualitative and
quantitative analysis to determine which of their deposits meet the requirements outlined
in the SFC’s instructions. The methodologies must be submitted to the SFC for non-
objection 4 months prior to their application.
LCR: the SFC considers deviations from the Basel III standard, particularly those referring to
the run-off factors are not planned to be modified soon, since they reflect the
particularities of the local market, unless there is statistical evidence to suggest the
parameters that were calibrated using historical data have changed (Basel III, paragraph 70
allows some discretionary choice).

Maintain a direct and intrusive supervision of banks by the SFC, including an ST


adequate level of on-site inspections, and avoid over-reliance on external and
internal auditors when performing supervisory tasks.
Update: Acknowledging the existence of the risk-based supervision framework (MIS, for its
Spanish acronym or Comprehensive Supervisory Framework), the SFC does not rely on
internal audits to perform its supervisory procedures. Internal audit results become
relevant whenever this function is rated as Strong (Table 1).

2018 2019 2020 2021 2022 2023


IA Function Rated Strong 0 0 3 5 2 3

On-site supervision is a fundamental part of the supervisory exercises carried out by the
SFC. Changes in the figures (see below table) are the outcome of adopting new
supervisory tools (post COVID-19), rather than relying on internal auditors.

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Recommendation Time
In the first half of 2023, the SFC published Annex 6-Internal Audit, which is part of the
Comprehensive Supervision Framework, to provide supervisors with more detailed criteria
in the evaluation of the Audit Committee and the Internal Audit.
2018 2019 2020 2021 2022 2023
On-Site inspections by year 100 106 36 75 60 67

Macroprudential Oversight
Strengthen the role of the central bank in systemic risk monitoring and of the Banco ST
de la República (BR) and the Superintendency of Financial Institutions in
macroprudential decision-making.
Update: The CCSSF’s (Financial System Coordination and Monitoring Committee - Comité
de Coordinación para el Seguimiento al Sistema Financiero) rules of procedures were
updated to strengthen the role of the Central Bank. Common stress scenarios were
prepared by the SFC and the Central Bank, and they were presented to CCSSF on
December 4, 2023.

Expand LTV and DSTI tools to cover leasing products and the DSTI tool to include ST
nonmortgage debt.
Update: Authorities view that External Circular 026, 2022 [29 November 2022] with the
term provisioning aims at preventing debt overhang in the consumer loan portfolio.
DSTI metrics, analyzed by the SFC regularly, cover all loans portfolio and products
(Consumer/Credit Card/Payroll/Mortgage/Open Destination/Vehicle).

Close data gaps in the areas of cross-border exposures and household indebtedness. I
Update:
• Household indebtedness: SFC merged data from the Social Protection System and
individual indebtedness reports. This information is used to provide quantitative
inputs for designing prudential measures.
• Cross border exposures: SFC gathers data of financial conglomerates and
common stress test with other jurisdictional supervisors in CAM (CCSBSO) and
Memoranda of Understanding (MoU) were signed between each authority
(allowing on-site supervision, data, technical assistance, cyber risks). These MoUs
have allowed the SFC to perform on-site inspections in most of the jurisdictions
where Colombian Financial Conglomerates operate. These inspections have had
the cooperation of home supervisors and there is always a valuable exchange of
results and planned supervisory activities resulting from them. Multilateral
Memorandum on Information Exchange and Mutual Cooperation for
Consolidated and Cross-Border Supervision with the Central American Council of
Superintendents of Banks, Insurance, and Other Financial Institutions (CCSBSO, for
its acronym in Spanish). On November 16th, 2016, the MoU text and its
Addendum of 2015 were unified into a single document. The CCSBSO General
Assembly of December 19th, 2022 approved the text of another MoU between
the members of the Council for resolution matters. The Central Bank also included
cross-border exposure risks into its stress testing.

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Recommendation Time
• The SFC has forms that collect the exposures of its supervised entities with local
and foreign counterparties in portfolios, investments and other products. Likewise,
the SFC has access to information on the exposures of subordinates segmented
by client, country or economic sector. The SFC has also used the Central American
Council of supervisors (CCSBSO) to fill the information gaps by participating in the
construction of regional stress tests and other risk evaluations of banking groups.
One of the strategic initiatives of CCSBSO is also to work on optimization of the
information usage to explore opportunities for improvement.

Risk Analysis
Strengthen the ability to monitor cross-border exposures and conduct a fully ST
consolidated stress-testing by filling data gaps on the exposures and risk metrics of
ultimate subsidiaries.
Update:
Memoranda of Understanding were signed between supervisors in CAM and Colombia
(see above) on data exchange and stress tests using consolidated data on exposures and
risk metrics. Stress-testing exercises comprise foreign exposure risks. The available
information on cross-border exposures has been linked to the monitoring dashboards that
the SFC has built. The SFC will continue through available channels to request additional
information to strengthen oversight of cross-border risks. In addition, one of the strategic
initiatives of the Central American Council of Supervisors will be to develop capital,
liquidity and contagion regional stress tests that will complement the local initiatives.

Extend data collection to monitor liquidity risks by currency. Collect more granular ST
data on assets and liabilities generating cashflows, including those related to cross-
border exposures.
Update:
Over the short term, the SFC and the BR requested information from credit institutions to
measure the NSFR by currency. Information was submitted in June 2023 and the draft
regulation will be issued in 2S 2024. Since Banco de la República calculates liquidity ratios
by different currencies (the Individual Exposure Index on the Short-Run (IEI) and the
Consolidated Exposure Index (IEC)), over the medium term SFC plans to work together
with the Central Bank to merge the short-term liquidity indicators (IRL, IEI, and IRL) to
arrive at a common indicator by currency.

Develop network analysis tools and improve data coverage to bolster EWS for ST
domestic and cross-border contagion.
Update:
A preliminary version of network analysis model was developed by SFC after IMF’s
Technical Assistance mission that took place in March 2023. Cross-border contagion risks
were incorporated in both the SFC’s and Banco de la República’s stress-testing exercises.
The SFC has made progress in mapping interconnections for different types of exposure
and building centrality metrics to analyze the relative importance of some entities in the
system network. The SFC will continue to develop the comprehensive contagion exercise
to identify contagious and vulnerable entities.

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Recommendation Time

Climate Risks and Opportunities


Adopt a risk-based approach in supervision for climate-related risks and MT
continuously improve information disclosures (both by nonfinancial corporates and
by financial institutions) and data availability.
Update:
• Implementation of green taxonomy for the financial system (External Circular 005,
2022 (April 8, 2022)) would improve availability of climate related data.
• SFC issued guidelines on the supervisory expectations on ESG management in
credit institutions (Technical Document for the Administration of Climate Risks
and Opportunities for Credit Establishments).
• The SFC's document “Risk management and climate opportunities for the
insurance sector” (June 09, 2023) guides the integration of these risks into their
strategies. It encourages adaptation in risk management and innovation in
insurance products, strengthening the sector's resilience to climate change. Its
implementation benefits financial stability and promotes sustainable practices in
the insurance market.
• SFC issued “Roadmap for Greening the Colombian Banking System” on the
taxonomy, financial innovation, ESG adoption, data metrics and information, and
climate risk measurement and supervision.
• External Circular 031, 2021 (December 22, 2021) for issuers regarding ESG and
climate reporting. It specifically asks the largest issuers to disclose their ESG and
climate risks and opportunities against TCFD and SASB.
• SFC issued External Circular 07 (May 10, 2021), External Circular 008, 2021 (April
26, 2021), and a Draft guideline on supervisory regulation on ESG management
for pension fund administrators (November 04, 2020, updated on May 3, 2021).
• Climate risk exercise was performed with banks (2020) and pension funds (2021).
• The document "Results of the Colombian Green Taxonomy Pilots" by SFC,
released in March 2023, details the results of the pilots for the implementation of
Colombia's Green Taxonomy. This document marks a significant step in
promoting sustainable financial practices in the country. By establishing a clear
classification of economic activities and assets contributing to environmental
objectives, the Green Taxonomy facilitates the identification of sustainable
projects, encouraging investment in these areas. The impact of this document is
multi-faceted: promotion of sustainable investments, alignment with
environmental objectives, development of green capital markets and enhanced
transparency and risk management.
• The SFC in December 2023 published the glossary of sustainability terms. Directly,
the SFC have been working on the development of a sustainability guide in order
to provide supervisors with the criteria to carry out the evaluation and
incorporation into the evaluation of the risk profile of the supervised entities. It is
planned to publish it in the first semester of 2024, and with it, a series of trainings
will be carried out in order to instruct supervisors on the subject.

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Recommendation Time
• In the supervision program for 2024, a pilot test was scheduled with entities from
different industries to verify the criteria incorporated in the guide mentioned in
the previous script.
• The supervision program for 2024 also includes a monitoring exercise on
compliance with External Circular 031 regarding ESG disclosure by issuers, and
another exercise for financial products and services labeled as sustainable to
monitor potential greenwashing.

Resolution, Crisis Management and Safety Nets


Strengthen the operational independence of the Resolution Unit (GR). ST
Update: SFC structure and its operational functioning is currently underway.

Make the financial institutions responsible for recovery planning, requiring use of a ST
wide range of risk scenarios and identification of mitigating measures. Make the GR
responsible for resolution planning.
Update: Currently, the SFC is analyzing the viability of regulating this topic. The comments
of the first external circular draft are being reviewed. Draft regulation on ICAAP, ILAAP and
recovery planning was released for external comments by November 2023.
The regulation in Colombia does not have recovery plans prepared by the supervised
entities in accordance with the guidelines of the Key Attributes, so it has not been
considered that the Resolution Unit prepares resolution plans based on them. Colombia
follows the United States’ model for resolution plans.
Additionally, holding financial institutions accountable for recovery planning requires the
use of a wide range of risk scenarios and the identification of mitigation measures.

The mandates and tasks of the resolution unit and the deposit insurer (Fogafin) MT
should be streamlined. These entities manage different parts of the resolution
process that should be brought together.
Update: The execution of the coordinated resolution strategy (by SFC and Fogafin)
corresponds to each authority according to its own mandate.
The law provides a framework for the action of each authority and coordination instances
to discuss interventions. Unifying the resolution process would require a drastic structural
reform that must be passed in Congress (reform of the EOSF).
The SFC performs recovery planning exercises, and the systemic entities have been
required to develop resolution plans (RP).
The Intersectoral Resolution Commission -CIR-, which is a technical body made up of
officials specifically designated by both the SFC and Fogafin. In 2023, the SFC received the
first version of these RP from the 4 systemic entities, and in the first half of 2024 it will
issue a concept on this version. The SFC has established criteria to define which new
entities will be required to present RP. In 2024 two more banks must present RP.

Strengthen resolution tools by: (i) giving Fogafin the flexibility to conduct purchase MT
and assumption powers with only insured deposits (as opposed to current obligation
to package all deposits, both insured and uninsured); (ii) restrict the ability of
Fogafin to be the shareholder of restructured or bridge banks; and (iii) consider
establishing bail-in powers as a resolution tool.

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Recommendation Time
Update:
(i) Authorities deem that meeting the objectives to preserve the stability of the financial
system requires minimizing the negative impact of the bankruptcy of one or more banks in
the economic activity and maintaining the confidence of depositors, as well as preserving
the value of deposits and productive assets that are transferred as part of the operation.
Including all deposits in a P&A. According to the authorities’ view, the regulation is flexible
in the selection of other liabilities, in case Fogafín considers their transfer important to
maintain the stability of the financial system. However, Fogafín will work on requesting an
adjustment to Decree 521 of 2018, to achieve greater leeway to select only the insured
amount.
(ii) In Colombia, Fogafín provides the necessary resources to achieve the matching of
assets and liabilities in the structuring of a P&A and is, therefore, the main shareholder of
the bridge bank to which such items are transferred if the operation is not carried out with
another credit institution already operating in the market. In addition to the matching
mentioned above, it is also necessary to provide capital resources for the operation of the
bridge bank.
Fogafín understands that there is tension between its role as a shareholder of the bridge
bank and its role as a resolution authority. According to Fogafin, this tension is mitigated
by the temporary nature of its ownership, as well as by the compliance of the bridge bank
with the general structural and prudential regulation and the convergence towards
compliance with those regulatory aspects from which the bank has been exempted in
Colombia.
To establish mechanisms that strengthen control of the potential conflict of interest,
Fogafín included in its 2021-2025 strategic planning, elaborating a study with the purpose
of mitigating this effect.
(iii) According to Fogafin, as banks’ liability structure in Colombia is mainly composed of
deposits, so a bail-in mechanism is not currently applicable or practicable. However, the
Financial System Safety Net acknowledges that the ability to execute a bail-in reduces
resolution costs and promotes market discipline. Hence, its adoption as a resolution tool is
a matter of further analysis. Fogafín has planned to conduct a study on this subject in its
2021-2025 strategic plan.

Fogafin’s financing should be limited to resolution funding (i.e., financing that is ST


used to support the use of resolution powers and achieve the resolution objectives).
Update: According to Fogafin the broad set of interventions to handle the crisis at the end
of the 90s, are present in the legal framework and are of the essence of the Colombian
regime. A different approach would require a structural legal reform to be discussed in
Congress.

Establish guaranteed backup liquidity facility for Fogafin. ST


Update: According to the authorities, the law expressly defines Fogafín as an autonomous
entity and to fully comply with its purpose, which is to minimize the use of public
resources. Fogafin seeks to prioritize and develop the source related to the premiums paid
by registered entities, with which the Deposit Insurance reserve is formed, and not to
resort in the first instance to the legal possibility of requesting resources from Colombia´s
General Budget. In any case, when the resources of the Deposit Insurance reserve are

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Recommendation Time
insufficient, the legal framework establishes the adoption of a plan to reconstitute it,
which, if it incorporates resources from Colombia´s General Budget or debt operations
with a sovereign guarantee, this must be approved with the favorable vote of the Minister
of Finance (who holds the position of President of the Board of Directors of Fogafín).
This becomes imperative for the Ministry of Finance and Public Credit, since the rule
(second clause, paragraph d, Section 2, Article 319, EOSF) is a matter of national public
order, and provides, in the relevant part, that once the Fund makes the request related to
its funding requirement, the Ministry of Finance must incorporate in the General Budget
the necessary resources, or carry out any other operations that may be necessary, in order
to preserve the protected legal interest of the financial system’s stability.

Fogafin is reviewing the operability of the request for resources to the Ministry of Finance,
in order to strengthen the procedure for fulfilling this mandate.
Anti- Money Laundering/ Combating the Financing of Terrorism
Ensure a swift implementation of the 2018 MER’s recommendations to strengthen MT
the overall effectiveness of the AML/CFT regime.
Update:
As a result of the Mutual Evaluation process carried out by GAFILAT (FATF, in English) in
2016 on the AML/CFT/CFPWMD System, Colombia has been correcting the issues that
were pending.
Regarding the Financial Superintendency of Colombia, the pending improvement actions
were approved in the plenary session of GAFILAT representatives held in 2022 in Buenos
Aires, Argentina, obtaining as a result of the requalification and the monitoring processes,
the maximum Complied rating, which implies the absence of regulatory deficiencies for
the following Recommendations: 13 Correspondent Banking, 16 Electronic Transfers, 19
Higher Risk Countries, 33 Statistics, 34 Guidance and Feedback. The Mostly Complied
rating was obtained for Recommendations 10 Customer Due Diligence and 12 Politically
Exposed Persons.
Likewise, Colombia, through the Financial Information and Analysis Unit (UIAF, as its
acronym in Spanish), in its condition of National coordinator before GAFILAT of the
authorities that are part of the AML/CFT/CFPADM System, has attended the meetings of
the plenary sessions of GAFILAT representatives and in the same way, has presented the
intensified monitoring reports, providing the progress in terms of technical compliance
and effectiveness of the aforementioned system.

Continue efforts to enhance sanctioning practices so that effective, proportionate, MT


and dissuasive sanctions are applied for AML/CFT breaches.
Update: The SFC continues developing the sanctioning power according with the powers
granted both in Decree 2555 of 2010 and in the Financial System Organic Statute, and
therefore, in the year 2022 imposed four (4) sanctions, three (3) of them of an institutional
and pecuniary nature, and one (1) personal consisting of a reprimand. During the year
2023, it imposed one (1) institutional sanction consisting of a monetary fine. Additionally,
the SFC issued four (4) administrative orders in 2022, and in 2023, a total of eight (8)
administrative orders. On the other hand, the SFC published two reports called
“Compliance Officers and Responsible Officials” in 2021 and 2022, in which a diagnosis of

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Recommendation Time
compliance with the obligations of the Supervised Entities in the appointing and
possession of such officials is carried out.
Said report shows how the pecuniary sanctions imposed on the Supervised Entities that fail
to comply with this obligation are decreasing, which demonstrates their exemplary and
dissuasive nature.

Address ML/TF risks associated with crypto assets and ensure virtual asset service ST
providers are properly licensed, monitored and supervised for AML/CFT compliance.
Update:
The SFC has cooperated in the working groups developed in the meetings held in the
Technical Committee for the Prevention of Money Laundering and Terrorist Financing of
the Central American Council of Superintendents of Banks, Insurance and Other Financial
Institutions, aimed at updating the Virtual Asset regulations in Colombia.
At the same time, the SFC carried out a cross-border supervision process in El Salvador in
July 2022, aimed at understanding the way in which the virtual asset market, especially
Bitcoin, works in that jurisdiction.
Additionally, in the supervision processes developed by the SFC, the reviewing of the rules
and instructions regarding clients, was incorporated. On the other hand, the
aforementioned supervision processes also included topics relating to the rules and
instructions of users in acquisition schemes and bin sponsors, in response to the warnings
in force in local regulations, which required, a particular risk analysis and specific measures
for its control. The above means that the VASP were linked to the Supervised Entities,
either as direct clients or as users thereof, through acquisition schemes and bin sponsors
(rechargeable cards), as mentioned above.
Interaction of the financial system with Virtual Asset Service Providers (VASPs) through a
sandbox approach:
The SFC developed a pilot project in the sandbox (laArenera SFC), where specific risk
management and consumer protection measures adopted by the entities supervised by
the SFC were tested to manage the risks inherent to the process of linking VASPs to the
financial system, through the granting of a financial deposit product. The pilot project is
already in its closing phase, with 5 alliances that have already completed their operations
and 2 that will complete their operations in the first quarter of 2024.
As of December 31, 2023, the pilot project has demonstrated that the entities supervised
by the SFC have adequately managed the risks inherent to the provision of financial
services to the VASPs. Regarding ML/FT risk, the SFC has monitored pilot projects of cash-
in/cash-out of fiat money alliances with the purpose of purchase and sale of virtual assets,
and the participants have been complying with the ML/FT risk management measures that
were required for the development of the pilot.
As part of these measures, the VASPs were required to:
• Implement the SFC's AML/FT Risk Management System.
• Apply standards and guidelines of the Financial Action Task Force (FATF),
regarding virtual assets, including: i. Store information records; ii. Report
suspicious transactions; iii. Obtain, retain and securely transmit originator and
beneficiary information when carrying out virtual transactions.

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Among the results of the pilot program, the following stand out: 4057 individuals have
participated through cash-in or cash-out operations. The average ticket for deposit
operations amounted to COP $539,962. The average ticket for withdrawals amounted to
COP $332,649. Likewise, 40 suspicious operations and 820 unusual operations were
reported, 1,238 advisory services have been provided, and 546 complaints were attended
to (as of December 2023).
These results have provided essential information on the risks faced by both consumers
and the entities supervised by the SFC when interacting with VASPs. As a result, the SFC
has prepared a technical document on virtual assets and provision of financial services to
VASPs containing two approaches: i) Conceptual: provides an approach to the basic
concepts that explain what virtual assets are, how they are classified, what their
characteristics are, and what uses are given to them. It also provides details of the
operations carried out with these instruments and the stakeholders that participate in the
development of these markets. ii) Principles and good practices: measures are established
that seek to promote effective risk management in order to guarantee an adequate
provision of financial services to VASPs, while safeguarding the protection of consumers
and investors, and protecting the stability and integrity of the financial system.
Regarding AML/FT, it is recommended that supervised entities, prior to the provision of a
financial service to a VASPs, verify that it: (i) reports to the Financial Information and
Analysis Unit as a subject that provides virtual asset services; (ii) has an AML/FT risk
management system with a risk-based approach that addresses the guidelines issued by
the FATF; (iii) has the technological and operational capacity to perform a knowledge of
transactions -KYT-, as well as to obtain, preserve and transmit the information that allows
identifying the originator and beneficiary of each transaction with AV, in accordance with
the guidelines issued by the FATF.
This technical document was published on March 2023, together with the results report of
the pilot project in the SFC sandbox.
Regulation and supervision of VASP technical proposal and public policy:
Regarding the progress to regulate and supervise VASPs, between July 2023 and January
2024, the Ministry (MFPC), with the technical proposal and support of the SFC, has drafted
a bill on virtual assets that seeks to provide a general regulatory framework for the
activities of management, use and intermediation of public resources with virtual assets,
which is aligned with the recommendations of BIS, FSB, OECD, IOSCO and FATF. This
initiative would be filed by the MFPC in Congress in the first semester of 2024.
The bill contains: (i) categorization of virtual assets, VASPs and activities performed by
VASPs; focusing on allowing operations with pseudo-anonymous virtual assets (does not
regulate DeFi and CBDC); (ii) definition of a VASPs licensing processes in charge of the SFC,
ensuring that only actors that comply with prudential, security and transparency standards,
adequately manage risks and have an adequate corporate governance scheme may legally
operate; iii) it is proposed that the SFC be the competent authority for supervision, control
and oversight of regulated activities, which includes the adoption of the sanctioning
regime for those VASPs that fail to comply with the rules, protecting investors, consumers
and the market in general; iv) prioritizing the protection of users through solid policies that
ensure transparency in operations and adequate disclosure of information related to
operations with virtual assets and the risks inherent to them, and v) promoting
cooperation and coordination mechanisms to share information and prevent activities.

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This proposal takes into account the recommendations issued by FATF, such as:
Recommendation 15, which calls for ensuring that VASPs are regulated for AML/FT
purposes, are subject to authorization and licensing, and are subject to monitoring
systems; Recommendation 16, which calls for ensuring that VASPs obtain and maintain
originator and beneficiary information on transfer of virtual assets (travel rule);
Recommendations 37 to 40, related to information exchange and cooperation in relation
to AML/FT that could occur with virtual assets.
It should be noted that the bill must go through the corresponding procedure in Congress,
until it is issued as a law of the Republic. Subsequently, the National Government will have
to issue the corresponding regulations in terms of regulatory Decrees of the MFPC, and
subsequently, External Circulars and the development of SFC procedures. Likewise, work
must be done for the development of human and technical capacities for supervision.
1
Immediate” is within one year; “NT-near-term” is 1–3 years; “MT-medium-term” is 3–5 years.

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Annex VI. Understanding Colombia’s Low Saving Rate1


Colombia’s saving rate has been persistently lower than the global average, and lower than the level
implied by traditional determinants of cross-country saving rates, such as income levels, demographics,
institutions, and foreign capital availability. Identifying and addressing the potential frictions that
depress national savings would be important for long-term competitiveness, innovation, and sustained
growth.

Stylized Facts about Colombia’s Saving Rate

1. Colombia’s saving rate, while in line with the regional peers, has been lower compared
to emerging economies outside of Latin America. Gross national savings in Colombia has
fluctuated between 10-20 percent of GDP and averaged 17 percent between 1980-2023. While
Colombia’s saving rate has tracked closely the Latin America regional average, it has stayed well
below the levels observed in other regions (20 percent or above for North America and Europe, and
around 30 percent for Asia) and the emerging market average of 19 percent. Importantly, while Latin
America’s saving rate has recovered to pre-pandemic levels, Colombia’s saving rate has continued to
decline.
Gross National Savings Saving and Export Price
(Percent of GDP) (Percent of GDP (LHS), Index (RHS))
35 Colombia
25 200
East Asia & Pacific 180
Europe & Central Asia
30 Latin America & Caribbean 20 160
North America
140
25 15 120
100
20 10 80
Saving rate 60
15 5 40
Real Export Price (2019 = 100,
20
RHS)
10 0 0
1980

1984

1988

1992

1996

2000

2004

2008

2012

2016

2020
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022

Sources: WEO and staff elaboration. Regional averages are Sources: Haver and staff elaboration. Saving rate is gross
simple averages. national savings over GDP. Real export price is the PPI-based
export price index deflated by nominal exchange rate.

2. As in other commodity-producing countries, Colombia’s saving rate tends to comove


with commodity prices. Historically, Colombia’s saving rate tends to be higher during and
following years of commodity price booms (e.g., early 1980s and late 2000s). Such high correlation
between saving and commodity prices is frequently observed in commodity producing countries
and reflects the tendency to save windfalls from commodity booms (Adler and Magud, 2013). The
more recent decline of the saving rate from a peak of 20 percent of GDP could be partly attributed

1 Prepared by Vu Chau.

INTERNATIONAL MONETARY FUND 69


COLOMBIA

to a worsening of the terms of trade that started with the collapse of oil prices in late 2014, although
they have recovered temporarily due to the recent rising in geopolitical tensions.

3. Changes in aggregate saving has Savings in Colombia: Public versus Private


typically been driven by private saving, (Percent of GDP)
although public saving contributes more to the 25

decline in recent years. Private saving dominates 20


public savings by magnitude and tends to
correlate better with changes in aggregate saving. 15

Private saving is also negatively correlated with 10


public saving (correlation = -0.42), in part
reflecting the counter-cyclical role the 5

government often plays. More generally, public 0


saving has played a larger role in explaining the Public Private Total
aggregate savings decline since 2016 (where -5

1995
1980
1983
1986
1989
1992

1998
2001
2004
2007
2010
2013
2016
2019
2022
Colombia starts to diverge from the regional
average, see ¶1), contributing over half of the Sources: WEO and staff elaborations.
decline (compared to a median contribution of
around 15 percent in earlier periods).

Explaining Colombia’s Low Saving Rate

4. There is an extensive literature on the determinants of cross-country saving rates.


Saving rates could vary depending on the income level, as countries tend to save less when income
is low and increase the saving rate as they get richer to smooth consumption (Barro, 1991). After
reaching a peak, saving rate could fall with income since the abundance of accumulated capital
stock reduces the returns on saving (Antras, 2001). Edwards (1996) finds that aggregate savings
could be low if public savings are low, as private savings would not move to sufficiently offset public
savings when agents are non-Ricardian. Demographics is also an important driver, as the working-
age population is more inclined to save (Coeurdacier et. al., 2015). Other explanations include the
availability of foreign capital, which could substitute for domestic saving, and political
instability/weak institutions, which tends to depress public saving (Edwards, 1996; IMF, 2018).

5. Using an updated dataset for 65 countries, we perform a similar empirical exercise on


the determinants of savings and draw lessons for Colombia. We revisit the cross-country
regression of saving rates on potential determinants (Barro, 1991) with an updated dataset covering
65 countries between 1980-2023. The determinants considered are motivated by the literature
reviewed above and include: GDP per capita, GDP per capita squared (to capture the humped-shape
relationship of saving and income), public saving/GDP,2 working-age share of total population,

2 While public saving is a part of domestic saving, the inclusion of public saving as a RHS variable serves to test the
response of private saving: if private agents are Ricardian and anticipate that lower public saving today will be
compensated by higher taxes in the future, they will increase private saving one-to-one to prepare for those future
taxes. Under that null hypothesis, the coefficient on public saving would be zero.

70 INTERNATIONAL MONETARY FUND


COLOMBIA

financial development index, current account/GDP (to proxy for foreign capital availability),3 and a
political stability index.4 We perform two panel data OLS regressions, with one including only time
fixed effects to account for global economic cycles (column 1 in table below), and another including
both time and country fixed effects to account for potential country-specific omitted variables
(column 2).

6. Cross-country regression results confirm that Colombia’s saving rate is roughly


5 percent of GDP below fundamental levels:

Panel Data OLS Regressions (1980-2023)


General Findings. The saving rate rises
Dependent Variable: Saving Rate
with income (positive coefficient for log
GDP), although there is a humped- (1) (2)

shape relationship (i.e., saving rate will Log GDP 8.61*** 26.14**

start to fall again after income reaches (2.90) (10. 31)

a threshold), as shown by the negative Log GDP squared -0.38** -1.16*

coefficient for log GDP squared. (0.17) (0.60)

Aggregate saving is also positively Public saving / GDP 0.31*** 0.43***

associated with public saving, (0.03) (0.04)

supporting the notion that stronger Working-age population 0.25*** 0.67***

public finances lead to higher overall (0.06) (0.13)

domestic savings (non-Ricardian in the Financial development 1.71 2.39

long-run). A higher working-age (1.34) (2.25)

population is associated with higher Current account / GDP 0.32*** 0.24***

aggregate saving, as well as the degree (0.06) (0.05)

of financial development, although the Political stability -0.18** 0.04

latter is not statistically significant. This (0.09) (0.05)

is consistent with the IMF’s EBA Constant -42.66*** -163.57***

methodology (IMF, 2018) and Chinn, (13.58) (46.54)

Eichengreen, and Ito (2011), where the Fixed effects Time Time & Country

current account is not found to be No. observations 1750 1750

significantly associated with measures R-squared 0.44 0.35

of financial development. While a more financially developed market creates more instruments for
saving, it also reduces the need for precautionary savings, thus the impact on saving is not as clear
as it is for investment. Political stability has a negative effect on savings in column 1, which points to

3 In a world with perfect capital mobility, domestic saving and domestic investment will be uncorrelated, a point
made by seminal work by Feldstein and Horioka (1980). In this case, the coefficient in front of the current account, or
saving net investment, would be 1. At the other extreme, in a world without any foreign capital, domestic investment
has to be financed entirely by domestic savings, so the current account (S-I) will reflect factors orthogonal to savings,
and the coefficient would be 0. Including the current account as a RHS variable would be an appropriate proxy for
the availability of foreign financing.
4 Data on GDP, current account, and public saving are from the World Economic Outlook. The financial development
index captures both a measure of financial markets and institutions development and is constructed by the IMF.
Demographics information is provided by the World Bank’s World Development Indicators. Finally, the political
stability index is constructed by the Polity5 Project.

INTERNATIONAL MONETARY FUND 71


COLOMBIA

a pre-cautionary channel (i.e., private agents have a higher desire to save in environments with more
risks), though that effect disappears in column 2 when controlling for omitted variables.5 Finally, the
coefficient of the current account balance is significant, positive, and less than one, indicating that a
higher extent of foreign capital availability crowds out domestic saving (more foreign-financing
current account deficit is associated with lower domestic savings), though in a less than one-to-one
fashion (foreign capital is an imperfect substitute of domestic capital).

Colombia Findings. The estimated country fixed effects for Colombia from the regression above is -
5 percent, indicating that the saving rate of Colombia is well below the level that is consistent with
Colombia’s level of income, demographics, public saving, and foreign capital availability. This finding
is consistent with the IMF’s EBA model, which looks at the difference between saving and
investment, suggesting that low saving rather than high investment is the driver of Colombia’s high
current account deficit. One missing factor that could explain the low saving rate is taxation
(Cardenas and Escobar, 1998), as higher profit taxes reduce the net rate of returns. Further work will
be needed to explore other potential omitted variables.

5 Barro (1996) points out that while controlling for country fixed-effects could help avoid omitted variables bias, they
also remove the cross-country comparison that is the value of a panel data set, leaving researchers with only within-
country variations that could be noisy (especially important for political stability, as that measure varies more slowly
over time).

72 INTERNATIONAL MONETARY FUND


COLOMBIA

References
Adler, Gustavo, and Nicolas E. Magud, 2013, “Four Decades of Terms-of-Trade Booms: Saving-
Investment Patterns and a New Metric of Income Windfall,” (Washington: International
Monetary Fund, 2013).

Antras, Pol, 2001, "Transitional Dynamics of the Savings Rate in the Neoclassical Growth Model," V
Manuscript.

Barro, Robert J, 1991, "A Cross-Country Study of Growth, Saving, and Government," National Saving
and Economic Performance, pp. 271-304, (University of Chicago Press).

Barro, Robert J, 1996, "Determinants of Economic Growth: A Cross-Country Empirical Study."

Cardenas, Mauricio, and Andrés Escobar, 1998, "Saving Determinants in Colombia: 1925–1994,"
Journal of Development Economics, Vol. 57, Issue 1, pp. 5-44.

Coeurdacier, Nicolas, Stéphane Guibaud, and Keyu Jin, 2015, "Credit Constraints and Growth in a
Global Economy," American Economic Review, Vol. 105, No. 9, pp. 2838-2881.

Edwards, Sebastian, 1996, “Why are Latin America’s Savings Rates So Low? An International
Comparative Analysis,” Journal of Development Economics, Vol. 51.1, pp. 5-44.

INTERNATIONAL MONETARY FUND 73


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Annex VII. Energy Transition – Authorities’ Policies


1. The Petro administration has placed the energy transition among its top policy priorities
from the outset, emphasizing its importance in fighting climate change and reducing Colombia’s
economic dependence on hydrocarbons in the context of the global energy transition. To clarify the
objectives and policies underlying the energy transition, the authorities recently published a draft
Roadmap for the Just Energy Transition (JET), centered around four pillars:

• Equity and democratization: ensuring social, environmental, and energy justice and equity;
promoting greater democracy regarding ownership and management of energy.

• Gradualness, sovereignty, and reliability: gradual replacement of the energy matrix while
ensuring national energy security.

• Social participation: giving greater influence to communities affected by the energy transition;

• Knowledge development: leveraging the energy transition to reactivate industrial and agricultural
sectors; creating alternatives to the extractive economic model.

2. On the demand side, policies will aim to promote the electrification of transportation fleets,
industrial processes, and residential uses; increase the adoption of alternative energy such as
bioenergy, hydrogen, and solar; and develop infrastructures supporting with the transition, such as a
multimodal transport system combining land, rail, and river. Besides acting through national
programs and regulatory frameworks, the authorities also consider creating incentives (e.g., for the
adoption of electric vehicles) or financing mechanisms (e.g., low-interest loans and financial
guarantees to facilitate adoption by industrial enterprises). Notably, the JET strategy lacks details on
policies to reduce emissions from agriculture and land use, even though the sector accounts for
more than half of greenhouse gases emission in the country.

3. On the supply side, the JET will involve not issuing new contracts for hydrocarbon extraction
and concessions for open-pit mining; developing green hydrogen production for domestic use and
exports; and increasing the use of renewable resources (biogas, biomass, geothermal, solar, wind).
Policies would include (but not be limited to) developing regulations and frameworks around the
goals of JET, advancing mining closures and retirements of coal-fired power plants, promoting the
diversification of Ecopetrol’s green investments, and ensuring sufficient gas supply for the transition.

4. Policies would also focus on reindustrialization, including by investing in retrofitting existing


infrastructures to store and transport alternative energy sources and increasing value chain
participation (e.g., local manufacturing or assembly of components needed for the energy
transition). The energy transition strategy also entails labor market policies to transition workers
from affected sectors into new sectors, ensuring a just and smooth transition.

74 INTERNATIONAL MONETARY FUND


Annex VIII. Recommendations of the 2023 Article IV Consultation
and Authorities’ Actions
Fund Recommendation Policy Action
Monetary Policy
Further hikes in the policy rate may be needed In response to inflation pressures, the central bank
depending on the evolution of factors, including increased the policy rate twice in 2023Q1 and kept it at the
actual inflation, inflation expectations, and demand same level until November. In December, Banrep cut its
conditions. Based on currently available information, policy rate by 25bps. Based on one-year ahead inflation
a tight monetary policy stance-with the policy rate expectations, the ex-ante real rate (around 7 percent) was
above the neutral rate- would need to be maintained between 400 and 500 basis points above the neutral rate
beyond 2023 to durably restrain internal demand by end-2023.
and anchor inflation expectations.
Financial Sector
Close monitoring of consumer leverage and financial The authorities continue closely monitoring financial sector
conglomerates’ exposure to Central America should vulnerabilities, while reinforcing an already sound
continue. Also, progress in the implementation of the regulatory framework, including by (i)improving data
2022 FSAP needs to continue. collection on household balance sheets: (ii)strengthening
stress-testing and systemic risk analysis; and (iv) enhancing
the monitoring of financial conglomerates’ exposure to
Central America, including TA from the Fund.
Fiscal Policy
Staff considered that the proposed fiscal adjustment With the support from higher taxes, the fiscal consolidation
for 2023 by the authorities (under the 2023 Financing continued in 2023. However, there was not
Plan), which was one of the larger one-year overperformance with respect to the target deficit given by
consolidations in decades, was appropriate. In the fiscal rule. The Central Government continued its
addition, beyond 2023, further improvements in payments to FEPC.
fiscal balances over the fiscal rule path should be
considered to ensure convergence to the debt
anchor.
Structural Reforms
Planned reforms on healthcare, pensions, and labor Social reforms (healthcare, pensions, and labor) were
markets would need to be formulated in compliance submitted to Congress. The authorities have emphasized
with fiscal rules while appropriate balancing equity, that the fiscal cost of reforms will be in compliance with the
efficiency, and sustainability considerations. Also, a fiscal rule. Regarding energy transition, a final government
well-designed and executed energy transition and decision regarding oil exploration and exploitation is
export diversification plan is vital to secure medium- pending.
term sustainability and resilience.

INTERNATIONAL MONETARY FUND 75


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STAFF REPORT FOR THE 2024 ARTICLE IV
March 8, 2024 CONSULTATION—INFORMATIONAL ANNEX

Prepared by: The Western Hemisphere Department


(In collaboration with other Departments)

CONTENTS

FUND RELATIONS _____________________________________________________________________ 2

RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS ___________ 5

STATISTICAL ISSUES __________________________________________________________________ 6


COLOMBIA

FUND RELATIONS
(As of January 31, 2024)

Membership status: Joined: December 27, 1945; Article VIII.

General Resources Account:


SDR million Percent Quota
Quota 2,044.50 100.00
IMF Holdings of Currency (Holdings Rate) 5,299.69 259.22
Reserve Tranche Position 494.81 24.20

SDR Department:
SDR million Percent Quota
Net cummulative allocation 2,697.88 100.00
Holdings 2,537.31 94.05

Outstanding Purchases and Loans:


SDR million Percent Quota
Flexible Credit Line 3,750.00 183.42

Latest Financial Arrangements:


In million of SDR
Date of Expiration Amount Amount
Arrangement Date Approved Drawn
FCL Apr 29, 2022 Apr 28, 2024 7,155.70 0.00
FCL May 01, 2020 Apr 28, 2022 12,267.00 3,750.00
FCL May 25, 2018 Apr 30, 2020 7,848.00 0.00

Projected Payments to the Fund (in SDR million):


Forthcoming
2024 2025 2026 2027 2028
Principal 1875.00 1875.00
Charges/interest 167.47 73.82 8.60 6.58 6.58
Total 2042.47 1948.82 8.60 6.58 6.58

Implementation of HIPC Initiative: Not applicable.

Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable.

Exchange Arrangements: Colombia’s currency is the Colombian peso. Colombia’s de jure exchange
rate arrangement is free floating, and the de facto exchange rate arrangement is classified as
floating. All foreign exchange transactions are conducted at the market-determined exchange rate.
Colombia has accepted the obligations under Article VIII, Sections 2(a), 3, and 4, of the IMF’s Articles

2 INTERNATIONAL MONETARY FUND


COLOMBIA

of Agreement and maintains an exchange system free of restrictions on the making of payments
and transfers for current international transactions and multiple currency practices.

Article IV Consultation: The last Article IV Consultation was concluded on March 23, 2023
(IMF Country Report No. 23/120).

FSAP Participation and ROSCs: The FSAP took place in 2000 and was updated in 2008, 2013, and
2022. A data ROSC took place in 2006 and a fiscal ROSC in 2003.

Technical Assistance:

Department Time of Delivery Purpose


FAD Aug. 2016 Discussion of the 2017 structural tax
reform
STA Dec. 2016 National Accounts
FAD Feb. 2017 Revenue Administration
FAD Mar. 2017 Fiscal Transparency Assessment
STA Jun. 2017 National Accounts
FAD Aug. 2017 Tax and Customs Administration
FAD Sep. 2017 Treasury Management
STA Sep. 2017 National Accounts
STA Nov. 2017 Government Finance Statistics
STA Dec. 2017 National Accounts
STA Apr. 2018 Sectoral Accounts
STA Apr. 2018 Residential Property Prices Indices
STA May. 2018 National Accounts
STA Sep. 2018 Residential Property Price Index
FAD Oct. 2018 Tax Administration
STA Oct. 2018 Consumer Price Index
STA Dec. 2018 Sectoral Accounts
FAD Mar. 2019 Compliance and Core Procedures
FAD Mar. 2019 Fiscal Rule and Fiscal Risks
STA Mar. 2019 Sectoral Accounts
FAD Apr. 2019 Energy Subsidy Reform
FAD Aug. 2019 Establishing a debt anchor and updating
the fiscal rule

INTERNATIONAL MONETARY FUND 3


COLOMBIA

Department Time of Delivery Purpose


FAD Oct 2019 Strengthening the fiscal risk management
office and managing fiscal risks from SOEs
Sectoral accounts
STA Apr 2020
FAD Jul 2020 TADAT Assessment
FAD Oct 2020 BRP Treasury Reporting
STA Apr. 2021 Fiscal and Public Debt Data Compilation
STA Apr. 2021 Improve Capacity for Residential Property
Price Index
ICD Sep. 2021, Nov. Strengthening Macro-Fiscal Analysis and
2021, Jan. 2022, Forecasting Capacity.
Mar. 2022, Jul. 2022,
Oct. 2022
STA Aug. 2021 Compilation of Financial Soundness
Indicators (FSIs)
FAD Aug. 2021 Revenue Administration

FAD Nov. 2021 Strengthening Fiscal Risks Analysis and


Reporting
MCM Sep. 2022 Assessment of Financial Stability Report

Public Financial Management-Inception


FAD Mar. 2023 Mission
MCM Mar. 2023 Contagion Risk Analysis

Data Management and Operations


STA Jul. 2023 Mission.
Funding Program Assessment-Colombia:
FAD Jul. 2023 Revenue Administration.
STA Oct. 2023 Monetary and Financial Statistics
STA Nov. 2023 Government Financial Statistics

Bases to improve customs compliance by


FAD Nov. 2023 adopting comprehensive risk management.
Systemic Risk Analysis- IFRS 9 Developing
MCM Nov. 2023 an Expected Loss Model.

Jun. 2023, Sep.-Dec.


2023, Jan. -Mar. Macroeconomic Frameworks-Minsitry of
ICD 2024 Finance-CARF
Macroeconomic Frameworks-Ministry of
ICD Oct. 2023 Finance.

4 INTERNATIONAL MONETARY FUND


COLOMBIA

RELATIONS WITH OTHER INTERNATIONAL FINANCIAL


INSTITUTIONS
World Bank Group:

• Country page: https://www.worldbank.org/en/country/colombia

• Overview of Word Bank Group lending to Colombia:


http://financesapp.worldbank.org/en/countries/Colombia/

• IBRD-IDA project operations:


http://projects.worldbank.org/search?lang=en&searchTerm=&countrycode_exact=CO

Inter-American Development Bank:

• Country page: https://www.iadb.org/en/countries/colombia/overview

• IADB’s lending portfolio: https://www.iadb.org/en/countries/colombia/projects-glance

INTERNATIONAL MONETARY FUND 5


COLOMBIA

STATISTICAL ISSUES
(As of February 26, 2024)

I. Assessment of Data Adequacy for Surveillance

General. Provision of macroeconomic statistics is adequate for surveillance.

National Accounts: The National Department of Statistics (DANE) is responsible for compiling the
national accounts, and the Banco de la República (BdR) compiles the financial accounts and stocks
according to the 2008 SNA. Annual and quarterly estimates of GDP by the production and
expenditure approaches use 2015 as the reference year for the annually chained volume measures;
in addition, a monthly indicator for monitoring the economy is disseminated. Furthermore, the
accounts and tables identified as minimum requirements and recommended for implementation of
the 2008 SNA are compiled regularly, as listed below: annual value added and GDP at current and at
previous year prices, and chain-linked volume series by economic activity; annual expenditure GDP
components at current and at previous year prices, and chain-linked volume series; components of
annual value added at current prices by economic activity; the sequence of accounts for the
economy as a whole (up to net lending) with annual frequency; annual accounts of the rest of the
world (up to net lending); quarterly value added and GDP at current and chain-linked volume series
by economic activity; quarterly expenditure GDP components at current and chain-linked volume
series; and annual supply-use tables. During 2016-2020, IMF STA assisted DANE and BdR in
developing quarterly financial and non-financial accounts by institutional sector. Since June 30,
2021, BdR, jointly with DANE, began compiling and disseminating the “Integrated Quarterly National
Accounts by Institutional Sector.”

Price Statistics: DANE is also responsible for price statistics and currently compiles and
disseminates the consumer price index (CPI) and the producer price index (PPI) monthly. The CPI
basket and weights were updated in 2019, with the support of STA technical assistance, based on
2016/17 household expenditures. The producer price index (PPI) was redesigned in 2015 using a
weighting structure from the year 2011 and covers agriculture, livestock, fishing, mining, and
industry. DANE also publishes a quarterly new home price index (IPVN). The IPVN covers the capital
Bogotá only.

Government Finance Statistics: The Ministry of Finance and Public Credit (MFPC) is responsible for
the compilation of public revenue, expenditure, and financing data. The Colombian authorities are
working to adopt the Government Finance Statistics Manual (GFSM) 2014 framework, enhance inter-
institutional coordination, and increase the resources allocated to compiling government finance
statistics. The latest reported data has been published in the Government Finance Statistics
Yearbook (GFSY). Next steps include aligning classification of revenue and expenditure with GFSM
2014 framework, improving consolidation, adopting a common list of public sector entities, and
disseminating high-frequency data on a national and international level. The General Accounting
Office (GAO) developed a single accounting framework for the public sector based on International
Public Sector Accounting Standards and maintains a financial management information system

6 INTERNATIONAL MONETARY FUND


COLOMBIA

containing accounting information of all public sector units. The MFPC’s Macroeconomic Policy Unit
and the GAO developed a bridge table that converts national accounting classification to the GFSM
2014 framework to compile GFS on accrual and cash bases.

Monetary and Financial Statistics: The classification of financial instruments and economic sectors
follows the 2016 Monetary and Financial Statistics Manual and Compilation Guide (MFSMCG). The
BdR reports the Standardized Report Forms (SRFs) 1SR for the central bank, 2SR for the other
depository corporations (ODCs), and 5SR for monetary aggregates for publication in the IMF's
International Financial Statistics (IFS) on a monthly basis with a lag of two months for the 1SR and
4 months for the 2SR.

The BdR reports data on several series indicators of the Financial Access Survey (FAS) including
mobile and internet banking, mobile money, gender-disaggregated data, and the two indicators
(commercial bank branches per 100,000 adults and ATMs per 100,000 adults) adopted by the UN to
monitor Target 8.10 of the Sustainable Development Goals (SDGs).

Financial Sector Surveillance: Colombia has reported Financial Soundness Indicators (FSI)
beginning from 2005. Colombia reports all 13 core and 8 additional FSIs for deposit takers on a
monthly basis according to the list of FSIs prescribed in the 2019 Financial Soundness Indicators
Compilation Guide. The FSIs along with metadata and the underlying series are available on the
IMF’s data portal (http://data.imf.org/).

External Sector Statistics: The BdR is in charge of compiling and disseminating quarterly balance of
payments and international investment position (IIP) statistics, which are produced on a sixth edition
of the Balance of Payments and International Investment Position Manual (BPM6) basis. Improved
surveys, particularly in the services sector, have enhanced the coverage of balance of payments
statistics. Recording of transactions in securities between residents and nonresidents in secondary
markets could be improved. The BdR also compiles and disseminates the monthly Data Template on
International Reserves and Foreign Currency Liquidity, reports semi-annual data to the Coordinated
Portfolio Investment Survey (CPIS), and submits quarterly external debt statistics to the Quarterly
External Debt Statistics (QEDS) database. However, Colombia has not reported data to the
Coordinated Direct Investment Survey (CDIS) yet.

II. Data Standards and Quality

Colombia subscribes to the Special Data Dissemination Standard (SDDS) since 1996 and metadata
are posted on the Fund’s Dissemination Standards Bulletin Board (DSBB).

INTERNATIONAL MONETARY FUND 7


COLOMBIA

Colombia: Table of Common Indicators Required for Surveillance


(As of February 26, 2024)
Date of Latest Frequency of Frequency of Frequency of
Observation Date Received Data1 Reporting1 Publication1

Exchange Rates Feb. 26, 2024 Feb. 26, 2024 D D D

International Reserve Assets and


Reserve Liabilities of the Jan. 2024 Feb. 2024 M M M
Monetary Authorities 2

Reserve/Base Money Feb. 2, 2024 Feb. 22, 2024 W W W

Broad Money Feb. 2, 2023 Feb. 22, 2024 W W W

Central Bank Balance Sheet Jan. 2024 Feb. 2024 M M M

Consolidated Balance Sheet of


Nov 2023 Feb. 2024 M M M
the Banking System

Interest Rates3 Feb. 22, 2024 Feb. 22, 2024 D D D

Consumer Price Index Dec. 2023 Feb. 2024 M M M

Revenue, Expenditure, Balance


and Financing Composition4 – Q4 2022 Dec. 2023 Q Q Q
General Government (GG)5

Revenue, Expenditure, Balance


and Financing Composition4 – Nov. 2023 Jan. 2024 M M M
Central Government

Stocks of Central Government


and Central Government- Jan. 2024 Feb. 2024 M M M
Guaranteed Debt 6

External Current Account Balance Q3 2023 Dec. 2023 Q Q Q

Exports and Imports of Goods Dec. 2023 Feb. 2024 M M M

GDP/GNP Q4 2023 Feb. 2024 Q Q Q

Gross External Debt Nov. 2023 Feb. 2024 M M M

International Investment Position7 Q3 2023 Dec. 2024 Q Q Q


1
Daily (D); Weekly (W); Monthly (M); Bi-monthly (B); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).
2
Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term
liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive
foreign currency, including those linked to a foreign currency but settled by other means.
3
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
4
Foreign, domestic bank, and domestic nonbank financing.
5
The GG consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local
governments.
6
Including currency and maturity composition.
7
Includes external gross financial asset and liability positions vis-à-vis nonresidents.

8 INTERNATIONAL MONETARY FUND


1

Statement by Juan Sebastian Betancur Mora, Alternate Executive Director for Colombia
March 25, 2024

On behalf of the Colombian authorities, I thank staff for their engaged dialogue and feedback
throughout the Article IV Consultation. The perspectives shared during these sessions serve as an
essential guide for Colombian policymakers.

Colombia is well-advanced in transitioning towards a more sustainable macroeconomic


situation after a period of exceptional GDP growth, high inflation, a large external deficit,
and rapid loan portfolio growth. The country’s very strong macroeconomic framework
continues to work effectively, with tight policies playing a pivotal role in reducing sources of
overheating and containing risks. Credit spreads and sovereign bond yields have corrected
substantially, reflecting lower—although still above historical averages—risk premia. In contrast
to the 2022–2023 period, 2024 is expected to show heightened economic policy trade-offs. The
calibration of economic policies needs to balance the objectives of bringing inflation to the target
by mid-2025, ensuring fiscal and external sustainability, and keeping output and employment in
line with trend levels in a context of rapid deceleration of economic activity. External risks,
stemming from geopolitical tensions, economic fragmentation, and the high volatility of
international capital markets, remain elevated and affect the country’s outlook. The Flexible
Credit Line is highly valuable to the authorities and contributes to complementing external
liquidity buffers. The authorities remain fully committed to the solid macroeconomic policy
framework that has helped the Colombian economy navigate various shocks in the past and will
continue to do so in the future. In parallel, the government is advancing a structural agenda to
unlock inclusive growth capacity, implement a prudent energy transition, and strengthen the
social safety net. These initiatives have been formulated within the existing fiscal policy
framework.

Recent Developments and Outlook

After a rapid recovery from the pandemic, the Colombian economy entered a period of
adjustment towards a more sustainable path. After an annual growth rate of 7.3% in 2022
and 10.8% in 2021, the Colombian economy grew by 0.6% in 2023. While below the central bank’s
forecast of 1%, the slowdown in economic activity was not a surprise in the midst of a period of
monetary, fiscal, and financial policy tightening. It should be noted that year-on- year changes only tell
half the story, as output and consumption levels are still above the pre- pandemic trend; however,
investment did decline in 2023, and its levels are below the pre- pandemic trend. The dynamics of
investment seem to reflect the ongoing macroeconomic adjustment and also specific sectoral bottlenecks,
which the government is currently trying to address. For 2024, growth is expected to remain weak, with
consumption growing at low rates and investment gradually recovering.

Inflation has been declining steadily but remains above the central bank’s target of 3%.
The annual inflation rate was 7.7% in February 2024, 5.6 percentage points below the peak
(13.3%) reached in March 2023. The latter reflects a fast pace of disinflation, despite the sizable
but necessary increase in regulated fuel prices, which rose more than 50% in 2023. Since 2023,
food inflation, which explained an important part of the surge in overall prices, has fallen
significantly and now stands at 1.9% after reaching more than 27% in 2022. Colombia’s
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inflation, similarly to other economies in the region, has been relatively sticky, which might be
explained by significant increases on the minimum wage, price indexation, the elimination of
fuel subsidies, and the sharp depreciation of the exchange rate in 2021 and 2022. The central
bank forecasts a decrease in inflation to 5.9% by the end of 2024 and expects it to reach the 3%
target by mid-2025. The main risks for the inflation outlook are a higher degree of persistence in
service price inflation, increases in regulated prices, and El Niño. The latter two could generate
new pressures on domestic food and energy prices.

The external position is assessed by staff as in line with the level implied by medium- term
fundamentals and desirable policies. Lower levels of domestic demand have helped reduce
Colombia’s current account deficit, diminishing external vulnerability. The current account
deficit decreased from 6.2% in 2022 to 2.7% of GDP in 2023 and is expected to remain stable at
around 2.9% of GDP in 2024. Apart from the significant adjustment in domestic demand, the
resilience of non-traditional exports and the positive performance of service exports have also
contributed to a more balanced external account.

Monetary Policy, Exchange Rate, and External Buffers

Colombia follows an inflation-targeting regime with a highly flexible exchange rate, which
allows the central bank to respond swiftly to macroeconomic shocks. Starting in September
2021, the central bank increased interest rates by 11.5 percentage points, the policy rate reached
13.25% in May 2023 and remained unchanged at that level until December 2023. As highlighted
in the staff report, this contractionary policy has contributed to reducing inflation and inflation
expectations.

The central bank has publicly stated that its aim is to bring inflation to the target by mid-
2025. The authorities note that their forecasts of inflation through 2025 are broadly aligned
with IMF staff calculations. Communicating monetary policy decisions at this juncture has been a
challenging task. The authorities have sent the message that monetary policy will remain contractionary
throughout 2024 to ensure convergence of inflation towards the 3% target. However, given the highly
uncertain outlook, they have not committed to any specific path for the interest rate and have emphasized
that they will act cautiously and follow a data-dependent monetary policy approach, with the clear aim of
bringing inflation to target by mid-2025. Following this approach and after 8 months of downward
inflation, the Board of Directors began a cycle of reductions in the policy rate in December 2023, with a
monetary policy rate that currently still stands at 12.75%.

Last year, the Colombian peso outperformed its regional peers and corrected the
depreciation observed in 2021 and 2022. The exchange rate appreciation of more than 20% in
2023 contributed to the reduction of inflation. Risk premia have fallen, and sovereign bond yields
have also seen a sizable decline, although their current levels are still above historical averages.

At the December 2023 meeting, the Board of Directors of the Central Bank announced a
reserve accumulation program of up to USD 1.5 billion, which aims to strengthen
international liquidity coverage ratios. This is a crucial decision, as it signals the authorities
commitment to maintaining an adequate level of reserves and external liquidity buffers in
anticipation of a gradual reduction of FCL access. The authorities made clear communication
regarding the objectives of the program, highlighting the importance of accumulating
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international reserves in a highly uncertain external environment. So far, the central bank has
accumulated USD 423.9 million of international reserves through this program without
producing any pressure on the level or volatility of the exchange rate.
Fiscal Policy

A Fiscal Rule and a Medium-Term Fiscal Framework govern Colombia’s fiscal policy. The
country has continuously enhanced its fiscal framework, supported by IMF recommendations,
including by linking structural primary balance targets to debt levels. Moreover, the country
created the Autonomous Fiscal Rule Committee, an independent council that enhances the public
debate on fiscal policy issues.

The significant fiscal consolidation process continued in 2023, and the government over-
complied with the fiscal rule for the second year in a row. Indeed, the headline deficit of the
general government declined by 4pp of GDP between 2022 and 2023 and closed at 2.5 percent.
This is the largest improvement since comparable data is available. Regarding the central
government, the primary deficit went down from 1% of GDP in 2022 to 0.3% in 2023, while the
total deficit decreased from 5.3% to 4.3% of GDP. These results mainly reflect higher revenue
mobilization from the 2021 and 2022 tax reforms—indeed, tax revenues reached historical
highs—and the bold measures taken by the authorities, including gradually phasing out fuel
subsidies. The central government’s net debt closed 2023 at 52.8% of GDP, below the 55% medium-term
anchor established by the Fiscal Rule.

The authorities remain firmly committed to continuing to comply with the fiscal rule
looking ahead. The latest Financial Plan for 2024 is aligned with the fiscal space provided by
the fiscal rule. The fiscal strategy balances the need to accommodate additional expenditure
pressures, promote public investment recovery, and ensure public finances sustainability. The
fiscal rule rightly provides flexibility to absorb transitions along the economic cycle as well as
sharp changes in volatile sources, like oil revenues, so that spending adjusts smoothly over time.
At the same time, the law requires a tight policy stance in 2024; the structural net primary
balance improves by 1,1pp compared to 2023. All in all, the fiscal deficit and public debt will
temporarily increase in 2024 to 5.3% and 57% of GDP. Acknowledging the risks surrounding the
fiscal scenario for this year, the authorities have pledged to take any measures to scale back
spending, if necessary, to meet the objectives and safeguard fiscal sustainability. In fact, the
latest Financial Plan already included a reduction in planned spending compared to the previous
fiscal scenario—contained in the 2023 Medium-Term Fiscal Framework. From a medium-term
perspective, the structural primary balance will continue to augment so that debt stabilizes
around the anchor, as stipulated in the law. The additional fiscal consolidation will be guided by
a gradual increase in non-oil revenues, including from the tax administration strategy and the
recovery of economic activity, as well as the gradual reduction of diesel subsidies.

Financial Sector

Following tighter monetary policy, tighter bank credit standards, and the economic
slowdown, the loan portfolio has recorded negative real growth rates since May 2023. The
consumer loan portfolio has seen the most significant decline, currently contracting 11% in real
terms after growing at a rate of more than 14% in July 2022. Although non- performing loans
have increased for all credit types, this expected deterioration has been contained.
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The financial burden of households (identified as a key indicator to follow in the last
Article IV) has fallen as a result of the significant drop in the real growth of consumer
loans and the lower dynamics of mortgage loans. Households’ debt-to-income ratio has
decreased in line with a recovery in the savings of these agents.
Financial institutions are highly resilient and have sufficient buffers to face the current
macroeconomic adjustment. The Colombian financial system maintains adequate levels of
capital and liquidity, well above Basel III requirements, and the provisioning coverage ratio
remains appropriate. The countercyclical provisioning scheme has worked as an effective
absorption mechanism, and the stress tests show that the financial system is highly resilient even
in tail risk scenarios. The Colombian authorities are strongly committed to continuing to
strengthen their regulatory framework through the implementation of the IMF
recommendations formulated in the recent FSAP. A close monitoring of cross-border exposures
and contagion risks will continue.

There is a serious commitment by the authorities to coordinate their actions and initiatives
through the Committee for Coordination and Oversight of the Financial System. The
existence of robust financial supervision and regulation, aligned with Basel III standards,
remains a cornerstone of Colombia’s macroeconomic policy framework. The authorities remain
open to engaging with relevant stakeholders ahead of administrative decisions.

Governance and transparency

The governance, transparency, and anti-corruption agenda has been strengthened, with all
relevant stakeholders actively participating in the formulation of regulatory measures. The
assets and income declarations of public officials are being published on an annual basis and in
accordance with the law. Regarding customs and anti-corruption issues, the National Tax and
Customs Directorate (DIAN) has promoted the publication of import, export, and transportation
declaration data in formats accessible to the general public. Likewise, in 2023, the apprehension
committee was created to increase the efficiency and effectiveness of the customs system.
Moreover, DIAN is applying AI to enhance its ability to detect corruption. The entity is also
working with the Directorate of Audit Management to promote due diligence in the reporting of
beneficial owners, using information from the Chamber of Commerce. Careful consideration of
legal constraints to facilitate the publication of this information is being assessed. In order to
prevent influence peddling in the use of public resources, the Transparency Secretariat is
developing different tools for managing corruption risks and promoting a culture of legality. At
the subnational level, public entities must have a Transparency and Public Ethics Program that
guarantees, among other things, internal policies of compliance, due diligence, and risk
management.

Final Remarks

The Colombian economy is going through a necessary adjustment phase after a recovery
from the pandemic that was characterized by exceptional growth rates of domestic
absorption and output. As anticipated, the loan portfolio is contracting, domestic demand is
adjusting, inflation is declining and converging towards the 3% target, and the external and fiscal
balances are reaching more sustainable levels.
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Against this backdrop, the authorities remain committed to maintaining very strong
economic fundamentals and institutional policy frameworks. Colombia has an independent
central bank with an inflation-targeting regime, a fully flexible exchange rate, and an adequate
level of international reserves. The country’s financial framework and regulation protocols meet
Basel III standards, and fiscal sustainability is ensured through the Medium-Term Fiscal
Framework and the Fiscal Rule, which, in the case of the latter, has been enhanced following IMF
recommendations.

Within this policy framework, the authorities have taken and continue to take decisive actions to
safeguard fiscal sustainability, ensure price stability, create the conditions for higher and more
inclusive medium-term growth, guarantee effective financial regulation and supervision while
encouraging better levels of financial inclusion in the country. These actions, together with the
maintenance of adequate external buffers through international reserves and the FCL, place
Colombia in a strong position to confront external risks. These macroeconomic policies and
institutions have proven effective in the past and will continue to play a crucial role in meeting
future challenges amid uncertain global developments.

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