Almost two and a half years after the beginning, peace negotiations remain the main focus of the current political agenda. Some agreements have been reached on three out of five topics (illegal drugs May 2014), rural development (agreement in June 2013), and political participation (agreement on December 2013). The two pending topics are end of the conflict, and victim’s compensation (currently on negotiation).
Under an effective macro policy management, Colombia’s growth was 4.6 percent in 2014 overcoming the initial effects of lower international oil prices. Growth in 2014 was above the regional average (1.5 percent GDP growth was, driven mainly by construction and services that helped compensate for a contraction in extractive activities. Growth in agriculture and manufacturing activities was modest. . From a demand point view, economic activity, pushed by internal private consumption and investment, which compensated for a slowdown in exports. Further decreases in oil prices and the tampering of US monetary policy will impact the Colombia economy in 2015, growth is expected to decrease to 3.5 percent.
Unemployment reached a record low (9.1 percent in 2014), following important reforms to reduce non-wage labor costs.
Fiscal management continues to be among the strongest in the region. The government has complied with the fiscal rule that was first instituted in 2012. In 2014, the structural fiscal deficit was 2.3% of GDP, similar to the level in in 2013 and in line with the fiscal rule. Lower than expected oil prices granted the government an additional 0.1% of GDP deficit, so that the central government deficit reached 2.4% of GDP in 2014. The structural fiscal deficit is expected to be on the order of 2.2% of GDP in 2015, but the sharp decrease in oil prices could lead the total central government deficit to 2.8% of GDP, allowing the government to temporarily accommodate a decrease in oil related revenues.
The public debt increased slightly in 2014 (from 37.2 % of GDP to 38.6%) following a higher balance in the bonds issued both internally and externally and the devaluation of the peso. Colombia continues to have ample access to both domestic and external financing. Regarding the government debt structure, there was increase in the average maturity of government debt which currently stands at more than 7 years compared to around 5 years in 2006, while the vast majority of government debt remains peso-denominated (76%) and fixed rate (94%).
The first agreement on rural development aims to transform the living conditions in Colombian rural areas, reversing the negative effects of violence through programs that close the social and economic gap between cities and the rest of the country. A reform agenda was agreed for land usage and taxation, rural development and agro incentives as a corner stone of the ongoing process. The second agreement reached established the basis of an eventual participation of the FARC in Colombian politics. It included rights and guarantees for new political parties that may emerge after a final peace deal, democratic mechanisms of citizen participation, and measures to promote more engagement in politics. Finally, the FARC agreed through the third point of the agenda to break any relationship with the illegal drugs business, while the GoC compromised to continue fighting illegal drug corruption and give greater priority to crop substitution and drug treatment programs.