President Iván Duque Márquez, began his presidential term on August 7th, 2018, and it will end on August 7, 2022. Duque, from the Democratic Center party, won the elections by achieving 53.95% of the votes (10,351,304 votes) while his rival Gustavo Petro reached 41.83% (8,024,697 votes). The main pillars of its government are legality, entrepreneurship, and equity, with transversal axes in terms of: infrastructure, environmental sustainability and innovation.
Duque has insisted on austerity and responsibility in the management of public resources during his term. The 2019 Financing Law incentivizes investment, reducing the effective tax rate for firms from 2020 onwards, while also introducing some revenue measures to help support domestic revenues mobilization.
Colombia has been receiving a massive and accelerating inflow of migrants, from Venezuela, with approximately 1.2 million Venezuelans having arrived in Colombia as of September 2018 with the intention to stay. Colombia has taken a leading role in adopting an open borders policy and implementing good practices in the provision of services to migrants and support to host communities, from education to health to employment services and humanitarian aid. Colombia has weathered well the significant terms of trade shock faced over the 2014-2016 period. Economic growth decelerated gradually to an estimated 1.4 percent by 2017, before reaccelerating to 2.7 percent in 2018, with the soft-landing supported by sound macroeconomic policies and structural reforms undertaken in recent years. Over the last years the country underwent an important adjustment in the non-oil fiscal deficit in response to the decline in oil fiscal revenues of nearly 3.3 percent of GDP.
Growth is expected to strengthen at a moderate pace over the 2019-2021 period, as private consumption growth continues to accelerate, and investment spending is boosted by lower effective corporate taxes. Accommodative monetary policy and improved confidence will also support growth. Higher profitability in the oil sector is expected to incentivize investments in exploitation and exploration. A larger number of financial closings for the 4G projects and a pick-up in execution of existing projects augurs well for investment over the 2019-2020 period.
Inflation has converged to the targeted range in early 2018. Well-anchored price expectations and weaker economic activity, prompted the Central Bank to reverse its monetary policy tightening, cutting the policy rate gradually by a cumulative 350 basis points to 4.25 percent by early January 2018, maintaining a slightly accommodative monetary stance since then.
Colombia continues to maintain a solid macroeconomic framework. Key components of Colombia’s macroeconomic framework include the adoption of a full-fledged inflation-targeting regime, a flexible exchange rate, a Fiscal Rule (2011) for the central government, and a Medium-Term Fiscal Framework. The solid macroeconomic framework also helps build buffers and strengthen resilience to external shocks, facilitating external and domestic economic adjustment to potential shocks.
The post-conflict reconstruction efforts could provide a boost to confidence, and support growth through increased investments, particularly in the agriculture and energy sectors. It would however also put additional pressures on spending, making continued fiscal consolidation efforts necessary.
The government has showed commitment to fiscal discipline, complying with the fiscal rule instituted in 2012, which helped maintain its investment grade credit rating since 2013. The government is consulting with the Consultative Committee for the Fiscal Rule on the scope for the application of the fiscal rule to accommodate migration-related spending as surges in migration flows from Venezuela are likely to put additional pressure on fiscal accounts as demand for basic public services increases. Additional fiscal consolidation measures may be needed to comply with the fiscal rule, as starting with 2020 lower corporate income tax and tax discounts for VAT paid on capital goods kick-in in 2020 will weigh on tax revenues. Going forward the outlook depends on the country’s ability to address existing structural bottlenecks, sustain fiscal reforms, and diversify its economy to sustain higher productivity growth.
Last Updated: Apr 04, 2019