President Santos began his second term in office on August 7. Peace negotiations with guerrilla group FARC will remain a key topic in the political agenda. In May, 18 months after the beginning of negotiations, agreements have been reached on the third out of five topics (illegal drugs May 2014). Other two topics of agreement include rural development (agreement in June 2013), and political participation (agreement in December 2013). The two pending topics currently under discussion are the end of the armed conflict, and a strategy for the victims.
Under an effective countercyclical framework, Colombia’s growth was 4.7 percent in 2013 and is expected to reach 5 percent in 2014. Growth in 2013 was above the regional average (3.7 percent), although it was affected by lower international commodity prices, and disruptions in coal production. Economic activity accelerated towards the end of the year, driven by construction, agriculture and extractive activities. Strong economic activity, pushed by internal demand, help sustained high growth in the first quarter of 2014 (6.4% y/y), setting a positive tone for the year.
Unemployment reached a record low (9.6 percent in 2013), 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 2012, the structural fiscal deficit was 2.4% of GDP, it narrowed to 2.3% of GDP in 2013, and this year, we expect the structural fiscal deficit to be on the order of 2.3% of GDP again, which would be sufficient to meet the 2014 target.
The public debt increased slightly in 2013 (from 34.5 % of GDP to 37.3%) 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%).