President Juan Manuel Santos began his second term in office on August 7th, 2014, which will end on August 7, 2018. After four years of negotiation and the approval of the six points of the agenda agreed in 2012: agricultural development policy; political participation; solution to the problem of illicit crops; victims of the conflict; end of the armed conflict; and implementation, verification and endorsement, the Colombian Congress approved on 30 November 2016 the new peace agreement between the Government of Colombia and the Revolutionary Armed Forces of Colombia (FARC-EP - Fuerzas Armadas Revolucionarias de Colombia-Ejercito del Pueblo). The agreement was signed on November 24 by President Santos and FARC leader, Rodrigo Londoño 'Timochenko', in Bogotá.
The Government and the FARC-EP initiated a definitive bilateral cease-fire on 29 August 2016, while the mobilization of the different FARC structures to the location areas covered by the agreement ended on February 18, 2017. After the concentration of the guerrillas, the process of abandoning the weapons continues, which will be verified by the UN Mission in Colombia.
Also, after three years of exploratory talks, the peace negotiation table between the Government and the National Liberation Army (ELN - Ejército de Liberación Nacional) was formally installed in Quito, on February 7, 2017. The delegations will address a six-point agenda: participation of society in peacebuilding process; democracy for peace; transformation for peace; victims; end of armed conflict; and implementation.
The economic adjustment to the major oil shock continued in 2016 and economic growth slowed to 2 percent. Colombia has faced one of the largest terms-of-trade shocks in the region and one of the largest in its history, estimated at about 4 percent of its Gross Domestic Product (GDP).
Nevertheless, the Colombian economy has been resilient to this shock, supported by the macroeconomic and structural reforms that have been implemented in recent years. In 2016, private consumption supported growth, although at a slower rate than expected. The economic outlook was weaker, especially for the extractive industries, due to greater uncertainty and slow implementation in publicly financed projects, which caused a decline in investment. As a result of fiscal consolidation efforts, public consumption growth also slowed. The weakness of domestic demand and the strong depreciation of the currency led to a sharp contraction in imports. As a result, despite a marginal decline in exports, net exports contributed 1.6 percentage points to economic growth.
The services sector remained the main contributor to growth due to the dynamism of financial, commercial and construction services, which partially offset the fall in the extractive sector. For its part, the agricultural sector was affected by the El Niño phenomenon.
In the period 2017 to 2019, a recovery in economic growth is expected, driven by the recovery of non-oil exports and oil prices, and the 4G infrastructure program. Inflation is converging towards the target range.
The continued compliance with the fiscal rule, instituted for the first time in 2012, shows that fiscal management remains strong. In 2016, the central government's structural fiscal deficit was 2.1 percent of GDP, while the actual fiscal deficit reached 4 percent of GDP as it takes into account the economic cycle and oil prices. In this context, the 2016 tax reform and cost containment measures are essential to continue fiscal consolidation and create room for post-conflict spending.
Colombia's flexible exchange rate regime is one of the first lines of defense against external shocks. The Colombian peso depreciated about 80 percent between mid-July 2014 and February 2016, before appreciating in mid-March 2017. Despite the depreciation, non-oil exports grew more slowly than expected due to weak demand from major trading partners. The current account deficit adjusted more than expected to 4.4 percent of GDP in 2016, although oil exports continued to decline. This appreciation, coupled with the effects of a contractionary monetary policy and the dissipation of the effects of the El Niño phenomenon on food prices, contributed to a marked slowdown in inflation. Due to the decline in inflation to 5.2 percent in February 2017 and growing external uncertainty, the monetary authorities reduced the benchmark rate three times by 25 basis points since December 2016 to reach a level of 7 percent.
Last updated: April 05, 2017