Colombia’s presidential elections in June 2022 resulted in a victory for Gustavo Petro of the leftist coalition Pacto Historico. More than 22 million Colombians cast their votes, meaning a turnout of 58 %, the highest since 1998. Petro (Pacto Histórico) obtained 11,280,200 votes (50.4 %) and Rodolfo Hernandez (Liga de Gobernantes Anti-Corrupción) 10,579, 106 votes (47.3 %). The Petro administration's main priorities are consolidating peace, social justice, environmental justice, and change for women.
Colombia has a track record of prudent macroeconomic and fiscal management, anchored on an inflation targeting regime, a flexible exchange rate, and a rule-based fiscal framework, which enabled the economy to grow uninterrupted since 2000 and provided policy space to respond to the COVID-19 crisis.
The COVID-19 pandemic hit Colombia hard but supported by the prompt and decisive actions that the Government took to protect lives, livelihood, jobs, and firms, the economic activity has been recovering fast. By June 2021, it reached almost the same level as at the end of 2019, despite a temporary slow-down owed to mobility restrictions in April and protests and civil unrest in May.
However, Colombia confronted the crisis with unresolved challenges. Productivity growth has been a drag on (rather than a boost to) economic growth over the past twenty years. Exports are highly concentrated in non-renewable commodities (oil in particular), which increases the exposure of the economy to external shocks. Also, Colombia is one of the countries with the highest income inequality and labor market informality in Latin America. Finally, despite a prudent conduct of fiscal policy, the government’s debt-to-GDP ratio was on an upward trend since 2012, narrowing the space to increase the fiscal deficit.
The COVID-19 crisis exacerbated these vulnerabilities. The learning losses suffered with school closures or distance learning will weigh on labor productivity going forward and will put youth of low-income families in a disadvantageous position. While the introduction of the unconditional cash transfer program Ingreso Solidario and the program to compensate poor households for VAT alleviated the impact of the pandemic on poverty, the job and income losses suffered by households wiped off a decade of progress in reducing poverty. Finally, the effect of lower activity on taxes combined with the greater spending on health and on emergency measures substantially increased the debt-to-GDP ratio, and the country lost its investment grade rating.
The economy grew 10.6 percent in 2021 and is solidly back at 2019 levels before year-end. As the economy gets close to its potential over the medium term, growth is projected to slow down. Investment is expected to rebound gradually in 2022 as major infrastructure projects such as the 4G road network and the Bogota metro resume at full speed.
On the back of the fiscal reform package approved in September, which raises revenues over the medium-term and strengthens the fiscal rule, the fiscal deficit is projected to be set on a declining path starting in 2022. However, if the fiscal reform does not yield the expected reduction of the deficit, additional measures would be needed to set the deficit and debt-to-GDP ratio credibly and convincingly on a downward trajectory over the medium term.
Thanks to the continuation of emergency transfers and the economic recovery, 2.1 million people were estimated to escape poverty in 2021, based on the official poverty line. Nonetheless, around 18.9 million people will remain poor, against 17.5 million before the pandemic. Income inequality is expected to decline but remain above the already high pre-pandemic levels.
Over the medium-term, the outlook depends on the depth of the scars left by the COVID-19 crisis, on the confidence of economic actors about the government’s ability for stabilizing the fiscal situation and containing the debt levels, and prospects for addressing existing structural bottlenecks.
Last Updated: Jun 10, 2022