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Colombia: Review Under the Flexible Credit Line Arrangement

Author(s):
International Monetary Fund. Western Hemisphere Dept.
Published Date:
June 2014
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Context

1. Colombia’s robust economic performance in recent years in large part reflects its skilled macroeconomic management accompanied by a very strong policy framework. Real GDP grew by 4.3 percent in 2013, following the expansion of 4.0 percent in 2012, on the back of supportive monetary and fiscal policies. A very strong policy framework—anchored by an inflationtargeting regime, a flexible exchange rate, a structural fiscal balance rule, and effective financial supervision and regulation—has also allowed the authorities to respond adequately to shocks and pursue effective demand management. The authorities have continued to improve the policy framework in recent years, by including a fiscal sustainability principle in the constitution; introducing a structural fiscal balance rule; overhauling the oil and mining royalties system; and implementing a comprehensive tax reform that replaced payroll taxes with a corporate income tax.

2. Nonetheless, the Colombian economy is exposed to significant external risks. Although the balance of risks for global growth has improved—largely reflecting better prospects in advanced economies—important downside risks remain for emerging market economies. Financial volatility could increase in response to geopolitical tensions, sensitivity in market expectations on the U.S. exit from unconventional monetary policy, and changes in emerging market fundamentals accompanied by weaker-than-expected medium-term growth prospects. A surge in risk aversion could result in higher costs of capital and lower growth for emerging economies, including Colombia. Colombia’s other external risks include: a sharp decline in commodity prices, especially oil; negative growth shocks in key trading partners; and adverse shocks in the region. These shocks could slow Colombia’s growth, reduce export and fiscal revenues, curtail foreign direct investment, cut foreign credit lines, increase the burden of debt service, and put pressure on the exchange rate and local asset prices.

3. Successive FCL arrangements have provided an important complement to Colombia’s strong policy framework and policy buffers to help it manage global tail risks. The Fund approved the first FCL arrangement for an amount of SDR 7.0 billion (900 percent of quota) on May 11, 2009, followed by a successor arrangement for SDR 2.3 billion (300 percent of quota) on May 7, 2010. In May 2011, a new two-year arrangement totaling SDR 3.9 billion (500 percent of quota) was approved. The current two-year arrangement, approved in June 2013, also provides access of SDR 3.87 billion (500 percent of quota). The authorities have reiterated that the successive FCL arrangements have enhanced the resilience of the Colombian economy in the face of adverse external shocks and have helped preserve favorable access to capital markets. The authorities consider the FCL arrangement as a complement to their international reserve buffers and continue to treat it as a precautionary instrument. During the period of increased volatility in financial markets following the tapering announcement by the U.S. Federal Reserve, the FCL arrangement has also helped Colombia restore orderly financial market conditions quickly and continue to strengthen their policy buffers.

4. Colombia is in the midst of presidential elections. Opposition candidate Mr. Óscar Iván Zuluaga and current President Mr. Juan Manuel Santos received 29.3 percent and 25.6 percent of the votes, respectively, in the first round of presidential elections held on May 25. The run-off election is scheduled for June 15 and inauguration will take place in August. The political campaign has focused on differences in their approach to the peace process, whereas the two candidates have similar economic policy agendas and both have track records of promoting very strong economic policies. Mr. Zuluaga served as Finance Minister between 2007 and 2010 under former President Uribe. During his term, he signed the requests for Colombia’s first and second FCL arrangements in May 2009 and May 2010, respectively, and began discussions on the adoption of a fiscal rule, which was later finalized by his successors. In his public campaign platform, Mr. Zuluaga has committed to maintaining very strong economic policies, including fiscal transparency and responsibility, and continued support for the country’s economic policy framework.

Recent Economic and Policy Developments

5. Real GDP growth rebounded strongly in the second half of 2013, while inflation remained within the target range. After slowing down between the second half of 2012 and the first half of 2013, growth accelerated to 5.2 percent y/y in the second half of 2013, driven by higher public investment and a solid expansion in private consumption. As of end 2013, the output gap was nearly closed. The expansion accompanied strong gains in employment, particularly in the formal sector of the economy, with unemployment declining to the lowest mark in the last decade. In April 2014, headline inflation rose to 2.7 percent y/y, up from 1.9 percent at end-2013 and average twelve-month inflation expectations stood at 3.1 percent—virtually at the midpoint of the target range of 2-4 percent.

6. Monetary and fiscal policies have been prudent, and have supported economic activity. Reflecting softer demand growth, the central bank had kept the policy rate constant at 3.25 percent between April 2013 and April 2014. Since then, the central bank increased the policy rate by 50 basis points in response to a pickup in growth starting during the second half of 2013, and the convergence of inflationary expectations towards the mid-point of the inflation target range. The central government fiscal deficit of 2.4 percent of GDP in 2013 was in line with the structural fiscal rule. At the same time, the reallocation of central government spending to provide targeted stimulus (e.g., through mortgage interest subsidies) and the use of royalties for investment spending by sub-national governments supported growth in 2013. The authorities have used the exchange rate as a shock absorber during the recent period of increased market volatility, while continuing to accumulate reserves despite the ensuing depreciation.

7. Financial market conditions became more volatile over the past year. Colombia did not escape the increase in market volatility after the tapering announcement (Box 1). During periods of heightened risk aversion, the peso depreciated, exchange rate volatility increased, financial asset prices fell, price volatility increased, traded volumes and market liquidity declined, and government debt spreads rose.

8. Strong fundamentals accompanied by the FCL arrangement had allowed Colombia to restore orderly financial market conditions relatively quickly compared to some other emerging market economies. Staff analysis (Box 1) shows that the intense pressures in the foreign exchange market were ameliorated by Colombia’s strong fundamentals and FCL arrangement. In addition, non-resident capital inflows remained firm and the authorities were able to continue strengthening the international reserve position in contrast to many other emerging market economies. Colombia absorbed the shocks mostly through its flexible exchange rate without increasing interest rates or having to make other policy adjustment unlike some other emerging economies. Staff’s analysis also shows that FCL arrangements have had a positive impact on the sovereign spread, including after May 22, 2013.

Total Reserves excluding Gold

(May=100)

1/ Other emerging markets comprises Brazil, Chile, India, Indonesia, Peru, Sourth Africa and Turkey.

9. Despite the increased volatility, capital inflows remained firm and the current account deficit remained broadly stable. The financial account continued to post a sizable surplus in 2013 (5 percent of GDP), largely driven by inward foreign direct investment (4.4 percent of GDP). Portfolio inflows by nonresidents remained firm. Colombia maintained fluid access to the international capital markets, with Ecopetrol and the government issuing long-term bonds in the last quarter of 2013 and early 2014, respectively. The current account deficit amounted to 3.3 percent of GDP in 2013, up slightly from 3.2 percent in 2012. The trade surplus narrowed as a result of lower exports, but was almost fully offset by a smaller deficit in the income account.

10. The financial system appears sound, with a profitable and well-capitalized banking system. Financial soundness indicators remained strong, with low and well-provisioned non-performing loans, strong profitability, and adequate liquidity. The system’s risk-weighted capitalization ratio fell to 15 percent as of February 2014, from 18 percent at end-2012, due to the introduction of an improved capital adequacy standard that focused more on loss-absorbing types of capital. Growth in credit to private sector slowed to 13 percent y/y in March 2014, from 16 percent at end-2012, and was financed largely through an expansion in domestic deposits.

Outlook and Risks

11. Growth is projected to stay robust this year and onwards, supported by sound policy management. Real GDP is projected to grow at around potential (about 4% percent) in 2014 and over the medium-term, with inflation remaining within the 2-4 percent target range. Growth is projected to be driven by the private sector, supported by a steady increase in investment largely financed by higher domestic savings. The current account deficit is projected to remain at about 3 percent of GDP in the medium term, and be more than financed by capital inflows, especially foreign direct investment. Staff expects that monetary policy will continue to be conducted in a manner consistent with an inflation targeting framework, while the fiscal policy will adhere to fiscal plans consistent with the medium-term fiscal framework. In addition, with inflation expectations firmly anchored, the authorities have abundant space to use the flexible exchange rate as a shock absorber.

12. However, Colombia continues to be susceptible to external shocks. As described in the Staff Report for the 2014 Article IV Consultation,1 the Colombian economy is significantly exposed to external risks as a result of its important linkages with the rest of the world. External risks facing Colombia come from various sources and could have a large negative impact on Colombia as some of these risks could materialize jointly and they can be mutually reinforcing (Box 2). Furthermore, the risks associated with emerging markets and geopolitical tensions have intensified over the past year. According to the global financial stability map presented in the Global Financial Stability Report, emerging market risks have increased since April 2013 and reached the highest level since October 2009, while other risks remain elevated. The April 2014 World Economic Outlook (WEO) points out that even though downside risks have diminished for advanced economies, financial volatility has increased for emerging market economies. Furthermore, the outlook for emerging markets, including for Colombia’s key regional trading partners, further deteriorated since mid-2013, leading to a large downward revision in economic growth in the baseline scenario for many of these countries. Global financial market conditions continue to be susceptible to triggers such as geopolitical tensions, sensitivity in market expectations on the U.S. exit from unconventional monetary policy, and changes in emerging market fundamentals accompanied by weaker-than-expected medium-term growth prospects.

Global Financial Stability Map

Source: GFSR

Real GDP WEO Projections

(Percent Change)

Sources: WEO

13. The FCL arrangements have successfully supported Colombia’s macroeconomic policy framework by providing effective insurance against external downside risks. The authorities have reaffirmed the usefulness of the FCL arrangement as a temporary complement to reserves and insurance against tail risks. They underscored the positive effects the FCL arrangement had in reassuring markets of Colombia’s very strong policies and institutional frameworks amid an uncertain global environment. The authorities’ assessment was echoed by market participants, who have expressed that their positive valuation of Colombia partly stems from the FCL arrangement with the Fund. The authorities also highlighted the importance of the FCL arrangement for Colombia in light of the increasing participation of foreigners in the local asset markets. In view of the still elevated tail risks, the authorities consider that the current access level in an amount equivalent to SDR 3.87 billion (500 percent of quota) would continue to serve Colombia well and is appropriate for the remainder of the arrangement. Staff agrees with the authorities’ assessment. Although Colombia’s reserve position has strengthened since the time of the FCL approval, it still is below pre-global financial crisis levels, and therefore unchanged access remains appropriate to cope with elevated tail risks, reinforcing market confidence in this critical period.

14. The authorities reiterated their intention to continue strengthening buffers against adverse external shocks and to take further steps towards exit as soon as external conditions allow. In line with authority’s policy strategy presented at the Board meeting on the FCL renewal in 2013, the authorities implemented the policies that would help reduce vulnerabilities and build resilience to external shocks. The fiscal performance was in line with the fiscal rule, the flexible exchange rate system served as the main shock absorber, and inflation was kept within the target range with expectations well anchored. In addition, the authorities continued rebuilding international reserves, which, measured in reserve adequacy metric and most traditional ratios, increased over the course of the year. The authorities are nonetheless concerned with external downside risks in the period ahead, and believe the FCL arrangement plays a critical role in mitigating those risks and shielding Colombia from undue volatility and hardship. They remain committed to maintaining a strong policy framework that would allow them to eventually reduce level or exit from the FCL arrangement as their perception on external conditions improves and the uncertainty in this regard falls markedly.

Review of Qualification

15. Staff assesses that Colombia continues to meet the qualification criteria for an arrangement under the FCL.2 Colombia continues to possess a very strong policy framework anchored by an inflation-targeting regime, a flexible exchange rate, a structural fiscal balance rule, and effective financial supervision and regulation. The authorities remain firmly committed to maintaining their strong policy framework and taking timely measures to contain any fallout from the materialization of downside risks. During the Board discussion of the 2014 Article IV Consultation (concluded on May 19, 2014), Executive Directors commended the continued strong performance of the Colombian economy, with faster economic growth, low inflation, robust job creation, particularly in the formal sector of the economy, and declining unemployment.3

16. Staff’s assessment of Colombia’s continued qualification is based, in particular, on the following criteria:

  • Sustainable external position. Colombia’s external debt remains low at 24 percent of GDP at end-2013. The updated external debt sustainability analysis (Figure 6) shows that Colombia’s external debt ratios would decline further over the medium term and remain manageable even under large adverse shocks. Staff projects that the current account deficit of about 3 percent of GDP will be more than offset by capital inflows. Staff estimates that the current account deficit and the real exchange rate are broadly in line with fundamentals.

  • Capital account position dominated by private flows. Capital account flows in Colombia are predominantly private, mostly in the form of FDI (net inflow of FDI was 2.4 percent of GDP in 2013). Portfolio inflows by nonresidents remained firm over the past year. The net international investment position (NIIP) was broadly unchanged at 27 percent of GDP in 2013, with a high share of FDI in total liabilities.

  • Track record of steady sovereign access to international capital markets at favorable terms. Colombia continues to enjoy an uninterrupted access to international capital markets at favorable terms as a result of Colombia’s structural fiscal balance rule combined with its generally robust institutional framework. In January 2014, Colombia placed 30-year sovereign bond for US$2 billion at an interest rate of 5.65 percent (190 basis points over U.S. Treasuries). Sovereign spreads (at around 145 basis points on average over the last six months) and CDS spreads (at around 118 basis points on average over the last six months) are at par with other highly rated Latin American sovereigns. The increase in Colombia’s weight in JPMorgan’s global bond indices also reflects Colombia’s strong fundamentals amid high level of uncertainty for emerging economies. Similarly, Fitch Ratings upgraded Colombia’s long-term foreign issuer default rating to ‘BBB’ late last year and Moody’s raised its outlook for Colombia’s Baa3 government rating to positive (from stable) last summer.

  • A reserve position that is relatively comfortable. Colombia’s gross international reserves stood at US$44.2 billion as of end-April, 2014. This level is adequate relative to standard reserve coverage indicators, even though some of the indicators (reserves measured relative to broad money, short-term external debt plus the current account deficit, and months of imports) are still below the ratios prevailing prior to the global financial crisis of 2008-09. The authorities reiterated their intention to continue strengthening their international reserve position with the aim of returning to the pre-crisis reserve ratios, which proved to be an important buffer in confronting that large external shock. Staff and the authorities concurred that the opportunity cost of accumulating reserves increases as they reach higher levels and that a careful cost-benefit analysis is warranted.

  • Sound public finances, including a sustainable public debt position. The authorities continue to demonstrate their strong commitment to fiscal sustainability. Fiscal policy has been prudent, with a medium-term strategy guided by a structural balance rule for the central government. Staff’s updated debt sustainability analysis suggests that public debt (35 percent of GDP at end-2013) would remain manageable and on a downward trajectory under alternative adverse scenarios.

  • Low and stable inflation, in the context of a sound monetary and exchange rate policy framework. Inflation is low (2.7 percent y/y in April 2013) and medium-term inflation expectations are firmly anchored within the official target range of 2-4 percent. The authorities remain committed to their inflation targeting framework with a flexible exchange rate regime.

  • Absence of bank solvency problems that pose an immediate threat of a systemic banking crisis. Colombia’s banking system continues to be liquid, profitable and well capitalized. New capital requirements that became effective in August 2013 have further enhanced the quality of banks’ capital. Nonperforming loans are low and well provisioned. House prices rose significantly in recent years, fuelled by a robust expansion of income and credit growth and government subsidies. However, the risks to loan quality from price declines are mitigated by low households’ loan-to-value ratios (about 55 percent), fixed borrowing rates, and a low exposure of banks to mortgage loans. High growth in credit to the private sector, including consumer loans, has been a concern in recent years, but credit growth has slowed and stabilized over the past year in response to stronger consumer loan provisioning since mid-2012.

  • Effective financial sector supervision. Colombia’s regulatory and supervisory frameworks for the financial system are broadly sound and supported by a well designed safety net. The 2012 FSAP Update found that the Financial Superintendency of Colombia exercises effective oversight of the banking system through its robust framework for assessing credit risk, asset classification and provisioning, and ensures that banks adopt prudent management of market, liquidity and operational risks. The authorities continue to enhance the framework, especially in areas such as the supervision of complex financial conglomerates and mixed conglomerates, the monitoring of cross-border risks, and the independence and legal protection of supervisors.

  • Data transparency and integrity. Colombia’s macroeconomic data continue to meet the high standards found during the 2006 data ROSC. Colombia remains in observance of the Special Data Dissemination Standards (SDDS), and the authorities provide all relevant data to the public on a timely basis.

Figure 1.Colombia: Recent Economic Developments

Sources: Haver Analytics; and Fund staff estimates.

Figure 2.Colombia: Financial Market Developments 1/

Sources: IFS; Haver; Datastream; and Fund staff estimates.

1/ LA4 represents the simple average of Chile, Brazil, Mexico, and Peru.

Figure 3.Colombia: FCL Qualification Criteria

Sources: Banco de la República; Ministerio de Hacienda y Crédito Público; Datastream; Haver; and Fund staff estimations.

1/ Combined permanent ¼ standard deviation shocks applied to interest rate, growth, and non-interest current account balance.

2/ Includes data through end 2013.

3/ Combined permanent ¼ standard deviation shocks applied to real interest rate, growth, and primary balance.

4/ One-time 10 percent of GDP increase in debt-creating liabilities.

Figure 4.Colombia: Reserve Coverage in an International Perspective

Sources: World Economic Outlook ; IFS; and Fund staff estimates.

1/ The current account is set to zero if it is in surplus.

2/ The blue lines denote the 100-150 percent range of reserve coverage regarded as adequate for a typical country under this metric.

3/ Col1 is based on the IMF’s RAM, Col2 is based on a metric using Colombia’s average loss of exports during “oil crisis events,” and Col3 is based on authorities’ metric.

Figure 5.Colombia Public DSA - Composition of Public Debt and Alternative Scenarios

Underlying Assumptions(in percent)
Baseline Scenario201420152016201720182019
Real GDP growth4.54.54.54.54.54.5
Inflation1.82.42.72.92.83.1
Primary Balance1.51.71.71.71.71.6
Effective interest rate8.28.38.38.59.29.3
Constant Primary Balance Scenario
Real GDP growth4.54.54.54.54.54.5
Inflation1.82.42.72.92.83.1
Primary Balance1.51.51.51.51.51.5
Effective interest rate8.28.38.38.59.29.2
Historical Scenario
Real GDP growth4.54.84.84.84.84.8
Inflation1.82.42.72.92.83.1
Primary Balance1.52.12.12.12.12.1
Effective interest rate8.28.38.28.28.88.7
Source: Fund staff estimates.
Source: Fund staff estimates.

Figure 6.Colombia: External Debt Sustainability: Bound Tests 1/ (External debt in percent of GDP)

Sources: International Monetary Fund, Country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.

3/ One-time real depreciation of 30 percent occurs in 2013, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

Safeguards Assessment

17. Staff has completed the safeguards procedures for Colombia’s FCL arrangement. The authorities provided the necessary authorization for staff to communicate directly with Banco de la República’s external auditor, PricewaterhouseCoopers (PwC) Colombia. PwC issued an unqualified audit opinion on Banco de la República’s 2012 financial statements in February 2013. Staff reviewed the 2012 audit results and discussed these with PwC. No significant safeguards issues emerged from the conduct of these procedures. The financial statements and audit opinion are published in full on the bank’s website.

Staff Appraisal

18. Colombia continues to benefit from the FCL arrangement. The successive FCL arrangements have helped reduce the perception of risks by providing Colombia with a buffer against large and adverse external shocks. The reduced perception of risks, along with skillful policy management, has allowed Colombia to restore orderly financial market conditions quickly, despite increased volatility in the financial markets over the past year following the U.S. Federal Reserve’s tapering announcement. In this regard, staff agrees with the authorities’ assessment that the FCL arrangement in an amount equivalent to SDR 3.87 billion (500 percent of quota) would continue to serve as a useful buffer against tail risks facing Colombian economy.

19. Staff assesses that Colombia continues to meet the qualification criteria for access to FCL resources. Colombia continues to have a very strong policy framework with an excellent track record of policy implementation. The authorities remain committed to sound policies and to responding appropriately to actual or potential balance of payments difficulties. In view of this, staff recommends completion of the review under the FCL arrangement for Colombia.

Box 1.Market Developments Since Mid-2013, Role of Fundamentals and the FCL1

The announcement by Federal Reserve Chairman Bernanke on May 22, 2013 that tapering could commence triggered a sharp re-pricing of risk across emerging markets, including Colombia. Financial asset prices fell, price volatility increased, traded volumes and market liquidity declined, and government debt spreads rose, especially between end-May and August at the height of the market turbulence. Market pressures resurfaced during January/February 2014, as sentiment towards emerging markets again soured.

The peso depreciated and exchange rate volatility increased. The peso (COP) depreciated by about 7 percent vis-à-vis the U.S. dollar from May 22, 2013 through April 4, 2014. Daily exchange rate volatility increased sharply, returning to the pre-May 22 level only by the end of 2013. Trading volumes were broadly stable, while bid-ask spreads increased slightly during periods of stress. The central bank slowed the pace of its foreign exchange purchases. The recovery in the peso since March 2014 has been partly supported by the announcement by JPMorgan that it would more than double the weight of Colombia’s local government bonds in two of its global bond indices (GBI-EM Global Diversified and GBI-EM Global).

Daily exchange rate volatility

(In percent)

Source: Central Bank.

Local government bond yields increased sharply. The domestic government bond (TES) market was the most affected asset class, with bond yields, particularly for longer-term debt remaining well above pre-May 22 levels. TES yields rose initially by over 200 basis points, posting the second largest increase among emerging markets after Turkey. Bid-ask spreads and volatility increased, and traded volumes declined, reflecting some market dislocation. In turn, the yield curve steepened significantly. Since March 2014, yields have fallen by about 100 basis points.

Source: Central Bank and Bloomberg.

External debt spreads widened. Yields on external (USD-denominated) bonds and spreads over U.S. Treasuries widened by 70 basis points in the initial weeks, recovering somewhat in subsequent months and stabilizing at about 35 basis points over the pre-May 22 level. Similarly, spreads on 5-year credit default swaps rose initially by over 80 basis points, later recovering and stabilizing at about 20 basis points above pre-May 22 levels.

Money market funds suffered important redemptions. The decline in TES prices triggered redemptions in money market funds, which must mark to market their holdings of TES, during June-August, raising concerns about liquidity risks for these entities. In response, the authorities have begun working on a more robust and comprehensive liquidity regulation for these entities.

Stock prices fell initially but recovered in subsequent months. Stock prices posted two episodes of weaknesses since May 22, both coinciding with periods of global volatility in emerging markets: in June 2013 when they fell by up to 7 percent, and January 2014 when they fell by up to 10 percent. In both cases, prices recovered their losses in subsequent months. Stock prices today are roughly 5 percent above their May 22 level.

The FCL instrument seems to have mitigated the in sovereign yields for the three countries.2 A panel regression of changes in EMBI bond spreads in 21 larger EMs on VIX and lagged spreads shows that the event of May 22 significantly increased yields. In the four weeks after the May 22 announcement, yields in EMs rose on average by an additional 14 basis points each week. Yet, it is estimated that increase was almost one third lower (over 4 basis points) for the three FCL countries, suggesting that markets required lower additional risk premia from FCL countries relative to their peers.

FCL countries faced lower risk premia increases after May 22 relative to peers 1/
Change in EMBI spreads
VIX0.568***
Lag 10.0619**
Dummy for May 22 - June 1414.32***
FCL dummy for May 22 - June 14−4.583***
Observations1071
Adj. R-sq0.042

IMF 2014, “Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument.”

IMF 2014, “Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument.”

Consistent with the findings above, econometric evidence also shows that FCL arrangements, combined with strong fundamentals, reduced foreign exchange pressure after the tapering announcement, especially over a longer horizon. Even though emerging market countries experienced a sharp depreciation of their currencies following the tapering announcement on May 22, 2013, econometric evidence suggests that strong fundamentals and FCL arrangements allayed the depreciation pressures over time. Rolling cross-sectional regressions with 27 EMs using daily data were run to examine the effect of an FCL arrangement on exchange rates, after controlling for a variety of fundamentals such as inflation, real growth, current account balance, government debt, market turnover, and real effective exchange rate misalignment. The results show that the coefficient of FCL becomes more negative and statistically significant over time, indicating that FCL countries experienced less pressures on the exchange rate, especially at longer horizons (see figure). The regressions also demonstrate that stronger macroeconomics fundamentals also ameliorated foreign exchange pressure.

Cumulative Depreciation of the Colombian Peso since May 22, 2013

(In percent)

Source: Haver Analytics and Fund staff calculations.

1 This box draws from the Staff Report for the 2014 Article IV Consultation (IMF Country Report No. 14/141).2 IMF 2014, “Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument.”

Box 2.External Risks Facing Colombia1

Colombia’s economy is exposed to a variety of external risks. External shocks could spill over to the Colombian economy through trade and financial channels. The materialization of one of these shocks could also trigger others to take place. These shocks could have a sizable adverse impact on the balance of payments, the fiscal accounts and growth by reducing export and fiscal revenues, curtailing foreign direct investment, cutting foreign credit lines, increasing the burden of debt service, and putting pressure on the exchange rate and asset prices. The main risks comprise the following:

  • A decline in oil prices. Oil exports account for more than one half of total exports and oil-related revenues amount to about 4½ percent of GDP and 16 percent of total government revenue. Thus, a decline in oil prices would adversely affect economic activity, and current account and fiscal balances. It would also cut foreign direct investment (FDI) significantly, as the bulk of FDI inflows are channeled to commodity-related projects.

  • A rise in U.S. interest rates. A rise in U.S. interest rates could negatively impact Colombia if not accompanied by a corresponding increase in U.S. growth (e.g., in the event of an increase in the U.S. term premium) or if it led to higher global risk aversion and capital outflows in emerging markets. In turn, financial volatility in emerging markets could also trigger dislocations in the domestic capital market, put pressure on the exchange rate and local asset prices, curtail FDI, cut foreign credit lines, increase the burden of debt service, and weigh on growth.

  • Deterioration in global financial conditions. An increase in global risk aversion could also be triggered by geopolitical events or a revision in market expectations about macroeconomic fundamentals in advanced economies, China, or the emerging markets. Such shocks could negatively affect the external accounts and economic activity by reducing external financing to Colombia, but could also operate through trade channels by weakening global economic growth and/or triggering a decline in oil prices. A shock to the balance sheets of international banks, accompanied by deleveraging by those banks to absorb the shock, would also have a sizable impact on the credit availability in Colombia, as international banks have large claims on Colombian borrowers mainly on the non-bank private sector.

  • Negative growth shocks in key trading partners. Colombia has strong trade links with the U.S. and Europe, as well as China. Shocks to any of them would negatively affect Colombia’s economic growth by reducing export and fiscal revenues. A significant slowdown in China would also affect Colombia’s growth through a decline in oil prices as well as higher volatility in global financial markets.

  • Shocks in the region. Colombian exports to Latin America account for about a quarter of total exports and the bulk of manufacturing exports. In addition, Colombian banks have become prominent players in the Central American banking system. Accordingly, shocks in the region could affect Colombia through trade and financial channels. The main risks include an increase in restrictions to trade with Ecuador; an intensification of economic stress in Venezuela; and a growth slowdown in Central America.

  • Financial contagion. An additional possible shock would be market contagion in the event of an increase in investors’ perception of regional risk, e.g., in response to adverse economic or political developments in one or more countries in the region. The impact of such a shock is difficult to gauge. In the past, Colombia has been subject to episodes of regional financial contagion. For example, during the second half of 2002, concerns about the economic and financial outlook in Brazil contributed to a sizable depreciation of the Colombia peso and a substantial increase in sovereign debt spreads.2

1 For more information, see the Staff Report for the 2014 Article IV Consultation (IMF Country Report No. 14/141) and the Selected Issues Papers (IMF Country Report, forthcoming).2 For more information, see the Staff Report for the 2002 Article IV Consultation (IMF Country Report No. 03/19).
Table 1.Colombia: Selected Economic and Financial Indicators
I. Social and Demographic Indicators
Population (millions), 201347.2Unemployment rate, December 2013 (percent)9.7
Urban population (percent of total), 201275.6Physicians (per 1,000 people), 20100.1
GDP, 2013Adult illliteracy rate (ages 15 and older), 20116.6
per capita (US$)8,168Gross primary school enrollment rate, 2012106.9
in billions of COP719,749Access to water (percent of population), 201192.9
in billions of US$385Gini coefficient, 201055.9
Life expectancy at birth (years), 201173.6Poverty rate ($2 a day (PPP)), 2010 1/15.8
Mortality rate, (under 5, per 1,000 live births), 201117.7Extreme poverty rate ($1.25 a day, PPP), 2010 1/8.2
Net Foreign direct investment, 2013 (US$ millions)9,120Public Debt (in percent GDP), 201335.1
Net Foreign direct investment (in percent GDP)2.4o/w foreign-currency12.7
II. Economic Indicators
2010201120122013Proj
201420152016201720182019
(In percentage change, unless otherwise indicated)
National income and prices
Real GDP4.06.64.04.34.54.54.54.54.54.5
GDP deflator3.97.02.73.91.82.42.72.92.83.1
Consumer prices (end of period)3.23.72.41.92.73.03.03.03.03.0
External sector (on the basis of USD)
Exports (f.o.b.)20.042.95.4−2.47.50.34.93.74.04.9
Imports (f.o.b.)22.235.88.60.83.33.74.65.14.75.0
Export volume1.513.84.23.57.94.07.35.04.65.3
Import volume13.121.910.71.95.05.25.14.93.84.2
Terms of trade (deterioration -)9.412.83.1−4.71.3-2.2−1.8−1.4−1.4−1.1
Real effective exchange rate (depreciation -)5.1−14.46.2−3.8−2.0
Money and credit
Broad money11.417.616.013.414.514.714.214.514.414.4
Credit to the private sector16.823.016.312.112.312.012.412.512.512.8
(In percent of GDP)
Central government balance−3.9−2.8−2.3−2.3−2.2-2.2−2.2−2.0−2.0−1.9
Combined public sector balance 1/−3.3−2.00.2−0.9−0.8-0.7−0.6−0.6−0.6−0.6
Public debt37.035.732.035.134.633.532.230.929.828.7
Public debt, excluding Ecopetrol35.834.831.233.533.132.130.929.728.627.7
Gross domestic investment22.123.723.624.224.824.925.125.225.525.8
Gross national savings19.020.820.420.921.521.622.122.222.522.9
Current account (deficit -)−3.1−2.9−3.2−3.3−3.3-3.3−3.0−3.0−3.0−2.9
External debt 2/22.822.820.923.924.523.923.222.521.921.4
Of which: public sector12.711.911.312.712.912.612.411.511.410.4
GIR in percent of short-term debt198.4154.1229.2164.3167.0190.9178.6198.8180.1200.4
(In percent of exports of goods, services, and income)
External debt service30.328.136.730.644.344.739.341.337.039.2
Of which: public sector10.88.710.37.59.59.67.59.56.28.8
Interest payments7.25.75.66.07.46.96.56.15.54.9
Of which: public sector5.23.83.83.94.24.03.73.53.12.8
(In millions of U.S. dollars)
Overall balance of payments3,1363,7445,4236,9572,0061,7831,8291,8241,5341,534
Exports (f.o.b.)40,81658,32261,44759,99264,47664,68167,83870,31973,12576,722
Of which: Petroleum products16,49928,42131,49732,00934,60132,64933,47033,45133,51834,066
Gross official reserves 3/28,07831,91236,99843,15845,16446,94748,77650,60052,13453,668
Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and Fund staff estimates.

Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and statistical discrepancy.

Does not include Banco de la República’s outstanding external debt.

Excludes Colombia’s contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated in currencies other than U.S. dollars.

Sources: Colombian authorities; UNDP Human Development Report; World Development Indicators; and Fund staff estimates.

Includes the quasi-fiscal balance of Banco de la República, sales of assets, phone licenses, and statistical discrepancy.

Does not include Banco de la República’s outstanding external debt.

Excludes Colombia’s contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated in currencies other than U.S. dollars.

Table 2.Colombia: Summary Balance of Payments
2010201120122013Projections
201420152016201720182019
(In million of USD, unless otherwise indicated)
Current account balance-8,929-9,854-11,834-12,722-12,713-13,588-13,272-13,944-14,720-15,267
Trade balance2,3416,0904,7442,8325,4453,4743,8153,0532,7012,747
Exports, f.o.b.40,81658,32261,44759,99264,47664,68167,83870,31973,12576,722
Coffee1,8842,6081,9101,8842,7563,0893,2933,2883,2883,288
Petroleum products16,49928,42131,49732,00934,60132,64933,47033,45133,51834,066
Non-traditional14,13716,41317,73016,76917,90619,53921,25723,30725,56828,096
Other8,29710,88010,3109,3319,2129,4049,81810,27210,75011,272
Imports, f.o.b.38,47552,23256,70357,16059,03161,20764,02267,26670,42473,975
Services (net)-3,693−4,737−5,503−5,470−5,768−6,131−6,469−6,858−7,410−8,029
Income (net)-12,024−16,042−15,654−14,656−17,115−15,849−15,787−15,584−15,750−15,760
Interest (net)−2,816−3,041−2,804−3,192−4,540−3,813−3,082−2,497−1,677−1,219
Of which: Public sector−2,146−2,143−2,007−2,126−2,742−2,286−1,915−1,715−1,357−1,116
Other Income (net)−9,208−13,001−12,850−11,462−12,575−12,036−12,705−13,088−14,074−14,541
Current transfers (net)4,4484,8344,5794,5724,7254,9175,1695,4465,7405,776
Financial account balance11,76312,97617,39619,17514,71915,37115,10115,76916,25516,800
Public sector (net)4,8132,1433,0858,3463,1403,0633,0583,3723,4963,868
Nonfinancial public sector4,7022,2163,6978,7722,9143,0733,0783,4203,5913,987
Medium- and long-term (net)1,3322,9973,0936,1421,6781,8981,9622,3602,5843,030
Disbursements3,3575,0776,6307,9184,9715,5304,3626,5514,5847,562
Amortization2,0192,0393,4821,6513,1753,5192,2934,0901,9034,440
Other long-term flows−7−41−56−125−119−113−107−102−97−92
Short term 1/3,370−7816042,6311,2371,1751,1161,0601,007957
Financial public sector112−73−612−427226−10−19−48−95−119
Private sector (net)6,95010,83314,31010,82911,57912,30812,04312,39712,75912,932
Nonfinancial private sector (net)4,5518,94914,4638,00911,45912,18511,99012,34912,71612,893
Direct investment−1475,10116,1359,12011,24211,34811,46411,57911,69911,834
Direct investment abroad6,8938,304−6067,6523,8843,9544,0304,1134,1994,286
Direct investment in Colombia6,74613,40515,52916,77215,12615,30215,49415,69215,89716,119
Leasing finance225412571863064106154198248
Long-term loans3,2982,511−3,50350513446095101469250
Short term 2/1,3777961,574−1,80254312324516350562
Financial private sector (net)2,3981,884−1522,82012012353484339
Valuation changes/Contribution to FLAR 3/−5089−336−797000000
Net errors and omissions302623−139505000000
Changes in GIR 4/3,0863,8345,0866,1602,0061,7831,8291,8241,5341,534
Memorandum Items:
Current account balance (in percent of GDP)−3.1−2.9−3.2−3.3−3.3−3.3−3.0−3.0−3.0−2.9
Oil Price (Colombian mix US$ per barrel)73.199.3104.2100.3100.494.389.686.784.983.5
Gross international reserves (in US$ billion)28.131.937.043.245.246.948.850.652.153.7
In percent of short-term external debt 5/354.9311.2358.0361.5360.6357.8354.4350.6346.0341.3
In percent of ST external debt plus CA deficit117.098.1128.2110.7111.2124.0118.2126.0117.9127.6
Nominal GDP (US$ billion)287.0336.3369.8385.1388.5410.1435.2463.0492.9526.3
Sources: Banco de la República; and Fund staff estimates and projections.

Deposit flows of public sector entities abroad.

Includes net portfolio investment.

FLAR is Fondo Latinoamericano de Reservas.

IMF definition.

Original maturity of less than 1 year. Stock at the end of the previous period.

Sources: Banco de la República; and Fund staff estimates and projections.

Deposit flows of public sector entities abroad.

Includes net portfolio investment.

FLAR is Fondo Latinoamericano de Reservas.

IMF definition.

Original maturity of less than 1 year. Stock at the end of the previous period.

Table 3.External Financing Requirements and Sources(In millions of U.S. dollars)
Projections
201020112012201320142015
Gross financing requirements22,43227,84237,62935,02740,98442,411
External current account deficit8,9299,85411,83412,72212,71313,588
Debt amortization10,41814,15420,70916,14526,26527,041
Medium and long term debt6,4746,24110,4555,81214,32714,518
Public sector 1/2,1862,0693,5011,6943,2213,553
Private sector4,2874,1726,9534,11811,10610,965
Non financial3,1852,1985,9952,5486,6996,576
Financial1,1021,9749581,5704,4074,389
Short-term debt 2/3,9447,91310,25410,33311,93712,523
Public sector339995825665515515
Private sector3,6056,9179,4299,66911,42212,008
Gross reserves accumulation 3/4/3,0863,8345,0866,1602,0061,783
Available financing22,43227,84237,62935,02740,98442,411
Foreign direct investment (net)−1475,10116,1359,12011,24211,348
o/w inward (net)6,74613,40515,52916,77215,12615,302
Medium and long-term debt disbursements12,84014,00612,31515,86416,51317,043
Public sector 1/3,5605,1566,7508,1645,2435,554
Private sector9,2808,8505,5657,70111,27011,489
Non financial6,4834,7092,4923,0546,8337,036
Financial2,7974,1413,0734,6474,4374,453
Public sector use of external assets1,829−1,047352−215506455
Short-term debt 5/7,91310,25410,33311,93712,52313,120
Public sector995825665515515515
Private sector6,9179,4299,66911,42212,00812,605
Other capital flows (net) 6/−3−473−1,506−1,680200445
Memorandum items:
Gross international reserves 4/28,07831,91236,99843,15845,16446,947
Gross international reserves / (st debt at remaining maturity + ca deficit)117.098.1128.2110.7111.2124.0
Gross international reserves (months of imports of G&S)5.55.76.57.27.37.3
Sources: Banco de la República and Fund staff estimates.

Including financial public sector.

Original maturity of less than 1 year. Stock at the end of the previous period.

Estimate for 2009 includes the SDR allocation (US$972 million).

IMF definition that excludes Colombia’s contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated in other currencies than U.S. dollars.

Original maturity of less than 1 year. Stock at the end of the current period.

Includes all other net financial flows, Colombia’s contribution to FLAR, and errors and omissions.

Sources: Banco de la República and Fund staff estimates.

Including financial public sector.

Original maturity of less than 1 year. Stock at the end of the previous period.

Estimate for 2009 includes the SDR allocation (US$972 million).

IMF definition that excludes Colombia’s contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated in other currencies than U.S. dollars.

Original maturity of less than 1 year. Stock at the end of the current period.

Includes all other net financial flows, Colombia’s contribution to FLAR, and errors and omissions.

Table 4.Colombia: Operations of the Central Government 1/
2010201120122013Projections
201420152016201720182019
(In percent of GDP, unless otherwise indicated)
Total revenue13.815.216.116.617.116.516.516.416.416.3
Tax revenue12.313.514.314.014.414.014.114.214.214.2
Net income tax and profits 2/4.85.46.66.26.26.36.36.36.46.4
Goods and services5.55.95.74.85.15.45.65.85.85.9
Value-added tax5.35.65.54.85.15.45.65.85.85.9
Gasoline tax0.30.30.30.00.00.00.00.00.00.0
International trade0.90.70.50.50.50.50.50.50.50.5
Financial transaction tax0.60.80.80.80.80.40.40.20.20.0
Stamp and other taxes0.50.70.71.61.81.41.41.41.41.4
Nontax revenue1.51.71.82.62.62.52.32.32.22.1
Property income0.10.10.20.10.10.10.10.10.10.1
Other1.41.51.62.62.62.42.32.22.12.0
Total expenditure and net lending17.618.018.418.919.218.718.718.418.418.2
Current expenditure14.313.714.214.415.516.316.416.316.316.2
Wages and salaries2.12.02.12.12.22.22.22.12.12.1
Goods and services1.01.00.80.80.80.80.80.80.80.8
Interest2.72.72.62.32.32.42.32.32.32.2
External0.70.60.50.50.60.50.50.50.50.5
Domestic1.91.91.91.71.71.91.81.81.81.7
Current transfers8.48.08.79.110.210.811.011.011.011.0
Capital expenditure3.34.24.24.53.72.42.32.12.12.0
Fixed capital formation1.92.82.93.22.31.11.00.90.90.8
Capital transfers1.41.41.31.31.41.31.31.21.21.2
Overall balance-3.9-2.8-2.3-2.3-2.2-2.2-2.2-2.0-2.0-1.9
Memorandum items:
Oil-related revenues 3/0.81.72.63.13.23.12.82.72.52.3
Structural balance 4/-3.6-3.5-2.9-2.5-2.2-2.2-2.2-2.0-1.9-1.8
Non-oil balance-4.6-4.5-4.9-5.4-5.4-5.3-5.0-4.7-4.5-4.2
Primary balance-1.1-0.10.20.00.10.20.20.30.40.3
Nominal GDP (in COP trillion)544.9621.6664.5719.7765.3818.8879.1944.91,015.41,094.9
Sources: Ministry of Finance; Banco de la República; and Fund staff estimates and projections.

Includes central administration only.

The increase in tax revenue in 2012 reflects the elimination of the fixed asset tax credit, which was part of the end-2010 tax reform.

Includes income tax payments and dividends from Ecopetrol corresponding to earnings from the previous year.

In percent of potential GDP. Adjusts non-commodity revenues for the output gap and commodity revenues for differentials between estimated equilibrium oil price and production levels. Adjustments are made to account for fuel subsidy expenditures and the accrual of Ecopetrol dividends.

Sources: Ministry of Finance; Banco de la República; and Fund staff estimates and projections.

Includes central administration only.

The increase in tax revenue in 2012 reflects the elimination of the fixed asset tax credit, which was part of the end-2010 tax reform.

Includes income tax payments and dividends from Ecopetrol corresponding to earnings from the previous year.

In percent of potential GDP. Adjusts non-commodity revenues for the output gap and commodity revenues for differentials between estimated equilibrium oil price and production levels. Adjustments are made to account for fuel subsidy expenditures and the accrual of Ecopetrol dividends.

Table 5.Colombia: Operations of the Combined Public Sector 1/
2010201120122013Projections
201420152016201720182019
(In percent of GDP, unless otherwise indicated)
Total revenue26.126.728.327.827.527.026.926.726.726.6
Tax revenue18.719.120.019.620.019.820.020.020.220.1
Nontax revenue7.47.68.38.27.57.16.96.76.66.5
Financial income1.20.91.20.50.50.50.50.50.50.5
Operating surplus of public enterprises0.10.20.10.00.00.00.00.00.00.0
Other 2/6.16.57.07.77.06.66.46.26.16.0
Total expenditure and net lending 3/29.228.527.928.728.327.927.727.427.427.3
Current expenditure22.420.420.821.220.920.820.620.420.420.3
Wages and salaries5.85.25.25.15.04.84.84.84.84.8
Goods and services3.32.92.93.13.13.13.02.92.92.9
Interest2.92.82.72.62.42.62.52.42.42.3
External0.70.60.60.60.60.50.50.50.50.5
Domestic2.22.22.12.01.82.01.91.91.91.8
Transfers to private sector8.17.47.37.77.77.77.77.77.77.7
Other 4/2.42.22.72.72.72.62.62.62.62.6
Capital expenditure6.88.17.27.57.47.17.17.07.07.0
Statistical discrepancy−0.2−0.2−0.30.00.00.00.00.00.00.0
Nonfinancial public sector balance-3.3-2.00.1-0.9-0.9-0.9-0.7-0.7-0.7-0.7
Quasi-fiscal balance (BR cash profits)0.00.0−0.1−0.10.00.00.10.10.10.1
Fogafin balance0.10.00.20.10.10.10.10.00.00.0
Net cost of financial restructuring 5/−0.10.00.00.00.00.00.00.00.00.0
Combined public sector balance-3.3-2.00.2-0.9-0.8-0.7-0.6-0.6-0.6-0.6
Overall financing3.32.0-0.20.90.80.70.60.60.60.6
Foreign, net1.70.90.72.10.80.80.80.80.81.1
Domestic, net1.51.1−1.0−1.20.0−0.1−0.2−0.2−0.1−0.4
Privatization (including concessions)0.10.00.10.00.00.00.00.00.00.0
Memorandum items:
Overall structural balance 6/−2.8−3.5−0.9−1.1−0.9−0.7−0.6−0.6−0.6−0.5
Non-oil balance-5.5−5.6−4.8−5.4−5.6−5.5−4.9−4.7−4.5−4.2
Primary balance 7/−0.40.72.81.71.61.81.91.81.81.7
Oil-related revenues 8/2.33.64.44.85.04.74.34.13.83.5
Total public debt 9/37.035.732.035.134.633.532.230.929.828.7
Nominal GDP (In trillion COP)544.9621.6664.5719.7765.3818.8879.1944.91,015.41,094.9
Sources: Ministry of Finance; Banco de la República; and Fund staff estimates and projections.

The combined public sector includes the central, regional and local governments, social security, and public sector enterprises. Excludes Ecopetrol.

Includes royalties, dividends and social security contributions.

Expenditure reported on commitments basis.

Includes adjustments to compute spending on commitment basis and the change in unpaid bills of nonfinancial public enterprises.

Interest payments on public banks restructuring bonds and mortgage debt relief related costs.

Adjusts non-commodity revenues for the output gap and commodity revenues for differentials between estimated equilibrium oil price and production levels. Adjustments are made to account for fuel subsidy expenditures and the accrual of Ecopetrol dividends.

Includes statistical discrepancy.

Includes income tax payments and dividends from Ecopetrol that correspond to earnings from the previous year, and royalties to local governments.

Includes Ecopetrol and Banco de la República’s outstanding external debt.

Sources: Ministry of Finance; Banco de la República; and Fund staff estimates and projections.

The combined public sector includes the central, regional and local governments, social security, and public sector enterprises. Excludes Ecopetrol.

Includes royalties, dividends and social security contributions.

Expenditure reported on commitments basis.

Includes adjustments to compute spending on commitment basis and the change in unpaid bills of nonfinancial public enterprises.

Interest payments on public banks restructuring bonds and mortgage debt relief related costs.

Adjusts non-commodity revenues for the output gap and commodity revenues for differentials between estimated equilibrium oil price and production levels. Adjustments are made to account for fuel subsidy expenditures and the accrual of Ecopetrol dividends.

Includes statistical discrepancy.

Includes income tax payments and dividends from Ecopetrol that correspond to earnings from the previous year, and royalties to local governments.

Includes Ecopetrol and Banco de la República’s outstanding external debt.

Table 6.Colombia: Monetary Indicators
20062007200820092010201120122013Proj
2014
(In billions of COP, unless otherwise indicated)
Central Bank
Net Foreign Assets35,26542,88154,66150,52653,26561,75065,35683,09287,683
Gross official reserve assets34,87842,53253,72051,65054,58363,56665,82488,92887,746
in billions of US$15.721.424.425.327.432.737.246.344.2
Short-term foreign liabilities3263186135628441,5754035,7702,583
Other net foreign assets1,2571,1612,1061,9551,8652,1172,0962,2982,519
Net domestic assets−8,233−10,465−18,466−10,980−8,388−10,408−8,892−17,993−16,818
Net credit to the public sector-284−4,038−1,792622−2,098−4,624−8,008−14,526−13,578
Net credit to the financial system6,5985,039−143−4191,5163,0781,8313,7323,488
Other−14,547−11,466−16,530−11,182−7,806−8,863−2,715−7,199−6,729
Monetary base27,03232,41536,19539,54744,87851,34256,46465,09970,865
Currency in circulation20,12022,41724,35225,67129,67433,36735,06339,75144,390
Deposit money banks reserves6,8969,97511,83213,86515,15717,94621,37425,25420,398
Other deposits162312104729279494
Financial system
Net foreign assets34,75137,89049,67048,26744,39247,38953,14567,82671,451
in billions of US$15.619.122.623.622.324.430.035.336.0
Net domestic assets95,412111,598125,861142,712168,288202,773237,166261,480376,470
Net credit to public sector20,40111,92616,15032,35233,78232,45534,82433,15135,151
Credit to private sector104,125130,833149,217150,614175,863216,234251,410281,747316,498
Other net−29,114−31,160−39,505−40,254−41,357−45,916−49,068−53,417−70,865
Broad money130,163149,489175,531190,979212,680250,162290,310329,307377,056
(Annual percentage change)
Credit to private sector35.725.614.10.916.823.016.312.112.3
Currency22.911.48.65.415.612.45.113.411.7
Monetary base18.519.911.79.313.514.410.015.38.9
Broad money20.114.817.48.811.417.616.013.414.5
(In percent of GDP)
Credit to private sector27.130.431.129.832.334.837.839.141.4
Currency5.25.25.15.15.45.45.35.55.8
Monetary base7.07.57.57.88.28.38.59.09.3
Broad money33.934.736.637.839.040.243.745.849.3
Memorandum items:
Central bank inflation target4.5-5.53.5-4.53.5-4.54.5-5.52.0-4.02.0-4.02.0-4.02.0-4.02.0-4.0
CPI inflation, eop4.55.77.72.03.23.72.41.92.7
Nominal GDP (In billion COP)383,898431,072480,087504,647544,924621,615664,473719,749765,340
Sources: Banco de la Republica; and Fund staff estimates.
Sources: Banco de la Republica; and Fund staff estimates.
Table 7.Colombia: Financial Soundness IndicatorsTotal Banking System 1/
2007200820092010201120122013
(In percent, unless otherwise indicated; end-of-period values)
Capital Adequacy
Regulatory capital to risk-weighted assets16.015.417.217.316.918.117.0
Regulatory Tier 1 capital to risk-weighted assets12.512.013.413.013.413.712.0
Capital (net worth) to assets12.912.614.214.214.314.714.8
Asset Quality and Distribution
Nonperforming loans to gross loans3.23.94.02.92.52.82.8
Provisions to nonperforming loans133.8124.3140.1175.0182.0163.9160.7
Gross loans to assets70.371.264.367.970.469.668.2
Earnings and Profitability
ROAA3.83.63.53.43.33.12.8
ROAE29.628.126.223.723.021.219.5
Interest margin to gross income51.254.054.055.658.458.761.3
Noninterest expenses to gross income45.946.143.247.049.347.247.0
Liquidity
Liquid assets to total assets7.58.29.27.58.68.58.8
Liquid assets to short-term liabilities11.612.814.212.113.913.413.8
Deposit to loan ratio94.794.998.893.591.494.796.3
Other
Foreign-currency-denominated loans to total loans6.36.64.26.97.77.57.3
Foreign-currency-denominated liabilities to total liabilities8.58.96.611.215.32.89.5
Net open position in foreign exchange to capital1.9−0.11.7−2.0−4.7−0.5−1.5
Source: Superintendencia Financiera1/ All deposit taking institutions.
Source: Superintendencia Financiera1/ All deposit taking institutions.
Table 8.Colombia: Indicators of External Vulnerability 1/(In billions of U.S. dollars unless otherwise indicated)
200820092010201120122013
External indicators
Exports of GNFS42.638.145.263.166.765.8
Imports of GNFS44.838.546.561.767.568.4
Terms of trade (12-month percent change)9.9−10.49.412.83.1−4.7
Current account balance−6.9−5.1−8.9−9.9−11.8−12.7
In percent of GDP−2.8−2.2−3.1−2.9−3.2−3.3
Capital and financial account balance9.56.311.813.017.419.2
Of which: Foreign direct investment (net)8.13.8−0.15.116.19.1
Of which: Portfolio investment (net)−0.9−2.90.10.82.00.7
Total external debt46.352.563.574.777.990.7
In percent of gross international reserves195.6210.1226.3234.1210.5210.1
Short-term external debt 2/5.63.97.910.310.311.9
Of which: Public sector0.60.31.00.80.70.5
Of which: Private sector5.13.66.99.49.711.4
Amortization of MLT external debt (in percent of GNFS exports)12.315.214.39.915.78.8
External interest payments (in percent of GNFS exports)7.78.07.25.75.66.0
Gross international reserves 3/4/23.725.028.131.937.043.2
In months of prospective GNFS imports6.37.87.26.26.67.6
In percent of broad money26.528.225.123.622.924.5
In percent of short-term external debt 2/421.5633.6354.9311.2358.0361.5
In percent of short-term external debt on residual maturity basis plus current account deficit143.3129.2117.098.1128.2110.7
Nominal exchange rate (COP/US$, period average)1,9682,1581,8991,8481,7971,868.8
Real effective exchange rate (percentage change, + = appreciation)−2.74.75.1−14.46.2−3.8
Sources: Banco de la República; and Fund staff estimates.

GNFS stands for goods and nonfactor services; MLT stands for medium and long-term.

Original maturity of less than 1 year. Stock at the end of the previous period.

Estimate for 2009 includes the SDR allocation (US$972 million).

IMF definition that excludes Colombia’s contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated in other currencies than U.S. dollars.

Sources: Banco de la República; and Fund staff estimates.

GNFS stands for goods and nonfactor services; MLT stands for medium and long-term.

Original maturity of less than 1 year. Stock at the end of the previous period.

Estimate for 2009 includes the SDR allocation (US$972 million).

IMF definition that excludes Colombia’s contribution to Fondo Latinoamericano de Reservas (FLAR) and includes valuation changes of reserves denominated in other currencies than U.S. dollars.

Table 9.Colombia Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario(in percent of GDP unless otherwise indicated)
Debt, Economic and Market Indicators1/
ActualProjectionsAs of March 31, 2014
2003-2011 2/20122013201420152016201720182019Sovereign Spreads
Nominal gross public debt36.932.035.134.633.532.230.929.828.7EMBIG (bp) 3/171
Public gross financing needs8.43.24.36.05.54.63.85.23.85Y CDS (bp)107
Real GDP growth (in percent)4.84.04.34.54.54.54.54.54.5RatingsForeignLocal
Inflation (GDP deflator, in percent)5.82.73.91.82.42.72.92.83.1Moody’sBaa3Baa3
Nominal GDP growth (in percent)10.96.98.36.37.07.47.57.57.8S&PsBBBBBB+
Effective interest rate (in percent)4/10.38.08.88.28.38.38.59.29.3FitchBBBBBB+
Contribution to Changes in Public Debt
ActualProjections
2003-201120122013201420152016201720182019cumulativedebt-stabilizing primary balance9/
Change in gross public sector debt-1.3-3.73.1-0.5-1.1-1.3-1.3-1.1-1.1-6.5
Identified debt-creating flows-3.2-3.5-0.6-0.9-1.2-1.4-1.4-1.2-1.3-7.5
Primary deficit-1.9-2.7-1.7-1.5-1.7-1.7-1.7-1.7-1.6-10.00.4
Primary (noninterest) revenue and grar26.328.327.827.527.026.926.726.726.6161.5
Primary (noninterest) expenditure24.325.626.125.925.325.225.025.025.0151.4
Automatic debt dynamics 5/-1.1-0.71.10.60.40.30.30.50.42.6
Interest rate/growth differential 6/-0.30.40.10.60.40.30.30.50.42.6
Of which: real interest rate1.41.71.42.11.91.71.71.81.710.8
Of which: real GDP growth-1.7-1.4-1.3-1.5-1.4-1.4-1.3-1.3-1.3-8.2
Exchange rate depreciation7/-0.8-1.00.9
Other identified debt-creating flows-0.2-0.10.00.00.00.00.00.00.00.0
Privatization proceeds (negative)-0.2-0.10.00.00.00.00.00.00.00.0
Contingent liabilities0.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes 8/2.0-0.23.70.40.10.10.10.10.11.0
Source: IMF staff.

Public sector is defined as general government.

Based on available data.

EMBIG.

Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.

Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).

Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Source: IMF staff.

Public sector is defined as general government.

Based on available data.

EMBIG.

Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.

Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).

Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Table 10.Colombia: External Debt Sustainability Framework, 2010-2019(In percent of GDP, unless otherwise indicated)
ActualProjections 1/
2010201120122013201420152016201720182019Debt-stabilizing non-interest current account 7/
Baseline: External debt22.822.820.923.924.523.923.222.521.921.4-2.8
Change in external debt1.10.1−2.03.00.5−0.5−0.7−0.7−0.6−0.6
Identified external debt-creating flows (4+8+9)−0.9−1.9−3.20.10.0−0.6−0.7−0.8−0.7−0.6
Current account deficit, excluding interest payments2.12.02.32.42.12.32.02.02.12.0
Deficit in balance of goods and services0.5−0.40.20.70.10.60.60.81.01.0
Exports15.718.818.017.118.317.517.216.816.416.0
Imports16.218.418.217.818.418.117.817.617.317.1
Net non-debt creating capital inflows (negative)0.1−1.5−4.4−2.4−3.1−2.6−2.4−2.4−2.3−2.2
Automatic debt dynamics 2/−3.0−2.3−1.10.10.9−0.2−0.4−0.4−0.5−0.5
Contribution from nominal interest rate1.01.00.90.91.21.11.01.00.90.9
Contribution from real GDP growth−0.7−1.3−0.8−0.9−1.1−1.0−1.0−1.0−1.0−0.9
Contribution from price and exchange rate changes 3/−3.3−2.1−1.20.0
Residual, incl. change in gross foreign assets (2-3) 4/2.02.01.23.00.60.10.00.10.10.1
External debt-to-exports ratio (in percent)144.7121.8115.8140.1133.5137.1134.7134.2133.9133.1
Gross external financing need (in billions of U.S. dollars) 5/19.324.032.528.939.040.637.941.340.244.2
in percent of GDP6.77.18.87.510.09.98.78.98.28.4
Scenario with key variables at their historical averages 6/22.420.619.017.516.114.8-3.6
Key Macroeconomic Assumptions Underlying Baseline
Real GDP growth (in percent)4.06.64.04.34.54.54.54.54.54.5
GDP deflator in US dollars (change in percent)18.19.95.7−0.1−3.51.01.51.81.92.1
Nominal external interest rate (in percent)5.75.14.44.64.94.54.54.44.34.2
Growth of exports (U.S. dollar terms, in percent)18.539.65.7−1.48.30.54.83.64.04.6
Growth of imports (U.S. dollar terms, in percent)20.932.69.31.44.63.84.65.04.95.0
Current account balance, excluding interest payments−2.1−2.0−2.3−2.4−2.1−2.3−2.0−2.0−2.1−2.0
Net non-debt creating capital inflows−0.11.54.42.43.12.62.42.42.32.2
Source: Fund staff estimates.

It does not assume any drawings under the Flexible Credit Line arrangement.

Derived as [r - g - p(1+g) + ea(1+r)]/(1+g+p+gp) times previous period debt stock, with r = nominal effective interest rate on external debt; p = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency debt in total external debt.

The contribution from price and exchange rate changes is defined as [-p(1+g) + ea(1+r)]/(1+g+p+gp) times previous period debt stock. p increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Source: Fund staff estimates.

It does not assume any drawings under the Flexible Credit Line arrangement.

Derived as [r - g - p(1+g) + ea(1+r)]/(1+g+p+gp) times previous period debt stock, with r = nominal effective interest rate on external debt; p = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency debt in total external debt.

The contribution from price and exchange rate changes is defined as [-p(1+g) + ea(1+r)]/(1+g+p+gp) times previous period debt stock. p increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Table 11.Colombia: Indicators of Fund Credit, 2013-19 1/
Projections
2013201420152016201720182019
Stocks from prospective drawings 2/
Fund credit (Millions of SDR)03,8703,8703,8702,9039680
In percent of quota05005005003751250
In percent of GDP01.51.51.41.00.30
In percent of exports of goods and services08.48.48.15.91.90
In percent of gross reserves011.711.411.18.32.90
Flows from prospective drawings
Amortization00009681,935968
Charges (Millions of SDR)020.943.343.442.124.84.4
Debt Service due on GRA credit (Millions SDR)055.274.374.41,044.71,965.6971.9
In percent of quota07.19.69.6135.0254.0125.6
In percent of GDP00.00.00.00.40.60.3
In percent of exports of goods and services00.10.20.22.13.91.8
In percent of gross reserves00.20.20.23.36.02.9
Memorandum Item:
Total External Debt (percent of GDP)23.924.523.923.222.521.921.4
Total Debt Service (percent of GDP)5.28.17.86.86.96.16.3
Sources: IMF Finance Department; Colombian authorities, and Fund staff estimates.

Assumes full drawings under the FCL upon approval. The Colombian authorities have expressed their intention to treat the arrangement as precautionary.

Stocks as of end of period.

Sources: IMF Finance Department; Colombian authorities, and Fund staff estimates.

Assumes full drawings under the FCL upon approval. The Colombian authorities have expressed their intention to treat the arrangement as precautionary.

Stocks as of end of period.

IMF Country Report No. 14/141.

The Executive Board last assessed Colombia’s adherence to the FCL qualification criteria on June 24, 2013, during the approval of the current two-year FCL arrangement for 500 percent of quota (IMF Country Report No. 13/201).

IMF Country Report No. 14/141.

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