Colombia’s economy has been resilient to the adverse global shocks of recent years. Inflation has been subdued, credit growth has eased, and financial soundness indicators are strong. The strong balance of payments continues to put upward pressure on the Colombian peso. In 2013, growth is expected to rise and inflation to remain on target. Short-term risks to the outlook continue to be tilted to the downside. The central bank’s intervention policy is geared at containing exchange rate volatility and strengthening external buffers.
1. This statement provides additional information that has become available since the staff report was issued. It does not alter the thrust of the staff appraisal.
2. Real GDP growth slowed to 2.1 percent in the third quarter (y/y), from 4.9 percent (y/y) in the second quarter. The slowdown mainly reflects weak performance of the construction and the oil and mining sectors, resulting from delays in the approval of construction licenses and slow implementation of public investments. In light of these, the staff report projection of annual output growth of 4.3 percent may prove optimistic.
3. Headline inflation fell to 2.4 percent in December (y/y) from 2.8 percent (y/y) in November, owing to lower regulated and food price inflation. Core inflation eased slightly to 3.2 percent.
4. Unemployment fell to 9.2 percent in November 2012, down from an average of 10.8 percent in 2011.
5. According to preliminary data, the central government deficit in 2012 was 2.4 percent of GDP, somewhat above the staff report’s projection. Lower-than-envisaged revenue accounts for the difference.
6. Monetary policy was eased further in December. On December 21, the central bank lowered the policy rate by 25 basis points (to 4.25 percent), bringing total cuts to 100 basis points in the second half of 2012. The nominal exchange rate closed the year at 1,768.2 pesos per dollar (1,942.7 at end 2011) while gross international reserves at end-December were US$37.0 billion (US$31.9 billion at end-December 2011).
7. On January 1, 2013, the government raised the minimum wage by 4 percent.
8. The tax bill approved by Congress on December 20, 2012 preserved most of the government’s proposals to address inequality and informality. The reform (effective January 1, 2013) mandates:
the elimination of payroll taxes for salaries less than 10 minimum wages;
the creation of an “equity tax” for corporations, with a statutory rate of 9 percent for 2013–2015 (8 percent afterwards) and a tax base slightly broader than the corporate income tax; proceeds from this tax will be earmarked to social spending programs previously financed by payroll taxes;
a reduction in the statutory corporate income tax rate (from 33 percent to 25 percent); and a reduction in the withholding tax rate on non-residents’ earnings from portfolio investment (from 33 percent to 14 percent);
the creation of a minimum personal income tax with rates from 0 percent to 27 percent, levied on individuals with monthly incomes above 4.2 minimum wages;
a consolidation of seven VAT rates to three rates of 0, 5 and 16 percent; and the creation of a national consumption tax for certain goods (e.g. luxury goods, vehicles) and services (e.g. restaurants);
other administrative measures aimed at reducing tax evasion.
9. In early January 2003, the Ministry of Health announced the government’s intention to submit draft legislation for health care reform to Congress by March. The reform would include: (i) the definition and costing of health services, especially under the subsidized regime; (ii) the unification of public funds earmarked to finance health services; and (iii) the modernization of the Superintendence of Health Services.