Colombia: 2017 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Colombia
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International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
31 May 2017
eISBN:
9781484302163
Language:
English
Keywords:
ISCR; CR; inflation expectation; monetary policy; financial system; output gap; potential GDP; target yield; GDP deflator; headline inflation
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2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia

Abstract

2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia

Recent Developments: Orderly External Adjustment

1. Colombia faced a further worsening in the external environment during 2016. Trading partners’ growth slowed and average oil prices declined further. On the upside, foreign appetite for Colombian assets remained strong with record high foreign participation in the local bond market.

uA01fig01

Headwinds Stemming from External Conditions

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: WEO and Fund staff estimates.

2. Domestic shocks compounded the effect of dimmer external conditions. Growth moderated to 2 percent in 2016 driven by a slowdown in domestic demand with investment declining by about 4 percent. Many sectors suffered from a transport strike in June–July. Despite the slowdown, the economy continued to operate near its potential and unemployment remained relatively resilient (Figure 1). Temporary factors pushed inflation to 9 percent in July, but it declined markedly thereafter as food prices normalized and depreciation stopped, to reach 5.7 percent by year-end.

uA01fig02

Domestic Demand Driving the Slowdown

(y/y in percent)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Haver and Fund staff estimates.
Figure 1.
Figure 1.

Colombia: Recent Economic Developments

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Banco de la República; DANE; Bloomberg; and Fund staff estimates.1/ Colombia mix follows closely Brent oil prices.

3. Strong import compression narrowed the current account deficit. The current account deficit declined from 6.4 percent of GDP in 2015 to 4.4 percent in 2016, despite a continued decline in oil exports. Non-traditional exports gained strength in the last quarter of 2016. The deficit was mostly financed by FDI, while net portfolio inflows declined (Figure 2). Reserves remained at US$46.3 billion. External debt increased to about 49 percent of GDP due to higher foreign holdings of government debt (7 percent of GDP).

uA01fig03

Imports and Non-tTaditional Exports

(3mma, y/y)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Fund staff estimates.
Figure 2.
Figure 2.

Colombia: External Sector Developments

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

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

4. The monetary policy tightening cycle continued through most of 2016. The policy rate was raised by 200 bps between January and September while financial conditions indices also showed some tightening (Figure 3). As inflationary pressures began to ease, the central bank started an easing cycle in December when the policy rate was cut by 25 bp to 7.5 percent.

uA01fig04

Inflation and Policy Rate

(In percent)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Branrep and Fund staff estimates.
Figure 3.
Figure 3.

Colombia: Macroeconomic Policies

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Banco de la República; and Fund staff estimates.1/ See annex for methodology and estimation results.2/Corresponds to the change in the non-oil structural primary deficit.

5. Credit activity remains broadly aligned with the business cycle. The credit gap remained well below levels associated with booms and is moderating. Nevertheless, consumer (especially credit card lending), and mortgage credit remained brisk (see Figure 4).

uA01fig05

Real Credit Growth by Segment

(In percent)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Superintendencia Financiera de Colombia; Banrep and Fund staff estimates.
uA01fig06

Output Gap vs Credit Gap

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: BanRep and Fund staff estimates.
Figure 4.
Figure 4.

Colombia: Recent Macro-Financial Developments

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Banco de la República; DANE; Bloomberg; and Fund staff estimates.1/ LA4 corresponds to the average of Brazil, Colombia, Peru and Mexico.2/ Data for 2015 refers to December 2015.3/ Consumer and commercial credit gaps are computed as percentage-point deviations from an HP-filtered consumer-credit-to-private-consumption ratio and commercial-to-private-investment ratio, respectively.4/ Commercial credit valued at end-June 2014 exchange rate.

6. Fiscal policy tightened as prescribed by the fiscal rule. The central government headline deficit widened to 4 percent of GDP as oil revenue declined (by about 0.9 pp) and interest expenses increased (0.3 pp). Nevertheless, the structural deficit declined to 2.8 percent of GDP (2.1 percent of GDP using official parameters for long-run oil prices and potential GDP) and was consistent with the fiscal rule and implied a negative fiscal impulse of -½ percent of GDP. Further, low spending execution by local governments also contributed to a combined negative fiscal impulse of about 2¼ percent of GDP at the consolidated public sector level (Figure 3). In December, Congress approved a structural tax reform that increased inter-alia the VAT rate by 3 percentage points in January 2017.

7. Colombia’s inclusive growth continued despite adverse shocks. Both global and domestic shocks became headwinds for growth in 2016. Nonetheless, Colombia’s performance outshined some of its peers and social indicators further improved. Poverty1 declined from 20 percent of the population in 2015 to 18 percent in 2016, and income inequality declined slightly but remained high as measured by the Gini coefficient (51.7 percent in 2016, from 52.2 percent in 2015).

8. The peace agreement represents a historic milestone. The government and the FARC reached an agreement in September 2016 which was marginally rejected in a referendum on October 2nd. A promptly revised agreement that addressed key objections from the opposition was approved by Congress on December 1st, eliminating a key source of political uncertainty. The agreement has a strong focus on rural development and institutional development in conflict-affected areas. Negotiations with the remaining guerrilla group, ELN, are underway.

Colombia: Progress Consistent with IMF Recommendations

(Policy measures taken since the 2016 Article IV have been broadly aligned with past Fund advice with no major area of disagreement)

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9. Latest data suggest economic activity could remain subdued in the first quarter of 2017. Retail sales and industrial production withered in January, and consumer confidence, a key leading indicator, has remained weak. Employment growth has declined and inflation developments have been mixed with headline inflation decelerating faster than expected but core inflation moderating only slightly and still well above the target band. Non-traditional exports have strengthened lately suggesting the boost from past depreciation is finally materializing. With declining inflation and weak activity, the central bank has further cut the policy rate by 50bp during Q1.

10. Staff has completed the safeguards procedures for Colombia’s 2016 FCL arrangement.2 The authorities provided the necessary authorization for Fund staff to communicate directly with the Banco de la República Colombia’s external auditor, Deloitte & Touche Ltd (Deloitte) Colombia. Deloitte issued an unqualified audit opinion on the Banco de la República Colombia’s 2015 financial statements on February 17, 2016. Staff reviewed the 2015 audit results and discussed these with Deloitte. No significant safeguards issues emerged from the conduct of these procedures.

Outlook and Risks

11. The near-term outlook is for a gradual growth pickup. Staff projects growth to increase to 2.3 percent in 2017 as the economy gradually diversifies away from commodities. Lower inflation will partly offset the drag on private consumption from the VAT increase while investment is expected to pick up in the second half of the year. Credit growth will be subdued as lending standards tighten in response to somewhat weaker corporate financial strength and due to softening consumers’ credit demand. Medium-term growth of about 3.5 percent will be underpinned by non-commodity exports, infrastructure spending, and improved confidence stemming from the peace agreement.

12. The convergence of inflation toward the target will be gradual. Despite falling headline inflation, core inflation remains relatively high. Near-term inflation expectations are slightly below the upper limit of the range (2–4 percent), while long-term expectations have declined and remain well within the target range. The initial impact on inflation of the VAT increase has been limited but the still high non-tradable inflation suggests indexation including from increases in the minimum wage are a latent risk for convergence to the target range in early 2018.

uA01fig07

Gross External Financing Needs

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: National authorities and Fund staff estimates and projections.

13. The current account deficit is projected to narrow further in 2017 and gradually converge to its medium-term equilibrium. Additional import compression due to sluggish domestic demand, improved tourism receipts, and growing non-traditional exports will reduce the deficit to 3.8 percent of GDP in 2017. While this suggests the external position is somewhat weaker than implied by fundamentals,3 the gap is expected to narrow gradually over the medium-term. The lagged effects of the large real exchange rate depreciation, combined with the effects of tight policies, will support the convergence to the medium-term equilibrium. The authorities agreed with staff external assessment but noted they have a somewhat smaller current account deficit forecast for 2017. Gross external financing needs will decline to about 12 percent of GDP in 2017, composed mostly of private short and medium-term debt, and hover around 10 percent of GDP over the medium term.

14. The balance of risks is to the downside (see RAM). Gross external financing needs have fallen from a high of 14.7 percent in 2015 but remain sizeable. Colombia remains vulnerable to capital flow volatility and rollover risks, but strong policies, the flexible exchange rate, and robust buffers (reserves at 139 percent of the ARA metric and the FCL) would cushion the impact of external shocks. Exposure to the U.S. is fairly limited but changes in trade policy or corporate taxes could affect efforts to diversify exports, as the U.S. buys 20 percent of Colombia’s non-traditional exports. Domestically, pockets of corporate vulnerability have emerged. The authorities agreed with the balance of risks and noted that changes in U.S. taxes (e.g. BAT) could affect both portfolio and FDI flows with the latent risk of investment relocation to the U.S. On the domestic front, they also noticed that the latest weakness in high frequency indicators suggests a risk of a more protracted slowdown than expected by staff, while a faster than expected implementation of the peace agreement could strengthen medium-term growth even more.

Global Risk Assessment Matrix1

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

Key Policy Issues

The policy mix has to carefully balance the final reduction of imbalances with support for the recovery. A gradual softening of monetary and fiscal policy has already begun, and combined with the tax reform and peace process will support the recovery. Peace will further buttress medium-term inclusive growth.

A. Policies to Facilitate the Adjustment and Recovery

15. The authorities agreed with staff that the pace of monetary easing is contingent on the evolution of inflation expectations and should continue to contribute to the external adjustment. Further progress on disinflation is needed, and inertial inflation from indexation poses risks to the expected convergence to the 2–4 percent target range. Nonetheless, with inflation expectations broadly anchored, one-off supply and tax shocks dissipating and a negative output gap (about -1 percent of GDP), there is scope to cut rates gradually as the current policy rate implies a real-ex ante rate of about 3 percent, exceeding the neutral real rate of around 1–2 percent (see Box 1). The nominal policy rate could fall to around 6 percent in the second half of the year which will still imply a restrictive stance (2 percent real), but its path will depend on the evolution of inflation and external indicators. Staff and the authorities agreed that external demand should lead the rebound in activity to ensure a continued reduction of the current account deficit toward sustainable levels.

16. The structural tax reform will help achieve a more balanced fiscal consolidation in 2017. In line with the fiscal rule, the central government deficit will narrow to 3.6 percent of GDP with the tax reform proceeds (0.7 percent of GDP) protecting social expenditure programs. Budget measures include a continuation of mortgage subsidies and civil works (school) expansion while some savings will come from the discontinuation of one-off expenses such as the peace referendum and reduction in some transfers. The consolidated public sector would post a deficit of 2.9 percent of GDP as subnational spending execution strengthens. The planned consolidation is adequate and implies a mild negative fiscal impulse (-0.1 percent of GDP), and a somewhat stronger one to comply with the fiscal rule in 2018. Staff and the government shared the priority to place public debt on a downward path starting this year including along the implementation of the peace agreement. On the expenditure side, recent efforts to improve the targeting of subsidies and call for expert recommendations to improve expenditure efficiency are also welcome.

uA01fig08

Primary Expenditure Protected by Tax Reform

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: WEO and Fund staff estimates.

Monetary and Financial Conditions

Staff’s updated estimates suggest that both monetary policy and broad financial conditions have remained tight in 2016. However, the housing sector has been resilient with robust mortgage credit growth and house prices slightly misaligned with fundamentals.

The range for the real neutral interest rate is assessed to be 1–2 percent. Different methodologies were used to estimate the neutral interest rate: uncovered interest parity; a Taylor rule; a standard consumption-smoothing model; a DSGE model; and the Hodrick-Prescott (HP) filter (see SIP Chapter 1). Moreover, the Central Bank also provided a range of estimates for the real neutral rate with the median at 1.4 percent. This implies that the (ex-ante) real monetary policy rate has been at contractionary levels during 2016, contributing to attenuate inflation pressures and anchoring expectations.

uA01fig09

Monetary Policy Rate and Inflation

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Banrep and Fund staff estimates.

Financial conditions have remained tight during 2016, amplifying monetary policy impact. Staff constructed an FCI purged of cyclical influence (by controlling for GDP growth), and the direct effects of monetary policy decisions (by controlling for the policy rate). Following Koop and Korobilis (2014), the FCI is normalized around 0 over the observation period (2001–16) and values above zero indicate “loose” and below zero “tight” conditions. Tightening financial conditions contributed to the slowdown in economic activity. The impulse response function analysis shows that a 1 standard deviation tightening of financial conditions lowers GDP growth by about 0.25 percentage points within 12 months. Hence, this suggests that the observed cumulative tightening in financial conditions would continue weighing on growth in 2017 (by about 0.2 ppts).

uA01fig10
Source: Fund staff estimates.

Mortgage credit is still growing rapidly. In line with the tightening suggested by the FCI, overall credit growth decelerated significantly in 2016. However, the mortgage credit segment has remained resilient with a real growth of 6.8 percent. This is partly due to the various government subsidy programs: around 30 percent of the mortgages originated in 2016 were subsidized. These developments, together with the significant expansion of house prices since 2002, generate questions about the macro-financial risks associated with potential reversals in the housing and mortgage markets. Staff estimated that house prices are slightly misaligned with respect to economic fundamentals, with an estimated price gap of 13.5 percent (see SIP Chapter 2). However, after the 1999 financial crisis the authorities have adopted macroprudential measures such as the use of LTV limits, and other housing financing characteristics (e.g., full recourse, no prepayment penalties, fixed-rate mortgages) that limit the vulnerabilities stemming from the housing market.

Near-Term Fiscal Outlook 1/

(In percent of GDP, unless otherwise indicated)

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Source: National authorities and Fund staff estimates.

The medium-term fiscal outlook is broadly based on the authorities’ medium-term fiscal framework. It assumes the full implementation of the structural tax reform as approved by Congress and in line with official estimates.

Gross debt minus public sector deposits.

17. The authorities and staff agreed that the flexible exchange rate will remain the first line of defense against external shocks. The authorities noted that exchange rate flexibility is an integral part of the policy framework and has been effective in dealing with the oil price shock given limited mismatches in bank and corporate balance sheets. At the same time, the central bank will continue to consider all available intervention tools when facing shocks and select the most appropriate ones according to cost/benefit analysis. Reserves are ample and the FCL represents an additional buffer against tail-risk events.

B. Preserving Financial Stability

18. Corporate balance sheets have worsened somewhat and pockets of vulnerability exist. Corporate debt, composed mostly of local bank loans, is modest by international standards (46 percent of GDP) but has increased due in part to valuation effects from the depreciation. As of 2015, corporate leverage and profitability were worse than their historical average. Data up to September 2016 show that agriculture, mining and transport—which combined represent 15 percent of total commercial loans—exhibit the largest share of problem loans. Staff analysis confirms corporate performance has deteriorated in recent years, with increased leverage in the airlines, and oil and gas industries (Figure 5) which nonetheless represent a small share of banks’ loan portfolio. Household debt remains modest (20 percent of GDP) and debt service burden (10 percent of disposable income) is limited. At the same time, credit card debt is rising, posing upward risks to NPLs amid the recent softening of the labor market.

Figure 5.
Figure 5.

Corporate Developments

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: S&P Capital IQ and IMF staff calculations

19. The financial system appears to be sound and broadly resilient to shocks but risks remain. As of 2016Q3, capital adequacy (17.6 percent) is well-above the regulatory minimum and bank profitability is within the historical average despite the slowdown in credit (Table 7). Non- performing loans increased marginally during 2016, but spiked in January 2017 (to 3.7 percent) reflecting a delayed increase that is likely to continue amid weak corporate performance and economic slowdown (see Box 2). Strong prudential standards (including on provisioning and collateral) have cushioned the impact of shocks. Performance of the largest non-bank financial companies (pension funds, insurance companies, and trust companies) remains strong, while earnings of stock-brokerage firms—who account for 1.4 percent of financial system assets—has weakened partly due to low stock market trading volumes and structural issues.

Table 1.

Colombia: Selected Economic and Financial Indicators

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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.

Includes foreign holdings of locally issued public debt (TES); does not include Banco de la República’s outstanding external debt.

Excludes Colombia’s contribution to FLAR and includes valuation changes of reserves denominated in currencies other than U.S. dollars.

Table 2A.

Colombia: Summary Balance of Payments

(In millions of US$, unless otherwise indicated)

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Sources: Banco de la República and Fund staff estimates and projections.
Table 2B.

Colombia: Summary Balance of Payments

(In Percent of GDP)

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Sources: Banco de la República and Fund staff estimates and projections.
Table 3.

Colombia: Operations of the Central Government 1/

(In percent of GDP, unless otherwise indicated)

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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 4.

Colombia: Operations of the Combined Public Sector 1/

(In percent of GDP, unless otherwise indicated)

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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. Excludes private pension transfers from revenues.

Includes statistical discrepancy. Overall balance plus interest expenditures

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 5.

Colombia: Monetary Indicators

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Sources: Banco de la Republica; and Fund staff estimates and projections.
Table 6.

Colombia: Medium-Term Outlook

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Sources: Colombian authorities and Fund staff estimates and projections.

Excludes Ecopetrol.

Includes statistical discrepancy.

Includes debt of the non-financial public sector, plus Ecopetrol, FOGAFIN and FINAGRO.

Gross debt minus financial assets (public sector deposits in domestic and foreign financial institutions).

Table 7.

Colombia: Financial Soundness Indicators 1/

(In percent, unless otherwise indicated; end-of-period values)

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Source: Superintendencia Financiera.

Total Banking System. All deposit taking institutions.

Large increase in 2016 due to a change to IFRS in January 2016 where deposit insurance that used to be recorded as a liability is now recorded as capital.

Data after 2011 refers to broader definition of liquid assets in line with international standards.

Since January 2016, goodwill and retained earnings started to be recorded in foreign currency. Before January of 2016, they were recorded in Colombian pesos and weren’t included in the foreign exchange position.

20. Official stress tests suggest existing countercyclical provisions would help banks withstand large macro-financial shocks. The authorities’ stress tests assessed the impact of a sudden and temporary increase in EMBIG spreads (200 basis points) and a drop in global confidence calibrated to mimic the impact of a sovereign downgrade. The scenario would lead to a significant increase in commercial NPLs (from their current level of about 3 percent to near 10 percent in a two-year horizon) driven mostly by an increase in country risk which would affect particularly firms with higher reliance on external debt. Cumulative bank losses would reach 21.1 percent of bank equity. However, bank solvency would remain above the 9 percent regulatory minimum as part of provisioning needs would be covered from existing countercyclical buffers.1

Slowdown Increases Credit Risk

Corporate sector performance has deteriorated over the past two years following external and domestic economic shocks. The combination of a decline in oil prices, the depreciation of the peso, and weaker domestic activity contributed to an increase in corporate leverage in several sectors, especially in mining. Increasingly more firms have an interest coverage ratio below 2; the increase of this debt-at-risk indicator in 2015 should be read with caution as it also includes the effect of large firms moving to IFRS reporting.

uA01fig11

Total Debt to Total Equity by Sector

(multiple, median)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: Fund staff estimates.
uA01fig12

Debt at Risk1/

(% of Total Corporate Debt where ICR < 2)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

1/ Large firms moved to IFRS reporting in 2015, reducing comparability with previous years.Source: Fund staff estimates.

The banking system has so far been resilient but credit risk is rising. The banking system capital adequacy ratio remains above the regulatory minimum and non-performing loans (NPLs) have increased only to 3.7 percent in January 2017. By sector, the increase in non-performing loans has been the largest in mining with other sectors also affected—commerce, construction, transportation, agriculture. NPLs are increasing in all loan portfolios; they are the largest in microcredit (7.5 percent NPLs in January 2017), however this sector accounts for only 2.8 percent of the total loan portfolio. The commercial loan book accounts for the largest share (55 percent of total loans) followed by consumer loans (27.7 percent of total loans). There has been a strong increase in some consumer loans, especially credit card indebtedness, which is reflective of tighter economic conditions and raises risks going forward. Unemployment is also picking up, which will likely result in a further increase in NPLs in the coming months.

uA01fig13

Colombia: Non-Performing Loans by Loan Portfolio

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: Banrep.
uA01fig14

Colombia: Non-Performing Loans by Sector

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: Banrep.

Staff estimates indicate long lags in the response of banking system NPLs to economic shocks. Evidence from a vector autoregression suggests that oil prices affect NPLs after three quarters, with the highest impact occurring after 9 quarters. The exchange rate has a small immediate impact but the largest impact occurs after 6 quarters. Real GDP also has an immediate impact, with the largest impact occurring after 4 quarters. Credit growth affects NPLs mostly after 3 quarters. The relative impact of unemployment is smaller compared to the other economic variables. These results show that NPLs in Colombia can respond to shocks even one to two years after the initial shock and thus suggests that NPLs could further increase from current levels.

Source: Fund staff estimates.

21. Brisk mortgage credit growth has contributed to a moderate misalignment of house prices. Despite tighter financial conditions, real mortgage credit growth accelerated to about 7 percent at end-2016, including mortgages related to government-subsidies for low and middle income households. Staff estimate real estate prices are about 13 percent above the level implied by fundamentals (forthcoming Selected Issues Paper, Chapter 2). However, risks stemming from house prices are mitigated by low loan-to-value ratios (well below the 70 percent regulatory ratio) and the small mortgage portfolios of banks (13 percent of total).

22. Staff and the authorities agreed on the need for continued vigilance of corporate risks and further advance key pending FSAP recommendations. Continued progress to ensure strong financial supervision by the supervisory authority (SFC) including proper bank loan classification, will help monitor the risks associated with a further increase in NPLs. Further, staff urged the authorities to monitor closely restructuring loan practices among banks and upgrade regulations to best practice guidelines. Authorities’ plans to bring financial sector regulation and supervision closer to Basel III over the coming year are welcome.2 Adoption of Basel’s capital buffers including Tier 1 requirements (6 percent) will further strengthen the resilience of the banking system. The conglomerates law is expected be adopted during the first half of the year. Its implementation, along the lines of FSAP recommendations, and the planned staff increase at the SFC will strengthen its powers to align conglomerates’ capital level with group-wide risks and hence help manage risks stemming from corporate balance sheets and overseas exposures.3

C. Tax Reform, Peace and Fiscal Sustainability

23. The structural tax reform is closely aligned with past Fund advice and will help protect investment and social spending from the medium-term fiscal consolidation mandated by the fiscal rule. The reform includes a comprehensive simplification of the tax code and measures to improve formalization and tax administration. Measures include a 3 percentage point increase in the VAT, and a reduction in the high corporate tax burden, a key business obstacle. Staff noted that achieving the 3 percent of GDP medium-term reform target yield is predicated on gradual gains in tax administration which might not fully materialize. In response, the authorities emphasized they are revamping training and staffing at the tax authority (DIAN) and expect positive results from electronic invoicing and the simplification of the tax system.4 Measures to reduce evasion such as higher penalties and revamp taxation for not-for-profit firms will also contribute to achieve the target yield. At the same time, strengthening personal income taxation represents a pending task, which would help further improve the progressivity of the tax system.

Colombia: Key Elements of Structural Tax Reform

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Source: National authorities and Fund staff estimates

Includes revenue from taxation to non-profit entities; single tax for small taxpayers (monotributo)

Structural Tax Reform

Recent studies have highlighted Colombia’s tax system as complex, prone to evasion and with limited progressivity. The complexity stems in part from multiple taxes for personal and corporate income and together with limited resources at the tax authority has led to widespread tax evasion (OECD, 2015). Relatively ample deductions and exemptions in personal income tax (PIT) reduce the progressivity of the system and erodes tax revenue. Further, the corporate income tax (CIT) rate was scheduled to reach 43 percent by 2018 which is relatively high and hinders business competitiveness. Colombia’s total tax revenue is similar to other regional peers (Chile and Mexico) but is low compared to the OECD average.

uA01fig16

Components of General Government Revenue (% GDP)

Colombia and comparator countries, 2015

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: OECD Revenue Statistics. Colombia data from 2014.

The 2016 structural tax reform aims to improve the efficiency and competitiveness of the tax system while increasing tax revenue. The reform replaces multiple overlapping taxes with a single tax for corporates and similarly establishes a single personal income tax with slightly reduced exemptions. The marginal CIT rate will be reduced gradually (to reach 33 percent in 2019) and VAT paid on capital goods will be credited against the CIT. Most of the reform’s expected yield will come from an increase in the VAT rate and from gains in tax administration, formality and growth; while PIT revenue will increase only slightly.

Staff calibrated the FSGM model to simulate the growth impact of key measures of the reform. The model captures the fact that the reform will lead to higher public investment levels which would otherwise have been cut in order to meet the deficit targets included in the fiscal rule. Higher public capital would contribute to higher productivity (TFP). The combination of higher productivity and reduced corporate taxation will boost private investment and result in additional growth of about 0.3 pp. Staff also simulated the combined impact of the tax reform and the building phase of the 4G infrastructure agenda which would result in a combined growth boost of about 0.5 pp. (see SIP Chapter 3).

24. Staff estimates that the tax reform could boost medium-term annual growth by about 0.3 percentage points if accompanied by higher public investment (see Box 3). Model simulations indicate that the combination of lower corporate taxation and more public capital would boost private investment.5 The authorities broadly agreed with the assessment and also noted that recent tax incentives for the oil industry could also boost investment (capex on exploration could be credited against future tax obligations).

25. The authorities and staff agreed that fiscal sustainability should remain a key criterion in the implementation of the peace agreement. With public debt levels and gross financing needs below stress-benchmarks, Colombia has some fiscal space for additional peace expenditure while protecting the credibility of the fiscal rule. Ensuring debt sustainability remains a priority amid sizeable gross external financing needs and higher foreign holdings of debt. The government estimates peace-related outlays will be initially modest and within the fiscal rule in 2017–18, grow gradually and average about 1 percent of GDP per year over the medium term. About ½ percent of GDP will be covered by expenditure reallocation while the other ½ percent of GDP will represent additional expenditure as reflected in the financial plan of the peace agreement to be published in April and in the next medium-term fiscal framework to be published in June. This additional expenditure would be mostly covered by the central government and to a lesser extent by subnational governments. On the latter, the authorities sent to Congress a law to modify the oil-royalty system to free up about 0.1 percent of GDP per year for peace. Financing for peace-related expenditures will come in part from peace-funds established by IFIs and donors. The government noted that by reducing large institutional and public goods gaps in some regions, the implementation of the peace agreement should boost GDP growth. Staff agreed with the importance of ensuring a declining path for public debt as a ratio of GDP as in the staff baseline but noted that short-run growth effects could be somewhat dimmer than in the authorities’ estimates.

D. Policies to Strengthen Medium-Term Potential Growth

26. Staff and the authorities broadly agreed that the sources of potential GDP growth will be different going forward. In the last 15 years, high oil investment and large increases in the labor force pushed potential growth above 4 percent. The latest data suggest these two factors are unlikely to be growth engines over the medium-term. The staff ’s central scenario is for annual potential GDP growth to slow down to about 3½ percent between 2017 and 2022 and includes the boost from ongoing structural reforms (see Box 4). The government noted that employment growth could turn out stronger than assumed by staff if the natural rate of unemployment (NAIRU) continues to decrease over time.

uA01fig17

Average Potential Growth and Contributions

(Percent)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: DANE; PWT and Fund staff estimates.

Potential GDP Growth Outlook

Colombia’s GDP grew at an average of 4.6 percent in 2006–15, during a period of very favorable external conditions. High oil prices pushed investment to historic highs, especially in mining-related machinery. The contribution of labor to growth was also significant, as labor force participation increased and unemployment fell. Productivity gains were modest.

uA01fig18

Investment in Machinery

(In percent of GDP)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: IMF staff calculations.
uA01fig19

Participation Rate

(Percent)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Potential growth is projected to moderate to a range of 2.8 to 4.1 percent, with a central projection of 3.5 percent in 2022 (see SIP Chapter 4). The positive effects of 4G investment projects and the structural tax reform will partially offset the drag on investment from subdued oil prices, resulting in an average contribution of capital to potential growth of 1.5 percentage points in 2017–22. Falling population growth and limited scope for further participation increases will cap the average contribution of labor to potential growth to 1.4 percentage points in 2017–22, down from 2.3 percentage points in 2001–16.

uA01fig20

Potential Growth Range

(Percent)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Productivity gains are essential to achieve a potential growth rate of 3.5 percent or above. Productivity growth could reach 0.6 to 1.1 percent by 2022 under strong implementation of the following structural reforms: (i) development plans related to the peace agreement (up to 0.5 percentage points); (ii) productivity gains from better infrastructure (up to 0.25 percentage points); and (iii) improvements in the business environment and removal of barriers to trade (up to 0.1 percentage points).

27. Key items in the authorities’ structural reform agenda stand to buttress medium-term potential growth.

  • a. Peace. The peace agreement will support growth by further improving security and confidence and reducing infrastructure and social gaps across the regions most affected by the conflict (see Box 5). Staff expects peace to improve medium-term growth up to 0.5 percentage points, and further over the long term.

  • b. 4G agenda. A reduction in the large infrastructure gap will foster private investment and help exporters access markets.6 The authorities’ agenda to improve tertiary roads will complement the yield from the three waves of 4G PPP-based projects.

  • c. Reduction of tariff and non-tariff barriers. Despite recent efforts to improve customs procedures there are still large barriers to trade, including elevated tariffs in some sectors and widespread and onerous non-tariffs barriers which, if removed, could unleash Colombia’s diversification potential.7 The government noted recent efforts have removed 75 percent of export barriers identified by the private sector; and thanks to pilot projects on innovation and managerial skills, Colombia is exporting more products and to additional markets than in previous years.

uA01fig21

Key Export Barriers

(Nature and number of barriers identified by exporters)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Ministry of Commerce.
uA01fig22

Progress Report on Addressing Export Barriers

(Status of resolution of export barriers identified by exporters)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Ministry of Commerce.

28. The authorities are working to protect the 4G infrastructure agenda from recent delays. Bank lending standards to 4G projects have recently tightened amid the cancellation of a previous generation PPP-project. The government efforts to compensate creditor banks as well as to more broadly strengthen the PPP legal framework stand to facilitate private financing. FDN resources, including those from the sale of ISAGEN, will remain an important source of financing.

Regional Convergence and Peace Agreement

Colombia’s strong economic performance during the last decades masks important differences across regions. On average, GDP per capita expanded by 50 percent during 2000–2015. However, while the top 5 regions (departmentos) doubled their GDP per capita during that time, in the bottom 5 regions GDP per capita actually declined by about 13 percent. Human capital differences are likely a contributing factor. While the national education attainment improved from 7 to 9 years (among 15 or older population), large difference remains with a 3-year gap between the top and bottom region (Bogota and Vichada, respectively).

uA01fig23

Regional GDP per Capita

(By regions departamentos; index 2000=100)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: DANE and Fund staff calculations

The peace agreement has a strong focus on rural development and social inclusion. The agreement aims to reduce gaps in education, health, infrastructure and other public services among rural areas and help people displaced by the conflict back to agriculture activity including through land reform. The agreement also includes financial incentives to replace illicit drugs with alternative crops and measures to reincorporate guerrilla members into society. Tax incentives will be given to firms that invest/relocate to regions affected by the conflict. The agreement includes special courts to handle conflict-related crimes and allows guerrilla members to compete for political positions. The agreement also extends the victims’ reparations program that started in 2011.

The implementation of the agreement will give priority to regions with the largest institutional and social gaps. The agreement will be implemented over 15 years. Short-term priorities include municipalities with significant coca production, FARC presence or lacking state presence. Other priority group includes municipalities affected by the conflict and with low income per capita, where private participation is expected to complement government programs as in the south and west part of the country (see maps).

uA01fig24

Incidence of Peace-Related Measures

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: DAME (2017)

Staff Appraisal

29. Colombia’s continued success in achieving a growth-friendly adjustment despite multiple shocks reflects its strong policy frameworks and timely policy decisions. Colombia withstood multiple domestic and external shocks in 2016, yet achieved relatively strong GDP growth with declining poverty and reducing income inequality modestly. The authorities reacted flexibly to ensure an orderly adjustment. The decisive monetary policy response helped anchor inflation expectations, while fiscal restraint protected key social and infrastructure spending from the need to adjust to lower oil revenue. As a result, domestic demand continues a gradual adjustment to the end of the commodities boom and the current account deficit has narrowed, reducing external risks.

30. Further adjustment is needed but the policy stance could be eased somewhat to set the stage for a gradual recovery. The current account remains slightly above the level consistent with medium-term fundamentals and policies but adjusted faster than expected in 2016. Growth will rebound toward the second part of 2017, as exports recover and investment improves underpinned by the 4G infrastructure agenda, the peace agreement and the structural tax reform. Conditional on preserving well-anchored inflation expectations, withdrawing some of the monetary tightening that took place last year will support the recovery while further bringing the current account deficit towards its medium-term equilibrium. The mild negative fiscal impulse expected this year is adequate and will help place the public debt-to-GDP ratio firmly on a downward path and also help the external adjustment. Credit growth will remain subdued with banks’ lending standards tightening in response to some weakness in corporate balance sheets; consumer credit growth will also moderate.

31. The balance of risks remains to the downside. Despite the narrowing of the current account deficit, gross external financing needs remain relatively large and hence Colombia remains exposed to global financial volatility. U.S. tax policy decisions could negatively affect Colombia’s exports and capital inflows, while delays in the structural reform agenda could hinder the expected recovery in private investment and potential growth. The flexible exchange rate regime will remain the first line of defense against global shocks and volatility while reserves are adequate for precautionary purposes and the FCL represents an additional buffer.

32. The peace agreement and the structural tax reform are important milestones that will buttress medium-term inclusive growth, together with the infrastructure agenda. The tax reform will help meet the fiscal rule deficit targets while protecting growth-enhancing social and infrastructure spending. The authorities’ continued and strengthened efforts to improve tax administration will be important for achieving the reform target yield. Improved competitiveness will foster private investment and facilitate the much needed growth diversification. Ongoing efforts to strengthen expenditure efficiency including through the recommendations of an expert commission will further improve the quality of the planned consolidation. At the same time, the implementation of the peace agreement will target existing gaps in infrastructure and basic services while ensuring a declining debt-to-GDP ratio.

33. Continued progress to ensure strong financial supervision and regulation, including by adopting best international standards, will enhance the resilience of the financial system. The financial system is well capitalized, liquid, and profitable. Attention to proper bank loan classification and restructuring practices together with additional staff at the Financial Superintendency will help manage credit risks associated with the recent economic slowdown. The timely introduction of Basel III capital standards and the conglomerates law will further expand the regulatory toolkit to better manage corporate and overseas risks.

34. Staff does not recommend approval of the retention of the exchange restriction arising from the special regime for the hydrocarbon sector, since the authorities have no plans for its removal. Colombia has a floating exchange rate regime (de jure: free floating; de facto: floating) and maintains an exchange restriction subject to Fund approval under Article VIII arising from the special regime for the hydrocarbon sector (see IMF Country Report No. 13/35 for details).

35. Staff recommends that the next Article IV consultation takes place on the standard 12–month cycle.

Table 8.

Colombia: Indicators of External Vulnerability 1/

(In billions of US$, unless otherwise indicated)

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

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

Includes foreign holdings of locally issued public debt (TES).

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)

article image
Source: Fund staff estimates.

Public sector is defined as non-financial public sector.

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: Public DSA – Composition of Public Debt and Alternative Scenarios

article image
Source: Fund staff estimates.
Table 11.

Colombia: External Debt Sustainability Framework, 2012–2022

(In percent of GDP, unless otherwise indicated)

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

Derived as [r – g – r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = 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 denominated debt in total external debt 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 12.

Colombia: External Debt Sustainability: Bound Tests 1/ 2/

(External debt in percent of GDP)

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

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.

For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.

3/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance. 4/ One-time real depreciation of 30 percent occurs in 2017.
Figure 6.
Figure 6.

Colombia: Structural Issues and Potential Growth

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Banco de la República; OECD; World Economic Forum; DANE; World Bank; and Fund staff estimates.
Figure 7.
Figure 7.

Colombia: Social Indicators

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: World Development Indicators; and DANE.1/ Poverty corresponds to the poverty headcount ratio at $3.10 a day (2011 PPP) and extreme poverty to the headcount ratio at $1.90 a day (2011 PPP).

Appendix I. External Sector Assessment

1. Faced with a faster and larger deterioration in the terms of trade (TOT) than Chile and Peru, Colombia has also narrowed its current account deficit at a faster pace, although further adjustment is still required. With a larger real exchange rate depreciation than in Chile and Peru and a sharper slowdown in domestic demand, imports contracted significantly in real terms. Nevertheless, Colombia’s current account balance was already below its peers’ and its norm before the shock, and the drop in oil prices initially caused a further decline. The adjustment in trade quantities observed until now was barely enough to revert this initial deterioration and bring Colombia’s current account in line with its peers’ two years after the TOT shock. A further narrowing of the current account deficit will be required to bring it back to the norm and in line with that of its peers.

uA01fig26

Terms of Trade

(Index: t=100, 4Q moving average)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: Haver Analytics and Fund staff calculations.Note: For Chile and Peru t = 2011Q1, and for Colombia t = 2014Q2.
uA01fig27

Real Effective Exchange Rate

(Index: t = 100, increase=appreciation, 4Q moving average)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: IMF, IFS database and Fund staff calculations.Note: For Chile and Peru t = 2011Q1, and Colombia t = 2014Q2.
uA01fig28

Current Account

(Percent of GDP, 4 quarter moving average)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Haver Analytics and Fund staff calculations.Note: For Chile and Peru t = 2011Q1, and for Colombia t = 2014Q2.
uA01fig29

Total Domestic Demand

(Year-over-year percent change, 4Q moving average)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: Haver Analytics and Fund staff calculations.Note: For Chile and Peru t = 2011Q1; and for Colombia t = 2014Q2.

2. As the adjustment continues, the external position appears slightly weaker than implied by fundamentals. The external current account has adjusted at a much faster pace than expected last Article IV consultation, thereby reducing but not yet eliminating the CA gap. In staff’s view, the ES estimate of current account norm (-2.6) is the one that better reflects the underlying external position, as the EBA_CA methodology does not account for substantial repatriation of profits and the EBA REER is driven in part by delayed response of exports to the recent depreciation. The associated current account gap is -1 percent of GDP which corresponds to a 5 percent exchange rate overvaluation.

Exchange Rate Assessment

article image
Source: EBA.

3. The net position in portfolio and other investment in percent of GDP continued to decline in 2016, albeit at a slower pace than in 2015. This reflects a narrowing but still substantial current account deficit that is only partially financed by FDI. It also reflects recovering but still tepid GDP growth. More than two thirds of the 2016 increase in external debt corresponds to public sector long-term debt mainly the Central Government, Ecopetrol, and Medellin’s public companies.

uA01fig30

Net Position in Portfolio and Other Investment

(Percent of GPD)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: IMF staff calculations.

4. Looking forward, the dynamism of non-traditional exports will play an important role in supporting economic growth. The U.S. has become the most important market for non-traditional exports as sales to the neighboring countries have declined sharply over the last few years. The existing comprehensive set of free trade agreements (FTAs) together with the 4G infrastructure projects together with the government’s export promotion efforts should help strengthen export.

uA01fig31

Non-Traditional Exports by Destination

(In billion U.S. dollars)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Source: Fund staff calculations.

5. As the current account deficit narrows, capital inflows are expected to decline too. Net FDI saw a significant increase in 2016 mainly as a result of the sale of ISAGEN, a state-owned electricity company, but is expected to return to levels similar to those observed in 2015, as still-low oil prices continue to impact investment in that sector.

uA01fig32

Financial Account

(in percent of GDP)

Citation: IMF Staff Country Reports 2017, 138; 10.5089/9781484302163.002.A001

Sources: National authorities and Fund staff estimates.
1

Multidimensional poverty measured by the Colombian National Administrative Department of Statistics, quantifies shortfalls/scarcity that Colombian households face on different areas including education, health, work and access to public services.

2

The FCL arrangement for Colombia was approved by the Executive Board in June 2016. The safeguards procedures were completed on August 9, 2016.

3

As described in the annex, staff estimates the CA norm at -2.6 percent of GDP which implies about 1 percent of GDP gap versus the 2016 (cyclically adjusted) CA balance of -3.6 percent of GDP.

1

Last July, Moody’s placed Colombian banks on a negative outlook based in part on their stress test, which assessed the scenario of a 33 percent drop in net interest income, 55 percent drop in other income and stable expenditures on five banks. Aggregate NPLs rose from 2 to 9 and capital adequacy declined below the regulatory minimum. However, the authorities have noted that Moody’s stress test overestimated bank loses by ignoring existing hedges (see Financial Stability Report September 2016).

2

Plans include to deduct goodwill from common Tier 1 capital while buffers (countercyclical, conservation and systemic risk buffers) are under study. There are also plans to incorporate country and operational risk into the risk framework.

3

LEG will conduct an AML/CFT assessment in December 2017 aimed to strengthen the existing framework.

4

Recent estimates suggest that tax evasion on VAT and income tax combined could be around 4 percent of GDP providing large room for improvement. See OECD Economic Surveys Colombia, January 2015.

5

Estimates obtained in collaboration with RES, using the FSGM Model calibrated to Colombian data (forthcoming Selected Issues Paper, Chapter 3).

6

See Staff Report for the 2016 Article IV Consultation (IMF Country Report No. 16/129).

7

Recent studies estimate that while average tariff amount to about 5 percent, non-tariff barriers are 5 times larger (tariff equivalent of 25 percent); See García et al. 2016, Banco de la República, Borrador 974.

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Cover IMF Staff Country Reports
Colombia: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2017: Issue 138
Publisher:
International Monetary Fund
ISBN:
9781484302163
ISSN:
1934-7685
Pages:
63
DOI:
https://doi.org/10.5089/9781484302163.002

Headwinds Stemming from External Conditions

Domestic Demand Driving the Slowdown

(y/y in percent)
Figure 1.

Colombia: Recent Economic Developments

Imports and Non-tTaditional Exports

(3mma, y/y)
Figure 2.

Colombia: External Sector Developments

Inflation and Policy Rate

(In percent)
Figure 3.

Colombia: Macroeconomic Policies

Real Credit Growth by Segment

(In percent)

Output Gap vs Credit Gap
Figure 4.

Colombia: Recent Macro-Financial Developments

Gross External Financing Needs

(In percent of GDP)

Primary Expenditure Protected by Tax Reform

(In percent of GDP)

Monetary Policy Rate and Inflation
Figure 5.

Corporate Developments

Total Debt to Total Equity by Sector

(multiple, median)

Debt at Risk1/

(% of Total Corporate Debt where ICR < 2)

Colombia: Non-Performing Loans by Loan Portfolio

Colombia: Non-Performing Loans by Sector

Components of General Government Revenue (% GDP)

Colombia and comparator countries, 2015

Average Potential Growth and Contributions

(Percent)

Investment in Machinery

(In percent of GDP)

Participation Rate

(Percent)

Potential Growth Range

(Percent)

Key Export Barriers

(Nature and number of barriers identified by exporters)

Progress Report on Addressing Export Barriers

(Status of resolution of export barriers identified by exporters)

Regional GDP per Capita

(By regions departamentos; index 2000=100)

Incidence of Peace-Related Measures
Figure 6.

Colombia: Structural Issues and Potential Growth
Figure 7.

Colombia: Social Indicators

Terms of Trade

(Index: t=100, 4Q moving average)

Real Effective Exchange Rate

(Index: t = 100, increase=appreciation, 4Q moving average)

Current Account

(Percent of GDP, 4 quarter moving average)

Total Domestic Demand

(Year-over-year percent change, 4Q moving average)

Net Position in Portfolio and Other Investment

(Percent of GPD)

Non-Traditional Exports by Destination

(In billion U.S. dollars)

Financial Account

(in percent of GDP)