IMF Executive Board Concludes 2020 Article IV Consultation with Colombia
April 17, 2020
The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Colombia.
Despite regional headwinds and global shocks, Colombia’s economy remained resilient in 2019 owing to very strong policy frameworks and well-executed policies. Immigration from Venezuela, private and public investment, inward remittances, higher real wages, and increased supply of consumer credit supported strong internal demand and lifted economic growth to 3.3 percent in 2019. Despite exchange rate volatility and temporary inflation shocks, inflation expectations remained well-anchored and monetary accommodation was appropriately maintained. Meanwhile, gradual fiscal adjustment, consistent with the fiscal rule, continued to provide adequate fiscal support. With stagnant exports, however, demand-led growth widened the current account deficit to 4.3 percent, increasing external vulnerabilities even before the Covid-19 and oil shocks hit in 2020.
With the disruptions associated with the Covid-19 pandemic and with lower oil prices, real GDP is projected to contract by 2.4 percent in 2020, Colombia’s first recession since 1999. While external financing needs are expected to increase, these should continue to be financed by relatively stable and diversified FDI. As the Covid-19 pandemic abates and external conditions improve, growth is projected to rebound in 2021 and to remain around 3½ percent over the medium term supported by the 2019 domestic demand growth drivers–including the boost from migration flows.
Executive Board Assessment [2]
Directors commended the authorities for their very strong policy frameworks and track record, as well as commendable efforts to support and integrate the large inflow of migrants from Venezuela in recent years. Directors noted, however, that the economy is expected to contract due to the severe impact of the COVID‑19 pandemic, creating heightened uncertainty for the outlook.
Directors welcomed the early actions taken by the authorities to mitigate the spread of COVID‑19. In light of the pandemic and sizeable disruption to economic activity, Directors welcomed the creation of a crisis mitigation fund to support the health sector, households and businesses; encouraged countercyclical spending; and supported using all available fiscal space to provide further support to the economy.
Directors welcomed the authorities’ commitment to maintaining a flexible exchange rate as the first line of defense against external shocks. They agreed that monetary policy should remain accommodative and that further easing may be needed, provided inflation expectations remain anchored. In the context of heightened volatility and dislocation in financial markets, the central bank’s actions to support market liquidity and funding have been timely and appropriate. Directors urged continued regulatory and supervisory flexibility and the use of appropriate macroprudential policies.
Once the crisis from the global pandemic abates, Directors emphasized the need to appropriately calibrate the policy mix to support the recovery, enhance resilience, and rebuild buffers. In that context, they welcomed the authorities’ strong commitment to the fiscal rule and to enhancing transparency. To safeguard social spending and public investment, Directors encouraged additional revenue mobilization over the medium‑term through higher structural taxes and improvements to tax administration.
Colombia has made welcome progress toward further reducing poverty and inequality. Directors encouraged further efforts to tackle informality, integrate migrants to increase productivity, and enhance external competitiveness.
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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