An International Monetary Fund (IMF) mission, led by Valerie Cerra, visited Bogotá from March 3-13, 2014 to hold the annual Article IV Consultation.i The team held discussions with authorities and private sector representatives about recent economic and financial developments, and the near- and medium-term outlook. At the end of the mission, Ms. Cerra issued the following statement in Bogotá:
“Colombia has maintained sound macroeconomic performance, weathering well the bouts of global economic and financial stress of recent years. A strong and competently-managed policy framework—anchored by an inflation-targeting regime, a flexible exchange rate, effective financial supervision and regulation, and a prudent medium-term fiscal framework—has allowed the authorities to respond adequately to shocks, using their policy tools to stabilize growth.
“Economic growth accelerated during the course of 2013, lifted by supportive monetary policy and fiscal measures that stimulated activity in construction and civil works, with annual GDP growth estimated at about 4 percent. Unemployment continued to decline, averaging 9.7 percent, the lowest level since the 1990s, and labor market formalization improved. Inflation was subdued at 1.9 percent, as temporary supply shocks lowered food and electricity prices late in the year. The central bank took advantage of buoyant capital inflows, mainly from foreign direct investment, to further bolster its foreign exchange reserve buffers.
“Economic prospects are favorable in 2014, with growth expected to be about 4.3 percent and inflation to remain within the 2-4 percent target band. As inflation gradually rises toward the 3 percent mid-point of the target range as one-off factors disappear, IMF staff considers that the policy rate could be increased toward its neutral level. The combined public sector deficit is expected to remain broadly unchanged, with the central government stance guided by the fiscal rule. External risks remain tilted to the downside; thus, it is expected that the authorities will continue to use the flexible exchange rate and monetary policy to cushion the impact of any external shocks.
“Colombia has a strong fiscal framework, with a commitment to reducing the central government structural deficit and public debt over the coming years. To achieve this desirable goal, while also providing fiscal space for outlays to reduce poverty and overcome Colombia’s infrastructure deficit, the authorities will need strong efforts to expand non-oil fiscal revenues.
“As in other countries in the region, Colombia’s key medium-term challenge is to sustain stable and inclusive growth. From this perspective, the framework for sharing oil royalties across regions and the 2012 reform to rationalize the tax system and make it more equitable have been positive steps. The mission also supports the objective of increasing coverage and equity of the pension system, while maintaining its fiscal sustainability, as well as initiatives in the financial sector to foster inclusion.
“The consultation will conclude with the preparation of a report to be discussed by the IMF Executive Board in May 2014. The mission wishes to thank the Colombian authorities for their warm hospitality and open discussions during the mission.”
i 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.