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Colombia Government's Economic-Social Policies Win IMF Backing Colombia Government's Economic-Social Policies Win IMF Backing Source: Pixabay

International Monetary Fund Praises Colombia’s 'Very Strong' Social-Economic Policies

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The International Monetary Fund (IMF) on May 2 unveiled a new report finding that the Colombian government continues to exercise sound economic, social and fiscal policies – even in the face of the Covid-19 pandemic, its unavoidable economic consequences, massive influx of millions of desperate Venezuelans -- but facing potential reversals from upcoming elections.

Assuming Colombia won’t suffer a dramatic political-economic reversal and would continue with its capitalist social democracy, the IMF just approved “a successor two-year arrangement for Colombia under the Flexible Credit Line (FCL), designed for crisis prevention, of about US$9.8 billion,” according to IMF, the global economic stabilizer for its 190 member nations.

“Colombia qualifies for the FCL by virtue of its very strong economic fundamentals and institutional policy frameworks and track record of implementing very strong policies and commitment to maintaining such policies,” according to IMF.

“Prior to the pandemic in 2020, Colombia had been on a path of gradually reducing access under its FCL arrangements, and the new arrangement resumes this path. The arrangement should boost market confidence, and combined with the comfortable level of international reserves, provide insurance against external downside risks.”

“Colombia has very strong economic fundamentals and policy frameworks anchored by a credible inflation targeting-regime, a solid medium-term fiscal framework, a flexible exchange rate, and effective financial sector supervision and regulation,” added IMF Deputy Managing Director Antoinette Sayeh.

“The authorities remain firmly committed to maintaining very strong macroeconomic policies going forward. There is also broad consensus in Colombia on the importance of preserving very strong policy frameworks.

“Colombia also has a very strong track record of macroeconomic management, which allowed the authorities to deliver a comprehensive response to the pandemic, promote a steadfast economic recovery, continue to integrate Venezuelan migrants into Colombian society, and support rising living standards.

“With a robust recovery underway but risks tilted to the downside, Colombia has taken steps to normalize policies from a crisis footing and manage higher inflation, while strengthening public finances and reducing external imbalances.

“Meanwhile, international reserves remain adequate. The structural reform agenda rightly aims at fostering inclusive and sustainable growth and enhancing external competitiveness,” Saveh concluded.

Among the IMF report highlights:

-- “Colombia’s strong economic recovery in 2021 places it among the region’s growth leaders. GDP growth for 2021 was 10.6%, on par with Chile and Peru as the fastest growing economies in the region. Buoyed by pent-up household consumption and higher credit growth, GDP growth is forecast at 5.8% in 2022 and 3.6% in 2023,” according to the report.

-- “Inflation has been well above the central bank’s target of 3% since August 2021, prompting the central bank to raise rates and to accelerate the pace of tightening. Amid strong domestic demand, supply-side constraints, and sharply rising commodity prices, inflation climbed to 8.5% in March, well above the central bank’s target.

“As supply constraints and commodity price pressures are alleviated, staff expects inflation to gradually return to the central bank’s target by mid-2024, although inflation risks are to the upside.

-- “Alongside the recovery, Colombia’s public finances are showing signs of improving with scope to make further gains. The fiscal deficit was smaller than expected in 2021. With stronger growth and broadly unchanged spending, the central government fiscal deficit was 8.2% of GDP in 2021, about 1.5% of GDP lower than in the 2021 Medium-Term Fiscal framework target.

“A lower fiscal deficit (6.1% of GDP) than what is required to comply with the new fiscal rule (7.9% of GDP) appears within reach this year, given higher tax collections due to the stronger-than-expected economic recovery and restraint on primary expenditures.

-- “The current account deficit widened further alongside demand-led growth. Alongside strong domestic absorption and higher import prices, the current account deficit widened noticeably from 3.4% in 2020 to 5.7% of GDP in 2021 . . . assessed as being temporary due to pandemic-related effects and domestic disruptions to oil production.

“FDI [foreign direct investment] has remained a strong and stable source of financing, while portfolio inflows were positive in 2021 but decelerated as investors adjusted their positions due to Colombia’s sovereign ratings downgrade.

--“ Colombia’s banks have withstood the pandemic well and the financial system remains sound. Credit growth, particularly consumer loans, appears to be entering an upswing amid a stronger growth outlook. Businesses and households improved their balance sheets, but leverage ratios remain elevated, particularly for non-financial firms. Banks exhibit strong capital and liquidity buffers, underpinned by effective supervision.”

--"While Colombia’s balance of payments and fiscal position stand to benefit from higher hydrocarbon prices, rising and volatile international prices for food and energy, as well as more persistent disruptions in global supply chains would exacerbate domestic inflationary pressures.

--"Notwithstanding the recent slowdown in migrant flows, higher-than-expected migration flows from Venezuela would raise near-term fiscal and external deficits. These shocks could heighten Colombia’s fiscal risks and are likely to be exacerbated by political uncertainty from the upcoming national election cycle,” the report adds.

Read 332 times Last modified on Last modified on May 03 2022

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Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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