Country Report No. 13/35
STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION
§ Staff Statement of January 23, 2013.
§ Informational Annex prepared by the IMF.
§ Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its January 23, 2013 discussion of the staff report that concluded the Article IV consultation.
Context. Following buoyant economy activity in 2011, growth is moderating to potential, largely reflecting the lagged impact of countercyclical policies and weak external demand. Inflation remains subdued. A cabinet reshuffling in early September and ongoing peace negotiations have provided a renewed momentum to structural reform initiatives.
Policy stance is broadly appropriate. The 2013 budget is in line with medium-term fiscal consolidation plans. Monetary policy remains broadly neutral, with ample room for easing if growth surprises on the downside. The central bank continues to strengthen its international reserves position gradually, and strong FDI inflows continue to exert pressure on the exchange rate.
Risks. Direct linkages to foreign banks (including from Europe) are limited, but Colombia is vulnerable to a sharp growth slowdown in trading partners, a steep drop in oil prices, or a sharp rise in global risk aversion. The flexible exchange rate, the comfortable level of international reserves reinforced by the FCL arrangement, and low ratios of external and public debt provide adequate buffers.
Medium-term. Key medium-term challenges are to sustain stable and inclusive growth with macroeconomic stability, while avoiding overdependence on the volatile commodity sector. Addressing these challenges would require reforms to boost competitiveness and productivity and increase national saving. Reforms should focus on (i) reducing the high rates of informality and structural unemployment, including through the envisaged tax and pension reforms; (ii) adhering to fiscal consolidation (while closing the infrastructure gap); and (iii) preserving financial stability and promoting financial deepening.
Miguel A. Savastano
Discussions took place in Bogotá during November 6−16. The team comprised Valerie Cerra (Head), Teresa Daban Sanchez, and Mercedes García-Escribano (all WHD), and Toshiyuki Miyoshi (SPR). Maria Angelica Arbeláez (OED) attended some of the meetings.Robert Rennhack (MCM) joined the end of the mission. The team met with senior government and central bank officials, and representatives from the business community.