There have been three important reports or announcements on economic matters in recent weeks. The first is the International Monetary Fund's annual assessment of the country's economy. The second is Dan's announcement that the country's economy will not reach 0.6% growth in 2023. The third is President Pedro's statement that public finances are on the brink of collapse.
The IMF report was favorable. He acknowledged that important efforts have been made to reduce the country's economic disparities. Hence reducing these disparities should be considered as a major achievement of the country in economic matters.
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It is important to note that this positive assessment is important as the country uses the International Monetary Fund's flexible credit line, which only countries with sound macroeconomic policies can access. Colombia has had unfettered access to that loan since 2009 and has the option to request its renewal for two years in April.
Despite the meager growth in non-traditional exports, the performance in terms of balance of payments has been very consolidated. Reducing inflation is important, but it is still not enough because we are still far from the Republic Bank's 3% target, but we are moving in the right direction.
The main risk posed by the fund is in tax matters. It recognizes the important progress made in 2023 in reducing the deficit and public debt as a percentage of economic activity, but is concerned that these indicators will go in the opposite direction in 2024. Therefore, as it points out, prioritizing the public is important. Costing and analyzing the risks of reforms in the sector, including the cost of healthcare reform.
However, contrary to the President's claim, the public finances are not on the verge of collapse. Moreover, the report is alarming given the country's high risk margins in international financial markets due to the loss of investment grade in 2021.
Matters are further complicated by the fact that only Standard & Poor's, one of the three major risk rating agencies that assign the country's investment grade, has already put us on a negative outlook. Therefore, it is imperative that the entire government, including the President, show signs of confidence in the nation's financial accounts and commitment to complying with fiscal rules.
Dane's announcement was obviously negative. Although some sectors grew, three important sectors had the most negative trends: construction, manufacturing and trade. In terms of demand, the main problem was a sharp reduction in investment.
In this sense, it is surprising that the Fund's report, while noting the positive role that energy transition and export diversification can play in economic growth, does not indicate the need to adopt a circular or counter-cyclical policy. Of course, the government's lack of announcements on a clear recycling policy is surprising.
It should be its priority, in any event, to maintain fiscal adjustment and a favorable inflationary trend. Fundamentals should be cut slightly faster in RBI interest rates; Focuses on public spending programs that contribute to strengthening economic activity, especially housing and infrastructure construction, to better implement public investment; an ambitious non-traditional export policy; Send signals of confidence to investors and full respect for the country's institutions.
Jose Antonio Ocampo
(Read all of José Antonio Ocampo's columns in EL TIEMPO here)
