The IMF warns that uncertainty about the future of reforms will weigh on the economy

Bogota – In its Article IV review, the International Monetary Fund (IMF) warned Colombia of possible negative effects on the economy. Uncertainty surrounds the social reforms promoted by Gustavo Pedro's government.

According to the multilateral organization, this indicates that the Colombian economy will continue its transition towards sustainable demand and economic activity, and that internal imbalances will continue to decline in 2024. Real GDP is expected to expand by 1.1% and inflation will gradually ease to 5% (YoY) by the end of 2024, thanks to prudent macroeconomic policies. Meanwhile, the current account deficit is projected to be 3.0 percent of GDP this year.

Although risks to the outlook are high and tilt towards a possible deterioration of the economy, economic fundamentals, Colombia's policies and policy frameworks are very strong and support the country's resilience.

On the external front, risks come from escalating geopolitical tensions, tighter global financial conditions and disruptions in supply chains, which could negatively impact the country's growth and inflation.

Domestically, strong El Niño, weak private demand, inadequate policy calibration or uncertainty Reforms may disrupt economic activity and/or lead to higher inflation.

A two-year Flexible Credit Line (FCL) agreement with access equal to SDR 7,155.7 million (approximately USD 9.8 billion), approved in April 2022, provides additional external reserves as a precaution against Colombia's existing firm risk situations.

Evaluation of the management team

The Managing Directors congratulated the officers The great strength of its macroeconomic policies and policy frameworks has contributed significantly Reducing internal and external imbalances despite a challenging environment.

Directors highlighted that the Flexible Credit Line (FCL) contributes to further strengthening resilience by providing additional external buffers against extreme risks and strengthening market confidence.

After observing that the risks are leaning towards a possible deterioration of the economic situation, the Directors highlighted the importance of careful calibration of macroeconomic policies To promote Colombia's social agenda and permanently reduce remaining inequalities.

Structural reforms aimed at increasing productivity and improving the energy transition will also be important.

Directors appreciated the financial consolidation efforts in the last two yearsas well as continued phasing out of corrosive fuel subsidies.

The Directors welcomed the continued commitment of the authorities to comply with the financial rules. Noting that the financial plans planned for 2024 pose risks, the directors encouraged officials to take proactive measures. Protects vulnerable populations in order to reduce current spending plans.

Directors asserted that this would help reduce the cost of borrowing and contribute to reducing inflation. Reorienting public spending towards investment can ease energy and climate change and promote potential growth in the economy.

Principals appreciated the regulatory guidance The central bank's monetary policy, which resulted in a significant reduction in the inflation rate.

Going forward, a cautious normalization of monetary policy following available data and effective communication will continue to be important to improve inflation expectations.

There were also directors While agreeing that Colombia's flexible exchange rate regime should continue to facilitate external adjustments, And they welcomed the central bank's plan to preemptively accumulate international reserves.

They acknowledged that the financial sector remains resilient and recommended that risks continue to be carefully monitored due to the rise in non-performing loans and encouraged further progress in implementing the recommendations of the Sectoral Assessment Programme. (FSAP) 2022. Directors emphasized that managing potential risks to financial stability arising from the pension reform proposal will be critical.

To drive sustainable medium-term growth, the directors recommended reforms to boost productivity and encourage private investment. They emphasized that health care, pension and labor market reforms should be tailored to the existing policy framework, protect financial stability and financial stability, and balance equity and efficiency considerations.

Directors welcomed the authorities' intention to reduce dependence on oil and coal They pointed out the importance of energy transition program and export diversification Well conceived and executed. They encouraged the authorities to intensify their efforts to continue to strengthen governance and transparency and reduce corruption risks.