After an initially slow recovery from the 1999 economic crisis—the worst in 30 years—Colombia’s economic growth saw a significant rebound in 2003-04, with declines in inflation, unemployment, and the public debt in proportion to GDP, the IMF said in its annual economic review. The balance of payments position has improved, aided by buoyant export growth, and confidence in the economy has strengthened as reflected in higher capital inflows, appreciation of the peso, and a lower country-risk premium. The IMF Executive Board welcomed the sound macroeconomic policies and structural reforms of recent years, but noted that unemployment, poverty, and public debt remain high.
The government is committed to fiscal consolidation and structural reforms to strengthen growth and further reduce inflation and the public debt-to-GDP ratio. The Board said the main challenge will be to keep up the pace of fiscal reforms, adding that the revised budget code and the pension reform currently before Congress are crucial.
|(percent of GDP)|
|Current account balance||-1.4||-1.7||-1.5||-1.0||-2.8|
The Board welcomed the objective of making the tax system more efficient while broadening the tax base and improving tax administration. It recommended stronger fiscal coordination among the different levels of government and streamlining current expenditure to make room for more productive capital spending. It supported Colombia’s efforts to target social spending more effectively to the poor and urged additional pension reform and a gradual deregulation of domestic gasoline and diesel prices. The Board encouraged the authorities to further improve debt management, especially by relying more on domestic currency borrowing.
Monetary policy has been prudent, and the flexible exchange rate regime has served Colombia well. The Board said the government’s financial restructuring operations have helped strengthen the financial system since 1999, adding that the authorities should continue to reduce the role of the public sector in the banking system.