NS4540 Winter Term 2018 Colombia’s Economy Oxresearch, Colombia: Economic Recovery likely in 2018, November 2017

Overview I Colombia is Latin America’s fourth largest economy Set to recover slightly in2018 after three years of slow growth Factors contributing to the expansion include Expanded budget Ambitious infrastructure plans and The advancement of the peace process All are feeding into s sense of optimism for the future However Upcoming elections (May 2018) Continued insecurity and Corruption scandals All have the potential to dampen optimism and with it the economy.

Overview II GDP will grow faster than many other Latin American nations, making Colombia more attractive for foreign investors. Economic diversification should help advance Colombia’s OECD membership association process Colombia is unlikely to return to the growth rates of the era of thigh oil prices anytime soon. Having enjoyed average annual growth rates of 4.3% between 2009 and 2014, Colombia’s economy suffered from the 2014 oil price plunge.

Recent Trends I GDP growth slowed from 4.4% in 2014 to 3.1% in 2015 and 2.0% in 2016 with the IMF forecasting 1.7% for 2017 The downturn has been exacerbated by High inflation Tight monetary policy, Government austerity Declining investment, Falling exports and Deteriorating confidence

Recent Trends II Inflation was driven up by Peso depreciation, A drawn-out truckers’ strike and El Nino – drought A comeback is expected in 2018 due to Higher oil prices and A more favorable domestic environment IMF forecasts 2018 growth of 2.8% -- much stronger than its regional Latin America/Caribbean forecast o 1.9%

Recent Trends III

Growth Potential I End of commodities boon seen Colombia’s potential rate of growth fall from 4.0% to 5.0% to 2.8% to 4.1% Future growth will depend largely how successfully Colombia reduces its dependence on oil and coal exports IMF and OECD have called on Colombia to move towards a more diversified, inclusive economy with a stronger focus on improving education to attain these goals Structural tax reform of December 2016 is expected to help generate more investment and jobs in non-oil sectors, helping to offset reduced oil investment

Growth Potential II Greater investment is likely given An ambitious road infrastructure program and The peace process with the FARC This will help growth only in the long-term The extent to which these factors will help depends upon how successfully they are implemented in the coming years Peacebuilding programs will be a financial burden at least for the next few years Should May 2018 elections bring someone to power who is against the peace process, investor confidence will suffer. Corruption allocations – many related to construction contracts has given the future infrastructure plans an element of unpredictability

Financing The 2018 Budget prioritizes Education, Social inclusion and Peace Education will receive the largest share of the budget followed by defense International Financing Colombia has tapped international markets several times to take advantage of its good standing with global investors Investors impress with the country’s prudent macroeconomic and fiscal policies With falling budget deficits will probably not borrow internationally in 2018

Assessment In 2018 the economy should benefit from Higher oil prices Increased infrastructure investment Lower interest rates and Falling inflation The government will further reduce a fiscal deficit that increased in recent years due to falling oil revenues.