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IMF highlights fiscal adjustment of Colombian economy

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IMF highlights fiscal adjustment of Colombian economy

At the conclusion of the Article IV consultation with Colombia, the Executive Board of the International Monetary Fund (IMF) said that the Colombian economy is now in a necessary transition towards a more sustainable growth path. Macroeconomic policies that tightened last year and are expected to continue this year are facilitating this transition, along with a slowdown in global growth and higher global borrowing costs.

In addition, Directors welcomed the strong fiscal adjustment in 2022 and the planned adjustment in 2023, which go beyond the consolidation required by the fiscal rule. They noted that the planned adjustment strikes a balance between improving the deficit and using the progressive tax reform to increase social spending.


Directors welcomed the authorities’ commitment to implement the fiscal rules in the future. They generally agreed that improving fiscal balances slightly beyond the fiscal rule path in the coming years would help reduce financing needs, strengthen the convergence of public debt to its medium-term anchor, generate reserves and would durably reduce external imbalances, although some directors did not. they do not see the need to tighten beyond the fiscal rule in the medium term. Continued efforts to phase out distorting fuel subsidies remain important.

They also praised the central bank’s decisive tightening of monetary policy in line with its inflation targeting framework. They welcomed the commitment to maintain a tight monetary stance until price pressures and inflation expectations follow a firm downward trend, and stressed the importance of effective central bank communication in this regard.


They noted that the external position is sustainable and that the flexible exchange rate should continue to play its role in facilitating external adjustment, as long as financial stability is not compromised. They noted that the Flexible Credit Facility continues to provide additional external buffers against tail risks and enhances market confidence. While the financial sector remains resilient, Directors emphasized the need to closely monitor emerging risks and vulnerabilities.

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Directors were encouraged by the goals of the health, pension, and labor market reforms, emphasizing that the reforms must be implemented prudently while preserving fiscal and financial stability. They praised the authorities’ goal of reducing Colombia’s dependence on oil and coal, noting that a successful transition would require developing a gradual and well-communicated plan that balances the energy needs of the national economy and its foreign exchange-generating capacity with the transition of the global economy to a low carbon one. Directors also encouraged the authorities to continue advancing the governance and anti-corruption agenda.

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