[Economics] Why the IMF is in favor of continuing to raise rates in the country

[Akrapovic]

The entity suggested continuing to move forward with the increase in rates to control inflation and highlighted fiscal targets.

 

 

After two weeks in which the International Monetary Fund (IMF) made its annual visit to Colombia, the organization delivered the conclusions for the country of its 'mission', also called chapter IV, in which it highlighted, among various topics, the importance of “ proceed prudently with key structural reforms, along with a continued robust communications strategy.”

(Read: The recommendations that the IMF makes to the Colombian economy).

This as an essential point, according to the IMF, to boost productivity, improve inclusion and guarantee a gradual and 'well-sequenced' transition towards a greener and more diversified economy.

“Many of these reforms are still being discussed and formulated. In this sense, we still do not have an opinion, but we understand that they seek to correct important problems, such as improving services, expanding coverage. The details about how these reforms are formulated and how they fit with these strong policy frameworks that Colombia has had are also very important,” said Ceyda Oner, head of the IMF mission for Colombia.

In addition, the official stressed that the importance of communication efforts of these projects can help mitigate the risks that investors or markets may perceive about the country.

The IMF conclusions highlight, for example, the National Development Plan recently filed by the Government, and its emphasis on issues such as equity and security, emphasizing the eradication of extreme poverty and hunger.

(Also: 'We are approaching the inflation ceiling, whatever that may be.')

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"The careful and prudent implementation of the PND, in close consultation with relevant stakeholders, will be essential to preserve fiscal and financial stability and ensure that economic incentives are well aligned," the entity said.
The IMF also said that “a well-designed and executed energy transition and export diversification plan is vital to ensure sustainability and resilience in the medium term.”

Other conclusions
The report detailed a total of 12 points on the situation in the country. First, he highlighted that global conditions continue to pose challenges, but that, despite the challenges of recent times, the Colombian economy "exceeded expectations in 2022" and grew at one of the fastest rates among emerging economies. The entity estimates that the country's GDP would be at 8% by 2022, but that it is currently operating above potential product.

Hand in hand with this, "internal and external imbalances have widened." In the case of inflation, the figure is already 13.3% and the IMF also emphasized the fact that "the current account deficit increased from 5.6% of GDP in 2021 to 6.3% of GDP in the 2022”.

(Keep reading: Inflation 'bites' into a chunk of good stock dividends.)

In this context, according to the IMF, macroeconomic policies are tightening "appropriately", since the Bank of the Republic has raised its interest rate from 1.75% in September 2021 to 12.75% in January 2023.

Oner mentioned that the needs remain in relation to getting inflation down "from the high levels it is at right now." According to the head of the mission for Colombia, it is possible that more monetary policy actions are needed depending on how the data develops. “We think that interest rate policy will remain in a restrictive position this year,” she said.

The IMF also referred to the government's fiscal deficit targets (3.8%) and that this reduction "will be supported by the tax reforms of 2021 and 2022 and by high oil revenues, which will allow expanding social spending while the liabilities generated by the Fuel Price Stabilization Fund (FEPC) continue to be reduced”.

(Read: External debt grows and the Government calls the AFPs to buy more bonds).

 

link: https://www.portafolio.co/economia/fmi-razones-para-promover-el-alza-de-tasas-de-interes-en-colombia-578474