[Economics] IMF says that the Colombian economy is in a transition to sustainable growth

[Draeno]

 

After the visit of the International Monetary Fund (IMF) to Colombia, the entity highlighted the growth of 7.5% last year, being one of the most dynamic among emerging economies and assured that the country's economy is experiencing a growth trajectory more sustainable.

"Macroeconomic policies, which had a restrictive stance last year that is expected to continue this year, are facilitating this transition, along with slowing global growth and higher global borrowing costs," the entity said in a statement. .

He stressed that this is a necessary cooling, which will allow inflation to slow down and that it can reach the goal of the Banco de la República by the end of 2024; It would also gradually reduce the current account deficit to the historical average of 4% of GDP, with financing coming mostly from foreign direct investment flows.

For the IMF, although there are downside risks, the fundamentals of the economy, as well as the country's policies and policy frameworks are "solid and point to the country's resilience."

Regarding the international situation, he pointed out that the tightening of world financial conditions could be more accentuated than expected, which would have negative effects on the prices of raw materials, capital outflows and domestic demand.

In addition, he said that internal risks cannot be ruled out. "Reforms will need to be prudently managed and further communicated, and macroeconomic policies will need to be strong enough to reduce internal and external imbalances," the IMF said in a document, noting that the two-year Facility Facility deal Flexible Credit (LCF), with access to the equivalent of SDR 7,155.7 million (US$9,800 million), which was approved in April 2022, provides additional external reserves in case of extreme risk scenarios, "which strengthens the already solid resilience from Colombia.

In the evaluation by the Executive Board, the fiscal adjustment of 2022 was indicated as favorable, as well as the adjustment that is planned for this year, "which goes beyond the consolidation required by the fiscal rule."

They observed that the planned adjustment strikes a balance between improving the deficit and, at the same time, using the tax reform to increase social spending. Thus, Directors congratulated the authorities on their commitment to implement the fiscal rule going forward and generally agreed that improving fiscal balances slightly beyond what the fiscal rule indicates in the coming years will help reduce financing needs, facilitate the convergence of public debt towards its medium-term anchor, build up reserves and permanently reduce external imbalances. Of course, a few directors did not consider that an adjustment that went beyond that required by the fiscal rule was necessary in the medium term.

It was highlighted that it remains important to continue efforts to phase out distortionary fuel subsidies.

On interest rates, directors highlighted the tightening of monetary policy by the Banco de la República, which is consistent with the inflation targeting framework. In addition, they gave a favorable perspective on the commitment to maintain a restrictive monetary orientation until price pressures and inflationary expectations have entered a downward trajectory.

They indicated that the external position is sustainable, and that the flexible exchange rate must continue fulfilling its function of facilitating external adjustment, as long as financial stability is not compromised.

They viewed the health, pension and labor reforms as positive, but emphasized that these must be carried out prudently and, at the same time, preserve fiscal and financial stability.

Lastly, they highlighted the government's objective of reducing the country's dependence on oil and coal. They indicated that in order to achieve an effective transition, it is necessary to make a gradual and communicated plan that "combines the energy needs of the national economy and its ability to generate foreign exchange with the transition of the world economy to a low-carbon economy." .

 

https://www.larepublica.co/economia/fmi-dice-que-la-economia-colombiana-esta-en-una-transicion-al-crecimiento-sostenible-3575670