Economics of Bogotá 2023

Colombia is making progress toward a sustainable economy, characterized by reduced inflation, external current account deficit, and controlled credit growth.

Colombia's government implemented strict macroeconomic policies to reduce domestic and external imbalances that accumulated in 2021-2022.

Colombia's economic growth slowed down in 2023, reaching 1.2%, after the rapid growth post-pandemic. The slowdown was due to a decrease in domestic demand.

Inflation in Colombia has been decreasing, falling from a high of 13.3% in March 2023 to 8.4% in January 2024. The government increased regulated prices, which contributed to this trend.

Credit growth in Colombia decreased from 18% in August 2022 to 3% in December 2023. This was influenced by tight macroeconomic policies, increased loan provisioning, and stricter lending rules.

Colombia's current account deficit shrunk significantly in 2023, going from over 6% of GDP in 2022 to below 3%. This improvement was driven by lower imports and strong tourism revenues.

Colombia's economy is expected to continue its positive trend in 2024, with real GDP growth projected at 1.3%. The country aims to achieve its full potential over the medium term.

While some risks have diminished, there are still potential downsides to Colombia's economy. These factors could hinder the country's growth and stability.

Intensified geopolitical tensions could lead to tighter global financial conditions, disrupted supply chains, and higher global food prices, negatively impacting Colombia's economic growth and increasing inflation.

A strong El Niño weather pattern could hinder economic activity and contribute to higher inflation in Colombia.

Weaker-than-expected private demand due to tighter financial conditions or a weak job market can negatively impact economic growth.

Uncertainty about social and energy transition reforms can lead to higher borrowing costs and discourage private investment in Colombia.

Maintaining adequate financial buffers and consistent policy implementation, including adhering to the fiscal rule and inflation targeting framework, helps mitigate economic risks and strengthens resilience.

Inflation and inflation expectations in Colombia are gradually decreasing as expected.

The central bank kept interest rates stable for most of 2023, effectively tightening monetary policy and helping reduce inflation and inflation expectations.

Monetary policy normalization in Colombia should be gradual and cautious, given inflation remaining above target and potential upside risks.

The central bank aims to bring inflation down to a specific target level, focusing on a stable and expected timeframe, aiming to anchor inflation expectations.

The exchange rate fluctuates based on market forces, but the central bank may intervene in case of excessive volatility.

The central bank aims to build up its international reserves to manage potential risks and maintain financial stability.

The government aims to maintain sound public finances, balancing spending and revenue to reduce debt and stabilize the economy.

The government is lowering the level of public debt, which is the total amount of money owed by the government, through fiscal reforms and reduced spending.

The planned increases in the overall budget deficit and public debt pose risks to the stability of the economy.

The government can proactively reduce spending to lower borrowing costs and enable faster interest rate normalization.

Colombia's borrowing costs have increased since it lost its investment grade rating in 2021, making it more expensive for the government to borrow.

Social reforms should be designed while considering both fairness and economic effectiveness. This means making sure everyone benefits, while also encouraging growth.

Social reforms must be implemented within Colombia's budget rules. This ensures that changes are financially sustainable and don't put too much strain on the government's finances.

Increasing the amount of goods and services produced per worker. This is essential for driving long-term economic growth and improving living standards.

Making it easier for businesses to operate by simplifying regulations, reducing labor market restrictions, and providing predictable policies.

Encouraging people and the government to save more, which can then be used for investment to boost economic activity and create jobs.

Moving away from fossil fuels like oil and coal to cleaner energy sources, while also expanding exports to different industries.

Finding industries where Colombia excels and has a competitive edge in the global market to concentrate on for exports.

Collaborative efforts between the government and private companies to achieve common goals, such as energy transition or export diversification.

The government's commitment to maintain control over spending and avoid excessive debt by adhering to a pre-defined fiscal rule. This rule helps ensure fiscal sustainability and reduces the risk of financial instability.

Prepared strategies to handle unexpected events that could impact public finances, such as economic shocks or policy changes. These plans help ensure the government can respond effectively to unforeseen circumstances.

Shifting government spending towards investment projects, particularly in infrastructure and climate-related initiatives, to promote growth potential and support the energy transition.

Nonperforming loans (NPLs) are loans where borrowers are unable to repay. As these loans rise, it can strain bank finances and potentially affect their ability to lend to other borrowers.

A framework used by banks to set aside reserves during good economic times (to cover potential losses during downturns). This helps banks manage their balance sheets and maintain resilience during economic challenges.

Potential financial risks to the broader economy, caused by factors like rising NPLs, weak bank capital, or instability in the financial system. These risks require careful monitoring and proactive management to prevent financial crises.

Changes to the pension system can have significant implications for the financial sector, especially for private pension funds. These implications need thorough analysis to mitigate potential risks.

Maintaining financial strength and stability by implementing policies to manage risks, ensure sufficient capital reserves, and promote a healthy financial system. This helps cushion the economy against shocks and promote sustainable growth.