Colombia: from peace to growth

Venezuela is so much in the headlines currently that one could have almost forgotten about its once rowdy neighbour, Colombia. It is good news for Colombia which enjoys a return to peace and prosperity since its government signed a peace deal with FARC rebels and the ELN guerrilla group that both disrupted the country for the last five decades (the deal with the FARC was struck in December 2016 and with the ELN in September 2017). The IMF has even noted in its recent Article IV consultation on Colombia that the country has strong policy framework and fundamentals.

Colombia’s term of trade deteriorated in 2014 after a decade of enrichment and poverty reduction

Colombia experienced a large drop in its terms of trade since 2014 mostly due to the fall in the prices of oil and other commodities and that is one of the reasons finding a peace deal with the rebels has been so important since. The country went from an average growth of 4.8% between 2004 and 2014 to only 3.1% in 2015 and a sluggish 2% in 2016.

However, Colombia has experienced a more than halving of its poverty rate between 2002 and 2014 – from 17.7% to 8.1% of the population. In the same time, 6.7 million Colombians have been lifted out of poverty and between 2008 and 2014, the income per capita of the bottom 40 percent of Colombians grew at 6.2%, higher than the national average of 4.1%. Large gaps in poverty rates and standards of living nonetheless remain between urban and rural areas as well as between different regions.

Colombia’s future looks bright

Juan Manual Santos since its accession in 2010 in power has delivered on two of its main promises: sign peace agreements with guerrilla groups and approve a significant tax reform. The former earned him the 2016 Peace Nobel Prize while the latter is lying the foundation FOR a more prosperous Colombia for the future. This reform, effective 1st January 2017, addressed tax evasion, imposed “green” taxes on fuel, increased the progressivity of income tax for individuals while simplified the tax regime for small enterprises, provided tax relief to corporations and expanded free trade agreements from 26 to 60 countries.

The Santos government also launched an impressive infrastructure plan with the construction of new roads, public and private housing and it has succeeded in lowering the inflation rate from 9% to 6% by year-end.

The IMF recognises that the tax reform along with the ambitious infrastructure agenda will have a positive impact on improved confidence and will underpin a gradual strengthening in medium-term growth.

Besides, Colombia is only beginning to tap into another industry that looks promising – tourism – as Colombia has a lot to offer to tourists. It is the second most biodiverse country on the planet, especially thanks to its large diversity of birds, and also it is home to the elusive olinguito, a mammal only formally discovered in the Colombian Andes in 2013, it has striking landscapes and sceneries, great food and friendly people, not to mention its pre-Columbian and post-Columbian rich history, arts and culture.

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