Colombia's sound macroeconomic policy framework, including fiscal rules, a robust financial regulatory framework, a successful inflation targeting regime pursued by an independent central bank, and a flexible exchange rate, have ensured economic stability and enabled the country to triple its GDP per capita since the 1990s. Over the same period, poverty rates declined, and a burgeoning middle class emerged, alongside notable enhancements in various social indicators, such as better access to education and healthcare. Moreover, the signing of the peace agreement in 2016 represents a significant stride towards achieving social and economic progress.
Following a robust recovery from the COVID-19 pandemic, which propelled GDP above its potential in 2022, economic activity begun to decelerate in 2023 on the back of tight macroeconomic policies and slowing global growth. The deceleration has been exacerbated by a sharp slowdown in investment. Economic growth will remain moderate at 1.8% in 2024, before picking up to 2.8% in 2025. Private investment is expected to remain subdued. Inflation will continue falling and is projected to converge to the target by the end of 2025.
Despite the economic and social progress in the last decades, significant structural barriers need to be addressed to accelerate income per capita growth and address entrenched regional and social inequalities. Reducing inflation and boosting investment are short-term priorities, but long-term solutions require tackling entrenched issues. GDP per capita ranks lowest among OECD countries (Figure 1.1). Regional disparities persist due to unequal access to infrastructure, financing, education, training, and labour market opportunities, exacerbated by the long history of conflict that particularly affected remote and marginalised regions. Limited subnational state capacity and weak intergovernmental coordination hinder the delivery of quality public services and infrastructure. Disparities in access to quality education contribute to low learning outcomes (Figure 1.2). Gender disparities in the labour market are entrenched, particularly affecting women from ethnic backgrounds and those with lower levels of education. At 56% of the workforce, informality has decreased in the last decade, but remains stubbornly high, leading to low social protection coverage, high poverty, low productivity and low tax collection. Climate change and the global green transition poses significant risks to Colombia due to the country’s high exposure to climate-related disasters and its heavy dependence on oil and coal exports. Despite Colombia’s relatively low emissions and clean energy matrix (Figure 1.3), significant investments are required to raise the share of renewables, ensure energy security and achieve carbon neutrality. These efforts must align with export diversification to mitigate risks effectively.
Despite these challenges, Colombia holds numerous opportunities for growth and social development. Its strategic geographical location, bridging the Pacific and Atlantic Oceans, coupled with abundant natural resources, offers avenues for investment amidst shifting global trade patterns. A relatively young population capable of driving innovation and economic progress through education and skill development, diverse economic hubs and major cities, and cultural heritage present compelling opportunities for diversification of its economic activities. Additionally, Colombia’s rich biodiversity, abundant critical minerals and significant potential for renewables position it favourably for the global green transition. The implementation of the peace agreement presents an opportunity to attract investment and redirect resources from conflict towards development initiatives, allowing for the integration of previously marginalized communities into the formal economy.
The government’s ambitious reform agenda aims to raise equity, living standards, and ensure social justice. Its policy priorities include fostering regional convergence, embarking on an ambitious energy transition and promoting a productive transformation of the economy. All these reforms are likely to shape the future of the society and economy for years to come. A reform to improve working conditions, is being discussed in Congress, and the pension reform has been enacted into law. Evidence-based reforms are the only way to overcome long-lasting challenges and should preserve what has worked well in the past, such as the strong and well-functioning macroeconomic institutions. Ensuring fiscal rules compliance and that reforms are financed sustainably and maintain debt sustainability are essential as they have underpinned economic growth and social development in recent decades.
Capitalising on the opportunities and unlocking Colombia’s potential for sustainable economic growth and social development requires significant reforms and investment, both public and private. The investment rate has fallen since the end of the commodity boom in 2015 and has become one of the lowest among OECD countries (Figure 1.1) despite pressing needs in education, infrastructure, innovation, the green transition, public services, rural development, and peace-building initiatives. Resolving uncertainty regarding the implementation and funding of reforms and fostering an investment-friendly environment are priorities for robust short-term growth but also to accelerate income converge to more advanced countries and to achieve the energy transition. Boosting productivity across all regions would improve incomes especially of those Colombians that have been left behind and reduce spatial inequalities. Doing so requires reforms to create an attractive business environment, foster innovation, diversify exports, and enhance state capacity and the rule of law across all territories. Narrowing gender gaps in the labour market, improving access to high-quality education, reducing informality and expanding social protection coverage, would raise potential growth, empower all citizens to seize economic opportunities and promote a fairer distribution of income and opportunities. Adapting to and mitigating climate change risks would enhance resilience and would allow Colombia to diversify its productive structure and boost productivity. To meet the increasing demands for public spending and investment, including the ambitious social reform agenda, it is necessary to enhance spending efficiency and boost tax revenues with a comprehensive and gradual tax reform to ensure public debt sustainability.
This Survey contains a comprehensive review of recent macroeconomic developments and policy challenges in Chapter 2, followed by an in-depth assessment of strategies to enhance the productivity of all regions in Chapter 3. Chapter 4 delves into potential avenues for reducing inequalities and poverty, while Chapter 5 examines priorities to facilitate the green transition and achieve decarbonization. The main messages of the Survey are:
Monetary policy should continue a gradual, prudent, and data-based easing cycle to ensure a gradual return of inflation to the target. In the short term, the government should implement the planned fiscal consolidation and adhere to the fiscal rule to ensure debt convergence to its anchor. Responding to spending needs for advancing social reforms, the green transition, and closing infrastructure gaps while maintaining debt sustainability requires raising tax revenues and spending efficiency.
Regional gaps in productivity and living standards can be narrowed by lowering the cost of doing business, prioritising the interconnectivity of ports, river, rail, and road transport and strengthening subnational government capacities. Further strengthening governance, transparency and mitigation of uncertainty would boost private investment and potential growth. The fiscal transfer system can be strengthened through better equalisation mechanisms, greater direct revenue generation by subnational governments and better intergovernmental coordination mechanisms.
Strengthening the quality of education and facilitating female labour market participation would help to continue reducing inequalities while reinforcing Colombia’s growth potential. Implementing a comprehensive strategy to reduce informality by enhancing skills, strengthening the enforcement of labour and tax laws, reducing corporate tax and regulatory burdens, and lowering social security contributions for lower-income workers would boost potential growth, improve tax collection, and provide better job opportunities.
Large investments are needed to adapt to and mitigate the impact of climate change. Stronger efforts to strengthen adaptation policies, fight deforestation, a stable regulatory framework for renewable energy investment, and stronger price signals for abatement are needed to get Colombia on a sure path to net zero emissions by 2050, requiring significant private investment.
