Bogotá, Colombia: An IMF staff team concluded its visit to Bogotá following a series of constructive discussions with the Colombian authorities on recent economic developments, outlook, risks, and policy priorities. This engagement follows visits earlier in the year and our ongoing discussions with the authorities.
The Colombian economy is navigating a complex landscape, marked by both progress and growing challenges. While growth has strengthened and inflation has declined, fiscal challenges persist and private investment remains subdued. External headwinds also cloud the outlook.
The economy, after expanding by 1.7 percent in 2024, grew by 2.7 percent in Q1:2025, driven by private consumption amid a robust labor market and a strong services sector. Headline inflation declined to 4.8 percent (yoy) in June, supported by appropriately tight monetary policy, while underlying inflation pressures persist. The current account deficit narrowed to 1.7 percent of GDP last year, driven by strong remittances but also sharply lower dividend payments and lagging investment. International reserves have been further strengthened and remain adequate. The financial system remains sound and resilient.
Meanwhile, the central government overall fiscal deficit rose to 6.7 percent of GDP in 2024, up from 4.2 percent of GDP in 2023. As a result, gross public debt has risen to 61.2 percent of GDP by end-2024, underscoring the need for sustained efforts over the medium-term as envisaged in the most recent Medium Term Fiscal Framework (MTFF), where the authorities also made use of the escape clause of the fiscal rule to recalibrate the fiscal path for 2025-27. The draft budget for 2026 targets an overall deficit of 6.2 percent of GDP, in line with the MTFF, and a primary deficit of 2 percent of GDP (up from 1.4 percent of GDP in the MTFF), to be financed mostly by a tax reform proposal.
Regarding the outlook, real GDP growth is projected to reach around 2½ percent this year, supported in part by some easing of fiscal policy, before converging to potential over the medium term. Inflation is expected to continue declining and reach the 3 percent target by early 2027, contingent on the continued implementation of prudent monetary policy. The current account deficit is projected to widen somewhat this year (to about 2½ percent of GDP), due in part to weaker terms of trade and higher fiscal deficits, which is now expected to reach 7.1 percent of GDP by end-2025 before declining, assuming the steady implementation of policies consistent with the authorities' budget and medium-term fiscal plan.
Risks to this outlook remain tilted to the downside. Heightened global uncertainty and geopolitical tensions could weigh on growth, through both real and financial channels, while stricter immigration policies in host countries could negatively impact remittances. Domestically, uncertainty around implementation of policies and reforms could further hold back investment.
The team thanks the Colombian authorities for their warm hospitality and the productive discussions. The IMF Executive Board's consideration of the Article IV Consultation will take place in due course.
