Colombia Forecasts Economic Growth of 1.8% in 2024

Colombia expects economic growth of 1.8% by 2024. This was stated by the Minister of Finance, Ricardo Bonilla, who already announced that inflation at the end of the year would be around 5%. The official also expects that the rate of decrease of the interest rate will accelerate and in a few months it will be around 8%, four points less than it is now.

In an interview with Reuters in Bogota, the minister explained that the government expects the Gross Domestic Product to have reached an expansion of 1.2% in 2023 and an inflation of around 9.5%. Regarding economic growth, this new projection is a downward revision of the information provided last month, when Bonilla predicted a growth of the Colombian economy at 1.8% by the end of the year.

Favorable omens for Colombia

The truth is that 2023 was not a good year for the Colombian economy: lower inflation than in 2022, but still skyrocketing, and economic growth that has been falling during the year to the point of placing the country on the brink of the feared recession. With this, the central bank set an interest rate at 13.25% in May and remained undaunted by calls to lower it for seven months, starting a decline in December that left the rate at 13%.

“Let the inflation path continue to come down slowly but surely. We are not going to reach the Bank’s 3% target in 2024, it will be reached in 2025,” said Minister Bonilla, who affirmed that the central bank will continue to lower interest rates in the face of this downward inflationary data.

“The forecast is, if we manage to have an inflation of 5%, at the end of 2024 the intervention rate could end up at 8%,” the minister assured listeners, in line with market expectations in Colombia.

Adjustments to the tax reform

Regarding the announcement made by President Gustavo Petro to introduce some adjustments to the tax reform, approved a little over a year ago, Ricardo Bonilla stated that an agreement will be sought with businessmen and unions to achieve this adjustment in Congress.

The Colombian president made some surprising statements a week ago, announcing to the country his intention to introduce some changes to the tax reform approved in 2022. Petro justified these adjustments because the norm, he said, “has been radically transformed by judicial decisions, it is not the same as the one we presented. But in order to increase the country’s productive activity, it needs to be re-examined.” In this context, the president pointed out that the idea is to reduce the interest rates of the central bank and the corporate income tax; raise tax on high salaries, and create exemptions for clean energy prices and tourism.

“It is not a reform to increase revenues, but to balance burdens,” Bonilla explained. “The interest is not to increase revenues, the interest is to rearrange burdens, it would be a neutral reform.”

Reforms to be approved in Congress

Minister Bonilla also spoke about the package of social reforms that the government has been negotiating since it began its term of office a year and a half ago. Reforms in key sectors such as labor, health, pensions, etc. Although the executive does not have a strong coalition in the legislature, it has managed to advance the processing of these controversial laws. All of them, Bonilla pointed out, will be passed in Congress, insisting that “none of them will be passed by decree.”

For now, in addition to the tax reform, reforms such as the labor and health reforms have won approval for most of their articles, and the government has managed to add votes from representatives who are not aligned with the executive to its proposals. 2024 will be the key year for the future of these social reforms that were a major electoral promise of President Petro.

In addition, in August the presidential term will reach its halfway point, so the government will need to present results to the country, defending an administration that, if the predictions of the Minister of Finance are fulfilled, will set Colombia on the path to economic recovery, after a year and a half of difficulties due to economic data that, beyond the macroeconomy, have directly affected household economies.

Colombia will comply with the fiscal rule

Finally, the minister spoke about the fiscal rule and the controversy that President Petro’s idea of modifying it raised a few months ago. The fiscal rule is the legal mechanism that imposes a limit to the deficit and public expenditures, and is a parameter that marks the solvency and credibility of a country for many foreign investors.

Bonilla said that, for now, the government is only promoting a discussion on the fiscal rule, “not meaning that it will modify it, or refuse to comply with it. The fiscal deficit target for 2023 was 4.3% of GDP,” he clarified.

Bonilla assured his listeners that the country, which has among its strengths the production and export of oil, coal and coffee, will continue to use bond issues and credits with international banks as a source of financing while complying with payment commitments, although it will explore extending the maturity of obligations to make more investments.

“We are looking for new international players to enter this rollover (process of maintaining an open position beyond its maturity), not only the traditional ones,” said the minister in reference to new relations with banks in China and the Middle East, especially the United Arab Emirates.

With this, the minister wanted to allay the doubts of potential investors, recalling that Colombia is and will continue to be a serious, solvent and safe country in which to invest. Specifically in the reindustrialization process sought by the Government, Bonilla stressed the importance of private and international investment. “80% of the Colombian economy is still private and will continue to be private,” the minister stressed.