Colombia: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia

The 2025 Article IV Consultation highlights that Colombia enters a pre-electoral year amid a mixed economic backdrop. Growth has strengthened somewhat, while inflation is gradually easing, aided by appropriately tight monetary policy. Reserves have remained adequate. A widening fiscal deficit and rising debt levels have led to elevated sovereign spreads, and private investment remains weak amid policy uncertainties. Real gross domestic product growth is projected to reach around 2 1/2 percent in 2025 but is expected to decline somewhat over the coming years due to planned fiscal adjustment, before gradually converging to its potential. Returning to the fiscal rule by 2028 will require substantial consolidation efforts, although confidence gains and lower spreads could limit the fiscal drags on growth. A decisive and credible fiscal adjustment is urgently needed to re-anchor expectations, lower borrowing costs, and improve the overall policy mix. The temporary suspension of the fiscal rule is regrettable, and consideration should be given to frontloading the adjustment if market sentiment sours further. Greater focus needs to be placed on policies to boost productivity, increase export diversification, and enhance labor force participation in the face of demographic pressures.