Colombians celebrate in Bogotá. The peace agreement was signed on September 26, 2017 (photo: Abel Cardenas GDA Photo Service/Newscom)

May 31, 2017

The implementation of Colombia’s peace agreement, together with thegovernment’s structural reform agenda, should help support more inclusivegrowth over the medium term, the IMF said in its annual assessment of theColombian economy.

Colombia—Latin America’s fourth largest economy—withstood multiple domesticand external shocks in 2016, yet achieved relatively strong GDP growth. Thegovernment reacted flexibly by steering inflation toward its target and byrestraining fiscal expenditure, while protecting key social andinfrastructure spending. These measures ensured an orderly, growth-friendlyadjustment and helped bring down poverty and inequality further.

While further adjustment is needed, rapidly declining inflation will createroom for some lowering of interest rates during the year, the reportpointed out. And the approved tax reform will help generate revenues tolower the fiscal deficit while improving competitiveness.

At the same time, the implementation of the peace agreement will targetexisting gaps in infrastructure and basic services, and protect debtsustainability. The report expects peace to improve medium-term growth byup to 0.5 percent, and further over the longer term.

For 2017, the IMF projects growth to gradually strengthen over the nextfive years as the economy steadily diversifies away from commodities.Future growth of about 3.5 percent will be supported by non-commodityexports, infrastructure spending, and improved confidence stemming from thepeace agreement.

Regional differences

Colombia’s strong economic performance during the past decades masksimportant differences across regions, the report noted. On average, incomeper person expanded by 50 percent during 2000–2015. However, while the top5 regions (departamentos) doubled their income per capita duringthat time, in the bottom 5 regions income per capita declined by about 13percent.

Human capital differences are likely a contributing factor. While thenational education attainment improved from 7 to 9 years (for people aged15 or older), large differences remain, with a 3-year gap between the topand bottom region (Bogota and Vichada, respectively).

Elements of the peace agreement

The peace agreement with the Revolutionary Armed Forces (FARC, after theinitials in Spanish) has a strong focus on rural development and socialinclusion. The agreement aims to reduce gaps in education, health,infrastructure, and other public services among rural areas. It will alsohelp people displaced by the conflict get back into agriculture activity,including through land reform.

The agreement also includes:

• financial incentives to replace illicit drugs with alternative crops andmeasures to reincorporate guerrilla members into society;

• tax incentives to firms that invest or relocate to regions affected bythe conflict;

• special courts to handle conflict-related crimes and allows guerrillamembers to compete for political positions; and

• an extension of the victims’ reparations program that started in 2011.

The implementation of the agreement—to take place over 15 years—will givepriority to regions with the largest institutional and social gaps.Short-term priorities include municipalities with significant cocaproduction, FARC presence, or lacking state presence. Other priority groups include municipalities affected bythe conflict and those with low income per capita, where privateparticipation is expected to complement government programs as in the southand west part of the country.

Making growth more inclusive

The peace agreement will cement security gains achieved over the lastdecade and continue to bring more investment to the country. Theimplementation of the peace agreement will also focus on the regions whereincome per capita is relatively lower. The delivery of basic public goodsand services to remote, poor, and conflict-ridden regions of the country—inaddition to Colombia’s improved security conditions—will certainly makegrowth more inclusive over time.