The International Monetary Fund (IMF) concluded the 2025 Article IV consultation with Colombia on September 29, 2025.
Colombia is facing a mixed economic landscape in the lead-up to an election year. While there has been some improvement in growth and inflation is gradually decreasing due to appropriate monetary policy measures, challenges persist. The country's reserves remain at satisfactory levels, but a growing fiscal deficit and escalating debt have resulted in higher sovereign spreads. Private investment continues to lag due to uncertainties surrounding government policies.
The projected growth for Colombia in 2025 is around 2.5 percent, with a slight moderation expected in the subsequent years. Inflation is anticipated to decrease gradually to approximately 4.5 percent by the end of 2025 and align with the 3 percent target by early 2027.
The outlook for Colombia is marred by significant downside risks. Externally, factors such as tighter global financial conditions, trade barriers, immigration restrictions, and geopolitical tensions could impede growth and disrupt various economic sectors. Domestically, delays in fiscal consolidation may raise concerns about the country's fiscal policy direction, erode investor confidence, and potentially halt capital inflows. Additionally, rising political uncertainties and security issues could further dampen economic activity and hinder private sector development.
The Executive Directors of the IMF acknowledged Colombia's economic resilience and commended the progress made in reducing inflation and poverty. However, they highlighted the challenges posed by weakening fiscal positions, compounded by uncertainties in domestic policies and external factors. The Directors stressed the importance of implementing Colombia's fiscal consolidation plan promptly to maintain macroeconomic stability.
The Directors also noted that Colombia's fiscal policy and framework have deteriorated since the country's request for the Flexible Credit Line (FCL) in 2024. They urged Colombian authorities to intensify efforts to meet short-term deficit targets and supported the ambitious goal of reinstating the fiscal rule by 2028. Emphasizing the importance of decisive and credible actions, the Directors recommended a balanced approach of growth-friendly expenditure and revenue measures to enhance the overall policy mix.
In terms of monetary policy, the Directors praised the central bank's tight stance, which has contributed to lowering inflation. They underscored the necessity of maintaining this stance to address persistent inflation pressures, particularly in light of expansionary fiscal policies. Moving forward, the normalization of monetary policy should be cautious and data-driven. The Directors also emphasized the importance of safeguarding central bank independence.
Regarding the financial sector, the Directors recognized its overall resilience but highlighted the need for continuous risk monitoring, especially given elevated real interest rates and interconnectedness between banks and nonbank financial institutions. They encouraged the implementation of recommendations from the 2022 Financial Sector Assessment Program (FSAP) and stressed the importance of establishing sound governance practices for the new public pension savings fund.
To enhance long-term growth prospects, the Directors recommended reforms to boost productivity, increase labor force participation, and diversify the economy. They particularly emphasized the importance of a well-designed energy transition plan to ensure sustainability and resilience in the long run. Additionally, the Directors urged Colombian authorities to prioritize governance and transparency initiatives to improve the investment climate.
The Staff Report prepared for the consultation will be published on the IMF's website at www.imf.org/Colombia.
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