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Inflation
on a favourable trajectory. Consumer prices increased 0.33% in October, which brought down annual
inflation to 8.8% in November from 9.0% in October. Transportation and health costs experienced the largest annual
increases of 16.7% and 10.1% respectively. DANE claims that the increase was attributable not only to higher
oil prices in international markets but also to the depreciations of the
currency in recent months. The favourable price developments in the second half of this
year have prompted panellists to further revise downward their inflation
forecasts. Despite the
healthy economic recovery, inflation has remained contained and is likely
to close the year below the Central Bank and International Monetary Fund
target of 10%. In addition,
the favourable trend is expected to continue next year. The improved inflation sentiment has prompted a revision in the
interest rate outlook.
Fiscal
challenges surmountable. The government spent November negotiating with
lawmakers on fiscal adjustments required to accommodate the late-October
Constitutional Court ruling. The
ruling mandated retroactive salary adjustments for federal employees
earning incomes equivalent to two minimum wages. The government had decided to exempt the employees from wage hikes
to provide for resources to meet fiscal targets agreed to with the IMF.
However, the Court ordered that workers were entitled to a hike
equivalent to last year’s inflation rate of 9.2%. According to the preliminary government estimates the public
servant’s salary adjustment could cost approximately US $1.1 billion
this year and an additional US$ 2.0 billion in 2001.
The new fiscal measures adopted by the government to adjust to the fiscal
imbalance include raising the financial transactions tax from 0.02% to
0.03%, increasing the value added tax from 15% to 16%; modifications to
existing import tariffs, and reforms to the tax collection framework.
The government anticipates that the measures will help generate
approximately US$ 1.8 billion additional income next year.
This month’s Consensus Forecast reflects the additional burden
that the wage adjustment will have on fiscal balances this month with
panellists expecting the fiscal deficit to increase.
However, participants appear confident that the government will
manage to successfully implement fiscal adjustment next year but that the
government is likely to overshoot its target of 2.5% of GDP.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Colombia. For more details please click here.
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