The government expects the savings that are to be generated from the new legislation, to serve as an essential stabilizer for the fiscal deficit.  According to the most recent Finance Ministry data, the central government deficit reached US$ 812 million (0.9% of GDP) in the first quarter.  The government hopes that the new measure will serve to lower the fiscal deficit from 3.6% of GDP last year to 2.8% of GDP, in compliance with the terms of the IMF agreement.

Trade balance weakening as traditional export growth slows.  Growth in Colombia’s two key export sectors oil and coffee is slowing.    Coffee prices have plummeted this year.  At the end of June, the price per pound for the Colombian Arabica traded in New York dropped below US$ 0.70, the lowest levels observed since 1993 and well below the average price of US$ 1.09 per pound last year.  Annual coffee exports dropped 16.3% in April over the same period last year.  The oil sector has been affected not only by declining oil prices -- West Texas Intermediate was US$ 28.09 per barrel on 29 June compared with US$ 30.37 last year -- but also by lower production resulting from persistent guerrilla attacks.  The state-owned oil company Empresa Colombiana de Petróleos (ECOPETROL) data show that oil production dropped 31.1% in May over the same month last year.  The second largest oil pipeline remains idle since February as a result of guerrilla sabotage.

Nevertheless, total export growth remained strong in April (+18.8% yoy) as buoyant non-traditional exports (+23.8% yoy) compensated the 17.8% contraction in traditional exports.  However, import growth is accelerating at a more rapid pace, driven by a robust pick up in capital good imports (+80.9% over April 2000) and consumer goods (20.0% yoy) imports, whereas intermediate goods increased +10.4% yoy.  As a result, the annual trade balance surplus narrowed from US$ 1.1 billion in March to US$ 930 million in April.  This month, Consensus participants have again revised their trade figures anticipating the trade balance surplus to narrow further this year.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Colombia.  For more details please click here.

For five-year forecasts, please click here.