Colombia - Economic Briefing January 2002

Inflationary Outlook Better Amidst Peso Strength ... (continued)

External balances weaken in face of lower exports

In the third quarter, the current account deficit reached US$ 223 million, which was down from US$ 433 million in the second quarter.  The third quarter figure widened the annual current account further from US$ 703 million in the second quarter of 2001 to US$ 1.2 billion.  The expanding gap in the current account was the result of the substantial narrowing of the trade balance surplus, which dropped from US$ 1.4 billion in the second quarter to US$ 971 million in the third quarter but also reflected increased interest, dividend and profit remittance outflows.  The US$ 1.9 billion surplus in the capital account remained sufficient to cover the current account deficit.  A large share of the capital flowing into Colombia was directly tied to funds associated with the Plan Colombia.  Participants expect the current account deficit to have expanded further in the last quarter of 2001.  Prospects for slower growth in key export markets, a persistence of low coffee prices and the downturn in oil prices are key factors likely to exert further downside pressure on external accounts this year.  As a result, panellists expect the trade surplus to shrivel this year.  Similarly, the current account deficit is expected to deteriorate further this year. 

Weaker fiscal balances to be palliated by reform and growth

The decline in government income resulting from lagging economic activity, the drop in oil production, higher defence spending, a Supreme Court imposed public sector salary increase and costs associated with the banking system, forced deterioration in fiscal balances in 2001.  As a result of the less favourable fiscal setting, the government renegotiated the fiscal deficit target the IMF, raising the year-end target from 2.8% of GDP to 3.3% of GDP.  Panellists expect the government to have met its target in 2001 with the fiscal imbalance having reached 3.2% of GDP.  With favourable prospects for further labour and pension reform and the likelihood of acceleration in economic activity, participants expect the government to make further inroads into cutting the fiscal deficit 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.