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High public debt levels prompt
fiscal adjustment
The Central Bank has voiced concerns that the current public debt levels
are threatening to become unsustainable and demands that spending be
adjusted accordingly. According to the most recent data, total medium and
long-term central government debt rose from US$ 29.0 billion (37.2% of
GDP) in 2000 to US$ 36.3 billion (43.4% of GDP) in 2001. Monetary
authorities warned that the government will have to attempt to generate
primary surpluses in the coming years in order to sustain current debt
levels. Mounting concerns about the debt burden and the desire to comply
with this year’s fiscal deficit target of 2.6% of GDP prompted the
government to implement a budget cut of US$ 490 million in March.
Participants, however, remain sceptical about the government’s ability to
sustain fiscal discipline, expecting the fiscal deficit target to come in
slightly higher.
External balances deteriorate amidst
lower revenues from traditional exports
In the fourth quarter last year, the current account balance registered a
deficit of US$ 379 million. The data was worse than the US$ 189 million
deficit registered in the same quarter 2000 and above the US$ 207 million
deficit recorded in the third quarter. The deterioration relative to the
third quarter is mainly attributable to a drop in the trade surplus, which
fell from US$ 291 million to US$ 57 million, as the exports declined
-14.2% year-on-year and imports increased 4.2% yoy. Next to lower global
demand, in particular from the United States, exports also had to cope
with a sharp drop in traditional export prices. The average price for the
Colombian mix of crude oils at US$ 25.26 per barrel was 14.4% below its
level in the same period last year. Similarly, the average price of coffee
(Colombian Arabica) traded in New York averaged 71 cents per pound, which
was 30.8% below the previous year’s level. Coffee exports dropped 18.0%,
while oil and derivatives exports plummeted 47.9%. As a result, the share
of oil exports as a percentage of total exports dropped to 24.9% (34.8% in
2000) and coffee for 6.2% (8.1% in 2000). Non traditional exports, on the
other hand, kept growing at a healthy 5.1% pace in the fourth quarter,
which helped to offset a more substantial deterioration in export
performance. The annual current account deficit reached US$ 1.7 billion,
equivalent to 2.1% of GDP. For this year, the Consensus expects the
current account deficit to widen further.
Capital account surplus sufficient
to cover current account gap
The capital account balance incurred a surplus of US$ 795 million, which
was more than sufficient to cover the gap in current account balance.
Moreover, the surplus was higher than the US$ 415 million recorded in the
same quarter the year before and exceeded the US$ 303 million third
quarter surplus. The healthy capital account surplus was provided by
strong long-term foreign investment inflows, which rose from US$ 233
million in the third quarter to US$ 1.4 billion in the last quarter.
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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