OECD warns Colombia that despite progress, ‘courageous’ reform is needed

The international economic organization OECD has warned Colombia that despite its recent “good practices,” widespread reform is required to meet the standards of the body.

Colombia’s government must strive towards “courageous structural reforms” in taxation and spending, productivity, trade and the reduction of social inequality, according to a report from the an intergovernmental economic organization.

“Colombia has made tremendous economic and social progress, driven by impressive reforms that have created a solid macroeconomic framework and set the basis for the future,” said Angel Gurria, secretary general of the OECD.

“The challenge facing policymakers today is to put the economy on a path to stronger and more inclusive growth, with the benefits shared among more Colombians. Courageous structural reforms will help Colombia converge with OECD living standards, reach its potential and achieve a more inclusive economy,” he added.


OECD urges Colombia to revive manufacturing industry


The report targeted a number of areas where Colombia must make improvements in order to meet requirements set out for the Andean nation’s incorporation into the economic organization of mainly western powers.

Tax and expenditure

Colombia’s tax system was one area that was identified as needing reform with the OECD urging the government to introduce measures to improve redistribution, raise revenues and improve the tax mix.

“It is necessary to adopt even more measures to improve the efficiency of the country’s tax and expenditure structure,” underlines the report delivered by Gurria.

“The combination of taxes could be further improved by broadening the base of personal taxes and VAT, reducing the corporate tax rate and eliminating its numerous tax exemptions,” adds the report.

Productivity and trade

The OECD also warned that there are many aspects of labor and productivity in the Andean nation that need to be addressed in order to maximize its potential.

“The potential growth has diminished considerably in the last ten years, which indicates that the traditional engines of growth, that is, capital-intensive extraction industries and favorable terms of trade, have reached their limits,” it reads.

“Actions are needed in various policy areas, including the reduction of non-wage labor costs, which remain one of the highest in Latin America,” said the OECD.

The report projects the Colombian economy will remain resilient, with growth of around 3.4% this year and 3.5% next year.

The OECD also raises concerns  about working conditions of inhabitants, not only from the point of view of informality, but also of the quality of work, education and wages.


 

Improving the quality and relevance of education and training will also be critical for Colombian efforts to prepare workers for high-quality formal employment. Colombia needs to prioritize early-childhood and basic education, particularly in rural areas, as well as the provision of quality teaching staff. More can be done to ensure that the vocational training system provides adequate skills enabling workers to enter formal employment and break out of poverty.

OECD report


In addition, Colombia’s trade potential is another area that could be improved, according to the report with a wide range of measures suggested.

“There is room to diversify exports and make trade a source of growth and productivity enhancing competition,” reads the report.

“To help Colombia meet its untapped export potential, the government should seek to reduce tariffs and the scope of non-tariff barriers to trade, continue improvements to infrastructure, customs and logistics services and allow greater competition in key sectors, such as transport, which would improve competitiveness,” it added.

Social inequality

One of the other areas that was prominent in the report was that of social inequality, with Colombia needing to address poverty among underprivileged  sectors of society in particular.

“Higher equity could be achieved by reallocating more spending such as high cash transfers towards vulnerable populations, with a focus on rural areas and ethnic minorities,” recommended the OECD.

“Reforming the pension system is urgent to reduce old-age poverty and ensure sustainability,” it added.


OECD approves Colombia membership


The successful application to join the economic organization can largely be put down to the work of the ex-president Juan Manuel Santos, who announced his intention to join the OECD in 2011.

The government formally requested membership in 2013.

The United States, which initially objected the move, congratulated the latest member of the economic organization.

Colombia’s accession will extend OECD’s membership to 37 countries.

Related posts

Colombia’s Senate agrees to begin decentralizing government

Colombia’s truckers agree to lift blockades after deal with government

Truckers shut down parts of Colombia over fuel price hikes