With oil accounting for more than 67% of total Colombian exports in 2013, falling market prices and production threaten the Colombian economy.
Oil prices have fallen nearly 18% so far this year amid Colombia’s first recorded oil production shortfall in over a decade. Three months ago, Mauricio Cardenas, Colombia’s finance minister, said in an interview with Caracol Radio that it “is essential for Colombia that oil prices will not fall much below $ 100 per barrel.”
Current oil prices stand at around 95$ per barrel.
According to the Ministry of Finance, Colombia will produce an average of 981,000 barrels per day compared to 1,006 million a day in 2013. With rebel attacks destroying pipeline infrastructure, insufficient exploration and falling exports, investors have been pulling out of Colombia’s oil sector, dropping FDI to some of its lowest levels in years.
Meanwhile the country’s peso continues to fall, dropping nearly 5% since March. In an interview in Washington this week, Cardenas said “The exchange rate is at a level we have always thought closer to equilibrium, and that is good news for our economy. I’m sure that it will help the manufacturing and agriculture sectors.”
Camilo Perez, head analyst at Banco de Bogota said, “Oil is a variable that has important consequences in Colombia. Declining exports, a weaker peso, less growth and a government that is facing problems with their income is not good news when oil production falls.”
With all these negative consequences falling on Colombia’s economy, a recently approved “wealth tax” aimed at raising nearly $7 billion dollars for 2015 seems to be the government’s immediate response to fiscal downturns.
With all that said, the International Monetary Fund recent GDP growth estimates for the region put Colombia on a bright trajectory. The fund estimates Colombian GDP growth by the end of 2014 to be 4.8%, and 4.5% in 2015.
These estimates put Colombia alongside some of the region’s most promising economies: Peru will grow 3.6% this year and 5.1% in 2015; Bolivia 5.2% in 2014 and 5% next year, and Ecuador’s economy will accelerate up to 4% in both years.