The International Monetary Fund (IMF) on Monday praised Colombia for its sound macroeconomic policies, but not without a word of caution regarding the country’s dependence on oil and mining.
“Overall, the economic outlook is promising and the authorities are actively addressing Colombia’s challenges to preserve sustainable and inclusive growth,” said the IMF’s mission chief for Colombia, Valerie Cerra.
Despite the fact that Colombia’s GDP growth rate declined in 2012 from 2011, the IMF praised Colombia’s tamed inflation rate of 2.4% as well as the decrease in unemployment. In 2012, unemployment was at 9.2%, down from the 16% mark it hovered at one decade ago.
Monetary policies like a rigorous dollar-buying program to offset currency appreciation and the cutting of interest rates have helped balance the economy’s 5-year surge.
On the fiscal side, a comprehensive tax reform plan ushered into law by Congress in December of 2012 targeted reducing inequality by facilitating conditions where more jobs could be created within the formal sector in order to offset the large proportion of informal jobs. Laborers in the informal economy pay no taxes and subsequently receive no tax benefits.
BACKGROUND: Colombia passes progressive tax reform
But just as much as the IMF expressed its approval of Colombia’s economic policies, it issued words of caution when it came to the country’s dependence on mineral extracting industries.
“The Colombian economy and public finances are becoming increasingly dependent on the volatile oil and mining sectors, and unemployment, income inequality, and labor informality remain high,” said IMF analysts.
During her visit to the Andean country in December, IMF President Christine Lagarde warned that Colombia would have “to look forward to diversifying its exports to contain dependence on oil and mining.”
The possibility of external shocks, though worrisome, is something the IMF feels confident Colombia can handle.
“Nimble policies and a comfortable level of international reserves, reinforced by the IMF’s Flexible Credit Line (FCL) arrangement,” pointed out Cerra, “provide the country with buffers against such shocks.”