Colombia : 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia

Context. A strong policy framework has allowed Colombia to begin to adjust smoothly to the large decline in oil prices since mid-2014. The current account deficit, relative to GDP, widened to historical highs with the steep drop in oil exports. In 2015, macroeconomic policies were tightened to curb the growth in domestic demand and contain inflationary pressures arising from the sharp currency depreciation. A sound financial system and resilient corporate and household balance sheets have also contributed to the smooth adjustment. Real GDP growth slowed last year but still outperformed most countries in the region. The authorities are pressing ahead with their infrastructure program and a completion of the peace process is expected later this year. Outlook and risks. Colombia is facing another large terms of trade shock in 2016, together with tightening global financial conditions. Staff projects real growth to slow further to 2.5 percent in 2016 and gradually rise toward its potential of about 4 percent a year over the medium term, supported by the government's PPP-based infrastructure program and some gradual export diversification. Risks are mainly to the downside, stemming in part from large gross external financing needs, and include bouts of global financial volatility, a protracted period of slower growth in advanced and emerging economies and a further decline in oil prices.