Colombia

OECD Economic Surveys
Colombia
OVERVIEW
http://www.oecd.org/economy/colombia-economic-snapshot/
This Overview is extracted from the Economic Survey of Colombia. The Survey was discussed at a
meeting of the Economic and Development Review Committee on 29 November 2018 and is
published under the responsibility of the Secretary-General of the OECD.
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any territory, city or area.
OECD Economic Surveys: Colombia© OECD 2019
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EXECUTIVE SUMMARY 1
Executive summary
2  EXECUTIVE SUMMARY
Growth is firming up
A key downside risk to the outlook is a
spillover of financial volatility experienced by
Growth has been resilient and poverty and some emerging markets. International volatility
informality have fallen. Thanks to sound and driven by the trade and political tensions could
credible macroeconomic policies, adjustment to impact growth. Stronger (weaker) oil or coal
the large oil price shock of 2015-16 has been prices could boost (reduce) investment. The
smooth. Education and social policies have tourism sector holds potential for upside
improved social outcomes. Yet, challenges surprises.
remain to maintain performance and further
Complying with the fiscal rule requires revenue
improve living standards. Productivity growth
and spending measures
has followed a declining trend and the still high
level of informality is a major economic and The dependence on volatile revenues and
social challenge. Regional inequalities remain exposure to global financial shocks requires
large. Exposure to global financial conditions has putting debt on a declining path relative to
increased. GDP. Current fiscal plans are expected to
GDP growth is projected to pick up supported achieve this, but the debt trajectory is highly
by domestic demand (Table A). Investment will sensitive to interest rates, growth, exchange rate
be a key driver of growth, aided by infrastructure and oil prices. Spending needs, such as those
projects, recent tax reforms and low interest related to infrastructure gaps, social programmes
rates. Inflation will remain near the 3% target, or the peace process, are high. Further measures
supporting real incomes and consumption. to improve spending efficiency and the tax mix
are needed.
Table A. Growth is projected to strengthen
Percentage change unless indicated The tax mix could be further improved (Figure
2018 2019 2020 A) by broadening the bases of personal and VAT
Gross domestic product 2.6 3.4 3.5 taxes, reducing the corporate tax rate and
Private consumption 3.6 4.7 3.9 eliminating its numerous tax exemptions. Further
Government consumption 5.6 2.9 3.5 revenue could come from environmental taxes
Gross fixed capital formation 1.5 4.6 5.3 and from strengthening tax administration to
Exports 3.9 4.0 4.0 reduce tax evasion.
Imports 7.9 8.8 5.5
Figure A. The tax burden is unbalanced
Consumer price index 3.2 3.5 3.6
Personal income tax revenue as Total of corporate tax as % of
Fiscal balance (% of GDP) -3.1 -2.4 -2.2 % % of total tax revenues total tax revenues %
30 30
Current account balance (% of GDP) -4.0 -4.2 -4.2
25 25
Source: OECD Economic Outlook 105 database updated 20 20

with most recent available information. 15 15
10 10
Macroeconomic policies strike an appropriate 5 5
balance. Fiscal policy is expected to be 0

COL LAC OECD OECD LAC COL
0
moderately contractionary to reduce the

Note: OECD refers to year 2016 and the rest 2017.
structural fiscal deficit to 1% of GDP by 2022, in Source: OECD, Revenue Statistics database.
line with the fiscal rule. This strikes an
StatLink 2 http://dx.doi.org/10.1787/888934012370
appropriate balance between meeting social
needs, supporting gradual recovery, the need to Social programmes and tax exemptions
ensure debt sustainability and creating space for benefiting households and firms contribute
dealing with future shocks. Monetary policy little to boost equity or productivity. A
remains moderately accommodative, as inflation spending review would help to identify
is near the target and inflation expectations are inefficient programmes with lack of cost-
anchored. effectiveness in terms of impact on equity or
productivity. These should be reformed or exports and make trade a source of growth and
phased out. productivity enhancing competition.
Making productivity and trade engines of

Costs to exporting are high due to
growth infrastructure gaps and weak logistics. Good
progress is being accomplished to improve
Growth potential has fallen substantially in primary roads, via the 4G initiative. Yet, gaps in
the last decade, indicating that the traditional infrastructure remain large. Improving customs
drivers of growth, largely capital-intensive and ports logistics would improve
extractive industries and favourable terms of competitiveness. Eliminating the trucks scrap
trade, have reached their limits. Further advances scheme and improving regulations in freight
in living standards will hinge on raising transport are also priorities.
productivity, which in turn requires improvement Innovation performance is hampered by low
in the business regulations, more competition and investment in R&D and complex support
further openness to trade. programmes. Additional funding has become
Labour productivity is low, even compared to available, but a large part remained unused due
other countries in Latin America (Figure B). to weak governance. Efforts to simplify the
Productivity is hindered by lack of competition innovation system and reduce the fragmentation
in key sectors, such as transport or of support programmes are warranted. Going
telecommunications. The competition digital, by promoting further adoption and use of
framework has improved but would be ICT technologies, would also boost firms’
reinforced with higher and more dissuasive competitiveness and the connectivity of regions.
sanctions against anti-competitive behaviours. Access to finance has improved but financial
Widening the scope of regulatory impact markets are less developed than in other
assessments and making a greater use of one-stop countries in the region. Domestic credit to the
shops would reduce high regulatory burden. private sector has increased but interest rate
margins are high. Inducing more competition in
Figure B. Labour productivity is low the banking sector, phasing out the financial
Labour productivity levels, 2018 or latest year available
Thousand USD per person employed (PPPs)
transaction tax and reducing regulatory
100 100 requirements for banks to hold certain
90 90 instruments, would help to reduce the cost of
80 80 bank finance.
70 70
60 60 Curbing informality: win-win for inclusiveness
50 50 and productivity
40 40
30 30 Informality has been decreasing but remains
20 20 high (Figure C). Actions are needed in several
10 10 policy areas, including reducing non-wage
0 0
BRA COL MEX CHL OECD labour costs, still one of the highest in Latin
Source: OECD Productivity database. America. Decreasing firms’ registration costs
and simplifying the registration of workers to
StatLink 2 https://doi.org/10.1787/888934012028
social security would facilitate formalisation of
Trade openness is low. Despite efforts to firms and jobs. Reviewing the minimum wage to
promote trade integration via trade agreements, achieve a more job-friendly level and improving
exports remain low and large parts of the quality and relevance of education and training
economy are shielded from international should be also part of the strategy.
competition. The use of non-tariff barriers has
increased. Tariffs have fallen but remain higher
than in regional peers. There is room to diversify
4  EXECUTIVE SUMMARY
Figure C. Informality remains high Despite progress, gender gaps at work and
Percentage of employed workers education remain sizeable. Actions to
% 2018 or latest year available %
90 90 strengthen parental leave for mothers and fathers,
80 80
flexible work arrangements and improving
access to childcare, notably in rural areas, would
70 70
support women to access high-quality jobs.
60 60
50 50 Social policies could do better to decrease
40 40 inequality
30 30
Social policy is not well targeted (Figure D).
20 20
Cash transfers to the poor are low and a large
10 10
share of subsidies, such as those related to
0 0 pensions and housing, goes to the relatively rich.
URY CRI CHL BRA ARG COL MEX PER
Note: Informal workers defined as not contributing to the Coverage in rural areas is low. Higher equity
pension system. could be achieved by reallocating more spending,
Source: IADB SIMs database.
such as higher cash transfers, towards vulnerable
populations, with a focus on rural areas and
Ensuring adequate support for workers to get ethnic minorities. Concentrating public resources
high-quality jobs into few well-evaluated programmes, would also
help.
Access to high-quality education and training
is a powerful tool to increase access to high- Figure D. The tax and transfer system does little
to reduce inequality
quality jobs. While Colombia has made great
progress in increasing attainment, there is still a Working age population
Gini 2017 or latest year available Gini
long way to go to improve access and quality and coefficient coefficient
0.6 0.6
reduce dropout rates, notably in rural areas. Gini before taxes and transfers
Gini after taxes and transfers
0.5 0.5
There is a need to ensure that schools deliver
high-quality education to those in need. The 0.4 0.4
Government needs to prioritize increasing
0.3 0.3
coverage and quality in early education to
improve student performance and reduce gaps in 0.2 0.2
learning achievement. Improving quality of basic 0.1 0.1
education, especially in rural areas, is needed.
Shaping the working conditions and professional 0 0
COL
SWE
DEU
FRA
GBR
ESP
USA
CHL
MEX
BRA
OECD
opportunities in rural schools and providing

adequate supply of high-quality initial teacher Source: OECD Income Distribution and Poverty database and
OECD calculations.
education is essential to attract high-quality
teachers to rural areas.
Reforming the pension system is urgent to
Enhancing the vocational education and
reduce old-age poverty and ensure
training system can improve skills and sustainability. Increasing the low retirement
inclusiveness. Strengthening governance of the
age, notably for women, and tying it to increases
vocational and training system would increase
in life expectancy, would foster sustainability.
quality and relevance. This implies reducing
Coverage and the level of benefits of Colombia
fragmentation and developing a single
Mayor, the non-contributory component of the
institutional framework with a coherent and
system, should be increased. Raising the number
transparent set of objectives. Strengthening
of years of earnings on which pensions income
quality assurance and accreditation, and
are based would help to finance an increase in
implementing the national qualifications
old-age income support.
framework should also be priorities.
MAIN FINDINGS KEY RECOMMENDATIONS

Further improving macroeconomic policies and governance
Public debt has increased and fiscal revenues are volatile. Exposure to Adhere to the fiscal rule and aim at a structural deficit of 1% by 2022.
global financial conditions has increased. Establish an independent fiscal council to monitor fiscal risks and provide
Fiscal targets have been revised frequently in recent years. additional technical analysis on fiscal targets and its revisions.
Spending efficiency is hampered by rigidities. The government has Reduce budget rigidities by cutting mandated spending and earmarking of
room to adjust only spending related to investment. revenues.
Social programmes and tax exemptions contribute little to boost Evaluate social programmes and tax exemptions and retain only those with a
productivity or equity. positive impact on productivity or equity.
Non-oil revenues are still relatively low and the tax mix is unbalanced. Broaden the base of the personal income tax by lowering the income threshold
Taxes are paid predominantly by firms and contribute little to reduce where taxpayers start paying income taxes and eliminating exemptions.
inequality. Replace VAT reduced rates with cash transfers to low-income families.
Tax evasion is widespread. Lower the rate and broaden the base of corporate taxes.
Reinforce tax administration and establish a limit for large cash transactions.
Appropriate and timely action by the Central Bank has brought inflation Keep the interest rate around current levels provided inflation remains close to
back to the target. the 3% target. Raise it once the economy starts closing the output gap.
Despite good progress to foster integrity, corruption remains the main Introduce whistle-blower protection procedures.
concern for citizens. Bring all purchases by subnational governments into the central procurement
entity (Colombia Compra Eficiente).
Regulate the financing of political parties and campaigns.
Boosting productivity and integration in the world economy
The competition framework has improved but competition remains weak Grant the competition authority the ability to impose higher and more dissuasive
in key areas of the economy and sanctions are modest. sanctions.
Regulatory burden remains high. Widen the scope of regulatory impact assessments, including also the stock of
regulations.
Make a greater use of one-stop shops and online tools for administrative
procedures.
Colombia remains relatively closed to trade with high dispersion in Phase out import restrictions and review other non-tariff barriers with a view to
tariffs and increasing non-tariff barriers. reducing them.
Reduce tariff dispersion.
Costs to export are high, due to infrastructure gaps and weak trade Prioritise improving multi-modal transport connectivity of ports and customs, and
facilitation and logistics. reduce barriers to entry and competition in transport.
Improve customs logistics, including by increasing inter-agency cooperation and
making further use of paperless online solutions for permissions and payments.
Improving equality of opportunities and job quality
Informality is high, hampering productivity, job quality, public finances Establish a comprehensive strategy to reduce the cost of formalisation, including
and access to pensions. Skills gaps are large, driving informality. reducing non-wage costs, reviewing the minimum wage to achieve a more job-
friendly level, reducing firms’ registration costs and simplifying the registration of
workers.
Cash transfers to the poor are small. A large share of social Improve targeting and focus spending on social programmes targeted at low-
programmes goes to the relatively rich. income individuals.
Target higher cash transfers towards the most vulnerable, especially those in
rural areas.
Education has improved but regional disparities are large. Grade Prioritise spending on education that increases coverage in early education.
repetition and dropout rates remain high. Reallocate more resources to the most vulnerable territories.
Make teaching in rural areas more attractive by shaping the working conditions
and professional opportunities in these areas.
Demographic trends put pensions sustainability at risk. Retirement age Gradually increase and align the retirement age of women and men.
is low, especially for women. Boost coverage and benefit levels in the non-contributory scheme (Colombia
Old-age poverty is high. The pension system has low coverage and is Mayor).
very unequal, as it mostly benefits high-income formal workers. Extend coverage in the public scheme and finance it by increasing the number
Pensions are based on the last 10 years of earnings. of years of earnings on which pensions are based.
Strengthening green growth
Biodiversity is jeopardized by deforestation. Ensure technical capacity and resources to allow for proper enforcement and
management of forests.
Grant the status of protected areas to a greater proportion of the forestland.
KEY POLICY INSIGHTS 7
Key policy insights
Colombia has made good economic and social progress over the last two decades. Sound
macroeconomic policies boosted confidence, which together with favourable
demographics and external conditions underpinned resilient economic growth (Figure 1,
Panel A). This has contributed to higher living standards (Panel B and C), and, together
with improving access to education and social transfers, brought significant social
improvements. Poverty has fallen markedly in recent years, while progress in reducing
inequality has been more muted (Figure 2, Panel A and B). On 25 May 2018, Colombia
was invited to become a member of the OECD.
However, challenges ahead to maintain performance and further convergence towards
higher living standards are substantial. Colombia has already lost ground relative to some
of its peers in Latin America in per capita growth. (Figure 3). The still high level of
informality remains a major economic and social challenge, affecting income distribution,
quality of jobs and productivity. Despite a recent decline, income inequality is the highest
among OECD countries and one of the highest in Latin America. The strong economic
performance over the past decade was also not shared by all regions and regional
differences in living conditions remain large.
Potential growth has followed a downward trend due to lacklustre productivity. The
traditional growth drivers, largely capital-intensive extractive industries and favourable
terms of trade, have shown their limits. Exports remain dependent on oil prices, leaving
Colombia vulnerable to external and unpredictable shocks. The non-extractive sectors lag
behind due to high regulatory burden, infrastructure gaps and low competition and
integration to international markets.
Colombia has now a historic opportunity to reignite growth and continue social progress,
after 50 years of internal conflict. The sound macroeconomic policy framework, which has
benefited from continuity over the years, provides solid foundations. Further advances in
living standards and more balanced and inclusive growth will hinge on implementing
structural reforms to foster productivity growth and improve the business and job creation
frameworks.
The new government identified boosting economic growth as one of its key priorities
(Box 1), as also reflected in the latest National Developmen Plan. The OECD estimates
that structural reforms in key areas could raise GDP per capita by 11% in 10
years(Figure 1). The largest benefits stem from increasing international trade. At the same
time, there is also a need to ensure that all Colombians benefit from the fruits of reforms,
with a particular focus on increasing opportunities for those more vulnerable. To overcome
political economy obstacles to implementation of reforms, OECD evidence suggests that
communicating clearly the benefits of policy decisions boosts confidence and creates more
ownership of the reform programme (OECD, 2017[1]). There are also clear benefits to
ensure intergovernmental coordination across different policy areas.
8  KEY POLICY INSIGHTS
Figure 1. Economic growth has been resilient but has slowed
Y-o-y, % changes A. GDP growth has been resilient Y-o-y, % changes

7 7
COL
6 6
LAC
5 5
OECD
4 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
B. GDP per capita relative to the OECD GDP per capita

% Percentage %
34 34
33 33
32 32
31 31
30 30
29 29
28 28
27 27
26 26
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
C. Well-being
Housing expenditure
10
Life satisfaction Rooms per person
8
COL 6
OECD Life expectancy 4 Employment rate
2
Average of Chile and Mexico
0
Safety -2 Long-term unemployment rate
Environment Employees working very long hours
Civic engagement Education

Community
Note: LAC refers to the unweighted average of Argentina, Brazil, Chile, Costa Rica and Mexico. Data show a
3-year moving average of year-on-year percentage changes; For Panel C, each dimension is measured by the
available indicators from the OECD How's Life 2017 set.
Source: OECD Analytital database; World Bank, World Development Indicators database; OECD, How’s Life?
2017.
Against this background, the main messages of the Survey are:

KEY POLICY INSIGHTS 9
 Macroeconomic policies are solid and have sustained growth and smooth
adjustments to shocks over the years. Maintaining and strengthening the policy
framework is key to sustainable macroeconomic policies and setting the basis for
higher productivity and inclusiveness.
 Putting Colombia on a path to stronger and more inclusive growth, and reducing
dependence on natural resources, requires boosting productivity by adopting
structural reforms in competition, regulations, trade policy, infrastructure,
innovation, and skills.
 Reducing informality and boosting job-quality would extend the benefits of growth
to all Colombians, underpinning economic and political support for reform.
Finding the appropriate sequencing and prioritisation is essential for a successful reform
agenda and avoiding reform fatigue. Continuing to reduce informality should be the first
priority, as it is win-win for productivity, equity and public finances. Opening up to trade
and taking more advantage of current trade agreements would boost productivity and job-
creation and should be the second in line. Boosting fiscal revenues in a sustainable way and
making the tax system more growth and equity friendly should also be a priority.
Strengthening the fight against corruption would also be essential and would facilitate the
reform agenda, as it would boost trust on government.
Figure 2. Social indicators are improving but inequality remains high

A. Poverty rates are declining
% %
60 60
Poverty rate Extreme poverty rate
50 50
40 40
30 30
20 20
10 10
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
B. Inequality has fallen but remains high

Gini coefficient
Gini coefficient after taxes and transfers, 2018 or latest year available Gini coefficient
0.7 0.7
2009
0.6 0.6
0.5 0.5
0.4 0.4
0.3 0.3
0.2 0.2
0.1 0.1
0 0
ISL
FIN
ITA
IND
GRC
JPN
ISR
SVK
SVN
CZE
NOR
DNK
NLD
HUN
FRA
IRL
DEU
CHE
LUX
CAN
AUS
USA
TUR
MEX
BEL
AUT
POL
EST
PRT
ESP
LVA
GBR
KOR
RUS
LTU
NZL
CHL
BRA
CHN
CRI
COL
ZAF
SWE
Note: No data available for 2006 and 2007.

Source: DANE, OECD.
Figure 3. Colombia has lost ground

GDP per capita developments
Index Index, 1990 = 100 Index
600 600
CHL COL MEX PER LAC Dynamic Asian Economies
550 550
500 500
450 450
400 400
350 350
300 300
250 250
200 200
150 150
100 100
50 50
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Note: GDP per capita are in purchasing power parity terms. LAC refers to the unweighted average of Argentina,
Brazil, Chile, Costa Rica, Mexico and Peru. Dynamic Asian Economies refers to the unweighted average of
China, Malaysia, Philippines, Singapore, Thailand and Viet Nam.
Source: World Bank, World Development Indicators database.
Box 1. Key features of the programme of Duque’s government
The new government took office in August 2018 and is the first gender-balanced
government in the history of Colombia. Among its main priorities are:
 Boosting economic growth to 4% through structural reforms.
 Reforming the tax system to make it more favourable to investment and job-
creation.
 Fighting informality by giving high priority to this area, as informality has a
critical and large detrimental impact on productivity, inequality, tax revenues and
access and financing of pensions.
 Reforming the justice system by making the system more efficient and
trustworthy for all citizens.
 Reforming the pension system to ensure that more Colombians access old-age
income.
 Enhancing trade facilitation by launching round tables aimed at promoting
reforms to reduce costs to trade.
 Boosting innovation and entrepreneurship via better regulation, technology
adoption and digital transformation.
 Making the best out of Colombia’s rich cultural assets (branded under the term
Economía Naranja (“orange economy”)).
 Protecting environmental richness by increasing the share of renewables in the
energy mix.
KEY POLICY INSIGHTS  11
Table 1. Structural reforms would boost growth
Potential impact of structural reforms on GDP per capita at different horizons
Structural policy Policy change Effects on the level of per capita income (%)
Latest After reform 2-years 5-years 10-years Long-term

data effect
Business regulation
Reduce the cost of starting a business 85 78 0.1 0.3 0.4 0.4
Intermediate policy channels mainly affecting
productivity
Increase openness (% of GDP) 35 41 0.8 1.3 2.0 4.2
Increase R&D (business expenditure) (% 0.1 0.2 0.0 0.1 0.2 0.6
GDP)
Investment specific policies
Reduce corporate tax (% GDP) 5.1 3.6 0.5 0.6 0.8 1.4
Labour market policies
Increase activation (spending per unemployed, 0.04 0.6 0.4 0.7 1.0 2.0
%. of GDP/capita)
Increase family benefits (% GDP) 1.6 2.1 0.6 1.8 2.9 3.8
Increase legal retirement age 59.5 62 0.5 1.6 2.5 3.2
Institutions
Increase the control of corruption -0.3 0.2 0.3 1.0 1.6 2.0
All of the above 3.2 7.4 11.4 17.6
Corresponding to an average annual growth of: 0.3 0.7 1.1 1.6
Note: The reforms imply halving the gap to the OECD average. These estimates were obtained based on
numerical indicators of Colombia’s policy stance in each policy area, taken from World Bank’s World
Governance Indicators, Doing Business and World Development indicators; and OECD databases. These
quantifications are illustrative, as they are subject to uncertainty, about both their size and the time horizon of
their materialisation. Coverage of reforms differs from table 8, depending on the availability of the
quantification tools.
Source: OECD calculations based on Balázs Égert and Peter Gal (2017), "The quantification of structural
reforms in OECD countries: A new framework", OECD Journal: Economic Studies, Vol. 2016/1 and Balázs
Égert (2017), “The quantification of structural reforms: taking stock of the results for OECD and non-OECD
countries”, OECD Economics Department Working Papers, forthcoming.
Growth is firming up
The economy is recovering from the large oil price shock of 2015-16, which moderated
growth, led to a 70% depreciation of the currency vis-à-vis the US dollar, increased
inflation and widened fiscal and current account deficits. The adjustment was, however,
relatively smooth (Box 2), thanks to credible macroeconomic policies. The inflation-
targeting independent central bank reacted by letting the exchange rate float and interest
rates hikes, keeping inflation in single digits (Figure 5). The rules-based fiscal framework,
while easing the adjustment to the oil price shock, contained deficits to manageable levels;
as did a tax reform that reduced dependence on oil. Vulnerability to shocks was also eased
with only moderate exposure to foreign currency funding of the deficit (more details
below).
Box 2. A smooth adjustment to a large terms of trade shock
The fall in terms of trade was significantly higher than in other countries in the region
(Figure 4, Panel A). The value of exports fell by 47% in 2016, which substantially
deteriorated the country's current account and widened the fiscal deficit. Increases in
risk premia generated a strong nominal devaluation of the peso (Panel B). Appropriate
macroeconomic policy responses smoothed the adjustment to this large shock, with
GDP growth outperforming other countries (Panel C) and the current account
undergoing a large and smooth adjustment (Panel D).
Figure 4. The trade of terms shock was larger and the adjustment smooth
A. Terms of trade B. Exchange rate versus USD

Index 2011Q4 = 100 Index 2011M12 = 100
Index Index
115 240
BRA CHL COL MEX BRA CHL COL MEX
110 220
105 200
100 180
95 160
90 140
85 120
80 100
75 80
70 60
2011 2012 2013 2014 2015 2016 2017 2018 2019 2011 2012 2013 2014 2015 2016 2017 2018 2019
C. Real GDP D. Current account balance

Index, 2011Q4 = 100 Percentage of GDP
Index % of GDP
130 0
BRA CHL COL MEX BRA CHL COL MEX
125 -1
120
-2
115
-3
110
-4
105
-5
100
95 -6
90 -7
2011 2012 2013 2014 2015 2016 2017 2018 2019 2011 2012 2013 2014 2015 2016 2017 2018
Note: Current account is all transactions other than those in financial and capital items. The major
classifications are goods and services, income and current transfers. The focus of the BOP is on transactions
(between an economy and the rest of the world) in goods, services, and income.
Source: OECD Analytical database; Thomson Reuters; IMF, World Economic Outlook April 2019.
Figure 5. Inflation is near the 3% target

A. Inflation
% %
10 10
Headline inflation Core inflation Inflation expectations
9 9
8 8
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
2015 2016 2017 2018 2019
B. Monetary policy rate

% %
11 11
Policy rate 10-year government bond yield
10 10
9 9
8 8
7 7
6 6
5 5
4 4
3 3
2015 2016 2017 2018 2019
Note: Inflation expectations are defined as the 12-month ahead inflation expectations.
Source: Banco de la República, OECD Analytical database.
The economy gave signs of revival in the second half of 2017 (Figure 6, Panel A). Real
investment bottomed out supported by declining interest rates and higher investment by
subnational governments (Panel B). Declining inflation pushed real incomes up and
supported consumption (panel C). An improvement in terms of trade supported exports and
contributed to a reduction in the current account deficit (panel D), despite a recent
deterioration of the current account driven by increased global trade tensions and the peso
depreciation.
The labour market has remained subdued, reflecting the impact of the growth deceleration.
Unemployment has recently edged to 10% (Figure 7, Panel A), among the highest
unemployment rates in Latin America (Figure 7, Panel B). Progress achieved in increasing
participation rates has also stalled, particularly in urban areas and among youth. Wages
grew above inflation, particularly in manufacturing and retail trade (Banco de la República,
2018[2]). Informality has fallen in recent years, but nearly 60% of all workers still work in
the informal sector (see Chapter 2). Increasing migration from Venuzuela imply significant
pressures on the labour market (Box 3).
Figure 6. Growth is picking up
Y-o-y, % A. GDP growth started to strengthen Y-o-y, % B. Investment and oil price
changes changes USD/barrel
7 35 135
COL LAC OECD Real investment WTI crude oil prices (RHS)
6 30 120
25 105
5
20 90
4
15 75
3
10 60
2
5 45
1
0 30
0 -5 15
-1 -10 0
2013 2014 2015 2016 2017 2018 2019 2005 2007 2009 2011 2013 2015 2017 2019
C. Consumption is robust D. Terms of trade and current account

Y-o-y, % Y-o-y, %
changes % of GDP changes
12 0 80
COL LAC OECD Current account Terms of trade (RHS)
10 -1 60
8 -2
40
6
-3
4 20
-4
2 0
-5
0
-20
-6
-2
-7 -40
-4
-6 -8 -60
2005 2007 2009 2011 2013 2015 2017 2019 2005 2007 2009 2011 2013 2015 2017 2019
Note: Data show year-on-year percentage changes. Base year of the underlying data series is 2015; WTI crude
oil prices are monthly averages of average daily prices. Real investment refers to the total volume of gross fixed
capital formation; LAC refers to the unweighted average of Argentina, Brazil, Chile, Costa Rica and Mexico.
Source: OECD Analytical database; Thomson Reuters.
Box 3. Migration from Venezuela imply challenges but also opportunities
Since 2014 more than one million Venezuelans migrated to Colombia, as a result of the
economic, humanitarian and social crisis there. The arrival has intensified, doubling during
2018, and by December the number of Venezuelans migrants was 1 147 743, including
both regular and irregular migrants arrived (MFMP, 2019[3]; DNP, 2018[4]).
The government has managed the challenging situation successfully, making efforts to
integrate the migrants by providing timely border assistance and ensuring universal
emergency and childbirth care. Documentation requirements have been made more flexible
so that school-age children can have access to education at the pre-school, basic and
secondary levels. Colombia has also relaxed some entry requirements and granted
temporary permits to stay in the country. An integral policy strategy for the next years has
been launched, including actions in areas such as education, healthcare, water and
sanitatiation, labour market integration, childhood care and humanitarian help. Fiscal needs
are estimated to be around 0.5% of GDP per annum, under a baseline assumption of two
millions migrants entering the country by 2021. This estimate accounts for the higher
demand on the provision of basic good and services that the increasing flows of migration
will entail over the next three years.
The migration inflows have started to have an impact on the Colombian labour market,
with a diverse regional impact. The participation rate of the Venezuelan migrants is 72%,
while for non-migrant Colombians it is 64%. Unemployment rates for Venezuelans are
particularly high, affecting the national unemployment rate (Fedesarrollo, 2018[5]). The
cities most affected and experiencing problems to absorb the large numbers of migrants
are Arauca, Riohacha, Cúcuta, as well as Bogotá and Medellín.
Investing in immigrants’ integration could deliver benefits in terms of potential growth.
Venezuelan migrants tend to be younger than Colombias, allowing for a demographic
bonus. In the short-term a positive impact on growth could derive from increased
consumption and employment, Policies should aim at fostering the employability of
migrants, for example, through skills certification and validation programmes for
secondary and higher education. Extending the public employment services and training
opportunities would also help. Efforts to support the integration of Venezuelans in the
formal sector would maximise their fiscal contribution.
Figure 7. The labour market has remained subdued
A. Labour market indicators B. Unemployment rate

%
2018 %
Unemployment rate %
18 66 14
Labour participation rate (RHS)
15 64 12
10
12 62
8
9 60
6
6 58
4
3 56 2
0 54 0
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 PER MEX OECD CHL URY CRI ARG COL BRA
Note: Yearly data taken as a 12-month average. Data for 2019 refer to the average of the period July 2018 -
June 2019; Total unemployment as a percentage of total labour force. For Panel B, OECD refers to an
unweighted average of its member countries.
Source: GEIH of DANE.
The current account deficit fell from more than 6% of GDP in 2015 to 3% in 2017,
illustrating the significant and orderly adjustment experienced. The deficit, which widened
in 2018, remains largely financed by foreign direct investment (Figure 8), helping to
cushion exchange rate related risks.
Figure 8. The current account deficit has been reduced during 2016-17
% of GDP % of GDP
3 3
FDI Net inflows Portfolio Net Inflows Other investment flows Current Account
2 2
1 1
0 0
-1 -1
-2 -2
-3 -3
-4 -4
-5 -5
-6 -6
-7 -7
-8 -8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: IMF Balance Of Payments database.

The reduction during 2016-17 in the current account deficit has helped Colombia to remain
less affected than other emerging economies by the most recent episodes of financial
volatility (Figure 9). The peso has also been relatively more resilient to recent financial
market turbulences (Figure 10). External debt has risen over the recent years, reaching
around 47% of GDP (Figure 11, Panel A), suggesting that exposure to global financial
conditions has increased. 13% of external debt is short-term. Reserves have also increased
(Panel B), covering 16% of GDP and 9 months of imports. The coverage ratio, in terms of
the current account deficit plus short-term debt at remaining maturity, is about 135%. A
flexible credit line with the IMF also helps to deal with extreme events. The Central Bank
executed a gradual programme of reserve accumulation, which ended in May 2019, to
prepare for a possible reduction of the flexible credit line, which expires in 2020.
Figure 9. Colombia has been resilient to recent episodes of financial uncertainty

Sovereign risk bond spreads
Basis points Basis points
600 3 000
BRA CHL COL TUR LAC ARG (RHS)
500 2 500
400 2 000
300 1 500
200 1 000
100 500
Jan-18 Mar-18 May-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19
Note: JP Morgan EMBI spreads.
Source: Thomson Reuters.
Figure 10. The exchange has remained relatively stable since 2016
A. Exchange rate B. Oil prices
Nominal FX rate USD/COP (LHS)
USD/COP index USD/barrel
Real effective exchange rate (RHS)
0.0006 120 140
0.0005 100 120
100
0.0004 80
80
0.0003 60
60
0.0002 40
40
0.0001 20 20
0 0 0
2009 2011 2013 2015 2017 2019 2009 2011 2013 2015 2017 2019
Note: Real effective exchange rate is based on Consumer Price Index. WTI crude oil prices are monthly
averages of average daily prices.
Source: Banco de la República, IMF International Financial Statistics (IFS); Thomson Reuters.
Figure 11. Debt and foreign exchange reserves

A. External debt B. Total reserves, 2017 or latest year available
% of GDP Percentage of total external debt
%
90 100
CHL COL MEX PER
80 90
70 80
70
60
60
50
50
40
40
30
30
20 20
10 10
0 0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 ARG TUR CRI ZAF IDN COL MEX MYS LAC BRA IND PER
Note: External debt to GDP is calculated as the ratio of total external debt in billion US dollars divided by gross
domestic product in billion US dollars. LAC refers to the World Bank definition of Latin America & Caribbean
(excluding high income).
Source: IMF, World Economic Outlook April 2019; World Bank.
Growth is projected to strengthen during 2019 and 2020, supported by rising domestic
demand (Table 2). Improving confidence and easier financing conditions will support
consumption. Investment will become a key driver of growth, aided by the lower corporate
taxation, low interest rates, and infrastructure projects. As growth gains traction, the
unemployment rate will edge down.
Risks to these projections include volatile oil or coal prices, which would boost or decrease
investment. The tourism sector holds potential for upside surprises. Downside risks include
additional delays in planned large infrastructure projects. The rise in protectionism could
slow down global growth, dampening exports. Increasing migratory flows from Venezuela
may imply higher spending needs than foreseen, particularly in health and education, and
increases in labour informality. But, if well managed, it can also boost medium-term growth
prospects. Currency mismatches are low but financial volatility in emerging economies
could also present risks. The authorities consider that Colombia is in a good position to let
the exchange rate act as a line of first defence, as inflation is close to the target, providing
space to absorb exchange rate depreciation. The economy may also face unpredictable
shocks, whose effects are difficult to factor into the projections (Table 3).
Table 2. Projections
2016 2017 2018 2019 2020
Percentage changes, volume
(2015 prices)
GDP at market prices 2.1 1.4 2.6 3.4 3.5
Private consumption 1.6 2.1 3.6 4.7 3.9
Government consumption 1.8 3.8 5.6 2.9 3.5
Gross fixed capital formation -2.9 1.9 1.5 4.6 5.3
Final domestic demand 0.6 2.3 3.5 4.4 4.1
Stockbuilding1 0.6 -1.2 0.4 0.3 0.1
Total domestic demand 1.2 1.2 3.9 4.6 4.2
Exports of goods and services -0.2 2.5 3.9 4.0 4.0
Imports of goods and services -3.5 1.2 7.9 8.8 5.5
Net exports1 0.8 0.1 -1.0 -1.2 -0.6
Memorandum items
GDP deflator 5.1 5.1 3.7 4.1 3.5
Consumer price index 7.5 4.3 3.2 3.5 3.6
Private consumption deflator 6.6 3.6 2.6 3.5 3.1
Unemployment rate (% of labour force) 9.2 9.4 9.7 10.1 9.2
Current account balance (% of GDP) -4.3 -3.3 -4.0 -4.2 -4.2
Potential growth 3.4 3.2 3.2 3.1 3.1
Output gap -2.4 -4.2 -4.8 -4.5 -4.1
Note: Contributions to changes in real GDP.

Source: OECD Economic Outlook 105 database updated with most recent available information.
Table 3. Possible shocks to the Colombian economy

Vulnerability Possible outcome Possible policy action
Contagion from emerging Large exchange rate depreciation and higher costs of financing Tighten monetary policy and quicker
markets financial volatility the fiscal deficit and servicing debt. reduction of the fiscal deficit.
Deepening crisis in Even larger inflows of migrants with higher humanitarian Continue providing border assistance to
Venezuela assistance needs. immigrants and flexible residence permits.
International assistance may be required.
Sudden falls in oil prices Prices for exports would fall, reducing public revenues and Maintain adherence to the fiscal rule and build
increasing the current account deficit. An associated increased in fiscal buffers overtime.
sovereign risk premium in emerging economies would diminish Boost competitiveness in non-oil sectors.
capital inflows.
Natural disasters A significant part of Colombian territory, population and GDP is at Strengthen disaster risk management and
risk of natural disasters, such as floods or landslides, which can foster climate change adaptation strategies.
entail large social, economic and fiscal costs.
Financial stability has been preserved

Despite the large shocks, financial indicators of banks remain solid (Figure 12). Credit
growth has decelerated since 2016, particularly commercial credit. Consumer credit growth
has also decelerated, due to a tightening in credit standards. Non-performing loans have
risen (Panel B) but remain low in international perspective (Panel C). The increase was
largely driven by two large borrowers in energy and infrastructure sectors. Loan
restructuring practices have been recently standardised.
Some risk to the sector arises from the expansion of several Colombian banks to other
countries in Latin America. This expansion allows diversifying risks, as exemplified by the
positive impact of the fall in oil prices on earnings of Colombian banks present in Central
America, whose economies benefited from the fall in oil prices. At the same time, the
expansion raises challenges for supervision. The recent strengthening of the supervisory
framework, recommended in previous economic surveys, by granting the Superintendencia
Financiera enhanced regulatory and supervisory powers over financial conglomerates is
welcome. Compliance with prudential and risk management standards and access to
information of financial conglomerates and financial holdings have also been increased.
Foreign exchange and foreign exchange risks regulations by the Central Bank has also
moved in this direction.
Existing regulations are robust but are not fully aligned with Basel III, which hampers the
credit profiles of banks, affecting its access to international funding. The process to adapt
to Basel III standards started in 2012 and is proceeding progressively. While other countries
in the region have formally incorporated Basel III standards in their banking regulations,
several pieces of regulations are yet to be approved in Colombia and a transition period
will start. A recent decree will bring the capital framework closer to Basel III standards.
Moving fully to Basel III regulations will further strengthen the resilience of the banking
system and facilitate access to credit by banks, and ultimately by firms and households.
Corporate and household debts have reached near record levels but remain modest by
international standards (Figure 12, Panel D and F). Around 15% of corporate debt is
denominated in foreign currency, while households’ exposure to exchange rate risks is
negligible. Unhedged corporate liabilities of non-exporting firms amount to 5% of GDP in
2018. Public debt denominated in foreign currency remains at 16%. Foreigners
participation in local public bond market has increased and stabilised around 25% of the
stock value. This reduces exchange risks for the government and increases liquidity but it
also makes Colombia more sensitive to changes in international financial markets
sentiment (Banco de la República, 2017[6]).
Figure 12. Financial indicators remain solid
A. Bank capitalisation B. Non-performing loans to total gross loans

% Regulatory Capital to Risk-Weighted Assets %
25 6
Leverage ratio CHL COL CRI MEX
Tier 1 capital ratio
5
20
4
15
3
10
2
5
1
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019
C. Total non performing loans in comparison D. Corporate debt

% Latest available 2018Q4 % of GDP
35 180
Non-performing loans net of provisions to capital
30 160
Non-performing loans to total gross loans
25 140
20
120
15
100
10
80
5
60
0
-5 40
-10 20
-15 0
IDN
IND
IDN
IND
BRA
CHN
THA
TUR
CHN
COL
SAU
TUR
THA
RUS
ZAF
POL
COL
ZAF
BRA
RUS
CHL
MEX
MYS
ARG
MEX
MYS
OECD
OECD
Y-o-y, % E. Credit growth F. Household debt

changes 2018Q4 % of GDP
Total gross loans without mortgage loans securitization
60 Commercial Loans 70
Consumer Loans
50 60
40 50
30 40
20 30
10 20
0 10
-10 0
2003 2005 2007 2009 2011 2013 2015 2017 2019
IND
IDN
TUR
THA
ARG
ZAF
CHL
MEX
RUS
CHN
MYS
COL
BRA
OECD
Note: In Panel C, OECD refers to an unweighted average of all its member countries. In Panel D and Panel F,
OECD refers to an unweighted average of 30 OECD member countries with available data.
Source: IMF Financial Soundness Indicators database, BIS.
Macroeconomic policies are solid but the fiscal framework could be reinforced
The large oil price shock in 2015-16 put Colombian macroeconomic policy framework to
the test. The smooth adjustment to the shock attests that the framework is strong and that
policy action was timely. Looking ahead, with uncertainty rising about the global economy,
monetary policy and fiscal policy should remain cautious.
Monetary policy
The Central Bank conducts monetary policy on an inflation targeting framework and
flexible exchange rate. Skilful management of the monetary framework has contained
inflation in a difficult environment. The oil shock and the associated exchange rate
depreciation, together with the effect of El Niño, which increased significantly food prices,
pushed inflation to 9% in July 2016. Monetary policy tightening avoided de-anchoring of
expectations and inflation returned to the 3% target. With inflation decelerating sharply
over 2017, the central bank gradually and appropriately eased its policy rate, supporting
growth during 2017’s deceleration. At the beginning of 2018, the Central Bank eased futher
its policy rate to support growth. Inflation is expected to remain close to 3%, allowing the
Central Bank to maintain its current monetary stance, which is consistent with a Taylor rule
(Figure 13). Going forward monetary policy should remain moderately accommodative,
provided inflation and its expectations remain near the 3% target, and start to normalize as
the output gap closes down.
Figure 13. The monetary stance has become accommodative

% %
14 14
Taylor-rule target rate Estimated Taylor rule rate Monetary policy rate
12 12
10 10
8 8
6 6
4 4
2 2
0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Note: The Taylor rule target rate is computed as: nominal interest rate = real natural interest rate + inflation rate
+ 0.5 * (inflation gap) + 0.5 * (output gap); the inflation target is set at 3%; the natural real interest rate is taken
to be 1%. The estimated Taylor rule rate is based on a simple quarterly regression of nominal interest rate on
lagged nominal interest rate, current inflation and output gap estimated over 2002Q1-2019Q2.
Source: OECD calculations and Banco de la República.
The Central Bank is undertaking changes in the communication of monetary decisions to

fine tune its messages and align them to international best standards. Decisions on interest
rates will be made in 8 of the 12 meetings held per year. This is aimed at aligning decisions
with major data releases and allowing deeper discussion and analysis of macroeconomic
and inflation conditions. The Central Bank could also consider introducing elements of
forward guidance in its communication. Forward guidance is increasingly used by Central
Banks, including some in the region such as Chile. Forward guidance can help smooth
transmission of monetary policy (Pescatori, 2018[7]; Praet, 2013[8]; Campbell, Evans and A.
Justiniano, 2012[9]).
Fiscal policy
Fiscal policy has been governed by a fiscal rule since 2012 that targets the central
government’s budget balance, adjusted for cyclical factors and oil and mining prices.
Potential GDP estimates and long-term reference oil prices are set by an external
committee. A solid framework to ensure subnational fiscal sustainability is also in place,
after problems of over-borrowing and excessive expenditure growth during the 1990s.
Presently the fiscal situation of subnational governments is solid, presenting a budget
balance of 0.6% of GDP in 2018.
The oil-price shock implied a sharp fall in oil-related revenues, from about 2.6% of GDP
in 2014 to nearly 0% in 2016 (Table 4). As a consequence, the central government headline
deficit increased from 2.4% to 4% in the same period. The increase in the deficit, together
with the depreciation of the peso, triggered an increase in debt from 40% of GDP in 2014
to 51% of GDP in 2018. The deficit was reduced in 2017, thanks to a significant increase
in non-oil revenues, partly related to a tax reform, and to one-off revenues related to fines
to the telecom sector. The fall in the deficit in 2018 was mainly driven by increased oil-
revenues and reduced public investment by the central government (MFMP, 2019[3]).
Table 4. The government deficit has decreased

Percentage of GDP
Central government
2014 2015 2016 2017 2018 2019 2020 2021 2022
Total revenues 16.7 16.1 14.9 15.6 15.3 16.6 16.5 16.5 16.4
Oil revenues 2.6 1.1 0.1 0.3 1.0 1.1 1.2 1.3 1.3
Non-oil tax revenues 13.1 13.9 13.6 13.6 13.2 13.9 13.6 13.7 14.0
Personal taxes 1.1 1.2 1.2
Corporate taxes 5.3 5.1 4.9
Value added taxes 5.1 5.2 4.9 5.5 5.7 6.0 6.2 6.3 6.5
Other revenues 0.9 1.1 1.2 1.8 1.4 1.5 1.7 1.6 1.2
Total expenditures 19.1 19.2 18.9 19.3 18.4 19.0 18.7 18.4 18.1
Investment 3.0 3.1 2.0 1.9 1.4 1.6
Public consumption 13.9 13.5 14.0 14.5 14.2 14.3
Investment + Public Consumption 16.8 16.6 16.0 16.4 15.6 15.9 15.7 15.5 15.4
Interest 2.2 2.6 2.9 2.9 2.8 3.0 3.0 2.8 2.7
Migration shock 0.5 0.4 0.3 0.2
Fiscal balance -2.4 -3.0 -4.0 -3.6 -3.1 -2.4 -2.2 -1.8 -1.6
Structural balance (fiscal rule) -2.3 -2.2 -2.2 -1.9 -1.9 -1.5 -1.5 -1.3 -1.0
Fiscal impulse -0.1 0.0 -0.3 0.0 -0.4 -0.1 -0.4 -0.3
General government
Total revenues 27.5 25.4 24.3 24.5 26.5 27.9 27.8 26.9 26.5
Total expenditures 29.2 28.6 27.4 26.9 28.8 29.9 29.1 28.0 27.6
Fiscal balance -1.7 -3.2 -3.0 -2.3 -2.2 -2.0 -1.3 -1.1 -1.0
Note: Figures for 2019-2022 are projected. In 2017 public consumption includes advances of spending
corresponding to 2018 amounting to 0.3% of GDP. From 2019 onwards, other revenues includes the plan of
privatisations and Central Bank utilities. The fiscal impulse is calculated as the change in the structural balance.
Data on personal taxes, corporate taxes and value added taxes come from the OECD. All other data come from
Colombia’s Finance Ministry.
Source: Colombia’s Finance Ministry; (MFMP, 2019[3]).
Due to the unexpected additional spending needs stemming from the acceleration in the
inflow of migrants from Venezuela, the council of independent experts (Comité Consultivo
de la Regla Fiscal) suggested that the fiscal deficit could be reduced at a slower pace than
previously planned (MFMP, 2019[3]). The new deficit reduction path implies an additional
fiscal space of 0.5% of GDP in 2019, decreasing by 0.1 ppts of GDP by year until 2024.
This will allow the authorithies to accommodate the migration shock and the associated
additional spending needs into Colombia’s strong macroeconomic framework (OECD,
2019[10]).
Fiscal policy will be moderately contractionary over the next years to reduce the deficit in
line with the fiscal rule, which calls for the structural central government deficit to decline
to 1% by 2022. This gradual reduction of the deficit strikes an appropriate balance between
spending needs, the gradual recovery and the need to ensure debt sustainability. These plans
would help to stabilise public debt/GDP around its current level of 50% of GDP and put it
on declining path overtime (Figure 14). However, the debt trajectory is highly sensitive to
changes in interest rates, economic growth or oil prices. The need to stabilise the public
debt is justified by strong dependence on volatile revenues and exposure as emerging
economy to global financial shocks. Recent increases in the debt imply also that Colombia
has now fewer buffers for unexpected events. The literature tends to limit prudent debt
levels to 30-50% of GDP in emerging economies (Fall et al., 2015[11]) or maximum debt
limit of 55-60% according to IMF (2019[12]) . In an ambitious reform scenario, as the one
outlined in Table 1, debt would stabilise even if interest rates are higher and oil prices
lower.
Figure 14. Public debt has increased

Central government gross debt (% GDP)
% Baseline scenario¹ %
60 Higher interest rates² 60
Lower oil prices and higher interest rates³
55 Pro-growth reforms with lower oil prices and higher interest rates⁴ 55
50 50
45 45
40 40
35 35
30 30
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
1. Baseline long-term assumptions: Real long-term growth of 2.9%, long-term interest rate on government
bonds of 5.8%, GDP deflator growth of 3%, primary fiscal balance of 0.4% of GDP in 2020 and 0.8% in 2030,
oil price (Brent) of 68 USD in the long-term.
2. Same assumptions as in 1, and real long-term interest rates are higher by 2 percentage points over 2019-
2040.
3. Same assumptions as in 2, but lower oil prices at 52 USD per barrel in the long-term.
4. Same assumptions as in 3 and higher annual GDP growth of by 1.1 percentage points every year until 2028
and 1.6 percentage points afterwards (see Table 1).
Source: OECD calculations based on the Medium Term Fiscal Plan 2019 and OECD Economic Outlook 105
database and updated.
The medium-term fiscal plan foresees that debt reduction will come both from lowering
spending and increasing revenue (MFMP, 2019[3]). Both revenues and spending remain
lower than in OECD countries (Figure 15). Colombia has important spending needs, such
as those related to bottlenecks in infrastructure, social programmes including pensions, or
the peace process (Box 4). Social spending in Colombia remains relatively low (OECD,
2017[13]), while social needs are increasing. Central government investment, which has
taken a large part of the adjustment, is already at low levels. Higher oil prices may provide
temporarily additional revenues, but measures to optimise both public spending and
revenue are needed to continue complying with the fiscal rule. From the spending side some
measures adopted in the National Development Plan 2018-22 will help reduce spending,
such as better tools for targeting subsidies.
Figure 15. Public spending and revenue are lower than in OECD countries
A. Public spending in international comparison

2018, % of GDP
% %
60 60
50 50
40 40
30 30
20 20
10 10
0 0
JPN
ISR
FIN
IRL
ISL
ITA
KOR
PER
MEX
LAC
TUR
LVA
ARG
DNK
FRA
CHL
COL
CHE
LTU
USA
AUS
BRA
GBR
SVN
CAN
CZE
ESP
NLD
LUX
DEU
HUN
NOR
GRC
NZL
EST
SVK
POL
PRT
AUT
BEL
SWE
OECD
B. Public revenue in international comparison

2018, % of GDP
% %
60 60
50 50
40 40
30 30
20 20
10 10
0 0
ISR
IRL
LAC
TUR
ISL
ITA
FIN
JPN
LTU
LVA
LUX
FRA
CHL
NZL
EST
CZE
NLD
PRT
AUT
PER
MEX
KOR
COL
USA
BRA
CHE
ARG
AUS
GBR
ESP
SVK
CAN
SVN
HUN
DEU
GRC
BEL
DNK
NOR
POL
SWE
OECD
Note: Data refer to general government expenditures and revenues. LAC refers to the unweighted average of
Argentina, Brazil, Chile, Mexico and Peru.
Source: IMF, World Economic Outlook database, April 2019.
Box 4. Implementation of the peace process has advanced
Reports by independent observers (KROC, 2017[14]; KROC, 2018[15]; KROC, 2019[16])

signal that the implementation of the peace agreement shows steady progress. Many of the
initial short-term measures have been completed. The process has now entered the more
difficult phase of advancing economic development of rural areas, enhancing citizen
participation, reincorporating former fighters, substituting crops of illicit use, addressing
the concerns of victims, and providing mechanisms for transitional justice (KROC,
2018[15]).
Achieving these goals will require sustaining budgetary and institutional reforms. The
implementation of the agreement is estimated to require public spending of around 0.8%
of GDP every year up to 2024 and slightly less afterwards. Promoting economic and rural
development in other peace agreements has typically taken up to a decade (KROC,
2018[15]). This highlights that it is fundamental to sustain efforts overtime to enhance the
capacity of the state to guarantee opportunities for development and citizen participation
for all communities, especially in the territories most affected by the conflict.
The Pluriannual Investment Plan for Peace, contained in the National Development Plan
2018-22, amounts to 37.1 trillion pesos (3.8% of GDP). Resources will be focused on
victims, the process of reincorporation and substitution of illicit crops, as well as on the
population and territories with the highest rates of extreme poverty, illegal economies,
institutional weakness and violence, especially in the 170 municipalities of the
development programs with a territorial approach.
Completing and updating the cadastre is fundamental to boost rural development and a
sustainable peace. Existing cadastral information is incomplete, as cadastral information
lacks for one third of the country and half of current information is outdated. The cadastre
would also help speed up formalisation and registration of land rights, as more than 40%
of land ownership continues to be informal. A functional and complete rural cadastre would
be the starting point to promote a better use of land, as it will improve legal certainty and
facilitate transactions. This would improve incentives for a better use of land according to
its suitability and help to attract private investment. Steady progress in land restoration
programs, a cornerstone of the peace agreement aiming at land to be returned to its proper
owners, would also be a fundamental step for a more inclusive rural development.
Simplifying the tax system and improving the tax mix

Raising revenue in a more efficient and fair way has been a long-standing challenge, as
highlighted in previous Economic Surveys (OECD, 2017[13]; OECD, 2015[17]; OECD,
2013[18]). There were 20 tax reforms in the last 20 years but the tax system remains
complex, with multiple special regimes and tax exemptions. The latest reforms were
enacted in December 2016 and December 2018, incorporating some OECD
recommendations, such as reducing the corporate tax rate, eliminating the business wealth
tax or increasing the VAT rate and measures to reduce tax evasion (Box 5, Table 5, (OECD,
2017[13])). Further reform remains needed to rebalance the tax burden (Figure 16), held
predominantly by firms, and to simplify the tax system. There is also a need to increase
revenue in a sustainable way, which would increase predictability, helping to boost
investment.
Table 5. Past recommendations on improving the macroeconomic framework
Past recommendations Actions taken since the 2017 survey

Approve the law awarding the In September 2017, the Law 1870 granted regulatory and supervisory powers over financial
financial superintendence regulatory conglomerates to the financial superintendence.
powers over holding companies of
financial conglomerates
Raise more revenue in the medium The December 2016 tax reform had the objective to raise more revenue and decrease the dependence on
term oil revenues. In addition to the increase in the VAT rate and the reduction in the corporate rate, the reform
integrated a special corporate tax (CREE) within the corporate income tax. It also phased out the business
wealth tax, reformed the treatment of non-profit organisations, and introduced a dividend tax at
shareholder level, a carbon tax and a tax on plastic bags. In December 2018 ,the financing law was
approved with the main objective of promoting economic growth through incentives for private investment
and increasing tax collection. See Box 5 for the main measures.
Figure 16. The tax burden is unbalanced

A. Personal income tax revenue as % of total tax revenues
2017 or latest year available
% %
25 25
20 20
15 15
10 10
5 5
0 0
COL ARG LAC CHL PER TUR PRT MEX ESP OECD
B. Total of corporate tax as % of total tax revenues

%
2017 or latest year available %
30 30
25 25
20 20
15 15
10 10
5 5
0 0
TUR ESP OECD ARG PRT LAC MEX CHL PER COL
Note: OECD is the average of all member countries where data is available data for 2016. LAC is the average
of all Latin American and the Caribbean countries for which data is available for 2017.
Source: OECD Revenue Statistics database.
Box 5. Main measures included in the Financing Law
In December 2018, the so-called Financing Law (Ley de Financiamiento) was approved,
including changes to several taxes. The main changes are:
 gradual reduction of corporate income tax rates: 32% in 2020 ; 31% in 2021; and
30% in 2022;
 introduction of tax credits for VAT on capital goods and gradual elimination of the
tax for the industry and commerce tax (ICA) (50% during 2019-2021 and 100% in
2022);
 gradual reduction and eventual elimination of the presumptive income tax system
(reduced to 1.5% on 2019 and 2020, from 2021 the rate will be 0%);
 new simplified tax scheme (Simple) for small firms;
 creation of three personal income tax rates for high-income earners (35%, 37% and
39%) and unification of labour, pension and capital income;
 introduction of a wealth tax for rich and increases in dividend taxes;
 introduction of additional exemptions and special regimes: orange economy,
agricultural sector, "megainvestments";
 introduction of an additional CIT surcharge for large financial entities;
 measures to strengthen the tax office (DIAN) to combat evasion.
The personal income tax yields a low share of tax revenue, both in comparison with other
countries in the region and with OECD countries. Very few individuals pay personal taxes,
or even submit tax returns. This is due to a high income threshold below which no personal
income tax has to be paid (Figure 17). As a result, in 2018 more than 90% of the active
population were exempted and did not submit a tax declaration. The latest reforms made
an effort to limit exemptions but there are still exemptions benefiting high-income
households, such as those related to pensions. Pension contributions are deductible from
the income tax base and pension benefits are also tax exempt. This illustrates that there is
room to broaden the tax base in an inclusive way by lowering the minimum income
threshold and eliminating exemptions that benefit more affluent tax payers.
Figure 17. There is room to broaden the personal tax base in a progressive way
A. Income threshold where single taxpayers start paying income tax

As a multiple of the average wage, 2018 or latest year available
Multiple Multiple
3.5 3.5
3 3
2.5 2.5
2 2
1.5 1.5
1 1
0.5 0.5
0 0
FIN
ISR
ITA
IND
DNK
FRA
TUR
NLD
AUS
USA
JPN
DEU
CAN
SVK
NOR
KOR
GBR
AUT
EST
ESP
GRC
MEX
PRT
CHL
ARG
BRA
CRI
SWE
COL
OECD
B. Number of tax brackets per country

Number Number
12 12
10 10
8 8
6 6
4 4
2 2
0 0
PER ARG CHL COL ISR JPN URY MEX
C. Bottom statutory PIT rate (%) per country

20 20
18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 0
MEX CHL JPN PER ARG ISR URY COL
D. Top statutory PIT rate (%) per country

% %
60 60
50 50
40 40
30 30
20 20
10 10
0 0
PER URY ARG CHL MEX COL JPN ISR
Note: PIT stands for personal income tax. For Panel A, in Denmark, France and Turkey, PIT is levied on the
first earned currency unit. For India, the average worker income covers only the manufacturing sector, including
both men and women. In Panels B:D, data for Colombia are from 2019.
Source: OECD calculations based on the Taxing Wages models; OECD, Taxing Wages in Latin America and
the Caribbean 2016; OECD, Taxing Wages 2019; For Panels B:D, data for Colombia come from Dirección de
Impuestos y Aduanas Nacionales (DIAN).
The last tax reforms in Colombia reduced the corporate tax burden. The 2016 tax reform
reduced the corporate income tax rate to 37% in 2018 and 33% in 2019. The 2018 tax
reform reduces the corporate income tax rate further to 30% in 2022, which is still high in
international perspective (Figure 18). The 2018 tax reform also reduced effective corporate
tax burden by eliminating the presumptive income tax and introducing a tax credit on the
VAT levied on investment. Lowering further the tax burden on enterprises would help raise
productivity and create formal jobs by strengthening investment incentives (Arnold et al.,
2011[19]). The current fiscal space for lowering the statutory corporate rate further is limited,
but some space could be created if the tax base is broadened by eliminating deductions and
loopholes. Only those deductions contributing to increasing productivity, such as the R&D
tax credit, should be preserved. Other deductions, such as those related to Free Trade Zones,
should be thoroughly evaluated and those not found to contribute in a cost-effective manner
to higher investment be phased down.
Figure 18. The corporate tax rate remains high

Overall statutory corporate income tax rates
2018 %
%
40 40
2019 2022
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
FIN
ISR
IRL
ISL
ITA
LTU
CZE
LVA
SWE
TUR
NLD
LUX
JPN
FRA
HUN
EST
CHE
NZL
PRT
POL
SVN
GBR
SVK
DNK
NOR
AUT
CHL
ESP
USA
CAN
KOR
GRC
BEL
DEU
AUS
MEX
COL
OECD
Source: OECD Tax database.

VAT revenues could be raised (Figure 19) with stronger compliance and less use of reduced
rates. The VAT rate was increased to 19% in the 2016 reform, with reduced rates or
exemptions covering spending on health, education, food, medicines or transportation.
Computers, tablets and mobile phones are also exempt until certain limits. In the 2018 tax
reform, soft drinks and beer were exluded from the exemptions. Better-off households
enjoy a large share of the support that the reduced rates and exemptions provide (OECD,
2013[18]; OECD, 2018[20]). Applying the standard rate to all consumption and compensating
low-income households through cash transfers holds the promise of increasing more
revenue in a more inclusive way. Colombia has made good progress in rolling out
conditional cash transfer schemes, showing that replacing reduced rates with cash transfers
to low-income households is a feasible option.
A reform to broaden the personal and VAT tax bases is subject to significant political
economy barriers. It would be important to focus communication efforts on emphasizing
the intention to promote formalization of firms and jobs. At the same time, willingness to
pay is positively associated to the quality of public services and the rule of law (Daude,
Gutierrez and Melguizo, 2013[21]). The quality of public services is perceived as very low
(Figure 20). Boosting government effectiveness, for example by improving public policies
in education, social policies, justice or infrastructure, would also help to boost tax
collection.
Figure 19. VAT revenues should be higher
% of potential VAT revenues 2016 or latest year available % of potential VAT revenues
100 100
80 80
60 60
40 40
20 20
0 0
ITA
FRA
FIN
CRI
BEL
PRT
IRL
AUT
LAC
CZE
ISR
CHL
PER
NLD
ISL
SWE
JPN
EST
LUX
MEX
TUR
COL
ESP
GRC
GBR
ARG
CAN
URY
ECU
NZL
PRY
POL
SVK
AUS
DEU
NOR
HUN
SVN
DNK
PAN
CHE
KOR
BOL
OECD
Note: The VAT revenue ratio (VRR) is defined as the ratio between the actual value-added tax (VAT) revenue
collected and the revenue that would theoretically be raised if VAT was applied at the standard rate to all final
consumption. The OECD and LAC (excluding Colombia) aggregates are unweighted averages of data shown
and data for Canada cover federal VAT only.
Source: OECD Consumption Tax Trends 2018, OECD Revenue Statistics in Latin America and the Caribbean
2019.
Figure 20. Government is perceived to have limited effectiveness
Government effectiveness
2017
1.4 1.4
Strong governance
1.2 1.2
1.0 1.0
0.8 0.8
0.6 0.6
Weak governance
0.4 performance 0.4
0.2 0.2
0.0 0.0
-0.2 -0.2
PER COL MEX TUR ARG CRI LAC URY CHL ESP OECD
Note: Government effectiveness reflects perceptions of the quality of public services, the quality of the civil
service and the degree of its independence from political pressures, the quality of policy formulation and
implementation, and the credibility of the government's commitment to such policies. Estimate of governance
(ranges from approximately -2.5 (weak) to 2.5 (strong) governance performance). OECD refers to the average
of all its member countries for which 2017 data is available. LAC refers to the unweighted average of Argentina,
Chile, Costa Rica, Mexico, Peru and Uruguay.
Source: World Bank, Worldwide Governance Indicators database.
Perceptions about government effectiveness would in turn improve with further progress
in reducing tax evasion, which remains pervasive. Tax evasion on VAT and corporate
income tax combined could be around 4% of GDP (OECD, 2015[17]). Strengthening further
the tax administration, DIAN, whose capacities are constrained by low investment in IT
systems (OECD, 2015[17]), is crucial (Figure 21). A broader use of IT would simplify tax
administration and enforcement and lower costs for tax payers. The implementation of
electronic invoicing, becoming mandatory at the beginning of 2019 and expected to be fully
implemented by 2020, is a welcome step in that direction, as illustrated by Chile, where
electronic invoicing was introduced in 2003, increasing revenues.
Another way to fight tax evasion would be to limit the use of cash, which accounts for 90%
of all transactions, significantly higher than in other emerging economies, such as Brazil or
Turkey (Pérez, Pacheco and Salazar, 2016[22]). Facilitating the transition from cash
payments into electronic payments would also help to reduce informality and foster
financial development (Rogoff, 2016[23]). Ongoing efforts to modernise the retail payment
system and simplify saving accounts procedures would foster digital payments and
facilitate the creation of a digital ecosystem. Additional policy options include banning
cash for transactions above a certain threshold, as done by many OECD countries and some
other countries in the region. In 2012 Mexico introduced a ban on large cash transactions,
including real estate transactions, and Peru has recently introduced similar schemes.
Figure 21. Tax administration could be strengthened
A. Citizens per Tax employee B. Budget of the tax administration

Number of citizens % of GDP
8 000 0.2
7 000 0.18
0.16
6 000
0.14
5 000 0.12
4 000 0.1
3 000 0.08
0.06
2 000
0.04
1 000 0.02
0 0
OECD CHL PER MEX COL MEX CHL COL OECD
Note: In both panels, data refer to 2015.
Source: OECD (2017a), Tax Administration 2017: Comparative information on OECD and other advanced and
emerging economies.
Colombia should also consider phasing out the financial transaction tax, which favours
informality and tax evasion, and hampers financial inclusion, despite some exempted
transactions and financial products. Given the fiscal situation, the tax could be phased out
gradually, as recommended in past OECD Economic Surveys (OECD, 2015[17]). Other
taxes, such as environmentally-related taxes or property taxes could be increased instead.
Environmentally-related taxes represent 0.6% of GDP, well below the OECD average and
leading countries in the region, such as Costa Rica. Colombia recently introduced a carbon
tax, and expanding efforts in that direction would offer the double dividend of increasing
revenue and taxing environmentally damaging activities. Property taxes on housing
represent 0.8% of GDP, well below the OECD average.
Strengthening the fiscal framework

The fiscal rule has provided macroeconomic stability and fiscal discipline. Fiscal targets
are established every year, such that the structural budget deficit gradually decreases to 1%
by 2022. Structural fiscal targets have been frequently revised, normaly driven by
parameters adjustments (Figure 22). Providing additional technical analysis on the source
and impact of these revisions would safeguard the credibility of the rule and avoid that
frequent revisions end up jeopardising its credibility. The creation of an independent fiscal
council, as in many OECD countries and several countries in the region (such as Chile and
Brazil), could thus be a useful complement to the fiscal rule. It could undertake additional
technical analysis of the inputs that feed into the rule and are used to estimate the structural
balance. This would enhance independent oversight and accountability of fiscal policies.
Fiscal councils typically produce official or alternative forecasts, analyse the executive’s
budget proposals, and monitor compliance with fiscal rules and cost legislative proposals.
A committee is currently in charge of advising about the fiscal rule. It has some of the
characteristics of fiscal councils, but the scope of its analysis is limited, as it has no staff
and its members work part-time on an unpaid basis.
Figure 22. Structural deficit targets are frequently revised
Structural deficit targets

Total deficit as % of GDP
% of GDP % of GDP
-1.2 -1.2
Fiscal plan 2015 Fiscal plan 2016 Fiscal plan 2017
Fiscal plan 2018 Fiscal plan 2019
-1.4 -1.4
-1.6 -1.6
-1.8 -1.8
-2.0 -2.0
-2.2 -2.2
2017 2018 2019 2020
Source: Ministerio de Hacienda y Crédito Público.

Enhancing public spending efficiency

The need to meet the fiscal rule, together with the need to continue reducing inequality and
boosting growth, makes improving the efficiency of public spending a fundamental
economic and social challenge. The government’s ability to allocate budget spending
according to changing needs and priorities is undermined by excessive inflexibility
(Figure 23). Spending mandated by law, earmarking, transfers to sub-national entities,
pensions and interest spending imply that the share of spending that government can adjust
is limited, and almost exclusively related to investment (Bernal, et al., (2017[24])). Existing
mandated spending and earmarking of government revenues should be evaluated with a
view to reduce budget rigidities.
Figure 23. There is little room for discretionary spending

Expenditure flexibility index
Index level 100 = LatAm average for flexibility Index level
200 200
Most Flexible Least Flexible
180 180
160 160
140 140
120 120
100 100
80 80
60 60
40 40
20 20
0 0
ECU PER NIC PAN HND MEX GTM PRY SLV CHL BOL URY ARG COL CRI BRA
Note: The expenditure flexibility index tracks central government spending from 2010 to 2016 and classifies
outlays as operating expenses (wage and other), transfers, investment or interest payments. Transfers include
pensions and payments to subnational governments. In the case of Colombia the latter comprises transfers from
the General System of Transfers (Sistema General de Participaciones, SGP). Others include general expenses.
For the index, spending on interest, wages and transfers are considered to be mandatory and the share of
mandatory outlays to total spending is calculated for each country. The index is scaled using the regional
average for mandatory spending as a share of total spending, creating a relative ranking. The sovereigns divide
into three categories: those with the most flexible expenditures, the most inflexible, and a neutral middle cohort.
Source: Moody's Investors Service.
Excessive fragmentation also hampers spending efficiency (Bernal, et al., (2017[24]).

Currently there is no single budget process, but an operating budget and an investment
budget. Royalties coming from natural resources are also under another budget. OECD
countries make use of unified and comprehensive budget mechanisms, which help to avoid
fragmentation and facilitate coordination.
The system in charge of allocating royalties from natural resources (Sistema General de
Regalias, SGR) was reformed in 2012 to better distribute revenues between regions.
Funding allocated to areas not endowed with natural resources increased from 20% to 80%
of the total. This increase in revenues had a positive impact on social outcomes (Gallego,
Maldonado and Trujillo, 2018[25]). However, the reform has also increased fragmentation
and earmarking. Also, incentives to undertake new projects in productive areas has
diminished, as those regions face negative externalities from production and lower rents
(Bernal, et al., (2017[24]). This can hamper the sustainability of the royalties system. The
allocation formula could be reviewed to improve incentives of regions with natural
resources while preserving the positive contribution of the system to reduce regional
inequalities. A bill in congress, since April 2019, increases incentives for the production of
mineral-energy resources by raising the resources to the producing regions, and strengthens
investment in all regions of the country by adjusting the project selection.
There is also a need to avoid excessive fragmentation projects financed with royalties, as
the current setting provides incentives for low-scale low-impact projects (Contraloría,
2018[26]). Mechanisms, such as the one recently implemented in R&D projects, that
foresees that funding will be allocated directly to research centres, which takes care of
planning and executing projects, would help to identify and implement projects of larger
impact. This offers also the advantage of avoiding problems related with weak governance
and capabilities in some subnational governments, a crucial obstacle for making a better
use of royalties (Contraloria, 2017[27]).
Making the most out of public spending also requires improving its targeting. Social
programmes providing transfers and benefits to households amount to more than 12% of
the GDP. Spending allocated to firms is also large, although more difficult to quantify as
they involve tax exemptions. Several components of spending are poorly targeted and
regressive, as a significant proportion of spending, such as those related to housing, goes
to individuals in the highest income brackets (see social section). This suggests that there
is high potential to improve the quality of spending by improving targeting, evaluating
existing programmes and tax exemptions, retaining those found to have a positive and cost-
effective impact on equity or productivity and phasing out the rest.
Social indicators have improved, but Colombia remains a very unequal country
Key social indicators have improved in the last decade. Poverty has declined but regional
disparities are large (Figure 24). Although in a declining trend, income inequality,
measured by different indicators (World Bank, 2018[28]), remains high (Figure 25). It could
take eleven generations for children of poor families to reach the average income in their
country (OECD, 2018[29]). High inequality has its roots on large regional disparities with a
wide gap between urban and rural areas. Colombia displays one of the highest levels of
regional inequality in GDP per capita across OECD countries (OECD, 2014[30]).
Inequalities particularly affect ethnic minorities and displaced people by the conflict, which
are disproportionally concentrated in rural areas. Inequality is also a gender issue as female
employment is low and wage gaps have been increasing. The increasing flow of
immigration from Venezuela affects mainly the north-western regions of the country,
adding to regional disparities. Access to high-quality education and health is also uneven
among regions and socioeconomic groups. The pension system exacerbates inequities
leaving many elderly in poverty given the low coverage among the most vulnerable. There
is significant room to improve the targeting of public spending.
Making growth more inclusive will rely on improving opportunities for all Colombians in
education and work, improving their chances to find sustainable income generation
opportunities. Improving the targeting of social spending would help to reduce inequality.
A pension reform would help to reduce old-age poverty. The peace agreement is an
important opportunity to foster inclusive growth and close regional disparities, as it has a
strong focus on rural development. Economic integration of the ex-combatants, providing
them with income-generating opportunities, will be key. Local and regional administrative
capacity should be strengthened for a more effective coordination with the national
government to deliver public services of comparable standards and quality across all
regions. This would be particularly important in those areas more affected by the armed
conflict and migration.
Boosting inclusive growth will also hinge on improving social dialogue and reducing
violence against trade unionists. Important steps have been taken to increase security, and
violence against trade unionists has dropped considerably (Chapter 2). While the Peace
Agreement signed in 2016 will most likely further enhance the security conditions in the
country, a proactive strategy by the government to eliminate violence is needed.
Figure 24. Poverty has declined, but territorial disparities remain large
A. Relative poverty rates1,2,3
25 25
2008
20 20
15 15
10 10
5 5
0 0
FIN
IRL
ITA
USA
LAC
DNK
FRA
NLD
HUN
DEU
AUS
CAN
NOR
BEL
AUT
GBR
PRT
ESP
JPN
TUR
CHL
MEX
KOR
ARG
BRA
PER
CRI
SWE
POL
COL
OECD
B. Poverty in cities is much lower than in the rest of the country
2017
Total
Rest
urban
24
metropolitan
areas
Rural
0 5 10 15 20 25 30 %
1. Relative poverty rates after taxes and transfers (threshold of 50% of the median income). The statistical definition is
different from the one followed by DANE.
2. OECD refers to the unweighted average of its member countries.
3. LAC refers to the unweighted average of Argentina, Brazil, Chile, Costa Rica, Mexico and Peru.
Source: OECD calculations based on GEIH Household Survey 2017, OECD Income Distribution and Poverty database and
SEDLAC.
Social spending does little to reduce inequality

The government has made important efforts to expand social programmes, such as Red
Unidos, Más Familias en Acción and Jóvenes en Acción, which helped to reduce poverty,
especially extreme poverty. However, these measures change the Gini only slightly after
accounting for taxes and transfers (Figure 25).
Mas Familias en Acción, the main conditional cash transfer to fight poverty, has positive
impacts on educational attainment, nutrition and other dimensions of life quality (Angulo,
2016[31]). However, the level of cash transfers is low (Figure 25, Panel B). Family benefits,
including financial support for families and children such as child-related cash transfers or
benefits in kind for families with children, accounted for only 1.6% of GDP in 2014, below
the OECD average of 2.2% (OECD Family Database).
Figure 25. Higher cash transfers focused on most needy regions would reduce inequality
A. Inequality is high1
Gini coefficient
Working age population, 2017 or latest year available Gini coefficient
0.6 0.6
Gini before taxes and transfers Gini after taxes and transfers
0.5 0.5
0.4 0.4
0.3 0.3
0.2 0.2
0.1 0.1
0 0
SWE NOR CAN JPN NLD DNK AUS DEU OECD TUR AUT ITA FRA GBR ESP PRT USA CHL MEX COL BRA
B. Average size of cash transfers as a % of disposable income is low1,2

Working population, 2017 or latest year available
% %
30 30
25 25
Excluding public pay-as-
you-go pensions
20 20
15 15
10 10
5 5
0 0
COL MEX TUR CHL AUS USA CAN JPN DEU SWE GBR OECD BRA NLD PRT NOR ESP ITA AUT FRA DNK
C. Share of transfers to different territories2

% %
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Rural Rest 24 metropolitan
urban areas
1. OECD refers to the unweighted average of all its member countries.
2. Cash transfers excluding pensions from the pension system for Colombia (in the pay-as-you-go system and special regimes,
and Colombia Mayor) and refer to Mas Familias en Acción, Jovenes en Acción, Bienestar Familiar from ICBF, subsidies for
displaced.
Source: OECD calculations based on GEIH Household Survey (2017) and OECD Income Distribution and Poverty database.
Higher equity could be achieved by reallocating more spending towards cash transfer
programmes, with a focus on vulnerable population, such as rural areas, ethnic minorities
(Chapter 2), and those affected by the armed conflict. Spending on universal assistance,
such as family or education-related transfers would also help (Causa and Hermansen,
2017[32]). Calculations by the OECD undertaken for this survey show a great potential of
channelling more social spending to those more in need to rise equity and reduce poverty
(Box 6). Cash transfers would be more effective if supplemented by a training component
that improves participants’ chances to find more autonomous and sustainable income
generation opportunities. Hence, targeting additional training opportunities to recipients of
Más Familias en Acción may also be an effective way to give better job opportunities to
those most in need, and help avoid possible pervasive effects on informality (Farné and
Nieto Ramos, 2018[33]).
Box 6. Potential impact of social policy reforms on poverty and inequality

Simulations, based on microdata from Colombian household survey (GEIH) for 2017,
allow gauging the impact of increasing coverage and income-support for two of the most
vulnerable populations: old-age and poor families in rural areas (Table 6). For both types
of support, increasing coverage and the level of benefits are needed to achieve significant
results on inequality and poverty-reduction.
Table 6. Estimated impact on poverty and inequality

Poverty Old-age poverty P90/P10
% of population
Old-age income support (Colombia Mayor)
Baseline 19.3 22.7 8.3
Increased coverage 19.1 21.5 8.2
Increased transfer to poverty line 18.7 17.5 7.9
Increased transfer and coverage 18.2 13.5 7.6
Poverty Rural poverty P90/P10
% households
Cash transfers to the poor (Mas Familias en Acción)
Baseline 20.2 29.8 9.5
Increased transfer 19.9 27.9 9.3
Increased coverage in rural areas 19.8 27.0 9.3
Increased transfer and coverage in rural areas 19.1 24.0 9.1
Note: The P90/P10 ratio is the ratio of income of the 10% of people or households with highest income to that of the
poorest 10%. For Colombia Mayor coverage is doubled reaching 2.5 million old-aged and subsidy is increased to poverty
line (calculated by DANE depending on the region). For Más Familias en Acción, coverage is increased in 1 million
families in rural areas covering 2.5 in total and subsidy is increased only in rural areas by 30 thousand COP$. The
extension of coverage was based on ranked estimated probability of obtaining the subsidies depending on income
available and individual and household characteristics.
Source: OECD calculations based on GEIH, DANE.
A large share of social programmes and benefits, such as those related to pensions or
housing, goes to the relatively rich (Table 7). For example, 32% of the public services
subsidies goes to the two highest income quintiles. The potential to reduce inequality and
provide better opportunities to all by better targeting social programmes is large. Poverty
alleviation programmes, such as Más Familias en Acción, are among the best targeted, but
29% of spending still goes to higher income quintiles. This suggest that part of the higher
spending needed to increase the impact of some social programmes could come from a
reallocation of spending (Table 8). Concentrating public resources into few well-evaluated
programmes and integrating programmes with the same objective into one entity would
also increase spending efficiency and avoid fragmentation (Bernal, et al. (2017[24]).
Table 7. There is room to improve the targeting of social programmes and benefits
Share by quintile of disposable income, %.Year 2015
Size of the Lower
Higher income
programme income 2nd quintile 3rd quintile 4th quintile
5th quintile
(%GDP) 1st quintile
Education (Inc. job training) 3.0 25.7 23.4 21.4 18.1 11.4
Pensions (Inc. Colombia Mayor) 2.3 4.3 7.8 13.7 23.4 50.8
Health 1.8 33.7 23.6 19.7 15.1 8.0
Public services 0.7 21.8 23.2 22.9 20.4 11.9
Poverty alleviation 0.5 33.4 23.0 15.0 17.2 11.5
Early childhood care 0.4 32.0 27.2 22.1 15.4 3.2
Housing 0.2 11.3 22.5 19.6 26.6 10.0
Other 0.2 48.7 35.7 7.5 5.4 2.6
Total 9.0 22.4 19.9 18.8 18.8 20.2
Note: The spending includes administrative costs, direct cash transfers to families and indirect subsidies. The pension subsidy refers
to the difference between the profitability of the contributions, based on a fair profitability assumption, and what is actually paid to
the pensioner. Public services includes subsidies on the consumption of electricity or natural gas. Poverty alleviation programmes
include Red Unidos, Más Familias en Acción and Red de Seguridad Alimentaria. Housing includes family housing subsidy, displaced
housing subsidy, urban housing, Red Unidos housing subsidy and mortgage loan coverages.
Source: Departamento Nacional de Planeación (DNP).
Table 8. Illustrative long-term impact of some OECD recommendations

Measure Change in fiscal
balance (% GDP)
Social spending
Increase family benefits, such as conditional cash transfers and childcare services, from 1.6% of GDP to 2.1% (the OECD -0.5
average).
Increase spending on Colombia Mayor, the non-contributory pensions, from 0.2% of GDP to 1.0%. -0.8
Improve targeting of social programmes and benefits by phasing out those received by the highest income quintile of the 1.8
income distribution
Rebalancing the tax mix
Increase property tax, notably recurrent taxes on housing, from 0.8% of GDP to OECD median (1.7%) 0.9
Increase green taxes from 1% of GDP to OECD median (2.2%) 1.1
Lower the bands at which the personal income taxes and the higher income rate are levied to the OECD average (IDB, 1.4
2013).
Reduce the corporate income tax from 5.1% of GDP to halve the gap with the OECD mean (3.6%) -1.5
Effect of structural reforms in Table 1 on the budget through higher GDP growth
The estimated impact on GDP per capita (Table 1) would lead to higher GDP by 11.4%, abstracting from population 1.3
growth. The public-spending-to-GDP ratio of 28% of GDP in 2016 would be lowered to 28/1.114 of GDP and, assuming a
long-run tax revenues to GDP elasticity of one (Frickle and Sussmuth, 2014), the estimated effect on the fiscal balance
would be 1.3% of GDP.
Note: Estimations are accounting effects of measures on fiscal balance. In comparison with table 1, these ilustractive impacts
cover only selected reforms.
Source: OECD calculations based on IADB (2013), Recaudar no basta: los impuestos como instrumento de desarrollo;
Frickle, H. and B. Sussmuth (2014), “Growth and volatility of tax revenues in Latin America”, World Development, Vol. 54,
pp. 114-138.
Sisben, the instrument used to select participants for social programmes, is currently being
revised. It is a survey based instrument covering 76% of the population. Programme
eligibility is currently based on a survey carried out in 2011 and the next Sisben will be
ready by 2020, and will help to better target social programmes and public services, as
foreseen by the National Development Plan 2018-22 (MFMP, 2019[3]). The non-automatic
update of the main tool to target social subsidies, and its static nature, hamper the targeting
and effectiveness of social subsidies. Targeting could be improved using administrative
databases to increase automation and allow faster updates and recertifying of beneficiaries,
especially in urban areas where income mobility is higher (Robles, Rubio and Stampini,
2015[34]). A universal tax return system would be key to improve targeting.
Reforming the pension system to increase coverage and equity

The current pension system comprises a small non-contributory pillar (Colombia Mayor)
and competing public pay-as-you-go and capitalization contributory pillars (see Box 7).
However, coverage is low and inequitable, which has contributed to high old-age poverty
compared to OECD and Latin American countries (Figure 26). Only one in three in
retirement age receive a contributory pension. Most of existing pensions were granted
under the transition regime of the 1993 law, with less demanding requirements than current
ones in terms of contributory weeks. Under current requirments, access to contributory
pensions is expected to be less than 20% of the old-aged (Bosch et al., 2015[35]). While over
75% of the highest income quintile contributes to the pension system, less than 5% of the
lowest quintile is able to do so. In rural areas, only 10% of the elderly are covered. A
structural reform of the pension system is key to foster inclusive growth, as highlighted in
previous Economic Surveys (OECD, 2015[17]) and Table 9.
The first priority of the pension reform should be to reduce old-age poverty. Coverage in
the non-contributory component of the system, Colombia Mayor, which provides subsidies
to the poorest, has increased in recent years, helping to reduce poverty (DNP, 2016[36]).
However, the average benefit under Colombia Mayor is about a tenth of the minimum
wage, and well below the poverty line and that of most OECD countries. The fiscal cost of
increasing coverage and the size of the programme would be moderate compared to the
social impact (Bernal, et al., (2017[24]). Simulations undertaken for this survey show that
the reform would reduce old-age poverty significantly (Table 6).
There is also a need to reduce inequalities and improve coverage. The public contributory
scheme is more generous with high-income earners, as replacement rates are higher,
introducing unnecessary competition in the system and making it complex and unfair
(Nieto Ramos and Farné, 2017[37]). This is partly driven by implicit pension subsidies in
the public regime, as the government fills the gap when contributions fall short of outlays.
This accounted to 2.1% of GDP in 2016 and 86% of it went to the richest 20% of the
population (Table 7). Phasing out pension subsidies to the richest and aligning replacement
rates between contributory regimes would make the system fairer and less complex.
The low coverage of the pension system reflects the widespread informality. Efforts to
increase labour formality (see section below) are thus fundamental to expand coverage.
The constitutional rule that the minimum pension be at least the minimum wage leads also
to the exclusion of a large part of the population from the contributory system given the
relatively high level of the minimum wage. Although it requires a difficult change to the
Constitution, delinking the minimum pension from the minimum wage would allow
increasing coverage. Another option is to give partial pensions to those reaching retirement
age with insufficient contributions through BEPS, the programme for workers earning less
than a minimum wage (Box 7). Pension coverage would increase if contributions made by
those not finally eligible for pensions are mandatorily transferred to BEPS. Other measures
to expand coverage and saved amounts in BEPS include making savings mandatory for
micro entrepreneurs and seasonal or part-time workers. Finding ways to increase the BEPS
subsidy, for example giving increasing subsidies depending on the saved amounts or giving
a subsidy upon enrolment would make the programme more attractive. This would improve
old-age income support.
The fiscal cost of the pension system is also high in relation to its coverage. In 2017,
pension expenditures amounted to 3.9% of GDP, representing nearly 28% of the nation's
tax revenues (Figure 26, Panel D). OECD pension systems achieve an average fiscal cost
of 8% of GDP with almost universal coverage. The dependency ratio is projected to rise
substantially, as the currently young population is ageing (Panel C), putting the long-run
sustainability of the system at risk. Sustainability would be helped by establishing a higher
minimum retirement age, tied to increases in life expectancy, as current retirement ages of
62/57 for men/women are below other OECD countries. Replacement rates are also
generous by international standards. The maximum pension is 12 times the GDP per capita,
very high compared to 3.2 in Argentina, 2.2 in Brazil, 1.95 in Greece or 1.3 in Spain. Using
the average lifetime wage to calculate the pay base, instead of the last ten years of wages
favouring steep earnings profiles, would help to finance extending the coverage in a
sustainable and equitable way.
Box 7. The contributory pillar of the pension system in Colombia

The contributory system allows people to choose between two schemes: i) a public Pay-
as-you-go defined-benefit plan (Regimen de Prima Media – RPM), managed by a public
sector entity (Colpensiones), that in 2017, benefited 58% of retired with pensions; ii) the
fully-funded private scheme (RAIS) managed by private pension funds, which covered 6%
of the pensioners in 2017. Workers can change regime every five years during their
working life. The constitution provides that, the minimum pension cannot be lower than
the minimum wage. The retirement age is 62/57 for men/women. Only formal sector
workers earning at least the minimum wage can contribute to these two plans. They can
only retire with a pension after at least 1300 weeks of formal work in the public regime. In
the private regime, workers can get a pension at any age or weeks worked, once the
accumulated capital in the individual account is enough to finance a pension of at least 110
% of the minimum wage.
To encourage voluntary savings by low-income Colombians, the so-called Periodic
Economic Benefits Scheme (BEPS) was created and is targeted for low-income pensioners,
with a state subsidy equal to 20% of contributions. Although the programme's coverage
has grown, the number of people who save and the amounts saved are low. Design
problems and the fact that the programme relies on voluntary savings by a low-income
population, who have little spare income, have limited its impact and development.
The complexity of the system and the many adjustments needed suggest that a
comprehensive parametric reform is needed, as analysed in a thematic chapter of the 2015
OECD Economic Assessment and also reflected in several reform proposals, such as the
ones by ANIF, Colpensiones, Fedesarrollo and Bernal, et al. (2017[24]).
Figure 26. The pension system is characterized by low coverage, high inequality and has
sustainability problems
% A. Relative income poverty by age group, latest year available1 %
30 30
COL LAC OECD
25 25
20 20
15 15
10 10
5 5
0 0
Children (< 18) Youth (18-25) Adult (26-65) Elderly (> 65)
B. Pension coverage2,3
% Percentage of covered old-age pensioners to the population 65+ %
150 150
Old age (non-contributory) beneficiaries Old age (earnings related) beneficiaries
120 120
90 90
60 60
30 30
0 0
ITA
JPN
MEX
FRA
COL
ESP
CAN
USA
NOR
BRA
DNK
DEU
SWE
NLD
GBR
TUR
CRI
CHL
PRT
AUT
OECD
C. Population is ageing4
% %
Population ages 65 and above (% of total)
20 20
ARG BRA CHL COL MEX OECD
15 15
10 10
5 5
0 0
1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
% of GDP D. Pension expenditures3 % of GDP

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 0
ITA
JPN
PER
MEX
NLD
GBR
NOR
TUR
DEU
DNK
ARG
BRA
CHL
COL
AUS
CAN
USA
SWE
ESP
FRA
AUT
PRT
OECD
1. LAC refers to an unweighted average of Brazil, Chile, Costa Rica and Mexico. OECD refers to an unweighted average of
its member countries excluding Chile and Mexico.
2. OECD refers to the unweighted average of latest available data of its member countries excluding Australia, Israel and
Switzerland.
3. Data refer to 2017 for Colombia. Data are latest available data for the remaining countries.
4. Population is based on the de facto definition of population, which counts all residents regardless of legal status or
citizenship.
Source: Colpensiones; Ministerio de Hacienda de Brasil; MECON; OECD Pensions at a Glance: Latin America and the
Caribbean (2014); OECD Pensions at a Glance 2017, OECD Stat Pension spending, Panorama de Pensiones de América
Latina, World Bank.
Table 9. Past OECD recommendations for a pension reform

Thoroughly reform the pension system to reduce old-age poverty and No actions taken
inequality.
Expand eligibility of the beneficios economicos programme (BEPS) By 2018, BEPS reaches 1 million beneficiaries and
new offices were set across the country.
Increase coverage and benefit levels of the minimum public income- The coverage of Colombia Mayor was increased,
support programme (Colombia Mayor) but the level of the monetary benefits remained
unchanged.
Equalise the retirement age between men and women. In the medium No actions taken
term, increase the retirement age and link it to the life expectancy
evolution
Achieving quality education by giving priority to the most vulnerable population

Boosting the quality of education is a win-win policy for raising both productivity and
inclusive growth. Substantial progress has been made in improving coverage and
performance (Figure 27). Nonetheless, important challenges remain related to quality and
equity. PISA scores in science remain below the OECD average and are highly dependent
on socio-economic backgrounds. Although decreasing, school dropout rates and the share
of students failing a year remain high (Radinger et al., 2018[38]). Regional disparities in
enrolment (OECD, 2018[39]) and school outcomes are large (Panel D). Greater poverty in
rural areas explains most of the performance gap with urban areas. But rural students face
additional barriers, such as lower aspirations for their future education and lower incentives
for students to stay in school given the large informal sector and the related high job
turnover and wage penalty. Rural areas face difficulties in attracting and retaining high-
quality teachers.
Education has been a key priority in recent years and the government has undertaken
important measures to boost attainment (Table 10). Education was a key pillar of the
National Development Plan, and is recognised in the peace agreement by developing a
special rural education plan. The implementation of full-day schooling, the expansion of
early childhood education and care, and the improvement of educational infrastructure all
go in the right direction. Colombia has also implemented educational policies and
programmes, such as From Zero to Forever (De Cero de a Siempre), Let’s All Learn (Todos
a Aprender) or Being Hard Working Pays (Ser Pilo Paga), which were successful in
increasing attainment and quality.
There is a need to ensure that more resources go to those more in need. Public spending in
education at 4% of GDP in 2015, was slightly above the OECD average of 3.6%, and below
the average 5% of the region. A significant proportion of spending is financed by central
government transfers from the General System of Transfers (Sistema General de
Participaciones, SGP) and their distribution is determined by law according to a formula
based on a combination of population coverage, social equity, schools human resources,
and efficiency criteria. A reform of the government transfer system would help (Radinger
et al., 2018[38]) reduce fiscal asymmetries across regions and ensure more resources per
student are channelled to the most vulnerable territories. Further financing could also come
from reallocating resources from other spending programmes without impact on
productivity or equity, such as agriculture or housing subsidies. This would allow
increasing quality of education and expanding full-day schooling and the school meals
plan. At the same time, there is a need to ensure that better educational outcomes is the
main policy target and that reforms in the education area are pursued with that aim.
Enhancing institutional capacities, especially at the territorial level where there is high
variability in the efficiency of using the SGP funds (Galvis, 2015[40]) and continuously
monitoring and evaluating programmes and spending are thus needed.
Figure 27. School results have improved, but equity and regional disparities remain a
challenge
A. Science performance B. Science performance explained by socio-
economic background1
PISA score %
510 25
2015 2006 2015 2006
490
20
470
450 15
430
410 10
390
5
370
350 0
PER BRA MEX COL CRI CHL OECD MEX BRA OECD COL CRI CHL PER
C. Grade repetition2 D. Reading performance - Saber 11 scores3
%
2015 2009
45
40
35
30
25
20
15
10
5
0
OECD MEX CHL PER CRI BRA COL
1. Percentage of variation in science performance explained by the PISA index of economic, social and cultural.
2. The data for Costa Rica represents the change between 2010 and 2015.
3. Department average scores for Saber 11 which range between 0 and 100.
Source: OECD PISA 2006, 2009 and 2015. Saber 11, 2017-2 ICFES.
Table 10. Past OECD recommendations on education

Provide more public support to During 2017, programs such as "De Cero a Siempre" and "Todos a Aprender" were enhanced,
increase enrolment rates of allowing a better quality of education and a greater coverage for rural population. In 2018 the "From
disadvantages children in less Zero to Always" program benefits 1 million children in early childhood development, and has a
developed regions. budget of COP$ 2.6 billion. Particular attention was given to vulnerable population in Mocoa. The
Expand early childhood program "1000 dias para cambiar el mundo" was launched in 2017. It aims to contribute to the
education. integral development of children during their first 1000 days of life throughout the improvement of
nutrition and nourishment. This program mainly targets rural and highly vulnerable population.
Establish a national curriculum Increased coverage of “Todos a Aprender”, a programme that places tutors to help teachers from the
for school education and most disadvantage schools and aims at improving quality of education.
professionalise teachers' carers.
The Government needs to prioritize increasing coverage and quality in early education, to
improve student performance, reduce gaps in learning achievement and the impact of
socioeconomic background. An integrated approach to early childhood development is

offered through De Cero a Siempre strategy, encompassing education, health, nutrition and
protection. But the educational component of early childhood education remains
underdeveloped and is key to foster quality and have an impact on skills and employment
prospects later in life. Governance issues have led to a fragmented system resulting in
inequities in provision and quality and varying goals. Appointing one agency, such as the
Ministry of Education, with clear authority and responsibility for delivering national early
childhood education policy across the entire sector (care and preschool) would strengthen
sector leadership and facilitate co-ordination, improvements in, and expansion of services
(OECD, 2016[41]).
Raising the quality of teachers is key for a high-quality basic education. Colombia has taken
considerable steps to professionalise teaching over the last two decades, but
implementation has been challenging. An effective evaluation system for existing teachers
and the establishment of a framework for professional development would be key to boost
the quality of education (OECD, 2016[41]). Teacher selection is essentially based on
teachers’ rights rather than students’ needs, leading to inefficiencies and inequities in the
allocation of teachers. Making teaching in rural areas more attractive by shaping the
working conditions and professional opportunities in these schools, while providing
adequate supply of high-quality initial teacher education in rural areas, is essential.
(Radinger et al., 2018[38]).
Curbing dropout rates, increasing employability and job quality of youth will hinge on
strengthening upper secondary and higher education programmes while developing a
vocational education track in close consultation with employers to match labour market
needs (Chapter 2).
Strengthening productivity growth

Over the last ten years, the growth potential of the economy, which measures how fast GDP
can grow sustainably, has declined substantially (Figure 28). Growth at the current
potential growth rate over the next 30 years would raise income per capita only to the level
of Costa Rica today. By contrast, if the economy grew at 5% per annum, per capita incomes
would reach approximately the current level of Spain.
Figure 28. Potential growth is falling
% Participation rate Capital per worker TFP %
6 6
Employment rate Working age population Potential growth
5 5
4 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: Potential growth is expressed as a percentage change. Contributions to growth are shown for the remaining variables.
Source: OECD Economic Outlook 105 database.
The fall in potential output reflects weak productivity, whose level is below other countries
in the region and other emerging countries (Figure 29). Labour productivity has remained
sluggish in all sectors of the economy, with the exception of the mining sector (Figure 30).
Differences in productivity across regions are also large (Departamento Nacional de
Planeación, 2016[42]), and this is well reflected in the successive national development
plans, which have a strong regional component.
Figure 29. Labour productivity has stagnated

A. Labour productivity levels
1 000 x USD 1 000 x USD
140 140
120 120
100 100
80 80
60 60
40 40
20 20
0 0
BRA COL MEX CHL HUN POL NZL SVK CZE OECD DEU AUS FRA USA
B. Labour productivity
1 000 x USD 1950 - 2017 1 000 x USD
60 60
CHL COL MEX PER
50 50
40 40
30 30
20 20
10 10
0 0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Note: For both panels, units are measured in thousand USD per person employed (PPPs).
Source: OECD Productivity database; Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), "The Next
Generation of the Penn World Table" American Economic Review, 105(10), 3150-3182.
Figure 30. Productivity is sluggish in all sectors

Productivity per worker per sector Productivity per worker per sector
2006 - 2018, millions COP$ 2006 - 2018, millions COP$
Mining Agriculture Manufacturing

300 Electricity, water and gas 60
Construction Retail
Financial services Transport Social services
250 50
200 40
150 30
100 20
50 10
2006 2008 2010 2012 2014 2016 2018 2006 2008 2010 2012 2014 2016 2018
Note: Productivity is defined as the GDP at constant (2015) prices for each sector divided by the number of persons employed
in that sector.
Source: DANE.
Boosting productivity through more competition

Two factors help to explain low productivity in Colombia at firm level. On the one hand,
the average and typical firm is less efficient than the average firm in other economies. On
the other hand, a high proportion of resources are used in firms of lower productivity,
particularly in micro and informal firms.
The lower productivity of the typical firm could be linked to lower growth over their life
cycle (Figure 31). Colombian firms tend to remain smaller, which hinders investment,
knowledge spillovers, and specialisation of employees. In Colombia youngest cohorts of
firms explain most of the employment and output growth, but these firms grow less than in
advanced economies (Eslava, Haltiwanger and Pinzon G., 2018[43]). Low-performing firms
are also less likely to be replaced by new and young firms.
Figure 31. Colombian firms grow less

Employment growth of manufacturing firms over their life-cycle
Growth (%) Growth (%)
2.75 2.75
COL USA
2.5 2.5
2.25 2.25
2 2
1.75 1.75
1.5 1.5
1.25 1.25
1 1
0-5 6-10 11-15 16-20 21-25
Age ( years)
Note: Ratio of current employment to initial employment at different age categories.
Source: (Eslava, Haltiwanger and Pinzon G., 2018[43])
These features are typical of economies where competition is not strong enough to create
an environment in which the disciplining effect from new entrants prompts incumbents to
become more efficient (Klapper et al., 2006[44]). Competition has been weak in some key
sectors of the economy, such as telecommunications, banking, retail, food (OECD, 2015[17])
or transport (OECD, 2017[13]), contributing to low productivity, low wages and higher
prices to consumers. A small number of large firms dominate the economy (Figure 32),
indicating the need to promote a more competitive business environment, both locally and
through international trade.
Figure 32. Markets are largely dominated by a small number of firms

Extent of market dominance
2018
7=best 7=best
Spread among
7 7
many firms
6 6
5 5
4 4
3 3
2 2
Dominated by a 1 1
few business
groups 0 0
ARG MEX COL CHL LAC BRA ZAF CRI IDN PRT NZL AUS ESP CZE FRA POL NOR DEU USA
Note: This indicator shows the extent of market dominance, 1-7 (best). In the World Economic Forum,
Executive Opinion Survey, it is the answer to the following question: In your country, how do you characterize
corporate activity? [1 = dominated by a few business groups; 7 = spread among many firms]. LAC is the
unweighted average of Argentina, Brazil, Chile, Costa Rica and Mexico.
Source: World Economic Forum, The Global Competitiveness Index 4.0 2018 dataset (version 13 October
2018).
Colombia has taken important steps towards a more competitive business environment. The
budget of the competition authority, SIC, has been tripled in the last six years (SIC,
2018[45]). There have been important advances in the prosecution of business cartels, abuses
of dominant position and collusion in public tenders (SIC, 2017[46]). Still, the competition
authority faces substantial challenges and would benefit from the ability to impose higher
and more dissuasive sanctions. Fines are so far expressed in terms of the minimum wage.
They should be expressed in terms of sales that market agents have had instead, in line with
other OECD countries (OECD, 2016[47]). In addition, those engaging in anticompetitive
processes in public procurement processes should be disqualified temporarily, in line with
OECD practices (OECD, 2016[47]). For the time being, they are entitled to continue
participating in public procurement processes.
Regulatory burden is high (Figure 33). A process with the public administration takes on
average 7.4 hours while in Chile it takes 2 hours. While in other countries in the region
most procedures can be completed on line, this is only possible in Colombia in 35% of
cases (Roseth et al., 2018[48]). While regulations may serve a variety of legitimate
objectives, if ill-designed they can impose unnecessary restrictions on competition.
Figure 33. Regulations are burdensome

A. Perceived burden of regulations
7=best 2018 7=best
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
IDN
ARG
BRA
PER
LAC
FRA
ZAF
HUN
KOR
NOR
NZL
COL
ESP
MEX
CZE
DEU
POL
PRT
CHL
AUS
TUR
USA
CRI
OECD
B. Senior Management time spent dealing with Government Requirements
% Time spent in percentage (average), 2017 or latest year available %
25 25
20 20
15 15
10 10
5 5
0 0
IDN
IND
ISR
SVN
VNM
MYS
THA
LVA
LTU
ARG
PRY
HUN
LAC
MEX
EST
CHL
PER
CZE
BRA
ROU
TUR
URY
BOL
COL
Note: In Panel A, the indicator shows the perceived burden of regulations, 1-7 (best). In the World Economic POL
Forum, Executive Opinion Survey, it is the answer to the following question: In your country, how burdensome
is it for companies to comply with public administration’s requirements (e.g., permits, regulations, reporting)?
[1 = extremely burdensome; 7 = not burdensome at all]. In both panels, LAC refers to the unweighted average
of Argentina, Brazil, Chile, Costa Rica, Mexico and Peru.
Source: World Economic Forum, The Global Competitiveness Index 4.0 2018 dataset (version 13 October
2018); World Bank, World Development Indicators database.
Introducing a legal obligation for the executive to systematically submit all new laws likely
to affect competition to a regulatory impact assessment has proven effective in many
OECD and Latin American countries, including Mexico (OECD, 2015[49]). In the context
of the accession process to the OECD, Colombia has recently started to undertake impact
regulatory assessment for selected regulations from the central government. This is a
fundamental initial step to improve the quality of regulations. The scope of the impact
assessments should be increased progressively, covering as well regulations from other
parts of the government.
Large parts of the economy have also been shielded from international competition.
Colombia remains significantly less integrated into international trade than other emerging
economies (Figure 34), despite efforts to promote trade integration via trade agreements.
Increasing Colombia’s exposure to trade will boost competition, productivity and growth.
Colombia’s own experience in the early 80s, when trade tariffs were reduced, attests that
this channel can be strong (Eslava et al., 2013[50]). Primary goods account for 70% of the
export basket and there is room to diversify exports and to make trade a new source of
growth, as analysed in Chapter 1. Notable progress to improve primary roads (Table 11)
have been accomplished via 4G, a significant PPP initative. It remains important to
continue to evaluate thoroughly the projects and to record life-time contingent liabilities in
a timely and transparent way. Remaining significant gaps in transport infrastructure imply
high trade costs (Chapter 1) and also fragment the domestic market, with a detrimental
effect on competition. Filling these gaps, while preserving natural resources and the
environment, would be a fundamental step to boost productivity.
Figure 34. Exposure to trade is low

Export plus imports as % of GDP
Average 2010-2018
% of GDP % of GDP
250 250
More open
200 200
150 150
100 100
Less open
50 50
0 0
IDN
IND
ITA
ISR
FIN
SVK
IRL
BRA
USA
JPN
CHN
PER
TUR
NZL
FRA
ESP
CAN
SAU
DEU
TUN
DNK
CHE
THA
SVN
CZE
NLD
HUN
ARG
COL
AUS
RUS
GBR
GRC
CHL
CRI
NOR
PRT
POL
AUT
MEX
KOR
MYS
BEL
SWE
Note: Data for Peru show the average for the period 2010 - 2017.
Source: OECD Analytical database; IMF International Financial Statistics (IFS).
Table 11.Past OECD recommendations to sustain strong economic growth
Past recommendations Actions taken since 2017

Public investment accounted for 2.1% of GDP in 2016s
Sustain the increase in public investment central government budget. Its size decreased to 1.9% in
2017 and to 1.7% in 2018.
Implement the road infrastructure program (4G) and guarantee By the end of 2018 the financing of 17 projects, out of the
that private-public-partnerships continue to have proper cost- 30 planed under 4G, is expected to be closed. This
benefit analysis amounts to USD 8.4 billions
The low productivity is also explained by the predominance of small firms (Eslava,
Haltiwanger and Pinzon G., 2018[43]). Small firms account for around 90% of all Colombian
firms and a significant amount of employment (Table 12). The high share of small firms is
a feature shared with Mexico, but largest firms absorb a lower share of employment in
Colombia than in Mexico or OECD countries. Firm-level empirical analyses confirm that
resource misallocation is significant (Busso, Madrigal and Pagés, 2013[51]). The potential
gains in terms of aggregate total factor productivity of moving to a more efficient allocation
of capital and labour in the manufacturing sector could reach 50%. These estimates could
be larger if resource misallocation induced by informality could be captured. There is little
information at firm level about informal firms but households’ surveys show that
informality is prevalent in small firms in all sectors, reaching 90% of employment

(Table 13). Firms relying on informal contracting are less likely to innovate and grow, offer
less training to their employees and have problems raising worker’s motivation and effort,
reducing productivity (Battisti and Vallanti, 2013[52]; Perry et al., 2007[53]).
Table 12. A large share of firms are small

Companies (% of total) Employment (% of total)
Number of employees Colombia Mexico OECD United States Colombia Mexico OECD United States
1 to 9 87.2 88.0 80.3 49.9 31.6 30.6 30.2 4.4
10 to 49 10.6 9.7 14.6 32.7 21.5 20.7 20.9 16.2
50 to 249 1.8 1.5 4.1 14.1 19.4 16.6 17.9 33.4
250 and above 0.4 0.7 0.9 3.3 27.4 32.1 31.0 46.0
Note: Manufacturing sector. Data for Mexico refers to establishments and are from 2013. OECD refers to an
unweighted average of its member countries excluding Chile.
Source: CAF (2018), OECD (2017) Entrepreneurship at a Glance 2017.
Table 13. Informality is concentrated in small firms
Percentage of informal employment according to firm size and sector
All economy Agriculture Industry Services

Small 88 94 87 83
Medium 22 48 22 19
Large 5 9 3 5
Note: OECD calculations based on 2017's Colombia's households surveys. Informal workers are those not
contributing to the pension system.
Source: OECD calculations based on GEIH 2017 of DANE.
Reducing informality: win-win for inclusiveness and productivity

Informality is both a cause and a consequence of low productivity. It has also detrimental
effects on social outcomes, as it reduces job quality and access to social services and labour
protection and contributes to high income inequality. OECD calculations for this survey
show that informal workers suffer an hourly wage penalty of 49%, after controlling for
worker and job characteristics. Informality also erodes the tax base reducing the quantity
and quality of public services (Binelli, 2016[54]; Tornarolli et al., 2014[55]; Maurizio,
2013[56]) and reduces access to pensions and its financing.
Informality has been decreasing after the 2012 cut in social security contributions but
remains high (Figure 35). The share of informal wage earners, defined as those not
contributing to pension or health system, is 33% in 2018. Self-employment, mostly
informal and often associated to low productivity jobs, is also high at 43% of total
employment and accounts for an increasing share of employment since the slowdown of
the economy in 2014.
Figure 35. Informality has declined but remains high
A. Informality rate at national level1

% %
72 Formalisation 92
Abolition payroll taxes
and Job National Rural (RHS)
70 Creation Law 90
68 88
66 86
64 84
62 82
Abolition
health care
60 80
contribution
employers
58 78
2010 2011 2012 2013 2014 2015 2016 2017 2018
B. Informality across countries2 C. Informality by worker characteristics1
% 2018 or latest year available 2017 %
90 100
Total
80 90
70 80
70
60
60
50
50
40
40
30
30
20 20
10 10
0 0
URY CRI CHL BRA ARG COL MEX PER
1. Informality is defined as the percentage of workers in employment not contributing to the pension or health
system. The statistical definition is different from the one followed by DANE.
2. Data comes from IADB SIMs database. Informality is defined as not contributing to the pension system.
Source: OECD calculations based on GEIH of DANE and IADB SIMs database.
Colombia has made several efforts to reduce informality. The most successful initiative
was a 2012 tax reform, which reduced non-wage costs by 13.5%, in particular social
security contributions, helping to create more formal jobs and increase wages (Kugler,
Kugler and Prada, 2017[57]; Bernal et al., 2017[58]; Fernández and Villar, 2016[59]; Garlati-
Bertoldi, 2018[60]). There is no silver bullet to continue reducing informality. A
comprehensive strategy is required, with actions needed in several policy areas, such as
taxes, business and labour regulations, enforcement or skills. Model-based simulations
confirm that the associated improvements in terms of productivity and living standards
would be large (Box 8).
Box 8. Regulations, informality and productivity in Colombia
Illustrative simulations with a small macro-structural model (Chalaux, Kopoin and

Mourougane, 2018[61]) can shed light on the interactions among regulations and informality
and the impact that structural reforms can have on productivity and GDP per capita.
The simulations suggest that both labour and product market regulations matter. The gains
in GDP per capita depend on the assumed productivity differential between the informal
and formal sector. Some estimates indicate the productivity differential between formal
and informal firms could reach 40% in Colombia. For labour regulations, this would imply
a raise in GDP per capita by 10% over 10 years. Even if the productivity gap between
formal and informal firms is smaller, the gains in GDP per capita could reach 5% over 10
years (Figure 36, Panel A). Easing product market regulations to the OECD average would
raise GDP per capita by another 6-19%, depending on the assumed productivity differential
(Figure 36, Panel B).
Figure 36. Structural reforms can reduce informality and trough that channel boost growth
Per cent of GDP per capita relative to no-reform baseline depending on assumed productivity differential
between formal and informal sector
A. Colombia - Impact on GDP per capita per B. Product market regulations

productivity differential
% GDP per % GDP per
capita capita
45 30
10% differential 20% differential 10% differential 20% differential
40
40% differential 25
35 40% differential
30 20
25
15
20
15 10
10
5
5
0 0
1st year 5th year 10th year Long-term 1st year 5th year 10th year Long-term
Note: The productivity differential is the gap between productivity in the formal and informal sectors. Reform means
convergence of the product market indicator to the OECD average evenly over 10 years and convergence to the OECD
minimum for labour market regulations, which are proxied by the indicator for workers on regular contracts.
Source: Model simulations based on Yoda (Chalaux, Kopoin and Mourougane, 2018[62])“A formal look at regulations and
labour market informality in emerging-market economies”, OECD Economics Department Working Paper, OECD.
Despite the 2012 reform, non-wage labour costs remain high, representing almost 50% of
the wages, one of the highest in Latin America (Alaimo et al., 2017[63]). For example,
employers pay a 4% payroll tax to finance the so-called Cajas de Compensación Familiar,
which offer a wide range of services from housing and training programmes to sports and
entertainment. Alternative sources of financing for these institutions need to be sought or
the contribution could be made optional (voluntary). The services could also be reviewed
to avoid duplication with other government programs and inequalities in access by workers.
The minimum wage, which is twice the poverty line and at 86% of the median wage, the
highest in OECD countries, also contributes to informality and reduces employment
prospects of low skilled workers, youth and people located in less developed regions
(OECD, 2015[17]; Garda, forthcoming[64]). Limiting increases to inflation for some time
would bring formal wages to a more job-friendly level (OECD, 2015[17]). Other options
include differentiating the minimum wage by age or by region (OECD, 2017[13]) or
establishing an hourly minimum wage, which would avoid the current penalisation of part-
time employment.
Table 14. Past OECD recommendations on reducing informality

Past recommendations Actions taken since 2017
Further reduce taxes and fees on wages No actions taken
Simplify procedures for company registration and the Some regions made easier for companies to get registered
affiliation of workers to social security
Establish social dialogue to discuss differentiating the No actions taken
minimum wage by age and regions.
Costly and complex business regulations also hamper the formalization of firms and jobs.
A particular barrier to formalization is the high cost related to start up procedures
(Figure 37). Registration costs are particularly high compared to countries in the region
(Salazar, Mesa and Navarrete, 2017[65]; Maloney, 2017[66]), reaching 5.5% of the assets of
a company, regardless of the size of the firm. The registration fee is not only paid when the
firm starts its activity but also every year, and is updated in line with the minimum wage.
Reducing registration costs, particularly for SMEs and start-ups, would be a fundamental
step to facilitate formalization. One-stop shop mechanisms would also simplify the
registration of companies, the procedures and the affiliations of workers to social security,
which requires 8 forms and 12 procedures. After years of planning, a one-stop shop pilot
exercise has started in Bogotá in 2018 for registration of companies. Itis planned to be
extended to other cities and to include as well the affiliation of workers to social security.
Increasing the use of digital tools would also offer the double dividend of reducing
regulatory burden and the scope for corruption.
Figure 37. Starting a business is costly

Cost of business start-up procedures
% of GNI per capita, 2018
% %
18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 0
NZL FRA AUS NOR CZE USA PRT OECD ESP HUN BRA CHL DEU LAC CRI PER TUR POL COL MEX
Note: LAC refers to the unweighted average of Brazil, Chile, Costa Rica, Mexico and Peru.
Source: World Bank, Doing Business project.
Developing better skills and aligning them more to labour market needs would also reduce
informality. OECD estimates for this survey show that completing secondary education
decreases the probability of being in the informal sector by 15% compared to an individual
without any level of education, while completing higher education or university reduces
the probability by 80%. Additionally, there are large gaps between demand and supply of
skills (Lora, 2015[67]). Promoting quality education for all (see above) and vocational
education and training aimed at generating advanced skills and abilities that match labour
market needs (see Chapter 2) would also be key to reduce informality and boost
productivity.
Improving governance and reducing corruption

Systemic corruption distorts incentives, undermines confidence in institutions and fair
competition in markets, erodes public services, and undercuts social trust. It is also bad for
business and hampers productivity and inclusive growth (OECD, 2017[1]). The importance
of quality of governance in explaining the differences in productivity across countries is
well documented (Hall and Jones, 1999[68]; Olson Jr., Sarna and Swamy, 2000[69]; Nazrul
Islam, 2008[70]).
Colombia has made significant progress with recent anti-corruption efforts and initiatives
to foster integrity and combat corruption in the public sector (OECD, 2017[71]). However,
it consistently rates poorly in corruption indices. High corruption has been identified as the
main concern for Colombian citizens in latest surveys. The last Transparency International
report ranked Colombia 99 out of 180 countries.
The biggest challenge to fighting corruption effectively remains at regional and local levels,
where corruption seems to be more entrenched. Regulating the financing of political parties
and campaigns would be a crucial step, as current legislation does not limit the resources
that can be provided by the candidate. This implies that candidates can finance 100% of
their campaign with own resources, undermining the possibility to track the origin and
quantity of funds spent.
Contrary to most OECD countries, there is no whistle-blower law. Implementing effective
whistle-blower protection legislation would be a crucial step in the fight against corruption,
including at regional and local level. Whistle-blower protection mechanisms were recently
introduced to fight cartel behaviour and they have proved valuable to detect and dismantle
uncompetitive practices (SIC, 2017[46]).
Integrity in the public sector benefited from the establishment of the new central
procurement entity, Colombia Compra Eficiente, in 2012. Only procurement from central
government is centralised. A significant amount of purchases is still undertaken by
subnational governments, indicating that there is still room to improve efficiency and
reduce scope for corruption in procurement by bringing to Colombia Compra Eficiente all
procurement activities of local and regional governments.
Green growth indicators are good but deforestation as well as production and use of
hydrocarbons pose challenges
Colombia is the second most biodiverse country in the world after Brazil (Chapman,
2018[72]). Biodiversity of natural resources holds significant opportunities and potential to
spur economic growth and social inclusion in lagging regions. A sustainable use of these
natural assets is crucial for helping people in these regions to fulfil their potential.
Good progress in decreasing deforestation stalled during 2016 and 2017, although 2018
saw some improvements (Figure 38). Part of the increase in that period is an unintended
consequence of the peace process. Limited government presence persists in territories
previously controlled by the FARC. Illegal mining and coca production has increased in
those areas, previously inaccessible, exacerbating threats to biodiversity.
Coca crops in Colombia have increased since 2013 at an average rate of 45% per year, from
48000 hectares to 146000 in 2016. Data for 2017 show that the area planted had increase
further by 17% (SIMCI, 2018[73]). Additional policy efforts to counteract illicit crops is
therefore warranted, including eradication, prevention, and providing the affected areas
with alternative income generation opportunities.
Illegal mining, consisting of carrying out exploration, extraction or collection activities
without a valid mining title or authorisation, has also increased from 79 000 hectares in
2014 to 84 000 in 2016. This impacts 60% of Colombia’s water resources (DNP, 2016[74]),
as illegal mining is responsible for large releases of hazardous chemicals. Increases in
illegal gold exploitation have been particularly high, affecting national parks, indigenous
reservations and Afro-descendant community lands (UNODC, 2018[75]). Continuing efforts
to improve the enforcement of existing regulations against illegal mining is therefore
warranted and should be prioritised.
Green growth has been at the core of national development plans and a national
deforestation strategy has been established. One way the government can help protect its
biodiversity is by officially declaring portions of its territory as protected areas. To date,
around 14% of terrestrial area has been declared protected, which is well below areas
protected in neighbouring countries such as Brazil or Peru. Protecting areas is not a panacea
and proper management and enforcement is also needed. Colombia’s regional
environmental management authorities, called Regional Autonomous Corporations
(CARs), are responsible for managing forests in their jurisdictions. They frequently lack
the resources and technical capacity necessary to address challenges in their regions.
Figure 38. Deforestation is increasing

Total deforestation area
Hectares Hectares deforested Hectares
350 000 350 000
300 000 300 000
250 000 250 000
200 000 200 000
150 000 150 000
100 000 100 000
50 000 50 000
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM).

Production-based CO2 emissions from combustion of coal, oil, natural gas and other fuels
are much lower than in OECD countries, reflecting the low energy intensity of the economy
and a high share of renewable energy supply, mainly hydroelectricity (Figure 39).
Nevertheless, emissions from the energy sector are increasing and in the last greenhouse
gases inventory they represented 43,6 % of total emissions. Colombia also emits substantial
greenhouse gas emissions in agriculture, forestry and land use, and in this inventory
accounted for 42,8% of greenhouse gas emissions. However, this calculation did not take
into account the recent increase of deforestation. Policies to curb deforestation provide
ample opportunities to reduce these emissions and preserve the role of Amazon forests as
carbon sinks (Gobierno de Colombia, 2015[76]).
CO2 emissions per capita have risen in recent years. Rising energy demand has been met
with increasing consumption of fossil fuels. The share of renewables has fallen. Colombia
has one coal-fired power plant under construction and is planning another 3 (Global Coal
Plant Tracker, 2018[77]). Expanding coal-fired electricity generation is inconsistent with
reaching the climate objectives of the Paris agreement, which requires coal-fired electricity
generation to be phased out. Increasing the share of renewables instead, as recently
announced by the government, would help Colombia to meet its commitment to reduce
greenhouse gas emissions by at least 20% by 2030. Achieving climate objectives will result
in a large decline in demand for coal and oil worldwide. This underscores the need to
diversify the Colombian economy away from oil and coal production.
Air quality is overall good, although pockets of poor air quality were reported in the 2014
OECD Environmental Performance Review of Colombia (OECD, 2014[78]), including in
the two principal cities – Bogotá and Medellin. The volume of household and commercial
waste remains small. Recycling has increased but is often undertaken by plants not meeting
technical requirements. Mining is a source of hazardous waste (OECD, 2014[78]). Revenues
from environmental taxes were low in 2015, but they will rise with the carbon tax
introduced in 2018.
Colombia is highly vulnerable to climate change and extreme weather events (OECD,
2014[79]). The high mountain ecosystems, called páramos, are experiencing increases in
maximum temperatures of 1°C per decade. During the 2010-11 La Niña phenomenon,
major floods affected three million people, inflicting damage equivalent to about 2% of
GDP. Colombia is responding to these challenges by prioritising climate resilience, shifting
from disaster response towards a more integrated approach to risk prevention and
management, and by integrating climate change and disaster risk management into sectoral
policies and planning instruments. Colombia has also subscribed a World Bank catastrophe
bond to cover for earthquake risks (World Bank, 2018[80]). There is also a need to simplify
and enhance land use planning as a way to increase climate resilience (OECD, 2014[79]).
Figure 39. Green growth indicators: Colombia

A. CO2 intensity (production, demand) B. Energy intensity
CO2 per GDP CO2 tonnes per capita Total primary energy supply % of renewables in total
kg/USD (2010 PPP prices) primary energy supply
0.5 14 20 35
12 Colombia
0.4 OECD 30
10 OECD
0.3 15
8 25
0.2 6
20
4 10
0.1 Colombia Spain
2 15
0 0 OECD
5 10
1990 1995 2000 2005 2010 2015 1995 2005 2015
Colombia (demand-based)
Colombia (production-based) 5
Colombia (production-based)
OECD (demand-based) 0 0
OECD (production-based)
OECD (production-based) 1990 2003 2016 1990 2003 2016
C. Population Exposure to fine particles D. Municipal waste generation and recycling
Mean annual concentration of PM2.5 % of population exposed Municipal waste, 2015 Municipal waste generated
(µg/m³) to PM2.5 in 2013 (% of treated) (kg/person)
20 100% 600
18 OECD
OECD 75% 500
16 OECD
14
50%
12 400
10
Colombia 25%
8 300
Colombia Colombia
6 0%
4 0% 50% 100% Colombia OECD 200
2 [ 0-10] µg/m³ [10-15] µg/m³ Other
0 [15-25] µg/m³ [25-35] µg/m³ Incineration 100
1998 2002 2006 2010 2014 Recycling and composting 2000 2004 2008 2012 2016
[35- . ] µg/m³ Landfill
E. Greening taxation F. Environment-related inventions
Environment-related tax Tax rate of unleaded petrol and diesel Inventions per capita
revenue (% of GDP) in 2015 (USD/litre) (patents/million persons) % of all technologies
2
1.8 25 20
3%
1.6
1.4
20
2% 1.2 15
1
0.8 15
1% 0.6 10
0.4
10
0.2
0% 0
Colombia OECD 5
5
(median)
Other, 2014
0 0
Motor vehicles, 2014
Colombia
Colombia
OECD
OECD
Energy, 2014 Colombia OECD

Total, 2000 Unleaded petrol Diesel
2012-2014
1990-1992 2012-2014
Note: For Panel D, waste refers to waste collected by or for municipalities and includes household, bulky and commercial
waste, and similar waste handled at the same facilities. Panel E refers to nominal tax rates (excises) for unleaded petrol and
diesel, for households. Unit: 2010 USD PPP prices/litre, deflated using the CPI. For Panel F, patents refer to patent
applications, using application date, inventors' residence and family size equal to 2 or more (i.e. filed in two or more
jurisdictions).
Source: OECD (2018), Green Growth Indicators.
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Annex. Progress in other structural reforms

Sustain strong economic growth
Finance more infrastructure programmes on a regional basis Addtional resouces from royalties have been shifted to tertiary roads via
the OCAD PAZ programme. This amounted to 500 million dollars.
Provide more grants and loans for R&D to enterprises The number of enterprises accessing R&D tax credits has increased.
Fund R&D projects that bring industry and academia together The government implemented Colombia científica programme to finance
joint industry and accredited universisties research programmes. 8
programmes have been financed until 2018.
Remove regulations on public ownership and vertical integration in No actions taken

electricity, vertical integration and market structure in rail
Introduce a court or a division of a court dedicated solely to The Superintedence of Corporations introduced a electroinci case
commercial cases and facilitate case management through electronic management tool to facilitate comecial disputes and business closures.
case management tools.
Make information on advance rulings on import conditions available No actions taken
more quickly and with higher visibility.
Gender balance
Raise awareness among young men and women, parents, teachers In 2018, the campaign Less Myth’s, more equity (Menos mitos mas
and employers with campaigns about gender-stereotypical attitudes igualdad ) was launched with the aim of transforming gender-related
towards academic performance and the likely consequences of believes, prejudices and stereotypes among young population..
overall educational choices for employment and entrepreneurship
opportunities, career progression and earnings
Ensure the provision of affordable, good-quality child care and See below in education
affordable long-term care for elderly relatives or those with disabilities
Labour market
Expand access to and make greater use of active labour-market Implementation of Bonds of Impact Social (BIS) and the public-private
programmes. alliances.
Education and training system

Enhance public funding to low-income students, either through loans In 2017,the coverage of the program "Ser pilo paga" was increased as
or scholarships. The ICETEX loan conditions could be more flexible well as resources. The Government also launched "Pilos por Mocoa" and
for students from very low-income families or rural areas and more "Todos somos PAZcifico" for the most vulnerable zones
strict for those with less financial need.
Refocus upper-secondary education teaching and learning on core In 2017, under SENAS's program "expanding coverage", 25 new public-
skills and real-life applications to help students achieve basic skills; private alliances were implemented to the Banco de Institutiones
improve the relevance of VET options to the labour market by Educativas(BIE) in order to expand the availability of programs for tertiary
engaging employers in the design of programs, curricula, certification, education. For instance SENA-Fundetec and SENA-UDES
and quality assurance; and improve the second chance opportunities
available to students who have dropped out
Establish a body/forum to engage employers and unions in vocational
programs. Ensure that good data on the labour market outcomes of
vocational programs is available to inform student carer choice and
reduce the technicians' gap

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OECD Economic Surveys

OECD Economic Surveys: Colombia© OECD 2019

Source: OECD Economic Outlook 105 database updated 20 20

balance. Fiscal policy is expected to be 0

moderately contractionary to reduce the

Making productivity and trade engines of

opportunities in rural schools and providing

MAIN FINDINGS KEY RECOMMENDATIONS

Key policy insights

Figure 1. Economic growth has been resilient but has slowed

Y-o-y, % changes A. GDP growth has been resilient Y-o-y, % changes

B. GDP per capita relative to the OECD GDP per capita

Environment Employees working very long hours

Civic engagement Education

Against this background, the main messages of the Survey are:

Figure 2. Social indicators are improving but inequality remains high

B. Inequality has fallen but remains high

Note: No data available for 2006 and 2007.

Figure 3. Colombia has lost ground

Box 1. Key features of the programme of Duque’s government

Table 1. Structural reforms would boost growth

Potential impact of structural reforms on GDP per capita at different horizons

Latest After reform 2-years 5-years 10-years Long-term

Box 2. A smooth adjustment to a large terms of trade shock

A. Terms of trade B. Exchange rate versus USD

C. Real GDP D. Current account balance

Figure 5. Inflation is near the 3% target

B. Monetary policy rate

Figure 6. Growth is picking up

C. Consumption is robust D. Terms of trade and current account

Box 3. Migration from Venezuela imply challenges but also opportunities

Figure 7. The labour market has remained subdued

A. Labour market indicators B. Unemployment rate

Source: IMF Balance Of Payments database.

Figure 9. Colombia has been resilient to recent episodes of financial uncertainty

0.0005 100 120

Figure 11. Debt and foreign exchange reserves

Note: Contributions to changes in real GDP.

Table 3. Possible shocks to the Colombian economy

Financial stability has been preserved

Figure 12. Financial indicators remain solid

A. Bank capitalisation B. Non-performing loans to total gross loans

C. Total non performing loans in comparison D. Corporate debt

Y-o-y, % E. Credit growth F. Household debt

Figure 13. The monetary stance has become accommodative

The Central Bank is undertaking changes in the communication of monetary decisions to

Table 4. The government deficit has decreased

Figure 14. Public debt has increased

A. Public spending in international comparison

B. Public revenue in international comparison

Box 4. Implementation of the peace process has advanced

Reports by independent observers (KROC, 2017[14]; KROC, 2018[15]; KROC, 2019[16])

Simplifying the tax system and improving the tax mix

Table 5. Past recommendations on improving the macroeconomic framework

Past recommendations Actions taken since the 2017 survey

Figure 16. The tax burden is unbalanced

B. Total of corporate tax as % of total tax revenues

Box 5. Main measures included in the Financing Law

A. Income threshold where single taxpayers start paying income tax

B. Number of tax brackets per country