Colombia’s economic outlook good but fiscal risks loom: central banker

February 15, 2019

BOGOTA (Reuters) – Colombia’s economic outlook is positive this year, thanks to controlled inflation, low interest rates and growth recovery, central bank chief Juan Jose Echavarria said on Friday, but the country will face fiscal risks in coming years.

During the bank’s quarterly inflation presentation, Echavarria said the technical team has slightly reduced its economic growth prediction for this year to 3.4 percent, down from 3.5 percent. The estimate is well above the 2.6 growth predicted for 2018.

“2019 looks relatively cloudless,” Echavarria said. “With a relatively stable exchange rate and sectors like industry and commerce growing at moderate rates, the banking system’s in a solid situation, all of these are good news,” he added.

“But there’s work to be done for the future, inflation expectations at 3.5 percent are a bit high, some sectors like construction are just starting to grow, the current account deficit is high … it’s financable but the adjustment must continue.”

Inflation is likely to end the year at just over the target 3 percent figure, according to the bank’s technical team, similar to the 2018 figure of 3.18 percent.

Analysts expect the seven-member bank board to raise the interest rate only once this year, by 25 basis points to 4.5 percent, Echavarria said, citing the bank’s own survey.

The board has held the rate steady for nine consecutive months as it seeks to boost economic growth while inflation remains largely controlled.

Echavarria said the technical team had raised the current account deficit projection to 3.9 percent of gross domestic product, up from 3.4 percent of GDP.

Fiscally, Colombia is lacking the equivalent of a half point of GDP in financing for next year as well as 0.7 percent of financing for 2021 and 1.1 percent for 2022, he said.

“It’s important to comply with the fiscal rule,” Echavarria said, referring to the plan to cut the central government deficit to 1 percent of gross domestic product in 2027.

“The central message is that we’re still lacking in financing for 2020, 2021 and 2022.”

(Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Helen Murphy and Tom Brown)

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