major macro economic indicators
|2020||2021||2022 (e)||2023 (p)|
|GDP growth (%)||-7.0||10.7||8.0||0.7|
|Inflation (yearly average, %)||2.5||3.5||10.0||10.0|
|Budget balance (% GDP)||-7.8||-7.1||-5.6||-4.7|
|Current account balance (% GDP)||-3.4||-5.7||-6.5||-4.7|
|Public debt (% GDP)||65.0||63.5||62.0||63.0|
(e): Estimate (f): Forecast
- Ports on two oceans
- Large population (almost 50 million people)
- Plentiful natural resources (coffee, oil and gas, coal, gold)
- Significant tourism potential
- Relatively undiversified economy (in terms of manufacturing)
- Shortcomings in road and port infrastructures due to historically low levels of investment and difficult topography
- Problematic security situation because of drug trafficking and illegal mining, as the 2016 peace agreement with FARC is implemented slowly, particularly in the countryside
- Structural unemployment, poverty and inequality, deficient educational and healthcare systems
Activity growth to decelerate in 2022, but will remain at a historically high level
Activity remained strong in Q1 2022, increasing by 8.5% year-on-year and 1% quarter-on-quarter. At the margin, growth was pulled by domestic consumption (household and government) and gross fixed investments. Conversely, despite strong energy commodity prices, net exports posted a negative contribution (since imports were still heated). Looking ahead, despite strong terms of trade, activity should gradually lose some steam due to the high comparison basis, high inflation and the consequent and ongoing retightening of credit conditions (currently at 6% per year). This landscape bodes ill for household consumption and private investments. The general story behind rising inflation is the same than at the global level: pressured commodity prices exacerbated by the war in Ukraine and disruptions in global supply chains. Importantly, Colombia has experienced a particularly sharp rise in food prices, because of weak harvest conditions and higher imported food prices (agricultural, food and beverages represent 16% of the country´s total imports). Furthermore, the risk of social unrest has increased with escalating inflation.
Twin deficits to narrow, but at still high levels in 2022
The large current account deficit is expected to improve slightly in 2022, driven by a smaller trade deficit. Decelerating domestic activity will moderate imports, while exports will gain dynamism amid high energy commodity prices (fuels and extractive industries - notably oil and coal – account for roughly 48% of total foreign sales). Conversely, the primary income deficit should further widen due to greater foreign investors’ repatriated income (mainly from the hydrocarbon sector). Finally, the services deficit should remain broadly similar to 2021 (the tourism surplus will improve amid the economic reopening, but freight costs will also increase). On the financing side, rebounding FDI should not fully cover the external account shortfall. The country will continue to rely on more volatile sources (such as portfolio investments) to close the gap. This is particularly worrisome amid higher global risk aversion and the fresh onset of retightening of monetary policy in developed markets. Gross public debt stood at 63.5% of GDP in 2021, with 40% internal and 60% external. Moreover, non-resident holding of local-currency government bonds equals 8% of GDP. On the other hand, the government can count on a Flexible Credit Line with the IMF of roughly USD 9.8 billion (USD 5.4 billion withdrawn in 2020), which was renewed for two years in April 2022. Furthermore, in May 2022, foreign exchange reserves stood at USD 58 billion (covering approximately 13 months of imports).
Similarly, the public deficit is expected to narrow somewhat in 2022 driven by high oil prices, rising activity and high inflation favouring nominal revenues. In fact, in June 2022, the Ministry of Finance reviewed positively the budget deficit forecast for the current year by 0.6pp to 5.6% of GDP. Both domestic and external (commercial and multilateral) sources will finance the deficit.
Colombia elects its first leftist president; fragmented Congress likely to undermine potential major changes to the economic model
The leftist Gustavo Petro won the runoff of the presidential elections in June 2022 with 50.5% of the ballots against the independent Rodrigo Hernandez, who got 47.3% of the votes. Petro will be Colombia´s first left-wing president and will take office on 7 August for a four-year term. He is an economist and previously served as a Senator and as mayor of Bogota. The high public dissatisfaction with the incumbent right wing government of Ivan Duque contributed to the runoff between two anti-establishment candidates. More precisely, high inequality, poverty, as well as demands to improve security in cities and fight violence in rural areas, where illegal armed groups dedicated to drug trafficking operate. Petro advocates in favour of halting new oil projects due to environmental reasons (although he has promised to respect current contracts). He aims to increase fiscal revenues by 5% of GDP underpinned by dividend taxation, a more progressive system, lower evasion, and curbing benefits. He also defends the increase of taxes and royalties on extractive industries and charge large landowners for unproductive land (the latter is part of a wider land reform plan aiming to combat violence). A higher tax collection would help to finance his plans for education (such as progressively ensure access to public and quality education at a technological and university level) and health (guarantee the right to health through a single, public, universal, preventive, predictive, participatory, decentralized and intercultural system). He also advocates the construction of a freight train that would connect the Pacific with the Atlantic. Additionally, Petro said he would restore relations with Venezuela. Regarding the security topic, Gustavo Petro, who was part of the M-19 guerrilla group in his youth, defends the full implementation of the 2016 FARC peace deal and the demobilization of the still-operating ELN rebels. Nonetheless, Petro should face resistance (at least initially) from the army and the business community. Moreover, the fragmented Congress will require negotiation skills to move forward with reforms . Petro’s Pacto Histórico coalition will hold 19 seats in the Senate (out of 108 seats) and 25 seats in the Lower House (out of 172 seats). Overall, left-wing parties stand at 36% in the Senate, right-wing parties at 49% and centrists at 19%. In the Lower House, the right wing is the largest group (45%), followed by the left (34%) and then centrists (21%).
Last updated: July 2022
The invoice is the security title most frequently used for debt collection in Colombia. When a sale has been made, the seller ought to issue one original invoice and two copies. The original must be kept by the seller to be used for legal issues. One copy is then handed to the buyer, and the other is kept by the seller for accounting records. Likewise, in Colombia, the implementation of the electronic invoice was regulated, which is a document that supports transactions for the sale of goods and / or services that operate through computer systems that allow compliance with the characteristics and conditions established in relation to the expedition, receipt, rejection and conservation. They always have an equity value with credit, corporate or participation content and tradition or representative of merchandise.
Other payment methods used in Colombia are bills of exchange, cheques, promissory notes, payment agreements, bonds, bills of landing, or waybills. They are commonly used in domestic business transactions, and tend to be considered as debt recognition titles that can facilitate access to fast-track proceedings before the courts.
Bank transfers are developing rapidly in Colombia. SWIFT bank transfers are an increasingly popular method of payment for international transactions. For large-value transactions, payments are made through a national interbank network called SEBRA (Electronic Services of the Bank of the Republic), which uses a real-time settlement system. SEBRA in turn uses two systems: CEDEC (cheque clearing system) and CENIT (national electronic interbank clearing). For small-value payments, cash and cheques predominate.
The most used payment method in Colombia is bank transfer for business transactions and checks in smaller proportion, cash is a method used in Colombia but more associated with small businesses, in our case, we do not receive cash payments.
Currently, Colombian companies are implementing electronic invoicing according to resolution n ° 20, March 2019.
The service company already has the electronic billing system, while the insurance company's project is suspended by the regulator, that means that the electronic invoice is considered as a debt recognition title to bear a legal right on a service or a good
There are other forms of payment such as bills of exchange, promissory notes, payment agreements, bonuses, landing letters or road maps. They are commonly used in national business transactions however it does not apply for our business.
By last, foreign currency billing is permitted among tax residents in Colombia for some type of operations, the reinsurance and insurance operations are part of these, so we can issue a foreign currency policy for the export line of business, having said that, we can also make and receive claims payments in foreign currency.
The amicable phase is a recommended alternative to formal proceedings. Under Colombian law, conciliation or mediation hearings before commencing formal proceedings are mandatory. Pre-trial mediation must also be conducted in administrative litigation.
The creditor begins the amicable recovery process by reminding the debtor of the debt owed over the telephone. If this is unsuccessful, through an email or a registered letter the creditor subsequently requests immediate payment of the debt. If the debt is paid, the debtor will not bear the penalty interest, charges nor legal fees.
When the debt is certain and undisputed (such is the case for a bill of exchange), the creditor can initiate summary proceedings to obtain a payment order. The debtor must comply with the decision within 10 days or submit a defence.
The debtor must be notified through a writ that the judge has authorized the proceedings. The debtor must then answer the claim within 20 days. If the debtor fails to do so, the judge can render a default judgment depriving the defendant from their right to appeal. Otherwise, the court will invite the parties to attend a mediation proceeding in order to reach an agreement. If an agreement cannot be reached, the parties will present their arguments and evidences. Afterwards, the court will render a decision.
In principle, first instance decisions ought to be rendered within a year, while Courts of Appeal will render these within an additional six months period of time. Nevertheless, in practice, Colombian courts are unreliable, and it can take up to five years to obtain a first instance ruling and ten years for a full disputed lawsuit.
Enforcement of a Legal Decision
Domestic judgments become enforceable when all venues of appeal have been exhausted. Compulsory enforcement occurs through the seizure and auctioning of the debtor’s assets. Nevertheless, collection of the debt from a third party is possible through a garnishment order.
For foreign awards, domestic courts will normally enforce them provided that they have been recognized by the Supreme Court through the exequatur procedure. Colombian courts will not recognize foreign decisions issued in countries which do not recognize Colombian decisions.
Insolvency proceedings in Colombia are ruled by the 2006 Colombian Insolvency Act, which sets out reorganizations proceedings and judicial liquidation proceedings.
In cases of insolvency or bankruptcy, the process must be filed with the Superintendencia de Sociedades with the requirements of the law 1116 of 2006. The case will then be assigned to an agent or liquidator, according to the situation of the debtor company.
Out-of Court proceedings
Debtors may discuss debt restructuration agreements with their creditors before becoming insolvent. The final agreement must be validated by an insolvency judge.
The proceedings start by filling of a petition by the debtor, one or more of the creditors, or by the Superintendent. If admitted, the debtor is deemed insolvent and all enforcement claims are stayed. The reorganization plan is submitted by the debtor, and the creditors and the judge must approve it. The court may designate a “promoter” in order to manage the business.
This occurs as a result of a failure to reach a reorganization compromise, or when the debtor has failed to abide by the negotiated terms. It can be requested by the debtor and the creditors. A liquidator is appointed to establish a list of creditors’ claims and to manage the estate’s liquidation.