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Economic growth is projected to rise through 2017 and 2018. The historic peace agreement, higher oil prices and the start of infrastructure projects will boost investment. Private consumption will grow moderately. Stronger growth is projected to stabilise the unemployment rate. As the effects of El Niño wear off, inflation is projected to return to the central bank target range of 2-4% at the end of 2017. Although poverty has declined, inequality remains high.
Monetary policy is projected to become gradually more supportive as inflation continues to recede. Fiscal policy will remain broadly appropriate, as the structural tax reform of December 2016 will help achieve a more balanced fiscal consolidation. Policies to make growth inclusive, via education and poverty reduction, should be prioritised.
Greater openness would reduce the concentration of economic activity – particularly exports – in a few sectors. Policies are required to improve R&D support and its efficiency, strengthen competition in the rail, electricity and roads sectors, simplify procedures for company registration, and deepen integration in the region. Strengthening policies to reduce inequality and informality are needed to spread the benefits of openness to the whole population.