Remarks by Angel Gurría
24 October 2019 - Bogota, Colombia
(as prepared for delivery)
President Duque, Madame Vice President Ramirez, Minister Carrasquilla, Distinguished guests, Ladies and Gentlemen,
It is a pleasure to be in Bogota to present the fourth OECD Economic Survey of Colombia. This is a special edition. It is the first since Colombia was invited to join the OECD in May last year. The accession process will soon be completed, and the OECD will then prepare an Economic Survey of Colombia every two years.
I would like to thank President Duque, the Minister of Finance and Public Credit and their teams for the excellent support we have received during the preparation of this report.
This Survey comes at a critical moment for the global economy. The OECD’s Interim Economic Outlook published in September warned that global growth will slow over the coming years, from 3.6% in 2018, to 2.9% in 2019 and 3% in 2020, while risks of further downturns continue to mount. These are the lowest growth forecasts since the last global recession.
In this context, it is encouraging to see that Colombia’s economy is performing above the OECD average. We project solid expansion of GDP growth, from the 2.6% registered in 2018, to 3.4% in 2019 and 3.5% in 2020, among the highest levels in the region.
Colombia also has a solid macroeconomic framework, so it is well equipped to cope with an increasingly challenging external environment. The credibility of the inflation target and monetary policy have been useful buffers, and the solid fiscal framework has allowed a gradual consolidation supporting domestic demand.
Significant progress has also been made on the social front in recent decades, thanks to improved access to education and social transfers. Life expectancy at birth increased from 60 years in 1970 to 70 years in 2016. In addition, poverty declined by 15 percentage points over the past decade, from 42 per cent in 2008 to 27 per cent in 2018, according to official data.
And I would like to commend the President and the Minister on their response to the migration crisis. The large influx of migrants from Venezuela represents a major social and economic challenge. Despite this, the authorities have managed the situation with generosity, providing timely border assistance and ensuring the necessary emergency care.
Despite these advances, Colombia continues to face important challenges.
Labour productivity is low, even in comparison with other Latin American countries, and only reaches one third of the OECD average. Moreover, productivity growth has been on a declining path, contributing less and less to potential growth: from a contribution of 2.2% to only 0.1% between 2002 and 2018.
Informality is both a cause and a consequence of low productivity. While the 2012 cut in social security contributions helped reduce informality, levels remain high: 60% of workers are in informal labour.
Moreover, the gap between rich and poor remains one of the highest in Latin America, and higher than that of all OECD countries.
On the other hand, it is necessary to move away from the traditional drivers of growth (capital-intensive extractive industries and favourable terms of trade), which have already reached their limits.
To address these challenges, the Economic Survey of Colombia presented today includes some recommendations. Allow me to highlight some of the most important ones:
Firstly, it is essential to boost fiscal revenues in a sustainable way while at the same time making the tax system even more growth and equity friendly. This could be achieved by broadening the bases of personal and VAT taxes, reducing the corporate tax rate and eliminating numerous tax exemptions. The Ley de Financiamiento , that we hope will be approved by Congress towards the end of the year, is a step in the right direction as it reduces the corporate tax burden and strengthens the fight against tax evasion.
Further revenue could come from increasing environmental taxes and from strengthening the tax administration so as to further reduce tax evasion. A spending review would also help to identify inefficient or unprofitable programmes based on their impact on equity or productivity. These reforms would help Colombia achieve greater inclusiveness and attract investment.
Secondly, it is necessary to reinvigorate productivity. Putting Colombia on a path to stronger growth requires boosting productivity, which is very low, even compared to other Latin American countries. Productivity is hampered by a lack of competition which, although improved, could be reinforced by more severe and dissuasive sanctions against anti-competitive conduct.
In addition, the economy remains relatively closed, exports remain low and concentrated in a few products and countries, integration into Global Value Chains is limited and much of the economy is protected from international competition. Moving away from the commodity-based model will require reducing tariffs and non-tariff barriers , while improving customs and logistics to foster growth and productivity. On the other hand, reducing large infrastructure gaps would also help lower export costs and increase competitiveness. At the same time, biodiversity, natural resources and the environment must be conserved.
Thirdly, improving social policy and job quality is essential. To make sure that the benefits of growth are broadly shared by all Colombians, reforms are needed to promote the creation of formal, high-quality jobs.
This requires a comprehensive strategy with reforms in various areas, such as reducing non-wage labour costs; improving the quality and relevance of education and training; reducing non-standard contracting; improving the functioning of the unemployment benefit system and adopting measures to integrate more women into the labour market. Reforms to direct social spending towards those most in need, as well as the activation and strengthening of the pension system, are equally crucial to reducing inequalities.
Ladies and gentlemen,
President Duque’s government has an important agenda of reforms, embodied in the National Development Plan which is fully aligned with the priorities indicated in both the Economic Study of Colombia that we deliver today and the 2019 Latin American Economic Outlook, both by the OECD.
Building on these achievements, further structural reforms are needed to make Colombia converge towards OECD living standards and to achieve a more inclusive economy. The OECD is confident that Colombia has the necessary determination and reform state of mind to move forward. The OECD stands ready to help design, promote and implement better policies for better lives. Thank you.