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The macroeconomic policy framework has been improved to get the most out of the commodity boom. The new fiscal framework – in particular the structural balance rule, the stabilisation fund and the Royalty law – will help shield the economy from swings in commodity revenues. The recent royalty reform, which aims to achieve a fairer distribution of revenues across regions and a better use of these funds, should promote productivity. It should, however, be flanked by measures to ensure that money is spent on projects with high social rates of return. Measures to protect the environment and reduce income inequality are also needed.

Structural policies are key to boosting productivity and helping the economy adjust to the rising terms of trade. The sharp appreciation of the exchange rate linked to the commodity boom has undermined the competitiveness of other tradable sectors. Boosting productivity, rather than new protectionist measures, should be based on a three-pronged strategy: enhancing access to financial markets, through better regulation and greater competition, promoting private investment and fostering high quality infrastructure through a better institutional framework.

Improving the performance of the labour market will help reduce income inequality. The unemployment rate remains high by both OECD and Latin American standards and the majority of those working are employed in informal, and often low-productivity, jobs. Unemployed and informal workers have little chance to find a formal job, while labour market segmentation exacerbates income inequality. Raising educational outcomes for all and enhancing training programmes would help improve labour supply and productivity. The recent tax reform will reduce non-wage labour costs. Nevertheless, more decisive steps will be needed to create the right conditions and incentives for boosting formal job creation.

Increasing the effectiveness of the tax and transfer system will support inclusive growth. The tax system raises little revenue. It hampers growth and creates numerous distortions, due to relatively high marginal rates, excessive tax relief and special regimes. Furthermore, it redistributes little, if at all. The tax reform should aim at raising more revenue in the medium term, so as to meet important social spending needs – better infrastructure and education, building up the social safety net. It should also ensure that taxes are less distortive and collected more effectively. In particular, there is scope to raise environmental and property taxes.

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The sources of real income differences

Progress in labour productivity has been slow

The divide between the rich and the poor is quite pronounced

Recent macroeconomic developments

Recent developments in consumer prices and real wages

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For further information please contact the Colombia Desk at the OECD Economics Department at eco.survey@oecd.org.

The Secretariat’s draft report was prepared by Isabelle Joumard (Economics Department) and Sebastián Nieto-Parra (DEV) with contributions from Juliana Londoño and Juan Sebastián Robledo, under the supervision of Piritta Sorsa .  Research assistance was provided by Chantal Nicq and Valery Dugain.

 www.oecd.org/eco/surveys/colombia2013.htm