10/02/2022 - Significant government support to protect households, firms and jobs helped Colombia navigate the COVID-19 pandemic well and put its economy on track to a strong recovery, but challenges remain to make growth sustainable, according to a new OECD report.
Expanding social protection, improving the sustainability of public finances and lifting productivity growth will be essential for boosting growth, reducing poverty and improving opportunities for all Colombians.
The latest OECD Economic Survey of Colombia shows that high levels of fiscal support – representing nearly 5% of GDP – together with monetary policy support have limited the economic impact of the crisis and contributed to the country’s rapid return to a solid growth path. Colombia’s GDP is projected to rise by 5.5% this year before easing to 3.1% growth in 2023.
“The Colombian economy has recovered remarkably well, and is now expected to be one of the fastest-growing economies in Latin America,” OECD Secretary-General Mathias Cormann said, presenting the Survey in Paris alongside Colombian President Iván Duque. “The robust and targeted policy responses implemented by the Colombian authorities in dealing with the pandemic have paved the way for further structural reforms to make growth sustainable and to ensure that no Colombians are left behind.”
The Survey presents concrete recommendations for tackling poverty and labour market informality. It advocates delinking access to social protection from workers’ formal or informal status, by establishing a universal basic pension, combined with a guaranteed minimum income benefit that would build on and extend existing cash transfers to low-income households.
At the same time, the financing burden of social protection should be gradually shifted from workers’ contributions towards general taxation, lowering non-wage labour costs. These reforms could help promote formal job creation and greatly increase access to social protection, which could significantly reduce poverty and high income disparities in Colombia. In the long run such a reform would require raising additional tax revenues of about 1% of GDP, based on OECD calculations.
To improve the sustainability of public finances, which as much as in other OECD countries have been pressured by the policy response to the pandemic, the Survey suggests Colombia to go forward with its current plans to improve fiscal outcomes and reverse the trajectory of public debt. Raising low tax revenues while improving the tax system would be key for future fiscal reforms.
Improved competition, regulatory reform and stronger participation in international trade would boost productivity and growth, the Survey said. More competition-friendly regulations on product markets and lower administrative barriers could promote market entry and competition, while lower trade barriers could foster stronger internationalisation of the economy.
See a Survey Overview with key findings and charts (this link can be used in media articles).
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