IMF Executive Board Concludes 2025 Article IV Consultation With Colombia

• The executive board of the International Monetary Fund (IMF) concluded the 2025 Article IV consultation with Colombia on September 29, 2025.
• Colombia enters a pre-electoral year amid a mixed economic backdrop. Growth has strengthened somewhat, while inflation is gradually easing, aided by appropriately tight monetary policy. Reserves have remained adequate. A widening fiscal deficit and rising debt levels have led to elevated sovereign spreads, and private investment remains weak amid policy uncertainties.
• Growth is projected to reach around 21⁄2 percent in 2025 and moderate somewhat over the coming years. Inflation is expected to ease gradually to about 41⁄2 percent by end-2025 and reach the 3 percent target by early 2027.

WASHINGTON, USA – The executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Colombia on September 29, 2025. The authorities have consented to the publication of the staff report prepared for this consultation.

Colombia enters a pre-electoral year amid a mixed economic backdrop. Growth has strengthened somewhat, while inflation is gradually easing, aided by appropriately tight monetary policy. International reserves remain adequate and continue to be strengthened. However, a widening fiscal deficit and rising debt levels have led to elevated sovereign spreads, and private investment remains weak amid lingering concerns and uncertainties over the direction of policies. In June, the government invoked the escape clause to suspend the fiscal rule through 2027.

Real GDP growth is projected to reach around 21⁄2 percent in 2025, but is expected to moderate over the coming years due to planned fiscal adjustment, before gradually converging to its potential. Returning to the fiscal rule by 2028 will require substantial consolidation efforts, although confidence gains and lower spreads could limit the fiscal drags on growth. Inflation is expected to ease gradually to about 41⁄2 percent by end-2025 and the 3 percent target by early 2027, conditional on tight monetary policy and the resumption of fiscal restraint. The current account deficit is expected to widen to around 21⁄2 percent of GDP in 2025. International reserves remain adequate and continue to be strengthened, reaching 131 percent of the ARA metric by end-June 2025.

The outlook is subject to significant downside risks. On the external front, tighter global financial conditions, rising trade barriers, stricter immigration policies, and heightened geopolitical tensions could dampen growth, disrupt exports, FDI, and supply chains, reduce remittances, and raise borrowing costs. Domestically, further delays in fiscal consolidation could raise concerns about unanchored fiscal policy, further undermine investor confidence, and potentially trigger a sudden stop in capital inflows. Rising political uncertainties and an intensification of violent crime and insecurity could weigh on economic activity and private sector development.

Executive board assessment

Executive directors welcomed the strengthening of the Colombian economy and were encouraged by the progress in reducing inflation and poverty. Directors also recognised Colombia's resilience and history of prudent macroeconomic policies and solid institutions. They noted, however, challenges posed by weakened fiscal positions, amid significant downside risks related to domestic policy uncertainty and external headwinds. Directors underscored the importance of implementing the authorities' fiscal consolidation plan and maintaining agile policymaking to safeguard macroeconomic stability.

Directors agreed that, amid repeated fiscal slippages and the temporary suspension of the fiscal rule-a key policy anchor-Colombia's fiscal policy and policy framework have deteriorated since the 2024 request of the Flexible Credit Line (FCL). In this context, Directors noted that the fiscal policy and policy framework have weakened considerably from a previously“very strong” assessment that is required for continued qualification for the FCL. Directors encouraged the authorities to step up their efforts to meet the near-term deficit targets and, looking ahead, supported the authorities' ambitious plan to return to the fiscal rule by 2028.

As Colombia's gross public debt would remain sustainable over the medium term, conditional on the assumed fiscal consolidation, Directors emphasised the importance of decisive and credible actions to implement the consolidation plan, which would help re-anchor expectations, lower borrowing costs, and improve the overall policy mix. In this regard, they recommended pursuing a balanced mix of growth-friendly expenditure and revenue measures, addressing budget rigidities, and adopting robust contingency planning.

Directors commended the central bank's tight monetary policy stance, which has supported reducing inflation. They stressed that maintaining a tight monetary policy stance remains important to address persistent inflation pressures and upside risks, including those from continued expansionary fiscal policy. Moving forward, the normalisation of monetary policy should proceed cautiously and remain data-dependent. Directors welcomed the strengthened international reserves position. They agreed that Colombia's flexible exchange rate regime should continue to play its role as a shock absorber and that foreign exchange intervention should remain limited to episodes of disorderly market conditions. Directors also underscored the importance of safeguarding central bank independence.

Directors agreed that the financial sector remains broadly resilient, while emphasizing the need for continued close monitoring of risks amid still-elevated real interest rates, rising sovereign exposures, and close linkages between banks and nonbank financial institutions. They encouraged continued progress in implementing the 2022 FSAP recommendations and stressed that establishing a sound governance framework and prudent investment principles for the new public pension savings fund will be critical.

To strengthen long-term growth prospects, directors recommended reforms to raise productivity, boost labor force participation, and diversify the economy. Noting the authorities' ambitious energy transition plan, they emphasised the importance of a well-designed and carefully phased transition to support long-run sustainability and resilience and safeguard macroeconomic stability. Directors also encouraged the authorities to further strengthen governance and transparency, including to enhance the investment climate.

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