Colombia's Balancing Act: Growth Returns, But Debt Clouds The Outlook

(MENAFN- The Rio Times) Colombia is entering 2025 with a mixed economic picture: growth is returning, but its public finances are slipping.

The International Monetary Fund expects the economy to expand by 2.5% this year, while inflation should ease to 4.5% - down from the double-digit levels seen after the pandemic.

On paper, this is good news: households will feel some relief as prices stabilize, and the economy avoids stagnation. But behind the numbers lies a tougher reality.

The government's fiscal deficit has swelled to 6.7% of GDP in 2024 and could hit 7.1% this year. Public debt now tops 61% of GDP . For a country that once prided itself on discipline, this marks a sharp deterioration.

Investors have noticed: political uncertainty and shifting fiscal promises have chilled private investment, leaving growth overly dependent on government spending and commodity exports.



The IMF warns that Colombia must restore credibility by returning to its fiscal rule - legally capping deficits - by 2028. That will mean painful adjustments: higher taxes, tighter spending, and clearer long-term commitments.

Without these, debt will weigh heavier on the economy and undermine confidence. There are cushions. The central bank has held a firm line, using high interest rates to bring inflation under control, and Colombia still holds strong international reserves that could buffer against external shocks.

Its flexible exchange rate also helps absorb volatility. But these buffers cannot replace growth driven by private capital and productivity gains. The deeper story is about trust.

For years, Colombia earned praise as a stable emerging market in a turbulent region, giving it access to a special IMF credit line reserved for strong performers. That status is now under review, as fiscal slippage and political noise erode the reputation it built.

For Colombians, the stakes are real: modest growth will not be enough to lift incomes or generate enough jobs. For investors and neighbors, Colombia's direction matters because it has long been seen as one of Latin America's anchors of stability.

The challenge is whether the country can tighten its belt without stalling recovery - and prove that its comeback is more than a fragile rebound.

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