Previous Quarterly Editions
Expropriation Risk: 54 55 54 49 ▼ Political Violence Risk:60 60 60 60 ►Terrorism Risk:83 83 83 83 ►Exchange Transfer and Trade Sanction Risk: 44 45 45 45 ►Sovereign Default Risk:65 65 65 65 ►
TREND ▼
Protest intensity to date* 2022 2023 Medium Very-HighUnrest risk in 2024**Cost of living: HighAnti-austerity: High
Colombians had a particularly difficult COVID-19 pandemic, enduring a nationwide lockdown of more than six months in 2020 — one of the longest in the world. The situation had a major impact on the economy, causing GDP to shrink by 7.3% in 2020, according to the International Monetary Fund (IMF), and general government gross debt to spike to 65.7% of GDP.
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
With much of Colombia’s debt denominated in U.S. dollars, interest rate hikes by the U.S. Federal Reserve have compounded the strain of debt repayment. A series of benchmark interest rate hikes by the Bank of Colombia between September 2021 and April 2023 increased its rate by 1,150 basis points, to 13.25%; 12-month inflation through August was nevertheless almost four times the central bank’s 3% goal, at 11.43%.
A recovery appears to be underway. While growth has slowed — from an 11% bounce back in 2021, to 7.5% in 2022 and to a forecast 1% for 2023 — inflation has also slowed somewhat; the peso has strengthened substantially against the U.S. dollar this year, and debt is down to 62% of GDP. A record 502.6 trillion Columbian pesos (COP) (US$125.9 billion) budget for 2024 allocates COP94.5 trillion to debt repayment.
The need to address post-pandemic debt nevertheless compounds the challenges facing President Gustavo Petro, who was elected in 2022 on a platform of ambitious plans to transform the country and whose leftist political stance comes with an expectation of generous social spending.
Funding constraints and a hostile Congress have impeded planned healthcare, pension and labor reforms. While such constraints on Petro’s leftist agenda have arguably comforted the markets, increasing faith in Colombian bonds, they have also weighed on Petro’s domestic popularity as disappointment has grown among former backers.
A series of corruption scandals have further damaged Petro’s image, with polling by Invamer in August 2023 putting his disapproval rating up more than 40 percentage points since he took office a year earlier, at 61%.
Subnational elections, scheduled for October 29, 2023, will not threaten Petro’s position directly but will be seen as a reflection on his presidency so far. While local-level dynamics will hold a strong influence in places, candidates associated with Petro specifically and the left more broadly are expected generally to struggle.
An influx of conservative politicians at regional and local levels would further hinder Petro’s ability to advance his policy priorities, not least his “total peace” strategy toward ending the country’s decades-long civil conflict. With local buy-in to strategies such as the pursuit of voluntary crop substitution crucial to the success of the overall plan, hostile political representatives at ground-level will be problematic.
While low coca prices should provide an opportunity to kick-start a voluntary crop-substitution drive, they also exacerbate poverty in coca-reliant areas, potentially heightening the costs to the government of effectively transforming local economies. The country’s debt burden will have an ongoing impact on such issues.
TREND ▼Petro has attempted to downplay fears of expropriation, but land ownership has long been at the center of the conflicts and injustices he claims to want to address. Moves to do so look set to involve tax hikes on unproductive land to encourage owners to sell, but they are unlikely to involve direct seizures from legal owners. Petro’s stated aim is to buy millions of hectares of land.
Stated hopes that peace talks with non-state armed groups might allow the army to access previously inaccessible areas of the countryside come alongside claims that newly secured areas of land might be sold cheaply to poor farmers. With ownership of such land likely to be contested, however, such action would raise potential for discord.
Petro has long expressed a desire to move the Colombian economy away from its reliance on oil and gas, but with these sectors accounting for more than 40% of Colombian exports, he will not do so suddenly. Nor is he likely to attempt do so through expropriations, which would damage the reputation for economic prudence and stability that he is cultivating. Instead, more gradual efforts will involve increased taxation of the extractive industries.
TREND ►
Petro’s transformational, leftist vision for Colombia was always going to be a potential source of discord, and various reform moves have prompted demonstrations and counterdemonstrations. The greatest threat of major social unrest ahead, however, may lie not with those who fear the consequences of Petro’s plans being realized but rather with those who share his vision but are frustrated with his failure to achieve it.
Petro’s pro-government congressional majority was a remarkable achievement, but it was short-lived, crumbling less than a year into his presidential term. That will compound the difficulty of achieving the radical change promised during his election campaign, generating anger among those who crave it. Upcoming local and regional elections could exacerbate difficulties further, with leftist politicians expected generally to perform badly due to their association with the increasingly unpopular president.
Petro’s own frustrations with the difficulties of moving reforms through Congress, and need to shore up support, could encourage him to pursue more populist rhetoric and attempt to cast blame, inadvertently feeding anger with state institutions and deepening tensions. Protests are a regular occurrence across Colombia and raise the risk of heavy-handed policing and human rights abuses.
Bilateral government cease-fires with several of the country’s largest armed groups should help to ease terrorism risks to some degree and may improve security around October’s subnational elections; however, violence between groups will continue, posing ongoing risks for civilians, as will acts of violence by smaller groups that have not yet agreed to cease hostilities.
Petro’s pursuit of peace processes with a range of diverse non-state armed groups carries major challenges; early-stage talks raise risks of heightened violence as groups vie for position and attention and seek to establish strong bargaining positions. Later stages pose risks of spoiler attacks by groups, factions or individuals who disagree with the direction of negotiations.
Peace talks will encourage groups to make their presence felt, raising terrorism risks. While conflict between armed groups and with the security forces generally takes place in rural parts of Colombia, attacks intended to send a political message are more likely to involve urban targets.
Attacks on civilian populations would galvanize existing opposition to Petro’s peace strategy, both political and public, and could see criticism of the government spread more broadly.
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Having initially plunged in value against the dollar following Petro’s election in June 2022, the peso has strengthened again, to around COP4,000 to one U.S. dollar.
A series of hikes by the U.S. Federal Reserve have taken that country’s benchmark interest rate to a range of 5.25% to 5.50%. That level was maintained on September 20, 2023, but a further hike, to 5.50% to 5.75%, may take place before the year is out. The Bank of Colombia took interest rates to 13.25% in June and has held them there since. As noted above, 12-month inflation through August was nevertheless almost four times the 3% goal that the central bank has set itself, at 11.43%.
High global oil prices boost Colombia’s export income, but Petro aims to phase out extractives. While fertilizer subsidies may help to arrest increases in food prices, gradual moves to raise fuel prices and end subsidies of those could exacerbate inflation.
The approval by Congress of a record COP502.5 trillion budget for 2024 should help with debt repayment and boost spending substantially in areas such as education and health, as well as on agriculture and social programs. Whether such spending makes up for any perceived failures to improve living standards, however, remains to be seen.
The government hopes to generate increased income through higher taxation of businesses (corporate tax rates are already among the highest among OECD countries) and of citizens on middle and upper incomes. Tax reforms effective as of January 1, 2023, kept the general corporate income tax rate at 35% but introduced surcharges in various areas, for example, oil and coal extraction.
An adjustment in the trade balance saw the current account deficit narrow to 3% of GDP in the second quarter of this year. Meanwhile, the IMF last year approved a two-year US$9.8 billion credit line for Colombia, and foreign exchange reserves remain substantial, at around US$58 billion in July.
