Colombia Special

Colombia

Colombia: Government reveals new COP 16.8 tn stimulus package amid economic slowdown

May 28, 2015

President Juan Manuel Santos and his government announced a new stimulus plan to sustain economic activity on 28 May. This announcement comes against the backdrop of the government having been forced to revise down its growth outlook during the first half of the year due to the low price for oil, Colombia’s main export, and weak investment. Moreover, this is an electoral year; mayoral and gubernatorial elections will held in October. The package of measures, called the Stimulus Plan for Productivity and Employment 2.0 (PIPE 2.0), follows a similar stimulus effort that began in April 2013 that helped the economy sustain solid growth until oil prices took a nosedive in the last months of 2014 and caused exports revenues to plummet. The PIPE 2.0 program amounts to COP 16.8 tn, which represents around 2.2% of GDP, and aims to create over 300,000 jobs and sustain an economic growth rate of above 3.5% in 2015.

The PIPE 2.0 program covers most sectors of the economy, including agriculture, education, housing, manufacturing and tourism. Some of the main elements of the plan are: an allocation of COP 5.0 tn to increase education facilities by constructing 1,500 new schools; an investment of COP 4.0 tn in transport infrastructure such as roads and bridges; and an extension of the zero tariff rate for imports of capital goods and materials until August 2017, which should save firms up to COP 1.4 tn over the period.

Regarding how these measures will be funded and what fiscal impact they may have, Daniel Velandia Ocampo Chief Economist at Credicorp Capital comments:

“Importantly, the government affirmed that the PIPE 2.0 is consistent with the new fiscal reality amid lower oil prices and so, with the fiscal rule. Overall, the government stated that the investments included in the plan will be executed with available resources and savings of previous years without requiring additional debt.”

Despite this ambitious stimulus plan, FocusEconomics panelists expect oil prices to have a significant impact on Colombia’s economy. The panel forecasts GDP growth of 3.2% in 2015 and 3.3% in 2016, which is below the government’s target of an expansion of over 3.5%.


Author:, Economist

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