major macro economic indicators
|2019||2020||2021 (e)||2022 (f)|
|GDP growth (%)||3.3||-6.8||9.5||3.7|
|Inflation (yearly average, %)||3.5||2.5||3.8||3.2|
|Budget balance (% GDP)||-2.5||-7.8||-8.6||-7.0|
|Current account balance (% GDP)||-4.6||-3.6||-5.0||-4.5|
|Public debt (% GDP)||50.2||64.8||65.9||67.1|
(e): Estimate (f): Forecast
- Ports on two oceans
- Large population (almost 50 million people)
- Plentiful natural resources (coffee, oil and gas, coal, gold)
- Significant tourism potential
- Relatively undiversified economy (in terms of manufacturing)
- Shortcomings in road and port infrastructures due to historically low levels of investment and difficult topography
- Problematic security situation because of drug trafficking and illegal mining, as the 2016 peace agreement with FARC is implemented slowly, particularly in the countryside
- Structural unemployment, poverty and inequality, deficient educational and healthcare systems
Activity will decelerate in 2022, following a bright rebound in 2021
After recovering to its pre-pandemic level in 2021, GDP should lose some momentum in 2022 mostly due to a very strong comparison basis. Household consumption (68% of GDP) will continue to drive the economy, supported by the ongoing recovery on the job market and the extension of some fiscal support programs targeting low-income households. Nonetheless, the recent rise in inflation and the ongoing retightening of monetary policy conducted by the central bank will somewhat cushion the consumption growth rate. Moreover, despite the uncertainty related to the proximity of the May 2022 presidential elections, gross fixed investment (22% of GDP) should also continue to contribute positively to GDP. This is majorly underpinned by investments linked to the oil industry (favoured by current prices) and the development plan launched by the government in August 2020, named Compromiso por Colombia, which aims at generating USD 30 billion (11% of 2020 GDP) in public and private investments (encompassing existing infrastructure, clean energy generation and rural development). Finally, exports (11% of GDP) are expected to expand majorly driven by strong agricultural (coffee, banana and palm oil), gold and energy (oil and coal) prices.
External deficit to remain wide, slow fiscal consolidation
The current account deficit further widened in 2021, notably driven by a higher trade deficit, compounded by rising freight costs and foreign investors’ repatriated income. This was underpinned by the strong rebound in domestic activity that boosted imports of capital and consumption goods, which exceeded the rise in exports (despite higher agriculture and energy commodity prices). Meanwhile, on the financing side, rebounding FDI could not fully cover the shortfall. The country still has to rely on more volatile sources (such as portfolio investments) to close the gap. These have proved resilient, despite Colombia´s sovereign rating downgrade to speculative by S&P and Fitch in 2021. Still, total external debt stood at 52.3% of GDP in August 2021, with 31.1% of GDP public-owed and 21.2% private-owed. Moreover, non-resident holding of local-currency government bonds (around USD 26 billion or 8% of GDP) is another risk factor. In 2022, the current account deficit is expected to marginally narrow, as lower domestic growth will moderate imports, while exports will gain dynamism. Its financing will remain vulnerable to the mood on the international markets and the U.S. monetary policy. On the other hand, the government can count on a Flexible Credit Line with the IMF of roughly USD 17.3 billion (USD 5.4 billion withdrawn in 2020). Furthermore, in September 2021, foreign exchange reserves stood at USD 58.8 billion (covering approximately 14 months of imports).
Concerning the public account, rising activity, high oil prices and the September 2021 tax reform will help to somewhat narrow the fiscal deficit, as this will increase tax revenues by 1.5% of GDP in the year. Still, the fiscal rule committee stressed out the need for an additional fiscal adjustment of 0.6% of GDP in the future to reach a sustainable debt path. On the spending side, government expenditures will continue to rise, as some stimuli measures were extended into 2022. Both domestic and external (commercial and multilateral) sources will finance the deficit. Moreover, the resources obtained from the purchase by the state oil company Ecopetrol of the government's 51.4% stake in the electricity conglomerate ISA (USD 3.6 billion), as well as the USD 2.8 billion disbursement from the SDR IMF allocation, are available.
Political risk set to remain high with the general elections
The popularity of the right wing President Ivan Duque (Centro Democratico party) fell from a peak of 52% in April 2020 to a low of 18% in May 2021. This sharp drop was induced by the political wear and tear caused by a proposed (and aborted) tax reform - aimed at increasing VAT on some basic goods and broadening the personal income tax base - and the ensuing widespread violent protests and rise in the police violence (from end-April through to June 2021). In September 2021, a watered down reform was approved and, this time around, mostly focuses on increasing the corporate tax rate from 31% to 35% (from 2022 onwards). Overall, the political climate will remain tense in the run-up to the legislative and presidential elections in March and May 2022, respectively. Initial polls have shown that the left-wing previous Mayor of Bogota, Gustavo Petro, who lost the runoff to Duque in the previous election, is leading the presidential race. In fact, the deterioration of social indicators may fuel an anti-incumbent vote. Still, the new president, who will take office in August 2022, will have to deal with the need for further fiscal reforms, the rising number of Venezuelans immigrants (estimated at 1.8 million) and calls for reforming the national police. Security concerns (notably in rural areas), due to the rising role of paramilitaries and criminal gangs who are filling the space left by the FARC guerrilla group since the 2016 peace deal, are an additional key topic. Moreover, extreme left-wing guerrillas from the National Liberation Army (ELN) have periodically attacked oil infrastructures.
Last updated: February 2022
The invoice is the security title most frequently used for debt collection in Colombia. When a sale has been made, the seller ought to issue one original invoice and two copies. The original must be kept by the seller to be used for legal issues. One copy is then handed to the buyer, and the other is kept by the seller for accounting records. Likewise, in Colombia, the implementation of the electronic invoice was regulated, which is a document that supports transactions for the sale of goods and / or services that operate through computer systems that allow compliance with the characteristics and conditions established in relation to the expedition, receipt, rejection and conservation. They always have an equity value with credit, corporate or participation content and tradition or representative of merchandise.
Other payment methods used in Colombia are bills of exchange, cheques, promissory notes, payment agreements, bonds, bills of landing, or waybills. They are commonly used in domestic business transactions, and tend to be considered as debt recognition titles that can facilitate access to fast-track proceedings before the courts.
Bank transfers are developing rapidly in Colombia. SWIFT bank transfers are an increasingly popular method of payment for international transactions. For large-value transactions, payments are made through a national interbank network called SEBRA (Electronic Services of the Bank of the Republic), which uses a real-time settlement system. SEBRA in turn uses two systems: CEDEC (cheque clearing system) and CENIT (national electronic interbank clearing). For small-value payments, cash and cheques predominate.
The most used payment method in Colombia is bank transfer for business transactions and checks in smaller proportion, cash is a method used in Colombia but more associated with small businesses, in our case, we do not receive cash payments.
Currently, Colombian companies are implementing electronic invoicing according to resolution n ° 20, March 2019.
The service company already has the electronic billing system, while the insurance company's project is suspended by the regulator, that means that the electronic invoice is considered as a debt recognition title to bear a legal right on a service or a good
There are other forms of payment such as bills of exchange, promissory notes, payment agreements, bonuses, landing letters or road maps. They are commonly used in national business transactions however it does not apply for our business.
By last, foreign currency billing is permitted among tax residents in Colombia for some type of operations, the reinsurance and insurance operations are part of these, so we can issue a foreign currency policy for the export line of business, having said that, we can also make and receive claims payments in foreign currency.
The amicable phase is a recommended alternative to formal proceedings. Under Colombian law, conciliation or mediation hearings before commencing formal proceedings are mandatory. Pre-trial mediation must also be conducted in administrative litigation.
The creditor begins the amicable recovery process by reminding the debtor of the debt owed over the telephone. If this is unsuccessful, through an email or a registered letter the creditor subsequently requests immediate payment of the debt. If the debt is paid, the debtor will not bear the penalty interest, charges nor legal fees.
When the debt is certain and undisputed (such is the case for a bill of exchange), the creditor can initiate summary proceedings to obtain a payment order. The debtor must comply with the decision within 10 days or submit a defence.
The debtor must be notified through a writ that the judge has authorized the proceedings. The debtor must then answer the claim within 20 days. If the debtor fails to do so, the judge can render a default judgment depriving the defendant from their right to appeal. Otherwise, the court will invite the parties to attend a mediation proceeding in order to reach an agreement. If an agreement cannot be reached, the parties will present their arguments and evidences. Afterwards, the court will render a decision.
In principle, first instance decisions ought to be rendered within a year, while Courts of Appeal will render these within an additional six months period of time. Nevertheless, in practice, Colombian courts are unreliable, and it can take up to five years to obtain a first instance ruling and ten years for a full disputed lawsuit.
Enforcement of a Legal Decision
Domestic judgments become enforceable when all venues of appeal have been exhausted. Compulsory enforcement occurs through the seizure and auctioning of the debtor’s assets. Nevertheless, collection of the debt from a third party is possible through a garnishment order.
For foreign awards, domestic courts will normally enforce them provided that they have been recognized by the Supreme Court through the exequatur procedure. Colombian courts will not recognize foreign decisions issued in countries which do not recognize Colombian decisions.
Insolvency proceedings in Colombia are ruled by the 2006 Colombian Insolvency Act, which sets out reorganizations proceedings and judicial liquidation proceedings.
In cases of insolvency or bankruptcy, the process must be filed with the Superintendencia de Sociedades with the requirements of the law 1116 of 2006. The case will then be assigned to an agent or liquidator, according to the situation of the debtor company.
Out-of Court proceedings
Debtors may discuss debt restructuration agreements with their creditors before becoming insolvent. The final agreement must be validated by an insolvency judge.
The proceedings start by filling of a petition by the debtor, one or more of the creditors, or by the Superintendent. If admitted, the debtor is deemed insolvent and all enforcement claims are stayed. The reorganization plan is submitted by the debtor, and the creditors and the judge must approve it. The court may designate a “promoter” in order to manage the business.
This occurs as a result of a failure to reach a reorganization compromise, or when the debtor has failed to abide by the negotiated terms. It can be requested by the debtor and the creditors. A liquidator is appointed to establish a list of creditors’ claims and to manage the estate’s liquidation.