20180806-法国巴黎银行-COLOMBIA_A_GUIDE_TO_DUQUE_42页_4mb

Summary of the Duque Administration: A Guide to Colombia's Economic Outlook (August 2018)

Core Content

The document provides an overview of Colombia's economic landscape under the incoming Duque administration, highlighting key challenges, the government's proposed plan, and the team in place to implement it. It also outlines the current economic context and expectations for the next four years.

Main Challenges

1. Low Economic Diversification

• Colombia's economy remains heavily dependent on energy commodities, particularly oil and mining.
• Trade agreements with over half of the global economy could help diversify the economy.
• Integration into global value chains is seen as crucial for long-term growth.
• The "orange economy" (creative and IT industries) is underdeveloped and needs more support.

2. Fiscal Consolidation

• The government faces pressure to reduce the budget deficit and public spending.
• Public investment is expected to be cut by around 1pp of GDP annually.
• The current fiscal multiplier is estimated at 0.45, meaning the impact of cuts will be significant.
• Colombia's public investment rate is low, with only 4% of GDP allocated to infrastructure in recent years.

3. Tax Policy

• Corporate tax rates are still high compared to OECD countries.
• Tax evasion remains a major issue, accounting for around 4pp of GDP.
• The government plans to broaden the tax base, reduce the minimum income tax threshold, and modernise the tax system.
• Tax cuts are expected to be gradual, with a focus on corporations and the elimination of tax breaks.

4. Tourism Infrastructure

• Tourism has grown significantly, contributing around 5.8% of GDP in 2017.
• More investment in infrastructure is needed to make tourism a major growth driver.
• The sector is still underdeveloped and lacks the capacity to fully benefit from the country's open trade policies.

5. Oil & Mining

• These sectors remain the main source of foreign investment.
• Despite diversification efforts, they still account for about a third of FDI inflows.
• Duque opposes referendums on new exploration projects and wants to reduce regulatory uncertainty.
• He has shown reservations about fracking but supports alternative extraction methods.

6. Trade and Foreign Affairs

• Duque is not actively pursuing new free trade agreements, which may hinder Colombia's access to the Transpacific Partnership (TPP) and other negotiations.
• He plans to better utilise existing trade deals and reduce non-tariff barriers.
• The government aims to enhance Colombia's integration into global value chains.

7. Social Security

• The pension system is underfunded and faces a major demographic shift.
• Duque proposes to reform the system without major changes to the current framework.
• Taxes on pensions are to be eliminated, and subsidies will only apply to those earning less than two minimum wages.
• Around 63% of Colombian workers did not contribute to any social security scheme in 2017.

The Plan

1. Fiscal & Tax Reforms

• The government plans to lower the corporate tax rate from 33% to around 28%.
• Tax reforms will include broadening the tax base and reducing tax evasion.
• The fiscal impact is estimated at up to 3pp of GDP, assuming the plan is fully implemented.
• The administration aims to reduce the tax burden for all, with a focus on companies and tackling evasion.

2. Development Model

• The administration supports a market-driven, supply-side approach.
• Reducing red tape, lowering taxes, and deregulation are key elements.
• The goal is to boost investment, create jobs, and expand the middle class.

3. Reforms & Timeline

• Q3 2018: Fiscal and tax reforms.
• Late 2018: Social security and justice reforms.
• 2019-2022: Continued focus on economic reforms and policy implementation.

The Team

1. Cabinet Members

• Alberto Carrasquilla (Finance Ministry): A former finance minister under Uribe, known for fiscal conservatism and tax reforms.
• Gloria Alonso (Planning Department): Has experience with the central bank, World Bank, and IMF.
• Jose M. Restrepo (Industry & Trade): Economist with expertise in finance and trade negotiations.
• Jonathan Malagón (Housing): Supports reduction of corporate tax and a smaller state role in the economy.

2. Key Political Mentors

• Álvaro Uribe: Former president and mentor to Duque, now chief of government in the Senate. His involvement may influence the administration's political direction.
• Alicia Arango: Minister of Labour, a close ally of Uribe and key political coordinator. Expected to play a more political role than economic one.

Key Information

• Economic Context: Colombia has a relatively open economy with a narrow tax base and high informal sector activity.
• Fiscal Outlook: The administration is expected to take a conservative fiscal approach, focusing on reducing public spending and improving the tax system.
• Tax Reform: Aims to reduce corporate tax rates, broaden the tax base, and tackle tax evasion, with an estimated fiscal impact of 3pp of GDP.
• Social Security Reform: Focuses on eliminating pension taxes and reducing subsidies for higher incomes.
• Trade and Investment: The government plans to leverage existing trade agreements and reduce regulatory barriers to boost investment.
• Political Dynamics: The role of political mentors like Uribe is significant, but the administration is expected to remain politically stable.

Summary of Economic Outlook

• Growth Expectations: The administration aims to raise GDP growth to at least 4.5% through reduced red tape, lower taxes, and clearer rules.
• Inflation and Monetary Conditions: Core inflation is expected to be sticky, and COP volatility may continue to impact monetary policy.
• Unemployment: Remains a challenge due to low economic dynamism and high informality.
• FDI: Oil and mining remain the main sources of foreign investment, with a focus on reducing regulatory uncertainty.

Conclusion

The Duque administration faces significant economic challenges, including low diversification, fiscal pressures, and high tax evasion. The plan includes a series of reforms aimed at reducing the tax burden, improving the fiscal framework, and promoting growth through trade and investment. The team is composed of experienced economic advisors and political mentors, with a focus on maintaining fiscal responsibility while supporting private sector development. The success of the administration will depend on its ability to implement these reforms effectively and maintain political stability.