major macro economic indicators
|2020||2021||2022 (e)||2023 (p)|
|GDP growth (%)||-7.0||10.7||8.0||0.5|
|Inflation (yearly average, %)||2.5||3.5||10.0||10.0|
|Budget balance (% GDP)||-7.8||-7.1||-5.6||-4.7|
|Current account balance (% GDP)||-3.4||-5.7||-6.5||-4.7|
|Public debt (% GDP)||65.0||63.5||62.0||63.0|
(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
- Large foreign direct investment level
- 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 being implemented slowly, particularly in the countryside
- Structural unemployment, poverty and inequality, deficient educational and healthcare systems
- Durably large twin deficits will keep the country vulnerable to changes in investors’ moods
Activity growth to sharply decelerate in 2023, from a high starting point
Economic growth will cool sharply in 2023 owing to a high base of comparison, and as inflation remains elevated and credit conditions further tighten (from 1.75% up to September 2021 to 12% in December 2022). This situation will also dent household consumption (71% of GDP), implying a lower expansion rate, albeit the roughly 3% real increase in the minimum wage. Gross fixed investments (19% of GDP) are also expected to weaken amid tighter financing conditions and lower activity growth perspectives. In addition, mining investments could also be affected by the tax reform approved in November 2022, which, among other measures, created a surcharge for the oil and coal sectors, based on international prices. Finally, export growth is also set to lose steam amid expected lower global growth (including in its main trade partner, the US) and as agriculture (coffee, banana, palm and palm oil), and energy (oil and coal) prices register some marginal easing (albeit remaining at durably historically high levels).
Twin deficits to narrow, but to remain at elevated levels
The large current account deficit is expected to improve somewhat in 2023, driven by a smaller trade deficit (-4.4% of GDP in 2021). The strong deceleration in domestic activity will take a toll on imports, which should prevail over expected slower foreign sales growth. Similarly, the primary income deficit (-2.7% of GDP) should also narrow due to lower foreign investors’ repatriated income. Meanwhile, the services deficit should remain broadly similar to 2022 (the tourism surplus could be affected by lower global growth, but freight costs are set to moderate). Finally, the secondary income surplus (3.4% of GDP) should reduce, as remittances coming from the US and Spain weaken, assuming a deterioration in their job dynamics. On the financing side, rebounding FDI should not fully cover the external account shortfall. The country will continue to rely on more volatile sources (such as portfolio investments) to close the gap. This is particularly worrisome amid higher global risk aversion and the ongoing retightening of monetary policy in developed markets. Gross external debt stood at 51.4% of GDP in September 2022, with 57% public owed and 43% private owed. Moreover, non-resident holding of local-currency government bonds equals 8% of GDP. On the other hand, the government can count on a Flexible Credit Line with the IMF of roughly USD 9.8 billion (USD 5.4 billion withdrawn in 2020), which was renewed for two years in April 2022. Furthermore, in November 2022, foreign exchange reserves stood at USD 57 billion (covering approximately 8 months of imports).
Regarding the fiscal account, in November 2022, Petro´s ruling government was able to persuade Congress to approve a tax reform which aims to collect an additional 1.4% of GDP during its first year in force in 2023. Legislation changes include higher tax rates for high-income earners, for companies involved in mining activities, and on soft drinks, among others. In parallel, policymakers are also seeking to obtain the equivalent of a further 1.8% of GDP by combating tax evasion over the next four years. The reform aims to fund social projects and help improve Colombia’s fiscal account. Overall, fiscal consolidation in 2023 will be partly offset by higher financing costs.
Colombia elects its first leftist government
The leftist Gustavo Petro took office on 7 August 2022 for a four-year term, after winning the runoff in the presidential elections with 50.5% of the ballots against the independent Rodrigo Hernández, who polled 47.3% of the votes. Petro became Colombia´s first left-wing president. He is an economist and previously served as a Senator and as Mayor of Bogota. Dissatisfaction with high inequality, poverty, as well as demands to improve security in cities and fight violence in rural areas, where illegal armed groups dedicated to drug trafficking operate is likely to have contributed to his victory. Nonetheless, he has already undergone a drop in his approval rating, from 56% in August 2022 to 48% in December 2022. Petro’s Pacto Histórico coalition hold 19 seats in the Senate (out of 108 seats) and 25 seats in the Lower House (out of 172 seats), which requires negotiation skills in order to move forward with reforms. Overall, left-wing parties have 36% of the Senate, right-wing parties control 49% and centrists 19%. In the Lower House, the right wing is the largest group (45%), followed by the left (34%) and then by centrists (21%). Petro advocates in favour of halting new oil projects due to environmental concerns. Moreover, the approved tax reform would help to finance his plans for education (such as progressively ensuring access to public and quality education at technological and university levels) and healthcare (i.e., guarantee the right to healthcare through a single, public, universal, preventive, predictive, participatory, decentralized and intercultural system). Additionally, the government intends to reform labour and pension system laws in 2023. Regarding foreign policy, Petro has also worked on restoring diplomatic ties with Venezuela, which were severed in 2019. He has discussed topics such as trade, migration and security with Nicolas Maduro. Furthermore, regarding security, Petro, who was part of the M-19 guerrilla group in his youth, defends the full implementation of the 2016 FARC peace deal and the demobilisation of the still-operational ELN rebels to improve security and rural development. In December 2022, the government and the ELN announced the completion of a first round of talks.
Last updated: February 2023
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.