major macro economic indicators
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)||2.5||3.3||-7.0||3.7|
|Inflation (yearly average, %)||3.2||3.5||2.4||2.1|
|Budget balance (% GDP)||-4.7||-2.5||-8.2||-5.2|
|Current account balance (% GDP)||-3.9||-4.3||-3.3||-3.6|
|Public debt (% GDP)||53.7||52.3||68.0||68.0|
(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
- Institutional stability
- Sensitivity to commodity price movement and the economic situation in the U.S.
- Relatively undiversified economy (in terms of manufacturing)
- Shortcomings in road and port infrastructures due to historically low levels of investment
- Problematic security situation because of drug trafficking and illegal mining, as the 2016 peace agreement is slowly implemented, particularly in the countryside
- Structural unemployment, poverty and inequality; deficient educational and healthcare systems
A partial economic rebound for Colombia in 2021
Colombia registered its first COVID-19 case on 6 March 2020 and the government declared a lockdown on 25 March. Subsequently, the quarantine ended on 1 September 2020, but with a new rise in contagion during the end of year holiday season, curfews were implemented in January 2021 in selected cities where ICU use was high. Because of the containment measures and the collapse in external demand, and despite the stimulus implemented to smooth the negative shock on households and businesses, the country was still highly impacted by the virus. Moreover, the sharp drop in energy commodity prices also took its toll on GDP, since fuels and extractive industry products account for roughly 56% of total exports and 10% of GDP (according to figures of 2019). In 2021, the economy will partially rebound. Household consumption should be supported by the gradual improvement on the job market and low inflation. Furthermore, gross fixed investment is expected to benefit, to some extent, from the development plan launched by the government in August 2020 named Compromiso por Colombia, which aims at generating USD 30 billion (9% of 2019 GDP) in public and private investments (encompassing existing infrastructure, clean energy generation and rural development), as well as creating one million jobs. Finally, external sales are likely to improve thanks to the recovery of global activity and relatively higher energy prices. Risks to the recovery scenario are related to the evolution of the COVID-19 pandemic, the behaviour of oil prices and the risk of a new round of social protests.
Current account deficit set to widen in 2021, fiscal deficit will remain elevated
The current account deficit narrowed in 2020, thanks to a reduced income deficit amid a strong contraction of profits linked to foreign companies operating in the country. On the other hand, the services and trade deficits remained quite stable, with the latter account reporting large drops in both imports and exports. Meanwhile, FDI registered a sharp slide and were probably not able to fully cover the current account deficit. In order to meet the external financing needs, the government issued bonds on international markets and mainly contracted long-term credits with foreign multilateral banks. As a reference, total external debt stood at 53.6% of GDP in July 2020, up from 42.7% of GDP in December 2019, with 29.6% of GDP public-owed and 23.9% private-owed (up from 22.8% and 19.9%, respectively). Moreover, non-resident holding of local-currency government bonds is another risk factor (around USD 21.5 billion or 7.7% of GDP). As such, to improve the country´s external pillars, the government assured the expansion of the Flexible Credit Line with the IMF from roughly USD 11 billion to USD 17.3 billion (withdrew USD 5.4 billion in December 2020). In September 2020, foreign exchange reserves stood at USD 56.9 billion (covering approximately 16 months of imports). In 2021, the current account deficit will widen, as domestic demand will resume (increasing imports and foreign companies´ profits), which should offset the rise in exports supported by higher external demand and relatively better oil prices. Conversely, the higher economic momentum will support a rebound in FDI, which will recover its role as a major current account financer. Regarding the fiscal accounts, the COVID-19’s negative shock led the Fiscal Rule Advisory Committee to suspend government deficit limits in 2020 and 2021, giving the authorities additional fiscal space to face the consequences of the crisis.
Elevated political risk amid weaker social indicators and episodes of violence
The popularity of President Ivan Duque fell to 31% in October 2020, from 52% in April 2020. This sharp drop was induced by the political wear and tear caused by the quarantine, the social consequences of the crisis, and the uptick in violence. After the mass protests in Q4 2019, social tensions regained momentum in September 2020 because of the death of a student in police custody. This led thousands of people to protest against police brutality and to demand an institutional reform. Furthermore, a large number of social organizations and trade unions also resumed their protests in October 2020, condemning violence (namely the assassination of social leaders) as well as the government’s social and economic policies. Indeed, in early November 2020, thousands of former FARC guerrillas rallied in the country to protest against the murder of 236 ex-combatants since the 2016 peace agreement, who were victims of paramilitaries and criminal gangs. Meanwhile, the government condemned the mass killings, but, at the same time, downplayed their recent rise and defended security forces. Overall, the recent rise in social tensions are reducing the government’s political capital, blowing the chances of passing important reforms (including the tax reform).
Last updated: March 2021
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.