Colombia: Economic Adjustment and Outlook Andres-Mauricio Velasco Technical Deputy Minister of Finance, Republic of Colombia February 2018
What is Colombian Ministry of Finance s outlook and funding strategies for 2018 and beyond?
Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 jun-10 oct-10 feb-11 jun-11 oct-11 feb-12 jun-12 oct-12 feb-13 jun-13 oct-13 feb-14 jun-14 oct-14 feb-15 jun-15 oct-15 feb-16 jun-16 oct-16 feb-17 jun-17 oct-17 feb-18 Shock 1: Oil price drop to the lowest level in a decade Brent Price (USD) Nominal Exchange Rate (COP/USD) 120 115,1 $3.500 $3.300 3.358 100-75,8% $3.100 $2.900 +80,7% 80 70,4 $2.700 $2.500 2.860 60 $2.300 $2.100 40 27,9 $1.900 $1.700 1.858 20 $1.500 Source: Bloomberg.
20-feb-12 20-ago-12 20-feb-13 20-ago-13 20-feb-14 20-ago-14 20-feb-15 20-ago-15 20-feb-16 20-ago-16 20-feb-17 20-ago-17 20-feb-18 Shock 2: Slow growth of trade peers and financial markets volatility above historical average 5,0 4,0 Non-traditional trade peers GDP growth (Annual growth, %) 4,2 3,2 48 43 38 VIX (Basis points) 40,74 37,32 3,0 33 2,0 2,2 1,2 1,6 28 23 1,0 0,7 18 18,72 0,0 13-1,0-0,4 2012 2013 2014 2015 2016 2017p 2018p 8 Source: Bloomberg and IMF.
Institutional improvement is key to face external shocks 3. Establishment of solvency and liquidity indicators 9. FTA with U.S.A 1991 1999 2001 2003 2011 2012 1. Independence of the Central Bank 2000 2. Flexibility of the exchange rate 4. Inflation targeting 5. Medium Term Fiscal Framework Implementation 6. Fiscal Rule 7. Investment grade 8. Pacific Alliance 2013 10. FTA with European Union
Macroeconomic Adjustment
-19.764-18.775-8.736-9.802-11.366-12.502-12.393-11.026-10.285 2010 2011 2012 2013 2014 2015 2016 2017* 2018* In spite of a strong external shock, we have achieved a smooth adjustment in the current account deficit Current Account Balance USD Millions % GDP 0,0 0-1,0-5000 -2,0-3,0-10000 -4,0-3,0-2,9-3,1-3,3-3,6-3,2-15000 -5,0-4,4-5,2-20000 -6,0-7,0-6,4-25000 Source: DANE, Central Bank. *Estimated data, Ministry of Finance
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017p 2.959 2.384 4.472 1.512 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 5.425 7.468 7.095 3.791 8.121 9.851 8.585 8.094 5.651 4.918 8.901 4.414 5.139 2.288 7.180 7.945 5.429 3.048 3.504 8.089 6.314 3.361 Macroeconomic fundamentals allowed for greater confidence, boosting foreign investment 18.000 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0 6.751 Gross Foreign Direct Investment (USD Millions) 8.886 Others Oil and mining Isagen Total 10.565 8.036 6.430 16.210 16.165 14.648 15.039 11.632 13.743 12.405 Bn COP 80 70 60 50 40 30 20 10 Foreign Portfolio Investment in Colombian Government Bonds 0 27% 30% 25% 20% 15% 10% 5% 0% Nominal Balance Foreign Participation (right axis) Source: Central Bank and Ministry of Finance
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Fiscal deficit: structural and cyclical components (% of GDP) Fiscal Rule Set by the Government -2,8-2,3-2,3 Set by the Fiscal Rule Committee -2,4-2,4-2,3-2,4-2,2-2,2-3,0-1,9-1,9-3,1-1,7-2,2-1,4-1,6-1,3-1,3-1,0-1,0-1,0 Complying with the Fiscal Rule has been key to ensure confidence -4,1-3,9-4,0-3,6 Deficit Structural deficit 9 Source: Fiscal Rule Committee and Ministry of Finance
Central Government revenues and expenditures 2009-2018 (% of GDP) Revenues Non-Interest Expenditures 15,3 2,8 Non oil revenues Oil revenues Telco s arbitration award 13,8 0,9 15,2 1,6 16,1 16,9 16,7 16,1 2,6 3,3 2,6 1,1 14,9 15,7 15,4 0,47 0,1 0,0 0,6 16.4 0,35 Reserve 12,5 12,9 13,6 13,5 13,5 14,0 15,0 14,8 15,2 14,8 16,4 14,9 15,3 15,9 16,9 16,8 16,6 16,0 16,1 15,5 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 10 Source: Ministry of Finance and Public Credit
Summary of Fiscal Adjustment 2013-2018 (% of GDP) Shock Adjustment 2013 vs 2018 2013 vs 2018 3,4 3,4 2,3% to 2,9% Higher interest payments 0,6 0,7 Increase in fiscal deficit 2,3% to 3,1% 1,4 Reduction in non-interest expenditures 16,9% to 15,5% 3,3% to 0,6% Reduction in oil revenues 2,8 1,3 Increase in non-oil revenues 13,5% to 14,8% 11 Source: Ministry of Finance and Public Credit
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Central Government revenues and expenditures 2013-2022 (% of GDP) Revenues Non oil revenues Oil revenues Telco s arbitration award 16,9 16,7 16,1 15,7 3,3 2,6 1,1 14,9 15,4 15,6 16,1 16,2 16,3 0,6 0,9 0,9 0,9 1,0 0,5 0,1 Expenditures Current expenditures + investment Interest payments Reserve 19,2 19,1 19,2 18,9 19,3 0,3 18,4 17,8 17,7 17,5 17,4 2,3 2,2 2,6 2,9 2,9 2,9 2,9 2,8 2,6 2,5 13,5 14,0 15,0 14,8 15,2 14,8 14,8 15,2 15,3 15,4 16,9 16,8 16,6 16,0 16,1 15,5 15,0 15,0 15,0 15,0 *Does not include reserve owed to fine (0,3% of GDP). 12 Source: Ministry of Finance and Public Credit
Onwards: Fiscal Strategy 2018-2022 (% of GDP) 2,0 2,0 0,6 Larger non-oil Revenues Deficit Reduction 0,4 Larger Oil Revenues 0,5 Lower Interests 0,5 Lower Current & Capital Expenditures Source: Ministry of Finance
Central Government Debt (% of GDP) 35,4 35,8 35,6 41,1 6,4 42,6 5,4 43,6 43,6 5,6 5,5 Effect of Depreciation since 2012 10,9 10,4 32,7 31,5 32,6 2,8 0,5 9,8 8,8 8,9 8,8 9,1 9,2 9,1 8,8 24,5 25,4 22,9 22,7 23,3 24,1 25,5 28,0 28,9 29,3 2009 2010 2011 2012 2013 2014 2015 2016 2017p 2018p Moneda Local currency Local Moneda Foreign currency Extranjera Source: Ministry of Finance * 2012: Exchange rate (end of period) = $1.768 COP/USD
National Central Government s Debt Strategy Currently, the composition of the Central Government s (GNC) debt is 66.2% in Colombian pesos and 33.8% in foreign currency Our goal is to reach a composition of 70/30 (as in 2011) In 2018, the placement strategy will be 84% in Colombian pesos and 16% in foreign currency, and forward 80/20 With a similar forward strategy (80/20) we expect that in 2021 the debt composition goal of 70/30 will be reached
Since 2013, the General Government s liquid assets have been above the historical average, reaching a level of 10.3% of GDP in September 2017 General Government's Liquid Assets (% of GDP) 12 10 8 6 8,7 3,0 6,4 0,9 Average of the last 10 years : 7,9 7,1 6,6 6,4 1,4 0,8 0,8 7,0 0,7 9,1 1,0 10,1 1,3 8,4 2,2 9,0 2,4 10,3 2,2 4 2 5,7 5,5 5,7 5,7 5,6 6,4 8,1 8,8 6,3 6,6 8,1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Domestic assets Foreign assets Nota: Liquid assets include: Government deposits in the Central Bank, current accounts, savings accounts, certificates of deposit, bonds, trust funds and foreign portfolios Source: Central Bank, Ministry of Finance *Accumulated to September
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 In the mid-term Colombia will grow above its regional peers 8,0 6,0 Economic growth (y-o-y variation, %) Pacific Alliance Colombia Latin America and the Caribbean 4,0 2,0 3,7 3,0 2,7 0,0-2,0 Source: IMF (WEO), January 2018 Update
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Less poverty and more employment have strengthened a surging middle class 30,4 Multi-Dimensional Poverty (% of total population) 29,4 27,0 5.1 million people were taken out of poverty since 2010 24,8 21,9 20,2 17,8 National Unemployment Rate (Annual Average) 11,8% 10,8% 10,4% 9,6% 3.5 million new jobs created 9,1% 8,9% 9,2% 9,4% Informality Rate 13 main cities* (% of employed, annual average) 57,4 57,0 57,757,957,8 56,8 Informal Formal 2012 Tax Reform: reduction of non-wage labor costs 54,9 53,1 51,9 48,1 46,9 50,4 49,6 50,6 49,4 42,6 43,0 43,2 42,342,142,2 45,1 Nearly 2.5 million new formal jobs created** *Informality according to affiliation to social security - pension Source: DANE
2018 has began with good news
dic-14 abr-15 ago-15 dic-15 abr-16 ago-16 dic-16 abr-17 ago-17 dic-17 abr-18 ago-18 dic-18 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Inflation is now under control and lower interest rates will boost the economic recovery Annual Inflation Rate (annual growth, %) Interest rate and inflation expectations (%) Target Inflation Range Target Range 9 10% Inflation Expectations 12 months ahead 8 Central Bank Policy Rate 8% 7 6 5 4 3 3,40 4,09 3,68 3,3 6% 4% 4,5% 3,4% 2 2% 1 0 0% Source: DANE, Central Bank
12-jun-17 2-jul-17 22-jul-17 11-ago-17 31-ago-17 20-sep-17 10-oct-17 30-oct-17 19-nov-17 9-dic-17 29-dic-17 18-ene-18 7-feb-18 27-feb-18 27-mar-2017 27-abr-2017 27-may-2017 27-jun-2017 27-jul-2017 27-ago-2017 27-sep-2017 27-oct-2017 27-nov-2017 27-dic-2017 27-ene-2018 27-feb-2018 So far, 2018 has shown favorable prices for our export basket, causing an appreciation of the Colombian peso 72 BRENT Crude Oil (USD/Barrel) Average 2018 67,55 3150 3100 Peso/Dollar Exchange Rate 67 3050 62 3000 Average 2018 2916,85 57 52 47 Average 2017 56,5 2950 2900 2850 2800 2750 Average 2017 2.952,3 BBB- Rating (S&P) 42 2700 Source: Bloomberg
Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15 Feb-16 Oct-16 Jun-17 Feb-18 Colombia s risk perception reached its lowest level since November 2014, allowing for lower financing rates CDS 5 year Colombia (bps) TES 2024 yield 900 800 700 600 847 598,7 10,5 9,5 8,5 9,97 8,9 8,98 500 7,5 400 326,2 6,5 300 200 100 0 94,5 5,5 4,5 3,5 4,8 6,17 Source: Bloomberg
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Confidence is showing an important recovery 35 Industrial Confidence Index (ICI)* 35 Retail Confidence Index (ICCO) 30 30 25 20 19,8 25 20 21,8 15 15 10 10 *With seasonal adjustment Source : Fedesarrollo 23
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Confidence is showing an important recovery Consumer confidence index (CCI) Willingness to buy houses (%) 45 50 35 40 25 30 15 20 5 10-5 -5,4 0 1,3-15 -10-25 -20-35 -30 Source : Fedesarrollo 24
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Energy consumption s growth is accelerating. Good figures on non-regulated energy suggests higher demand from the manufacturing sector 8% 6% Energy Demand (Annual growth, %) 12% Regulated and Non-regulated Energy Demand (Annual growth, %) 4% 3,5% 8% 2% 0% -2% -4% -6% 4% 0% -4% -8% 3,8% 3,1% Regulated Non-Regulated Source : XM
dic-13 mar-14 jun-14 sep-14 dic-14 mar-15 jun-15 sep-15 dic-15 mar-16 jun-16 sep-16 dic-16 mar-17 jun-17 sep-17 dic-17 dic-13 mar-14 jun-14 sep-14 dic-14 mar-15 jun-15 sep-15 dic-15 mar-16 jun-16 sep-16 dic-16 mar-17 jun-17 sep-17 dic-17 Colombia s exports had an important dynamism in 2017. Non-traditional exports show signs of sustained recovery Total Exports (Monthly USD Million, annual growth, %) Non-Traditional Exports (Monthly USD Million, annual growth, %) 6.000 5.000 4.000 3.000 2.000 1.000 2017 Growth 19,0% 50 40 30 20 10 0-10 -20-30 -40 1.200 1.100 1.000 900 800 700 2017 Growth 4,3% 60 50 40 30 20 10 0-10 -20-30 0-50 600-40 Valor mensual (Millones de USD FOB) Valor mensual (Millones de USD FOB) Variación % anual (eje derecho) Source: Ministry of Finance based on DIAN and DANE 26
In 2017 the number of international visitors increased 9.4% Entry of foreigners by plane (Millions of travelers) 2,6 2,3 2,1 1,8 1,4 1,6 1,7 1,8 0,1 0,1 0,2 0,2 2014 2015 2016 2017 Total Bogotá Cartagena Source: Migración Colombia 27
In 2018, significant growth is expected in private investment in infrastructure, particularly in 4G projects Private Investment in Transport Infrastructure (Trillion COP) 16,2% 9,1 7,9 6,4 3,1 3,9 4,3 4,8 4,8 1,9 4,9 7,0 2,6 2,7 2,8 3,5 3,8 3,2 2,1 1,1 2011 2012 2013 2014 2015 2016 2017 2018 1G - 3G Roads 4G Roads Airports Railways Ports Total Private Investment Source: ANI. Forecasts for 2018
About Future Growth
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Higher education levels and the decline of violence show structural change in Colombia 90 Homicide Rate (Homicides per 100 thousand inhabitants) 80 78 70 66 60 50 58 40 35 30 20 10 0 30 24,5 Source: Ministry of Defense National Police
2010 2011 2012 2013 2014 2015 2016 As a consequence of increases in enrollment and public spending in education, average schooling levels have increased among the employed Tertiary Education Enrolment Rates (%) % of Employed by Education Level (annual average) Expenditure on Education and Defense (% of GDP) 37,1 41,7 40,4 45,2 47,8 49,4 51,2 32,0 30,5 28,0 28,4 28,6 29,1 29,2 21,5 21,2 21,6 20,3 18,4 17,6 16,9 3,9% 3,9% 3,7% 3,6% 3,7% 3,6% 3,6% 3,6% 3,6% 3,5% 3,4% 3,4% 3,3% 3,3% 2010 2011 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2017 2018 High School Tertiary Education Education Defense Source: GEIH DANE, and Ministry of Finance
Structural Change 344 ZOMAC Municipalities 4G Projects Source: DANE * Development Programs with Territorial Approach (Programas de Desarrollo de Enfoque Territorial PDET) Source: ANI Ministry of Finance
Looking ahead 1. Implementation of the Peace Agreement 2. Fiscal consolidation 3. Pension Reform 4. Diversification and growth of non-traditional exports 5. Successful execution of 4G projects
Colombia: Economic Adjustment and Outlook Andres-Mauricio Velasco Technical Deputy Minister of Finance, Republic of Colombia February 2018