1. No category

Colombian
economic
outlook:
Macro Policy in the Wake of
External Shocks
Andrés Escobar
Deputy Minister of Finance and Public Credit
May 2015
Content
1. Sound macroeconomic
policy
2. External situation
Health of the Colombian macroeconomic framework will be determined
by the behavior of capital flows
3
We have to prevent it
from moving here
Decline of Terms
of Trade
Improvement of
Terms of trade
Outflows
-,-
-,+
Inflows
+,-
+,+
2
Source: Ministry of Finance.
Due to fall in oil prices, it
moved here…
1
Colombia was here
for many years…
Sound Macroeconomic Policy
is based on 3 pillars
1.
Responsible
monetary
and
exchange
rate policy
2.
Sound
financial
system
3.
Credible
fiscal
anchor
Inflation expectations remain anchored
Inflation Expectations
for December 2015
Central Bank Survey
Inflation Target
Source: Central Bank.
* Difference between Inflation-indexed and COP Government Bonds
Source: Central Bank, Bloomberg.
Inflation Target
10 Years Maturity*
5 Years Maturity*
Apr-15
Oct-14
Apr-14
Oct-13
Apr-13
Oct-12
Apr-12
Oct-11
Apr-11
Oct-10
1,5%
Apr-15
1,5%
Feb-15
2,5%
Dec-14
2,5%
Oct-14
3,5%
Aug-14
3,5%
Jun-14
4,5%
Apr-14
4,5%
Apr-10
Inflation Expectations: Break-even
Government Bonds
Well-anchored inflation expectations open space for monetary intervention
Central Bank’s Policy Rate
5,0%
4,0%
3,0%
2,0%
Inflation Target
Inflation Expectations
Central Bank's Policy Rate
Headline Inflation
Source: Central Bank, Bloomberg.
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
1,0%
Flexible exchange rate is an important asset in face of external shocks
Nominal Exchange Rate (COP/USD)
2.800
2.800
Oil price drop
2.600
2.400
2.600
JPMorgan
End of
QE3
2.400
Oil price
rally
2.200
2.200
2.000
2.000
1.800
1.800
1.600
1.600
Feb-14
Source: Bloomberg.
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Sound Macroeconomic Policy
is based on 3 pillars
1.
Responsible
monetary
and
exchange
rate policy
2.
Sound
financial
system
3.
Credible
fiscal
anchor
0%
Dec…
Jun-96
Dec…
Jun-97
Dec…
Jun-98
Dec…
Jun-99
Dec…
Jun-00
Dec…
Jun-01
Dec…
Jun-02
Dec…
Jun-03
Dec…
Jun-04
Dec…
Jun-05
Dec…
Jun-06
Dec…
Jun-07
Dec…
Jun-08
Dec…
Jun-09
Dec…
Jun-10
Dec…
Jun-11
Dec…
Jun-12
Dec…
Jun-13
Dec…
Jun-14
Dec…
Non-performing loans are at historically low levels
Non-performing loans as a percentage of the total loan portfolio
15%
10%
5%
2,91%
Source: Financial Superintendence of Colombia
Financial depth has advanced continuously
and the annual growth of the loan portfolio is stabilizing around 10%
Real annual growth of the loan
portfolio (%)
Total loans (% of GDP)
40%
37,8%
20%
35%
15%
30%
25%
20%
9,8%
10%
5%
15%
Source: Colombia’s Central Bank and Financial Superintendence
Dec14
Apr-14
Aug13
Dec12
Apr-12
Aug11
Dec10
0%
Apr-10
10%
Source: Financial Superintendence of Colombia
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
8%
Jan-01
Capital adequacy ratio
Jan-00
9%
Jan-99
10%
Jan-98
13%
Jan-97
15%
Dec-95
Feb-01
Oct-01
Jun-02
Feb-03
Oct-03
Jun-04
Feb-05
Oct-05
Jun-06
Feb-07
Oct-07
Jun-08
Feb-09
Oct-09
Jun-10
Feb-11
Oct-11
Jun-12
Feb-13
Oct-13
Jun-14
Feb-15
Capital adequacy and loan coverage ratios have steadily increased over
the last decade
Loan coverage ratio
17%
200%
16%
150%
14%
100%
12%
11%
50%
Regulatory minimum
0%
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Loans to oil-related sectors and extractive industries, as a percentage of the
total loan portfolio is low
Percentage of loans to extractive industries
5,0%
4,0%
3.38%
3,0%
2,0%
1,0%
0,0%
Source: Financial Superintendence of Colombia
Net position and % of loans in foreign currency represent a small proportion
of banks’ regulatory capital and the loan portfolio, respectively
Net position* in foreign currency as a
% of regulatory capital
Percentage of loans in foreign
currency
10,0%
24%
9,5%
21%
18%
9,0%
15%
8,5%
12%
9%
8,0%
6%
7,5%
3%
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Dec-14
Mar-14
May-13
Jul-12
Sep-11
Nov-10
Jan-10
Apr-09
Jun-08
Aug-07
Oct-06
*Net position= assets minus liabilities (excluding off-balance sheet
positions).
Source: Colombia’s Financial Superintendence and Central Bank.
Jun-13
7,0%
0%
Sound Macroeconomic Policy
is based on 3 pillars
1.
Responsible
monetary
and
exchange
rate policy
2.
Sound
financial
system
3.
Credible
fiscal
anchor
Oil revenues account for 15.6% of total fiscal revenues in 2014
Total Fiscal Revenues
140
25
120
18,4
9,7
100
4,6
60
7,4
40
20
2,2
28,1
8,3
6,1
2,1
32,3
3,3
36,7
7,9
9,2
5,2
3,6
42,2
51,1
10,2
6,6
7,3
14,2
58,1
67,7
62,9
19,5
15,6
20
15
16,0
10,3
6,2
9,8
19,7
84,6
%
COP Trillions
80
17,2
23,3
89,9
96,4
106,2
10
5
70,3
0
0
2002
2003
Source: Ministry of Finance
2004 2005 2006
Non-oil Revenues
2007 2008 2009
Oil Revenues
2010 2011 2012 2013
Share = Oil/Total
2014
Balance of the National Central Government (% of GDP)
Source: Ministry of Finance.
Deficit change between 2014 and 2015
Structural
Total
Balance
Balance
2014
2014
Cycle 2014
Oil
revenues
Interests/
Tax
payments Investment revenues
Other
Total
Structural
Balance
Balance
2015
2015
Cycle 2015
0
-0,5
-1
-1,5
-2
-2,5
-2,3
-0.1
-02
-02
-3
0.3
-1,5
0.6
-3,5
-0,3
-4
-4,5
Increases deficit
Reduces deficit
Non-structural or cyclical balance
0.4
-03
-0,6
4G Infrastructure Program
USD billions*
Number of
initiatives
Fiscal
appropriations
Wave
1+2+3
Private
initiatives
21
6
28.6
Capex
13.4
3.2
Opex
8.4
5.2
Debt
12.3
2.2
Equity
4.3
1.4
*Figures in USD billions 2014. Exchange rate: $1,999.4
Source: National Infrastructure Agency
USD
billions*
%
Local banks
7.8
53.8
Pension funds
1.3
8.9
Foreign sources
3.6
24.8
FDN (without ISAGEN)
1.8
12.4
Funding sources
4G Infrastructure Program
USD billions*
Number of
initiatives
Fiscal
appropriations
Wave
1+2+3
Private
initiatives
21
6
28.6
Capex
13.4
3.2
Opex
8.4
5.2
Debt
12.3
2.2
Equity
4.3
1.4
*Figures in USD billions 2014. Exchange rate: $1,999.4
** Limit (%) for FDN
Source: National Infrastructure Agency
USD
billions*
%
Local banks
6.0
41.0
Pension funds
1.3
8.9
Foreign sources
3.6
24.8
FDN (with ISAGEN)
3.6
25.0**
Funding sources
•
Two Commissions: Fiscal Rule and Tax Reform
•
Independent
Experts:
•
•
•
•
•
•
Miguel Urrutia
Guillermo Perry
Leonardo Villar
Eduardo Wiesner
+
Presidents of the
Economic
Commissions of
Senate and House of
Representatives
Deans of the four
major Departments
of Economics
•
•
•
•
•
•
•
•
•
•
•
Fiscal Rule
Committee
•
Tax Reform
Commission
External Experts:
Miguel Urrutia
Guillermo Perry
Leonardo Villar
Soraya Montoya
Julio Piza
Ricardo Bonilla
Rosario Córdoba
Alfredo Lewin
Oscar Morales
+
Minister of Finance
Deputy Minister of
Finance
Director of Tax
Collection Agency
Content
1. Sound macroeconomic
policy
2. External situation
Government is promoting access of international investors
to the local market
Foreign Capital Funds
14
12
Million USD
Decree
Review for
foreign
investor´s
tax base
Tax
Reform
10
JP
Morgan
8
17.46%
20%
18%
16%
14%
12%
10%
6
8%
6%
4
4%
2
2%
Foreing Investors
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
0%
Mar-12
0
Foreing Participation % (Right Axis)
Source: Deputy Directorate of Internal Debt, Data April 30th 2015.
Non-mining FDI has kept on growing: in 2014, it almost offset the fall in mining FDI
Foreign Direct Investment
18.000
16.200 16.054
16.000
8.111
10.000
8.000
8.089
6.000
4.000
2.000
6.419
Million USD
12.000
9.634
14.000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Oil and Mining
Source: Central Bank
Other industries
Current account deficit levels in 2015 will be smaller than previous year
Current account projections 2015
(million USD)
(19.780,48)
1.250
261
-13.023
Current
Account 2014
2014
2015
Traditional
exports
1.216
245
-269
76
3.328
(17.818,41)
4.022
4.855
Non-traditional Other exports
Consumer
Intermediate Capital goods Other imports
exports (without
goods imports goods imports
imports
non-monetary
gold)
Current Account
Traditional
exports
-19,780
-17,818
38,587
25,564
Non-traditional
exports (without non- Other exports
monetary gold)
14,396
19,251
3,999
4,260
Consumer goods Intermediate
imports
goods imports
12,877
8,855
Source: Central Bank. Ministry of Finance’s projections
26,356
25,106
Net services Primary Income
exports
Secondary
Income
Current
Account 2015
Capital goods
imports
Other imports
Net services
exports
Primary Income
Secondary
Income
20,196
18,979
2,248
2,003
-6,586
-6,856
-12,857
-9,528
4,357
4,433
However, cumulative depreciation and a smaller economic growth in 2015, will
increase the current account deficit as a percentage of GDP
Current account projections 2015
(% GDP)
Differences as % of GDP (2014)
-5,23
0,3
Current
Account 2014
2014
2015
-0,1
0,0
-0,8
-06
Current Account deficit 2015
(%GDP of 2014):
1,1
0,1
-3,4
0,1
0,3
0,9
-4,7
1,3
Traditional Non-traditional Other exports Consumer Intermediate Capital goods Other imports Net services
exports
exports
goods imports goods imports
imports
exports
(without nonmonetary gold)
Current Account
2014
Traditional
exports
Non-traditional
exports (without nonmonetary gold)
Other exports
-5.2
-5.5
10.2
7.9
3.8
6.0
1.1
1.3
Consumer goods Intermediate
imports
goods imports
3.4
2.7
Source: Central Bank. Ministry of Finance’s projections
7.0
7.8
Primary
Income
Secondary
Income
GDP
Current
adjustment Account 2015
2015
Capital goods
imports
Other imports
Net services
exports
Primary Income
Secondary
Income
5.3
5.9
0.6
0.6
-1.7
-2.1
-3.4
-3.0
1.2
1.4
Correction of current account deficit as percentage of GDP is expected to
start after 2015
Current account projections
(% GDP)
2
1
0
-1
-2
-3
(3,30899)
-4
-5
(5,1000)
-5,2391(5,5000)
-6
Source: Central Bank. Ministry of Finance’s projections
2016p
2015p
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-7
Colombian
economic
outlook:
Macro Policy in the Wake of
External Shocks
Andrés Escobar
Deputy Minister of Finance and Public Credit
May 2015