Colombia - Country Report - 2023

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COLOMBIA
FEBRUARY 2023 COUNTRY REPORT
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COLOMBIA
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COLOMBIA
TABLE OF CONTENTS
COUNTRY REPORTS & ECONOMIC FORECASTS (CREF)

2 Map
3 Key Takeaways
5 Regime, Business & Investment Forecasts
7 Econometric Data
9 Intra-Regional Comparisons
11 Geopolitical & Economic Analysis
17 International Country Risk Guide (ICRG) Ratings
© 2022, The PRS Group, Inc. ISSN: ####-####

MAP
Netherlands Antilles
Santa (NETH.)
Marta
Barranquilla
Cartegena
Panama Coveñas
Monteria
Turbo
Cucuta
Venezuela
Medellin
Cauca R.
Imbagué
Bogatá
Buenaventura R.
iare
Guav
R.
Cali
na
ale
gd
Tumaco
Ma
Mitu
Pasto
Equator COLOMBIA
Ecuador
Brazil
Peru Leticia

KEY TAKEAWAYS
MOST LIKELY REGIMES & THEIR PROBABILITIES
18-MONTH Divided Government 60%
FIVE-YEAR Divided Government 45%
FORECASTS OF RISK TO INTERNATIONAL BUSINESS

FINANCIAL DIRECT EXPORT
TURMOIL TRANSFER INVESTMENT MARKET
18-MONTH High B- B (B+) B
FIVE-YEAR Moderate C+ B- C+
( ) Indicates change in rating
* Indicates forecast of a new regime
KEY ECONOMIC FORECASTS

REAL GDP CURRENT
GROWTH (%) INFLATION (%) ACCOUNT ($bn)
2018-2022(AVG) 3.4 4.6 -15.53
2023(F) 0.9 9.2 -16.60
2024-2028(F) 3.2 3.4 -15.30
PETRO FACES HURDLES

Gustavo Petro passed the six-month mark of his four-year presidency earlier this month, and it is
probably fair to judge his record to date as a qualified success. The leftist administration’s dependence
on the backing of centrist and center-right parties for a congressional majority has already resulted in a
dilution of the president’s tax reforms and will force Petro to contain his more radical inclinations in
other policy areas. Moreover, the cohesion of the coalition will be tested in the coming months as global
headwinds sap the vigor of the economy, likely resulting in a further erosion of Petro’s already sagging
popularity, which had fallen below 50% by the end of 2022.
In addition to laying the foundation for a green energy transition and reducing the country’s economic
dependence on the extraction of oil and coal, Petro has pledged to enhance worker protections by
limiting the use of nontraditional employment arrangements and regulating working conditions within
the rapidly growing digital economy. Other priorities include the implementation of reforms that would
expand the role of the public sector in the delivery of health services and management of pension funds.
Petro will struggle to obtain buy-in from his nominal allies on many specifics, making it doubtful that
the reforms can be passed without significant concessions by the government that will disappoint the
main governing PHxC’s base. Recent mixed signals related to Petro’s pledge to cease awarding new oil
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28-Feb-2023 | Page 3
and gas exploration contracts suggest that the administration is struggling to balance the competing
political forces, adding to the uncertainty for investors that has contributed to steep declines for both
the peso and the COLCAP stock index.
Critics of the tax reforms have warned that they will contribute to a substantial decline in oil and gas
production over the medium term, with negative implications for state revenues. More immediately,
there is doubt about Petro’s ability to fulfill his spending promises while still adhering to a fiscal rule
that limits the budget deficit according to the size of the public-sector debt. With slower growth likely to
have a dampening effect on revenues and interest-rate hikes in the US pushing up the cost of servicing
the nearly one-third of the public debt that is denominated in dollars, there is a distinct danger that the
deficit target will be overshot, possibly by a significant margin, in 2023.
Earlier this month, the government unveiled a four-year development plan that proposes total
investment of close to $250 billion on projects to reduce poverty (including the transfer of some 7.4
million acres of farmland to poor families), advance the energy transition with financial incentives for
domestic and foreign companies that develop carbon-neutral energy projects, and enhance infrastructure
as part of a broader plan to boost trade capacity and facilitate the economic integration of remote areas.
Petro recognizes that the success of the entire strategy hinges on the pacification of lawless areas of the
country. The government has restarted talks with the leftist ELN, and the prospects for progress have
been enhanced by the participation of Venezuela, which is hosting the negotiations in Caracas. However,
there are no guarantees that a peace agreement struck with the ELN would result in the permanent
disarmament and demobilization of all factions. As for other armed groups, the leftist president has little
credibility with the right-wing AGC, which local news reports suggests is continuing to rely on violence
in furtherance of its criminal activities, which remain quite profitable.
With inflation in double-digit territory and continuing to rise, pressure is high for additional monetary
tightening that will reinforce the slowing trend in 2023. On balance, real GDP growth is forecast to slow
to less than 1% in 2023, and the downside risks to the forecast are not insignificant. Inflation will ease
only gradually, and consumer price increases are expected to remain in high single digits on average
into 2024.
ECONOMIC FORECASTS FOR THE THREE ALTERNATIVE REGIMES

Divided Government Center-Left Coalition Centrist Coalition
GROWTH INFLATION CACC GROWTH INFLATION CACC GROWTH INFLATION CACC

(%) (%) ($bn) (%) (%) ($bn) (%) (%) ($bn)
2023 0.9 9.2 -16.60 -0.5 9.0 -15.20 1.5 8.8 -13.60
2024-2028 3.2 3.4 -15.30 2.4 4.0 -16.30 4.0 3.2 -10.20
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REGIME, BUSINESS & INVESTMENT FORECASTS
SUMMARY OF 18-MONTH FORECAST

Center-Left Coalition Divided Government Centrist Coalition
REGIMES & PROBABILITIES 50% 40% 10%
RISK FACTORS CURRENT
Turmoil Moderate SLIGHTLY MORE SLIGHTLY MORE SLIGHTLY MORE
Investment
Equity Moderate SLIGHTLY MORE SLIGHTLY MORE Same
Operations Moderate SLIGHTLY MORE SLIGHTLY MORE Same
Taxation Moderate SLIGHTLY MORE Same Same
Repatriation Moderate Same Same Same
Exchange Low Same Same Same
Trade
Tariffs Moderate SLIGHTLY LESS SLIGHTLY LESS SLIGHTLY LESS
Other Barriers High Same Same Same
Payment Delays Moderate Same Same Same
Economic Policy
Expansion High Same Same SLIGHTLY LESS
Labor Costs Low SLIGHTLY MORE SLIGHTLY MORE Same
Foreign Debt High SLIGHTLY MORE Same Same
SUMMARY OF FIVE-YEAR FORECAST

*Divided Center-Left Centrist Coalition
REGIMES & PROBABILITIES
Government 45% Coalition 30% 25%
RISK FACTORS BASE
Turmoil Moderate SLIGHTLY MORE Same Same
Restrictions
Investment Moderate Same SLIGHTLY MORE SLIGHTLY LESS
Trade Moderate Same SLIGHTLY LESS SLIGHTLY LESS
Economic Problems
Domestic High Same SLIGHTLY MORE SLIGHTLY LESS
International Very High SLIGHTLY LESS SLIGHTLY LESS LESS
* When present, indicates forecast of a new regime
COLOMBIA | REGIME, BUSINESSEMISPDF

& INVESTMENT FORECASTS
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Colombia
Real GDP Growth Under Alternative Regimes
15.0
10.0
5.0
(percent)
0.0
-5.0
-10.0
2018 2019 2020 2021 2022e 2023f 2024-
2028f
Colombia
Inflation Under Alternative Regimes
12 Divided Government Center-Left Coalition Centrist Coalition
10
8
(percent)
0
2018 2019 2020 2021 2022e 2023f 2024-
2028f
Colombia
Current Account Under Alternative Regimes
0.0
-5.0
-10.0
($billions)
-15.0
-20.0
-25.0
2018 2019 2020 2021 2022e 2023f 2024-
2028f
COLOMBIA | REGIME, BUSINESSEMISPDF

& INVESTMENT FORECASTS
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Political Risk Services Reproduction without written permission of
The PRS Group is strictly prohibited.
28-Feb-2023
Colombia
Econometric Data
2013-2017 2018-2022
Average Average 2013 2014 2015 2016 2017
Domestic Economic Indicators
GDP (Nominal, $bn) 330.30 317.95 381.93 381.32 293.18 283.06 312.01
Per Capita GDP ($) 6860 6262 8068 7979 6079 5818 6358
Real GDP Growth Rate (%) 3.2 3.4 5.1 4.5 3.0 2.1 1.4
Inflation Rate (%) 4.3 4.6 2.0 2.9 5.0 7.5 4.3
Capital Investment ($bn) 74.98 64.49 83.22 88.24 70.02 64.14 69.26
Capital Investment/GDP (%) 22.7 20.2 21.8 23.1 23.9 22.7 22.2
Budget Revenues ($bn) 53.00 50.27 64.06 62.93 47.12 42.07 48.83
Budget Revenues/GDP (%) 16.0 15.8 16.8 16.5 16.1 14.9 15.7
Budget Expenditures ($bn) 62.76 65.86 72.99 71.11 55.96 53.52 60.23
Budget Expenditures/GDP (%) 19.0 20.8 19.1 18.7 19.1 18.9 19.3
Budget Balance ($bn) -9.76 -15.59 -8.93 -8.18 -8.84 -11.45 -11.40
Budget Balance/GDP (%) -3.1 -5.0 -2.3 -2.2 -3.0 -4.1 -3.7
Money Supply (M1, $bn) 39.83 42.33 45.74 48.08 38.08 30.36 36.89
Change in Real Wages (%) 1.0 1.2 2.6 0.0 1.2 -1.0 2.3
Unemployment Rate (%) 9.3 12.5 9.7 9.1 8.9 9.2 9.4
International Economic Indicators
Foreign Direct Investment ($bn) 14.31 11.84 16.21 16.17 11.62 13.86 13.70
Forex Reserves ($bn) 44.27 51.77 41.20 44.94 44.78 44.98 45.45
Gross Reserves (ex gold, $bn) 45.59 54.46 42.76 46.41 46.10 45.97 46.71
Gold Reserves ($bn) 0.31 0.35 0.40 0.40 0.12 0.22 0.43
Gross reserves (inc gold, $bn) 45.90 54.80 43.16 46.81 46.22 46.19 47.14
Total Foreign Debt ($bn) 111.79 154.14 92.07 101.91 119.92 120.40 124.64
Total Foreign Debt/GDP (%) 34.8 48.7 24.1 26.7 40.9 42.5 40.0
Debt Service ($bn) 5.85 8.37 4.23 5.21 5.23 4.93 9.65
Debt Service/XGS (%) 9.1 12.2 5.4 6.9 9.0 9.0 15.4
Current Account ($bn) -14.68 -15.53 -12.37 -19.82 -18.70 -12.59 -9.92
Current Account/GDP (%) -4.5 -4.8 -3.2 -5.2 -6.4 -4.5 -3.2
Current Account/XGS (%) -22.6 -21.9 -15.8 -26.2 -32.2 -23.0 -15.8
Exports ($bn) 45.92 43.69 60.28 56.90 38.57 34.06 39.79
Imports ($bn) 51.60 53.88 57.10 61.54 52.05 43.24 44.07
Trade Balance ($bn) -5.68 -10.19 3.18 -4.64 -13.48 -9.18 -4.28
Exports of Services ($bn ) 8.68 9.53 8.28 8.43 8.43 8.71 9.54
Income, credit ($bn) 4.68 6.08 3.85 4.41 4.59 4.99 5.58
Transfers, credit ($bn) 6.62 10.85 6.01 5.77 6.57 6.98 7.76
Exports G&S ($bn) 65.90 70.14 78.42 75.51 58.16 54.74 62.67
Liabilities ($bn) 1.87 2.83 4.35 1.41 1.31 1.09 1.19
Net Reserves ($bn) 44.03 51.98 38.81 45.40 44.91 45.10 45.95
Liquidity (months import cover) 10.5 12.0 8.2 8.9 10.4 12.5 12.5
Currency Exchange Rate 2523.335 3586.277 1869.698 2000.690 2744.659 3051.538 2950.092
Currency Change (%) -8.8 -6.9 -3.8 -6.5 -27.1 -10.1 3.4
Social Indicators
Population (million) 48.22 50.79 47.34 47.79 48.23 48.65 49.07
Population Growth (%) 0.9 1.1 1.0 1.0 0.9 0.9 0.9
Infant Deaths/1000 15 13 16 15 15 14 14
Persons under Age 15 (%) 25 24 26 25 25 25 24
Urban Population (%) 76 82 75 76 76 77 77
Urban Growth (%) 1.5 2.1 1.0 2.3 0.9 2.2 0.9
Literacy % pop. 95 95 95 95 95 95 95
Agricultural Work Force (%) 17 16 18 17 17 17 17
Industry-Commerce Work Force (%) 19 19 13 21 21 21 21
Services Work Force (%) 63 65 69 62 62 62 62
Unionized Work Force (%) 8 8 8 8 8 8 8
Energy - total consumption (1015 Btu) 1.72 2.18 1.62 1.70 1.70 1.77 1.80
Energy - consumption/head (109 Btu) 0.04 0.05 0.03 0.04 0.04 0.04 0.04
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28-Feb-2023
Colombia
Econometric Data
2013-2017 2018-2022
Average Average 2018 2019 2020 2021 2022
Domestic Economic Indicators
GDP (Nominal, $bn) 330.30 317.95 334.00 323.13 270.29 318.51 343.82
Per Capita GDP ($) 6860 6262 6746 6468 5312 6155 6628
Real GDP Growth Rate (%) 3.2 3.4 2.6 3.2 -7.3 11.0 7.5
Inflation Rate (%) 4.3 4.6 3.2 3.5 2.5 3.5 10.2
Capital Investment ($bn) 74.98 64.49 72.61 70.15 50.70 62.06 66.95
Capital Investment/GDP (%) 22.7 20.2 21.7 21.7 18.8 19.5 19.5
Budget Revenues ($bn) 53.00 50.27 50.48 53.39 41.33 51.29 54.86
Budget Revenues/GDP (%) 16.0 15.8 15.1 16.5 15.3 16.1 16.0
Budget Expenditures ($bn) 62.76 65.86 60.73 60.33 62.40 73.50 72.32
Budget Expenditures/GDP (%) 19.0 20.8 18.2 18.7 23.1 23.1 21.0
Budget Balance ($bn) -9.76 -15.59 -10.25 -6.94 -21.07 -22.21 -17.46
Budget Balance/GDP (%) -3.1 -5.0 -3.1 -2.2 -7.8 -7.0 -5.1
Money Supply (M1, $bn) 39.83 42.33 35.71 38.19 42.64 50.58 44.51
Change in Real Wages (%) 1.0 1.2 1.1 0.8 -4.8 6.6 2.2
Unemployment Rate (%) 9.3 12.5 10.0 10.9 16.7 13.8 11.2
International Economic Indicators
Foreign Direct Investment ($bn) 14.31 11.84 11.30 13.99 7.46 9.38 17.05
Forex Reserves ($bn) 44.27 51.77 45.24 50.52 57.25 53.47 52.37
Gross Reserves (ex gold, $bn) 45.59 54.46 47.41 52.07 58.60 57.75 56.45
Gold Reserves ($bn) 0.31 0.35 0.49 0.58 0.12 0.27 0.27
Gross reserves (inc gold, $bn) 45.90 54.80 47.90 52.65 58.72 58.02 56.72
Total Foreign Debt ($bn) 111.79 154.14 132.03 138.16 144.90 171.48 184.12
Total Foreign Debt/GDP (%) 34.8 48.7 39.5 42.8 53.6 53.8 53.6
Debt Service ($bn) 5.85 8.37 9.84 8.95 6.54 9.20 7.31
Debt Service/XGS (%) 9.1 12.2 14.3 13.1 12.5 13.4 7.9
Current Account ($bn) -14.68 -15.53 -14.04 -14.81 -9.35 -17.98 -21.45
Current Account/GDP (%) -4.5 -4.8 -4.2 -4.6 -3.5 -5.6 -6.2
Current Account/XGS (%) -22.6 -21.9 -20.4 -21.7 -17.9 -26.2 -23.2
Exports ($bn) 45.92 43.69 42.99 40.66 32.31 42.74 59.76
Imports ($bn) 51.60 53.88 49.39 50.52 41.18 56.72 71.58
Trade Balance ($bn) -5.68 -10.19 -6.40 -9.86 -8.87 -13.98 -11.82
Exports of Services ($bn ) 8.68 9.53 10.73 10.67 5.91 8.06 12.26
Income, credit ($bn) 4.68 6.08 6.18 6.98 4.45 5.93 6.85
Transfers, credit ($bn) 6.62 10.85 8.90 10.02 9.65 11.94 13.72
Exports G&S ($bn) 65.90 70.14 68.80 68.33 52.32 68.67 92.59
Liabilities ($bn) 1.87 2.83 2.93 3.13 3.20 1.95 2.92
Net Reserves ($bn) 44.03 51.98 44.97 49.52 55.52 56.07 53.80
Liquidity (months import cover) 10.5 12.0 10.9 11.8 16.2 11.9 9.0
Currency Exchange Rate 2523.335 3586.277 2957.427 3280.669 3691.317 3744.295 4257.677
Currency Change (%) -8.8 -6.9 -0.2 -9.9 -11.1 -1.4 -12.1
Social Indicators
Population (million) 48.22 50.79 49.51 49.96 50.88 51.75 51.87
Population Growth (%) 0.9 1.1 0.9 0.9 1.8 1.7 0.2
Infant Deaths/1000 15 13 13 13 13 12 12
Persons under Age 15 (%) 25 24 24 24 24 24 24
Urban Population (%) 76 82 81 81 81 82 83
Urban Growth (%) 1.5 2.1 6.1 0.9 1.3 0.9 1.5
Literacy % pop. 95 95 94 95 95 96 96
Agricultural Work Force (%) 17 16 16 16 16 16 16
Industry-Commerce Work Force (%) 19 19 19 19 19 19 19
Services Work Force (%) 63 65 65 65 65 65 65
Unionized Work Force (%) 8 8 8 8 8 8 8
Energy - total consumption (1015 Btu) 1.72 2.18 1.84 1.90 1.96 2.59 2.59
Energy - consumption/head (109 Btu) 0.04 0.05 0.04 0.04 0.05 0.05 0.05
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INTRA-REGIONAL COMPARISONS
Regional Real GDP Growth (2022): South America
Guyana
Colombia
Bolivia
Venezuela
Argentina
Brazil
Uruguay
Paraguay
Ecuador
Peru
Chile
Suriname
-5 0 5 10 15 20 25
(percent)
Regional Inflation Rates (2022): South America

Venezuela
Argentina
Suriname
Chile
Colombia
Brazil
Peru
Uruguay
Guyana
Paraguay
Ecuador
Bolivia
0.0 50.0 100.0 150.0 200.0 250.0

(percent)
COLOMBIA | INTRA-REGIONAL COMPARISONS

28-Feb-2023 | Page 9
Regional Current Account/GDP (2022): South America
Suriname
Venezuela
Ecuador
Bolivia
Paraguay
Argentina
Brazil
Uruguay
Peru
Colombia
Chile
Guyana
-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0

(percent)
Economic Performance Profile

Country's Ranking Relative to All Countries Covered by Political Risk Services
2018-2022
GDP Per Capita ($)  6262
Real GDP Growth (%)  3.4
Inflation (%)  4.6
Unemployment (%)  12.5
Capital Investment  20.2

(% of GDP)
Budget Balance  -5.0

(% of GDP)
Current Account  -4.8

(% of GDP)
Debt Service Ratio  12.2
Currency Change (%)  -6.9
BEST 25% NEXT 25% NEXT 25% WORST 25%
COLOMBIA | INTRA-REGIONAL COMPARISONS

28-Feb-2023 | Page 10
GEOPOLITICAL & ECONOMIC ANALYSIS
EARLY SUCCESS FOR PETRO…
Gustavo Petro passed the six-month mark of his four-year presidency earlier this month, and it is
probably fair to judge his record to date as a qualified success. With the backing of a diverse coalition of
legislative parties within the fragmented Congress, he has so far managed to obtain approval of a
package of tax reforms that are crucial to ensuring adequate financing for promised increases in social
spending, and lawmakers have granted the president enhanced powers to negotiate peace deals with
leftist guerrillas and far-right armed groups that continue to undermine security in large sections of the
country.
Petro has also followed through on plans to normalize relations with Venezuela, with potentially
significant positive implications for bilateral trade and investment, while still maintaining a constructive
relationship with the US, which has agreed to talks with Colombia to revise the free-trade agreement
concluded in 2012. Negotiations with cattle ranchers whose cooperation will be crucial to the success of
Petro’s planned land reform have likewise made progress.
However, questions surrounding the reliability of the government’s majority cloud the outlook for similar
success as the administration moves forward with other items in Petro’s ambitious reform agenda. The
president’s leftist Historic Pact for Colombia (PHxC) and the like-minded Green Alliance control a
combined total of just 28 seats in the 108-member Senate and 43 seats in the 188-member Chamber of
Representatives As such, Petro’s claim to a legislative majority rests on the backing of some combination
of the Colombian Liberal Party (PLC), the Colombian Conservative Party (PCC), and the centrist Union
Party for the People (Partido de la U).
That dependency has already resulted in a dilution of the president’s tax reforms and will force Petro to
contain his more radical inclinations in other policy areas. Moreover, the cohesion of the coalition will be
tested in the coming months as global headwinds sap the vigor of the economy, likely resulting in a
further erosion of Petro’s already sagging popularity, which had fallen below 50% by the end of 2022.
…BUT LEFTIST AGENDA FACES POLITICAL HURDLES

In addition to laying the foundation for a green energy transition and reducing the country’s economic
dependence on the extraction of oil and coal, Petro has pledged to enhance worker protections by
limiting the use of nontraditional employment arrangements and regulating working conditions within
the rapidly growing digital economy. Other priorities include the implementation of reforms that would
expand the role of the public sector in the delivery of health services and management of pension funds.
COLOMBIA | GEOPOLITICAL & ECONOMIC ANALYSIS

28-Feb-2023 | Page 11
In each case, the government’s aims pose a threat to private-sector interests that are unlikely to
surrender without a fight. Petro will struggle to obtain buy-in from nominally allied parties of the center
and center-right on many specifics, making it doubtful that the reforms can be passed without significant
concessions by the government that will disappoint the voters making up the PHxC’s base.
There are already signs that the administration is struggling to balance the competing political forces.
Speaking at the World Economic Forum in Davos last month, Energy and Mines Minister Irene Vélez
stated that the government has no intention of retreating on Petro’s pledge to award no new oil and gas
exploration contracts, declaring that rapid progress on the proposed transition away from fossil fuels is a
matter of great urgency.
The remarks contradicted earlier comments by Finance Minister José Antonio Ocampo, who suggested
that the current heavy dependence on oil, which is the country’s main export and an important source of
state revenue, means that a transition will take at least 15 years, and implied that there is some wiggle
room on the question of new contracts. Although Petro affirmed Velez’s position, Ocampo maintains that
members of the government and officials at state-owned Ecopetrol are continuing to hold discussions on
the issue.
The mixed signals are compounding the uncertainty for investors, whose concern is evident in the slide
of both the peso and the COLCAP stock index, which have declined by 23% and 27%, respectively, since
April 2022. Back in October, Bank of America warned that questions about the administration’s plans and
their economic repercussions created a risk of a “credibility shock,” and the conflicting messages about
the exploration licenses will not help in that regard.
In that same vein, critics have noted that the tax reforms approved in November mostly target the
business sector. The Finance Ministry estimates that the reforms will boost overall revenues by the
equivalent of 1.3% of GDP in 2023 and 2024, but the proceeds from the personal income tax are set to
grow by just 0.1% of GDP in 2023 and 0.15% thereafter. In contrast, a windfall tax on extraordinary
profits and the elimination of deductions for royalty payments will increase the effective tax rate on the
profits of oil companies from 36% to 70% in the near term, according to projections of the Fedesarrollo
think tank.
Government officials have shrugged off warnings that the tax reforms will deter investment in oil and
mining. Luis Carlos Reyes, the head of the tax and customs agency, has stated that the government’s
priorities are creating incentives for investment in technologies at the center of the green energy
transition and in alternative engines of growth, such as agriculture and tourism.
However, Ecopetrol has warned that investment lost due to the tax increases could reduce crude output
by 100,000 barrels per day (bpd) as early as 2026, which represents a 13.3% decline compared to current

28-Feb-2023 | Page 12
levels. The Colombia Oil Association has painted an even more pessimistic picture, predicting that daily
output will fall by 160,000 bpd by next year. In both cases, the projected decrease has negative
implications for shrinking a current account deficit that swelled to an average of 6% of GDP in 2021-
2022.
There is also some debate about whether Petro can actually fulfill his spending promises while adhering
to a fiscal rule that ties the permitted budget deficit to the size of the public-sector debt burden.
Following approval of the tax reforms, the Finance Ministry reduced its 2023 deficit target to 3.8% of
GDP (from 4% of GDP previously), despite a downward revision of the economic growth forecast to 1.3%,
a figure that itself now looks to be overly optimistic. With slower growth likely to have a dampening
effect on revenues and interest-rate hikes in the US pushing up the cost of servicing the nearly one-third
of the public debt that is denominated in dollars, the deficit target is likely to be overshot, possibly by a
significant margin, in 2023.
That Petro has alienated the domestic business community and stirred anxiety among international
investors is not surprising, given his leftist inclinations. However signs of discontent among those on the
lower rungs of the socioeconomic ladder point to possible trouble for the president.
The government’s proposal to impose heavy financial penalties on users of illegal delivery and
transportation apps, part of a broader plan to impose order on the mostly unregulated tech services
industry, triggered protests by the growing population of workers who rely on public use of the apps for
their employment. The government’s retreat prompted disruptive strikes by licensed taxi drivers in
multiple cities that forced Minister of Transport Guillermo Reyes González to intervene.
Petro wants to ensure that companies which rely on gig workers are complying with labor laws and
paying their fair share of taxes. However, critics of the president’s plans argue that regulation will
negatively affect investment and innovation, resulting in fewer jobs and higher prices, the damaging
impact of which will fall most heavily on those Petro has pledged to lift up.
The president cannot assume that he will have four years to work out the kinks in his strategy. Local
elections fall due later this year, and a weak showing by the PHxC would leave Petro in a weaker
bargaining position vis-à-vis the centrist and center-right congressional parties he depends upon for a
majority.
LIMITED PROGRESS ON SECURITY FRONT

Earlier this month, the government unveiled a four-year development plan that proposes total
investment of close to $250 billion on projects to reduce poverty (including the transfer of some 7.4
million acres of farmland to poor families), advance the energy transition with financial incentives for

28-Feb-2023 | Page 13
domestic and foreign companies that develop carbon-neutral energy projects, and enhance infrastructure
as part of a broader plan to boost trade capacity and facilitate the economic integration of remote areas.
Petro recognizes that the success of the entire strategy hinges on the pacification of lawless areas of the
country. Toward that end, Petro has pledged to fully implement the landmark 2016 agreement with the
demilitarized Revolutionary Armed Forces of Colombia (FARC) and to pursue peace deals with the leftist
guerrilla National Liberation Army (ELN) and right-wing groups, such as the notorious Gaitanist Self-
defense Forces of Colombia (AGC, or Gulf Clan), a criminal paramilitary organization that reportedly
controls large sections of northern Colombia.
Upon taking office, the president extended an offer of leniency for the leaders of armed groups willing to
lay down arms, cease criminal activities, and cooperate with authorities. By late September, officials
reported that 10 groups, including the AGC and dissident members of the FARC who rejected the 2016
agreement, had declared a unilateral cease-fire as a good-faith gesture. The Total Peace Law approved
by the Congress in October added legal weight to the president’s offer.
The government has restarted talks with the ELN, and the prospects for progress have been enhanced by
the participation of Venezuela, which is hosting the negotiations in Caracas. However, as in the case of
the FARC, there are no guarantees that a peace agreement struck with the ELN would result in the
permanent disarmament and demobilization of all factions. As for other armed groups, the leftist
president has little credibility with the AGC, and local news reports suggest that the Gulf Clan and the
FARC dissidents have continued to rely on violence in furtherance of their criminal activities, which
remain quite profitable.
ECONOMIC HEADWINDS BUILDING

Real GDP growth exceeded expectations in the first half of 2022, with robust activity in both
manufacturing and retail offsetting the weakness of the agricultural sector. However, persistent high
inflation created pressure for aggressive monetary tightening that had a dampening effect on household
spending and private investment in the second half of the year. Although the economy registered still-
robust year-on-year real growth of 7.8% in the third quarter, the pace slowed to less than 3% in the
October-December period, pushing the full-year growth rate below 8%.
An already negative consumer confidence reading turned more pessimistic in the final months of the
year, and retail sales registered a year-on-year decrease for the first time in nearly two years in
December. The negative impact of weakening domestic demand was compounded by a sharp
deceleration in the growth of exports, which averaged 52.4% (year-on-year) over the first nine months of
2022, but slowed to just 6.7% in the final quarter, and decreased on a year-on-year basis in December.

28-Feb-2023 | Page 14
With inflation already in double-digit territory and continuing to rise, pressure is high for additional
monetary tightening that will reinforce the slowing trend in 2023. The consumer price index increased
by 13.25% (year-on-year) in January, a 24-year high, and more than 10 percentage points above the
central bank’s medium-term target. Despite the steady rise, monetary authorities decided against a
fourth consecutive full-point increase in the benchmark interest rate in January, opting instead to
increase the rate by 75 basis points (bps), to 12.75%. The display of caution highlights a concern on the
part of policy makers that a more aggressive anti-inflation strategy will push the economy into recession.
The price for crude oil, the source of about one-fifth of government revenue, surged toward $100 per
barrel in the immediate aftermath of Russia’s invasion of Ukraine in February 2022, but the price
dropped sharply over the third quarter of the year and is currently below $80 per barrel. The beneficial
impact of higher crude prices on both the fiscal and external balances was partially offset by the
persistent weakness of production, which at an average of about 750,000 barrels per day is more than
15% below the pre-pandemic level. Any retreat by investors in response to tax increases and broader
policy uncertainty will pose an obstacle to a near-term improvement on that performance, as will the
continuing risk of security-related disruptions to oil operations.
On balance, real GDP growth is forecast to slow to less than 1% in 2023, and the downside risks to the
forecast are not insignificant. Inflation will ease only gradually, and consumer price increases are
expected to remain in high single digits on average into 2024.
A combination of weaker domestic demand and a fall in prices for staple imports that surged in the
aftermath of the outbreak of war in Europe will help to offset the impact of weaker export growth on the
external balances. Reduced repatriation of profits by companies engaged in resource extraction will
narrow the income shortfall, but the current account deficit will nevertheless remain quite large at 4%–
5% of GDP this year. Financing will not be an issue in the near term, but were policy uncertainty to
produce a substantial decrease in inflows of foreign direct investment, risks would increase beyond
2023.

28-Feb-2023 | Page 15
28-Feb-2023 | Page 16
INTERNATIONAL COUNTRY RISK GUIDE (ICRG) RATINGS
PRS’ Country Reports and Economic Forecasts (CREF) and the International Country Risk Guide (ICRG)
have been independently back-tested for accuracy and relevance for over 40 years.
In a landmark 2014 study published in the International Journal of Business Studies* – using data on
political risk claims and a unique textual-based database of risk realizations – both CREF and ICRG
forecasts were found to have “predictive power for both political risk insurance claims as well as political
risk events measured by news coverage.”
It is therefore instructive to present the scores from Table 1 of the ICRG for a complimentary look at the
composite risk scores – calculated by using a combination of the overall political, financial, and economic
risk metrics – for the 141+ countries covered each month. Please contact custserv@prsgroup.com for more
information.
TABLE 1
COUNTRY RISK, RANKED BY COMPOSITE RISK RATING
FEBRUARY 2023 VERSUS MARCH 2022
RANK COMPOSITE RISK COMPOSITE RISK 02/23 RANK

IN RATING RATING VERSUS IN
02/23 COUNTRY 02/23 03/22 03/22 03/22
Very Low Risk
1 Switzerland 87.3 86.8 0.5 2

2 Singapore 86.3 85.5 0.8 4
3 Luxembourg 85.8 85.8 0.0 3
3 Norway 85.8 87.0 -1.3 1
5 Saudi Arabia 85.5 79.3 6.3 18

6 Taiwan 84.5 85.3 -0.8 5
7 Denmark 84.3 85.0 -0.8 6

8 Ireland 83.0 82.0 1.0 9
9 Canada 82.0 81.0 1.0 11
9 United Arab Emirates 82.0 81.3 0.8 10

11 Brunei 81.5 79.0 2.5 19
12 Kuwait 81.0 76.3 4.8 30
* C Harvey, et al., “Political Risk Spreads,” Journal of International Business Studies, (2014), 471-493.
COLOMBIA | ICRG RATINGS & FORECASTS

28-Feb-2023 | Page 17
TABLE 1

02/23 COUNTRY 02/23 03/22 03/22 03/22
12 Sweden 81.0 83.3 -2.3 7
14 Netherlands 80.5 80.5 0.0 14
15 Qatar 80.3 78.8 1.5 20
16 Australia 80.0 80.0 0.0 15
16 Iceland 80.0 81.0 -1.0 11
Low Risk
18 Germany 79.3 82.3 -3.0 8
19 Korea, Republic 79.0 79.8 -0.8 17
20 Austria 78.8 78.8 0.0 20
20 Finland 78.8 80.0 -1.3 15

22 Botswana 78.5 77.0 1.5 26
22 Oman 78.5 71.3 7.3 56
24 Japan 77.8 80.8 -3.0 13

25 Trinidad & Tobago 77.3 76.8 0.5 28
26 Czech Republic 77.0 77.3 -0.3 25
26 Kazakhstan 77.0 69.8 7.3 62
28 New Zealand 76.5 78.8 -2.3 20
29 Belgium 75.5 77.5 -2.0 24
29 Guyana 75.5 67.0 8.5 81

29 Uruguay 75.5 74.5 1.0 36
32 Malaysia 75.0 73.8 1.3 39
32 Portugal 75.0 77.8 -2.8 23

34 Bahamas 74.5 71.8 2.8 52
34 Israel 74.5 74.8 -0.3 33
34 Malta 74.5 75.5 -1.0 31

37 Hong Kong 74.3 76.5 -2.3 29
37 Italy 74.3 75.3 -1.0 32
39 Slovenia 74.0 71.8 2.3 52

28-Feb-2023 | Page 18
TABLE 1

02/23 COUNTRY 02/23 03/22 03/22 03/22
40 Croatia 73.8 74.8 -1.0 33
40 Libya 73.8 67.0 6.8 81
42 Panama 73.3 73.3 0.0 41
43 United Kingdom 73.0 77.0 -4.0 26
44 Hungary 72.8 71.3 1.5 56
44 Spain 72.8 73.3 -0.5 41

46 Uzbekistan 72.8 75 -2.0 33
47 Azerbaijan 72.5 71.3 1.3 56
48 Latvia 72.3 71.5 0.8 54
48 United States 72.3 72.0 0.3 50

50 Costa Rica 72.0 72.5 -0.5 47
50 Jamaica 72.0 74.3 -2.3 37
50 Vietnam 72.0 71.0 1.0 59

53 Dominican Republic 71.8 73.0 -1.3 45
53 France 71.8 74.3 -2.5 37
55 China, Peoples' Rep. 71.5 71.5 0.0 54
55 Poland 71.5 73.5 -2.0 40
57 Estonia 71.3 72.5 -1.3 47
58 Bulgaria 71.0 70.8 0.3 60

58 Cyprus 71.0 70.5 0.5 61
58 Guatemala 71.0 72.0 -1.0 50
58 Philippines 71.0 69.0 2.0 65

62 Lithuania 70.8 73.3 -2.5 41
63 Chile 70.5 73.3 -2.8 41
64 India 70.3 72.8 -2.5 46

65 Iraq 70.0 67.5 2.5 76
Moderate Risk
66 Thailand 69.8 64.8 5.0 95

28-Feb-2023 | Page 19
TABLE 1

02/23 COUNTRY 02/23 03/22 03/22 03/22
67 Papua New Guinea 69.3 68.3 1.0 72
67 Slovakia 69.3 68.8 0.5 66
69 Algeria 69.0 61.8 7.3 105
69 Brazil 69.0 68.5 0.5 69
69 Cuba 69.0 65.0 4.0 92
69 Russia 69.0 59.8 9.3 117

73 Bahrain 68.8 68.5 0.3 69
73 Greece 68.8 68.8 0.0 66
73 Indonesia 68.8 68.5 0.3 69
76 Congo, Republic 68.5 66.5 2.0 85

76 Peru 68.5 69.3 -0.8 64
78 Ecuador 68.0 67.8 0.3 73
79 Mexico 67.8 68.8 -1.0 66

80 Angola 67.5 61.5 6.0 106
81 Gabon 67.3 64.5 2.8 96
81 Iran 67.3 67.0 0.3 81
81 Namibia 67.3 72.3 -5.0 49
81 Romania 67.3 67.8 -0.5 73
85 Bolivia 66.8 66.8 0.0 84

85 Honduras 66.8 67.3 -0.5 79
87 Serbia 66.5 67.5 -1.0 76
88 Gambia 66.0 65.5 0.5 90

88 South Africa 66.0 69.8 -3.8 62
90 Jordan 65.5 65.0 0.5 92
91 Tanzania 65.3 65.0 0.3 92

92 Morocco 65.0 67.3 -2.3 80
93 Mongolia 64.5 66.3 -1.8 87
94 Guinea-Bissau 64.3 64.0 0.3 97

28-Feb-2023 | Page 20
TABLE 1

02/23 COUNTRY 02/23 03/22 03/22 03/22
95 Albania 64.0 67.8 -3.8 73
95 Paraguay 64.0 67.5 -3.5 76
97 Colombia 63.5 63.3 0.3 100
97 El Salvador 63.5 65.5 -2.0 90
99 Madagascar 63.0 63.5 -0.5 98
100 Cote d'Ivoire 62.8 61.5 1.3 106

100 Nicaragua 62.8 66.5 -3.8 85
100 Togo 62.8 63.5 -0.8 98
103 Bangladesh 62.3 66.3 -4.0 87
104 Zambia 62.0 62.8 -0.8 103

105 Argentina 61.3 65.8 -4.5 89
105 Zimbabwe 61.3 60.8 0.5 111
107 Cameroon 60.8 60.8 0.0 111

108 Tunisia 60.5 61.5 -1.0 106
108 Uganda 60.5 59.5 1.0 118
110 Congo, Dem. Republic 60.0 59.0 1.0 119
High Risk
111 Armenia 59.8 63.3 -3.5 100
111 Burkina Faso 59.8 60.3 -0.5 113

113 Nigeria 59.5 60.0 -0.5 116
114 Ghana 59.3 63.0 -3.8 102
115 Mali 59.0 58.8 0.3 122

116 Ethiopia 58.8 57.3 1.5 127
117 Moldova 58.5 61.5 -3.0 106
117 Senegal 58.5 61.0 -2.5 110

119 Kenya 58.0 60.3 -2.3 113
119 Venezuela 58.0 47.8 10.3 139
121 Guinea 57.5 58.5 -1.0 123

28-Feb-2023 | Page 21
TABLE 1

02/23 COUNTRY 02/23 03/22 03/22 03/22
122 Egypt 57.0 62.5 -5.5 104
122 Liberia 57.0 59.0 -2.0 119
122 Suriname 57.0 55.0 2.0 131
125 Belarus 56.3 60.3 -4.0 113
126 Turkey 56.0 53.8 2.3 132
127 Myanmar 55.8 53.0 2.8 133

128 Mozambique 54.5 51.0 3.5 137
129 Haiti 53.8 56.5 -2.8 128
130 Niger 52.8 57.8 -5.0 125
130 Sierra Leone 52.8 56.5 -3.8 128

132 Ukraine 52.3 58.5 -6.3 123
133 Somalia 52.0 51.5 0.5 136
134 Korea, D.P.R. 51.0 51.8 -0.8 135

135 Malawi 50.8 59.0 -8.3 119
136 Sri Lanka 50.5 57.5 -7.0 126
137 Pakistan 50.0 56.0 -6.0 130
Very High Risk
138 Yemen, Republic 49.5 52.8 -3.3 134
139 Syria 44.3 45.8 -1.5 140

140 Sudan 43.5 45.8 -2.3 140
141 Lebanon 36.3 50.8 -14.5 138

28-Feb-2023 | Page 22

Colombia - Country Report - 2023

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FIVE-YEAR Divided Government 45%

FORECASTS OF RISK TO INTERNATIONAL BUSINESS

18-MONTH High B- B (B+) B

KEY ECONOMIC FORECASTS

2023(F) 0.9 9.2 -16.60

2024-2028(F) 3.2 3.4 -15.30

PETRO FACES HURDLES

ECONOMIC FORECASTS FOR THE THREE ALTERNATIVE REGIMES

GROWTH INFLATION CACC GROWTH INFLATION CACC GROWTH INFLATION CACC

SUMMARY OF 18-MONTH FORECAST

RISK FACTORS CURRENT

Turmoil Moderate SLIGHTLY MORE SLIGHTLY MORE SLIGHTLY MORE

Equity Moderate SLIGHTLY MORE SLIGHTLY MORE Same

Operations Moderate SLIGHTLY MORE SLIGHTLY MORE Same

Taxation Moderate SLIGHTLY MORE Same Same

Repatriation Moderate Same Same Same

Exchange Low Same Same Same

Tariffs Moderate SLIGHTLY LESS SLIGHTLY LESS SLIGHTLY LESS

Other Barriers High Same Same Same

Payment Delays Moderate Same Same Same

Expansion High Same Same SLIGHTLY LESS

Labor Costs Low SLIGHTLY MORE SLIGHTLY MORE Same

Foreign Debt High SLIGHTLY MORE Same Same

SUMMARY OF FIVE-YEAR FORECAST

RISK FACTORS BASE

Turmoil Moderate SLIGHTLY MORE Same Same

Investment Moderate Same SLIGHTLY MORE SLIGHTLY LESS

Trade Moderate Same SLIGHTLY LESS SLIGHTLY LESS

Domestic High Same SLIGHTLY MORE SLIGHTLY LESS

International Very High SLIGHTLY LESS SLIGHTLY LESS LESS

* When present, indicates forecast of a new regime

COLOMBIA | REGIME, BUSINESSEMISPDF

12 Divided Government Center-Left Coalition Centrist Coalition

COLOMBIA | REGIME, BUSINESSEMISPDF

Regional Inflation Rates (2022): South America

0.0 50.0 100.0 150.0 200.0 250.0

COLOMBIA | INTRA-REGIONAL COMPARISONS

-30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0

Economic Performance Profile

GDP Per Capita ($)  6262

Real GDP Growth (%)  3.4