major macro economic indicators
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)||2.5||3.3||-6.8||5.9|
|Inflation (yearly average, %)||3.2||3.5||2.5||3.0|
|Budget balance (% GDP)||-3.1||-2.5||-7.8||-8.6|
|Current account balance (% GDP)||-4.1||-4.5||-3.4||-4.8|
|Public debt (% GDP)||49.3||50.2||64.8||66.9|
(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
- Relatively undiversified economy (in terms of manufacturing)
- 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 is implemented slowly, particularly in the countryside
- Structural unemployment, poverty and inequality; deficient educational and healthcare systems
A strong economic rebound in 2021 despite a temporary negative setbacks caused by social protests
After social protest movements and a peak of new COVID-19 cases reduced GDP in Q2 2021 compared to the previous quarter, activity has resumed in Q3 2021, as demonstrations have faded, and thanks to the still present stimuli measures and the ongoing economic reopening process. Regarding COVID-19, as of September 2021, 31.3% of the population was fully vaccinated and 48.7% had received at least one dose. Moreover, the increase in household consumption is a main driver of the economic recovery. Retail sales rose by 36.7% year-on-year (YoY) in Q2 2021. Consumption has also been favoured by the gradual recovery on the labour market (14.4% of unemployed people in June 2021 vs. 20% in June 2020). Conversely, inflation has accelerated in recent months reaching an annual rate of 3.97% in July 2021 (above the centre of the central bank´s 3% target), due to higher food and energy prices, as well as goods shortages caused by temporary protest barrages. As a response, the monetary authorities could start tightening the policy rate in H2 2021, from the current 1.75% per year rate. Recovering commodity prices and global activity have favoured exports. The total amount of exports from January to June 2021 increased by 19% YoY, but was still 11% below the same period in 2019 (due to the slow recovery of oil and coal production). Finally, 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). However, recent social protests and the proximity to the May 2022 presidential elections could cause some investment postponements.
Widening current account deficit and still high budget deficit
The current account deficit will widen in 2021, mainly driven by a faster recovery of imports (in part due to the peso depreciation since the beginning of the year) compared to exports (recovery in commodity exports like coal and oil, although benefiting from higher prices, is subdued) and a deterioration in the income deficit (due to higher foreign companies´ profits repatriation). Concomitantly, FDI should improve thanks to stronger economic momentum, but will still not be enough to fully cover the current account shortfall. Foreign currency reserves stood at USD 58.9 billion in July 2021 (covering approximately 12 months of imports). Moreover, to strengthen the country's external foundations, the government increased the IMF Flexible Credit Line from about USD 11 billion to USD 17.3 billion (USD 5.4 billion withdrawn in December 2020). While total external debt has slightly decreased as a share of GDP in early 2021 (51.7% in May 2021, of which 30.2% owed by the public sector and 21.5% by the private sector) compared to end 2020 (due to a higher denominator), it remains above the pre-crisis December 2019 level (42.7%). Regarding fiscal accounts, the negative shock inflicted by COVID-19 led the Advisory Committee on Fiscal Rules to suspend the limits for the public deficit in 2020 and 2021, thus giving the authorities additional fiscal room for manoeuvre. S&P and Fitch downgraded Colombia’s sovereign rating to junk (from BBB- to BB+) in May 2021 and July 2021, respectively, following the government´s failure to advance with a broader tax reform that would help to curb rising public debt, while allowing to increase spending on social protection, health, education, infrastructure, etc.
Political risk remains high as the May 2022 presidential election approaches
The popularity of right wing President Ivan Duque (Centro Democratico party) fell to 16% in June 2021, from 31% in October 2020. This sharp drop was induced by the political wear and tear caused by a proposed tax reform, the social consequences of the crisis and the rise in the police violence. Widespread violent protests were triggered on 28 April 2021, after the announcement of a tax reform aimed at increasing the VAT on some basic goods and broaden the personal income tax base. Although President Duque withdrew the proposal a few days after the unrest started, demonstrations only lost strength in June 2021. However, after a month's pause and talks between the Strike Committee and the government, Colombians took to the streets again on 20 July, when a reviewed USD 3.95 billion tax reform (35% less than the April version) was sent to the Congress (albeit the new bill will not affect most taxpayers). On the same day, the National Strike Committee also presented 10 bills on addressing the social and economic crisis. On 26 August, a new protest took place to support these 10 bills. The political climate will thus remain high in the run-up to the May 2022 presidential election. Initial polls suggest that the left-wing previous Mayor of Bogota, Gustavo Petro, who lost the runoff to Duque in the previous election, is strongly competitive for next year´s presidential race.
Last updated: September 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.