major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||1.4||2.6||3.0||-5.0|
|Inflation (yearly average, %)||4.3||3.2||3.6||3.7|
|Budget balance (% GDP)||-3.6||-3.1||-2.6||-2.3|
|Current account balance (% GDP)||-3.3||-3.9||-4.3||-4.1|
|Public debt (% GDP)||47.6||48.4||53.0||57.0|
(e): Estimate. (f): Forecast.
- Ports on two oceans
- Large population (almost 50 million)
- Plentiful natural resources (coffee, oil and gas, coal, gold)
- Significant tourism potential
- Institutional stability
- Sensitivity to raw material price movement; the US economic situation
- Relatively undiversified economy (in terms of manufacturing)
- Shortcomings in road and port infrastructures, due to historically low levels of investment
- Problematic security situation due to drug trafficking and illegal mining, as the 2016 peace agreement is slowly implemented, particularly on the countryside
- Structural unemployment, poverty and inequality; deficient educational and health care systems
Economic momentum should only marginally decelerate
Although economic activity should remain sound in 2020, some domestic demand deceleration is expected. Household consumption is likely to slow down, driven by the job market’s weakness signals and an estimated deceleration in credit growth. Moreover, gross fixed investments may be undermined by a tight public budget and expected lower average oil prices. On the other hand, the net external trade contribution should continue to negatively impact GDP, as the decelerating global activity affects Colombia exports through lower demand and weak commodity international prices. A stronger than expected deceleration is the US, the main market for Colombian exports, and a new round of social protests represent a downside risk. Finally, yet importantly, the large twin deficits limit policymakers’ ability to implement counter-cyclical measures.
Current account deficit to remain wide
Colombia’s large twin deficits (in current and fiscal accounts) make it vulnerable to a global downturn. Current account deficit widened in 2019, due to a larger trade deficit in a context of lower fuel and extractive exports and higher imports, a tendency that should not strongly move in in 2020. Alongside, foreign direct investments are not enough to fully cover the external deficit. Non-resident holdings of local-currency government bonds are another risk factor (roughly 23 bi USD or 7% of GDP). Flows into this asset class were one of the main financing sources of current account deficits in the last few years. Moreover, external debt stands at roughly 42.7% of GDP (54% is owned by the public sector and 46% by the private sector). As such, to improve the country´s external pillars, central bank solidified its international reserves between September 2018 and May 2019. The renewal of the USD 11 billion IMF Flexible Credit Line in May 2019 provides for an additional liquidity cushion (covers around 2.6 months of imports).
The government generally executes a prudent fiscal policy on the back of the fiscal rule introduced in 2011, which aims to curb the central government deficit to a maximum of 1% of GDP by 2022. Nevertheless, the rule was recently suspended due to the necessary expenditures with Venezuelan refugees (generating concerns that it could prompt to a lax in fiscal discipline in subsequent years). IMF estimates the net fiscal costs associated with the migration crisis to peak at 0.4% of GDP by 2020, before gradually retreating over the next five years with the progressive integration of migrants into the economy. Moreover, the 2020 budget starts from very optimistic assumptions (estimates GDP to grow by 4% in 2020), meaning that meeting the 2.2% of GDP deficit target of the central government for 2020 will require some revenue and/or expenditure adjustment. The budget also includes asset sales for this year, but there may be execution risks associated with such sales.
Rising political challenges to be dealt with low political support
President Ivan Duque, from the conservative right wing Democratic Center party (DC), has struggled to pass reforms in the congress due to the minority position of his party in the legislature. Indeed, Mr Duque has a weak approval rating. In late November 2019, demonstrations erupted across country, based on wide-ranging factors. People protested against the government failure to comply with promised higher resources for public education, the weak implementation of the FARC peace agreement, the labour and pension reforms (not yet presented), the tax reform and the killing of social leaders. Besides, the resignation in early November of the Defence Minister, after being accused of hiding the death of eight minors in a military bombing against dissident guerrillas, has also contributed to the unrest. In reaction, Duque announced a “great national dialogue” on social issues, but the self-appointed union-led National Strike Committee has stuck to its demands for one-on-one talks.
In late December 2019, the Congress approved a modified version of the 2018 tax reform, which the Constitutional Court had ruled as failing to meet part of the required procedural steps. The approved bill includes cutting the corporate tax rate by one percentage point each year, from 33 per cent to 30 per cent in 2022, a surcharge on profits from the financial sector, electronic billing implementation and higher taxes on beer and carbonated soft drinks. Nevertheless, three modifications made from the original 2018 bill could jeopardize the fiscal account sustainability in the next few years. These are the creation of three days each year in which no VAT will be charged, a VAT refund for the poorest 20% of the population (encompassing roughly 2.8 million citizens) and reduced healthcare contributions for some pensioners (gradual reduction from 12% to 4% in 2021).
Last update : February 2020
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.