Colombia’s June 21 presidential runoff will have a significant bearing on the country’s economic policies and prospects, Fitch Ratings said in a commentary published this week.

In the first round of voting on May 31, right-wing candidate Abelardo de la Espriella — running under the Defensores de la Patria movement — received 43.7% of votes, defeating leftist senator Iván Cepeda of the governing Pacto Histórico, who received 40.9%. Neither candidate reached the absolute majority required to win outright, sending the election to a runoff.

De la Espriella’s stronger-than-expected first-round performance prompted a positive reaction in financial markets, reflecting expectations that he may be better positioned to address Colombia’s macroeconomic challenges that have intensified under outgoing President Gustavo Petro.

The next president will face the challenge of addressing Colombia’s wide fiscal imbalance. The central government deficit reached 6.4% of GDP in 2025, or 7.8% when net of a temporary reduction in interest costs from liability management operations. Fitch estimates that debt stabilization will require a fiscal adjustment equivalent to 4% of GDP. Higher global oil prices are expected to boost revenues via taxes and dividends in 2027, but Fitch cautioned that this support may not last.

“De la Espriella’s stronger-than-expected first-round performance prompted a positive reaction in financial markets, reflecting expectations that he may be better positioned to address Colombia’s macroeconomic challenges.” — Fitch Ratings

De la Espriella has pledged fiscal consolidation through a 40% reduction in the size of the state, while Cepeda has proposed restraining public-sector salaries and benefits. Budget rigidities and spending pressures tied to pensions, healthcare, and subnational transfers will make either adjustment difficult. Both candidates have also proposed higher spending — on defense and social welfare respectively. Capital spending could be trimmed as an adjustment variable, but only to a limited extent, with 2025 outlays of 2.7% of GDP.

The interest bill will be another source of pressure amid a higher local yield curve. Recent liability management operations have replaced lower-coupon bonds with higher-coupon ones, providing an up-front financial benefit while increasing future interest costs.

Given these spending constraints, durable fiscal consolidation is likely to require revenue-side measures. Colombia has a history of tax reforms, but new legislation is far from assured. De la Espriella has pledged to cut taxes, and while Cepeda supports revenue-raising measures, he could face obstacles in advancing reforms through Congress — as Petro’s administration found.

Uncertainties about Colombia’s trend growth persist. The economy expanded at an annual rate of 2.5% in 2019–2025, below the ‘BB’ median and below its own prior average of 3.5%–4%, supported by government transfers, a strong labor market, and minimum wage increases that kept private consumption buoyant at +4.2%. In contrast, investment contracted by an average of 1.6% annually, falling to 16% of GDP from 21%, affected in part by business concerns about the Petro administration’s more interventionist policy stance.

De la Espriella has pledged to boost growth through promotion of hydrocarbon development — including fracking — alongside tax cuts and steps to reduce administrative burdens on businesses. Cepeda has pledged continuity with Petro’s state-led development model, without concrete proposals to revive private investment.

Both agendas face implementation challenges. The next legislature will remain fragmented, requiring negotiation to pass any major legislation. As a political newcomer, de la Espriella could encounter difficulty advancing his program should he win. Social protests are a risk, particularly regarding his plans to cut spending and adopt a tougher security stance.

The election could also influence monetary policy, with implications for financial conditions and thus for public finances and growth. Despite rising inflation, the Banco de la República (Banrep) voted to hold its policy rate at 11.25% after swift prior increases of 200 basis points, amid explicit pressure from the executive branch for looser policy. The elections could influence Banrep’s next steps starting with its June 30 board meeting, and will also determine who fills two vacancies on its seven-member board in 2029.

Fitch’s downgrade of Colombia to ‘BB’/Stable in December 2025 reflected the agency’s view that the starting point for public finances had weakened considerably, and that improvement would take time regardless of the election outcome. Faster-than-expected fiscal adjustment, higher growth, and lower real rates that support debt stabilization could be positive for the rating. A worsening of these variables that steepens the debt trajectory could be negative.

Above image: Fitch Ratings

According to a report by the Economic, Industry & Market Research Area of Bancolombia (BVC: BCOLOMBIA, NYSE: CIB), annual inflation in Colombia rose by 25 basis points to 5.35% in January 2026. This monthly increase of 1.18% represents the highest inflation level since October 2025.

The data, originally prepared by the National Administrative Department of Statistics (DANE), indicates that 70% of the January inflation print was concentrated in the services and regulated components. These two sectors contributed 83 basis points of the total 118-point monthly increase, largely driven by the initial stages of annual cost pass-throughs associated with high indexation.

Businesses should prepare for more intense inflationary pressures in February and March 2026 as the full impact of the minimum wage increase and renegotiated supplier contracts take effect.

Sectoral Impacts and Service Acceleration

Annual inflation in the services category accelerated by 40 basis points to reach 6.33% in January, its highest level since April 2025. The monthly variation of 1.18% in this sector was nearly double the historical January average of 0.63%.

Bancolombia analysts attribute this acceleration to early adjustments linked to the 23% minimum wage increase for 2026 and indexation to previous years’ inflation. Notable increases were observed in:

• Full-service restaurant meals: 3.36%
• Prepared meals consumed outside the home: 2.38%
• Domestic services: 5.16%
• Imputed rent: 0.43%

The regulated group also saw an acceleration, with annual inflation rising to 5.47% from 5.40%. This was primarily explained by adjustments in urban transportation, vehicle fuels, natural gas, and tolls.

Food and Goods Price Momentum

Annual food inflation edged up slightly to 5.10% from 5.06%. Perishable foods saw an acceleration to 4.69% due to seasonal and supply factors affecting products such as tomatoes, potatoes, and plantains. Processed foods, including beef, milk, and poultry, reflected early-year cost pass-throughs, though annual inflation in this sub-group eased to 5.23%.

The goods category reached its highest level since March 2024, at 2.93%. Price hikes in this segment were driven by new taxes on alcoholic beverages enacted under the economic emergency, as well as pharmaceutical products. Conversely, price declines were noted in personal hygiene products, vehicles, and appliances, benefiting from the recent appreciation of the exchange rate.

Monetary Policy Implications and Forecasts

The Central Bank of Colombia (Banco de la República) faces continued challenges in converging toward its 2% to 4% target range. Core inflation, excluding food and regulated items, reached its highest level since November 2024, indicating persistent upward pressure.

Bancolombia forecasts that year-end inflation will reach 6.4%. The analysts suggest that the full impact of the minimum wage increase has not yet been reflected in consumer prices, as many firms are still operating with inventories purchased at previous cost levels.

Consequently, the Central Bank is expected to continue raising its monetary policy rate to anchor inflation expectations. Bancolombia anticipates the policy rate could rise to 11%, noting that the challenging outlook introduces a hawkish bias to future decisions.

Photo courtesy Bancolombia

Banking Sector Statement on the Update of the OFAC Designated Parties List

Bogotá, D.C., October 24, 2025 (@Asobancaria). The Colombian financial system has been a global benchmark in the fight against money laundering and terrorist financing for more than three decades. In fact, Colombia was the first country in the Americas to have an anti-money laundering system, following the 1992 Interbank Agreement for the Detection, Prevention, and Suppression of Illicit Capital Movements.

Since then, the country has maintained strict compliance with standards in this area, with collaboration and communication with both U.S. authorities and correspondent banks being essential.

In light of the recent decision by the United States government to include the President of the Republic, members of his family, and the Minister of the Interior on the OFAC list, the sector reiterates its commitment to compliance with international standards. At the same time, it will continue to act in accordance with financial consumer rights, local regulations, and the jurisprudence of the Constitutional Court.

The Colombian financial system will begin working in coordination with national and international authorities to preserve its stability and integrity, as well as the trust of its citizens.

In other words, the banks, through their trade organization, as not to expose any individual bank, have stated that they intend to comply with sanctions, subject to “financial consumer rights, local regulations, and the jurisprudence of the Constitutional Court.”

Analysis

It is hard to imagine a local bank freezing President Gustavo Petro’s personal accounts during the remaining 10 months of his presidency. The President directly controls Colombia’s financial regulation agency, Superfinanciera, and also influences, Banco De La República, the country’s central bank. Once the president leaves office, unless replaced by an ally (somewhat unlikely), there is no love lost between the current leftist president and the financial sector. Aside from this, the local banks would have more to lose being cut off from the international financial system than from facing the ire of Petro’s remaining supporters, post-presidency. The banking sector and its shareholders have faced constant attacks from Petro during his presidency, with him calling them “oligarchs” and “controllers of capital.”

Should a Petro ally actually win next year’s presidential election, all bets are off, as the banks will face pressure to be sympathetic to Petro at the cost of losing access to the international financial system in an environment of accelerating capital flight and diminishing foreign direct investment (FDI).

In the short term, expect local banks to play a waiting game, It is not immediately apparent that Petro or his family has any great wealth to lose abroad, though the designation may seriously retard his apparent ambitions of being some sort of international revolutionary statesman on the global stage post-presidency, with travel and financial restrictions in OFAC compliant jurisdictions, almost everywhere except bastions of liberty such as Iran, Russia, North Korea, Cuba, and Nicaragua.

The voting pattern mirrored recent deliberations: four board members favored maintaining the rate, two voted for a 50 basis point (bp) reduction, and one member supported a 25 bp cut. This outcome reinforces the widely held expectation that the year-end policy rate will remain at 9.25%, suggesting that no further cuts are anticipated during the remainder of the calendar year.

Inflationary and Fiscal Headwinds

The Central Bank’s cautious stance is primarily driven by persistent upward pressures that continue to challenge inflation convergence toward the established target. Key factors influencing future decisions include the impact of the federally mandated increase in the minimum wage, which fuels cost-push inflation; rising inflation expectations across the market; and elevated levels of fiscal uncertainty.

The data used for this analysis was sourced from the Departamento Administrativo Nacional de Estadística (DANE) and the Central Bank itself, among other contributors, underscoring that annual headline inflation figures remain a critical metric in policy calibration.

IMF Flexible Credit Line Cancellation Raises Fiscal Vulnerability

Coincident with the monetary policy announcement, the Colombian government declared the cancellation of the Flexible Credit Line (FCL) arrangement with the International Monetary Fund (IMF). This action follows the IMF’s most recent Article IV consultation for Colombia, which acknowledged signs of stabilization within the national economy while simultaneously issuing warnings regarding potential fiscal risks.

The FCL, designed to serve as a preventative buffer against severe external shocks and market volatility, had been a crucial element of Colombia’s financial architecture. Its cancellation, although consistent with the perceived stabilization of the economy, carries notable fiscal implications. The removal of this backstop is expected to increase the country’s vulnerability to future episodes of market volatility or sudden capital outflows.

Banco de la Republica, the central bank of Colombia, in Bogotá. Photo credit: Banco de la Republica.

What also needs to change is the politicalization of the committee, which has left overnight rates at an artificially high level. The economy, according to experts like the Banking and Financial Institutions Association of Colombia Asobancaria, is already expanding. Consumer durables imports are rising, per the National Administrative Department of Statistics DANE Colombia. Inflation has been tamed, but things could be better if the central bank had done its job. Waiting until their next meeting on December 20? Too late.

Meanwhile, Bancolombia reports this morning that the National Directorate of Taxes and Customs DIAN is behind on 2024 tax collections—possibly $2.5 billion short. The only saving grace might be the delayed government spending execution for 2024. Minister of Finance, Ricardo Bonilla, hints at possible 2025 budget cuts, which Fitch Ratings acknowledged last week while reaffirming Colombia’s BB+ (Stable) rating.

And let’s talk about the weather. Torrential rains are wreaking havoc across the country, with videos of cars swept away by floods dominating the news. Yet, hydroelectric reservoirs, per CREG, are above alert levels. In contrast, Bogotá is still grappling with water shortages—a paradox that sums up Colombia’s complexity as we brace for La Niña. Institute of Hydrology, Meteorology, and Environmental Studies IDEAM hasn’t announced it yet, but surely it’s just a matter of time.

The minimum wage debate is ongoing, with a deadline of December 15 for a proposal to emerge.

For now, there’s little else to report.

Regards,
Roops

These numbers are inconclusive and will have the Central Bank wondering what to do in three weeks time. Analysts are expecting a 13.25% terminal rate between March and April but have we topped out on inflation? Having increased rates by less than expected last time to 12.75% perhaps the committee will once again opt for a more dovish outlook?

This week is extremely light on macro data. We have export numbers for January with analysts expecting US$4.15bn which would be well up on the US$3.8bn a year ago but well down on the US$4.49bn of December. The key will be the breakdown of the numbers, not just FOB but also the tonnage – both areas were propped up by coal sales over the past couple of months.

Many of the headlines this week will revolve around President Petro. The various reforms continue to be rolled out but despite the headlines Congress is likely, as per the tax reform, to strip back what the President is looking to do. The state council also blocked his plans to control the energy sector for the next three months.

The absolutely key takeaway from these developments is the fact that the institutions of Colombia are holding very firm. Presidents come and go in Colombia but unlike other countries around the region, there are a lot of checks and balances on what any administration wants to do after being elected.

Finally on the markets we had data last week that foreigners were Net Sellers of TES bonds in February – a total of US$878mn – that is lumpy and will have had an effect on the Peso. Speaking of which, it held up fairly well last week although China’s modest growth plans may have an indirect impact if oil slips.

Wishing you all a good week

Roops

Please find below the LinkedIn Video :

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_colombia-inflation-institutions-activity-7038485319763001344-q_tX?utm_source=share&utm_medium=member_desktop

From Fedesarrollo this week we had two reports:

Firstly, their monthly financial sector for February survey saw a sense of calm. The expectations for 2023 inflation rose slightly (from 8.89%-9.00%) as did the terminal interest rate (13%-13.25%) but growth for the same 2023 fell from 1.5% to 1.1% – although that remains above many other estimates, including the Central Bank (0.3%). In terms of the COLCAP, Ecopetrol and Bancolombia remain the top picks, but amidst a pessimistic view for the overall market.

Briefly on interest rates, the Central Bank head Villar stated on Thursday that Colombia was close to the end of the tightening cycle and that the impact on inflation should come soon.

Also from Fedesarrollo we had the Retail ($29.7%) and Industrial (3.6%) confidence data for January and both came in better than expected and significantly higher than December – a surprise given the poor Consumer Confidence number (-28.6%) for the same month.

Within the construction sector there is something of a confusing picture. There was a 50% drop in new home sales in January and with mortgage rates, which have never been low anyway, rising sharply, that is understandable. That said, anecdotally, at least here in Medellin – prices continue to rise sharply, that is if you can find anything to buy ! On the public side the 4G projects are largely into the home straight but the 5G works will be coming on line towards the back end of 2023 which will compensate and move that sector forward.

Solid news from the oil sector again as Campetrol reported January production of 773k bpd – down slightly on December’s 784k bpd however it was still 4.6% higher YoY and part of a gradual improvement in the trend which began to manifest itself in October.

Sticking with oil – Brent has had a complicated week and this has been reflected in the Peso which has been struggling. DXY has also largely moved against the Peso due to a mix of interest rate concerns and geopolitical events.

Within the equity market, the MSCI Colcap is still playing with a dangerous support level. In the meantime, Grupo Argos has joined Celsia & Cementos Argos in announcing continued buyback programs, between the three entities approvals are sought for US$200mn.

Wishing you all a peaceful weekend.

Roops

Firstly, the road blockages in Puerto Gaitan were lifted (see my LinkedIn post on Wednesday for more detail) and this meant to end the reported shortfall of 50,000 bpd – there will be talks in a couple of weeks but hopefully resolution can be found.

Secondly oil production for December was up 5.34% YoY and stood at 784k bpd, as per November the highest reading since Covid struck. This is clearly good news and hopefully it will be reflected in export data going forward; the last couple of months have been a disappointment.

Sticking with oil, the local trade association (ACP) published their 2023 outlook. Following on from a 2022 average production of 754k bpd (+2% YoY) the expectation is for another similar sized increase to 770k bpd. Again, this is positive news, but there is still a mountain to climb to get back to the 1million bpd last seen in 2015. One negative aspect was that ACP is anticipating 4% less exploration investment (US$1.24bn) in 2023 with increasing interest in natural gas.

The oil sector also crept into Central Bank Chairman Villar’s speech at the Treasury Congress. Whilst much of his focus was on interest rates staying higher for longer across Latin America with inflation peaking over the next month, he also noted that the lack of full transparency over new oil exploration licenses, is adding to Peso volatility on the currency markets. Touching on the Peso, thus far this week it has weakened slightly, in line with other emerging market currencies.

At the same conference, Director of Public Credit Acosta highlighted the success of recent bond issuances which reflect confidence – foreign investors remain key to this.

President Petro saw his approval level slip in the latest survey from Datexco. Colombians are rarely optimistic and there was an increase (to 55%) of those who feel the country is going the wrong way. Still well down on a year ago but moving upwards – Petro’s own approval level slipped from 54% in October to 44% in February.

There are sixty pages to wade through, but sticking with the oil theme, Minister of Mining & Energy Velez is rated at 2.1 (out of 5) – the lowest within the cabinet. That said, no-one is hitting it out of the ballpark. Within that space, the president is beginning to make his moves on taking more control over the energy sector in terms of pricing; a situation that local companies are deeply concerned about.

Please find below the LinkedIn Video :

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_colombia-economy-oil-activity-7029782125629341696-qXQL?utm_source=share&utm_medium=member_desktop

Have a wonderful weekend.

Roops

Consumer Confidence (-22.3%) from Fedesarrollo for December came in slightly higher than the -26.4% expected and represented a modest reversal upwards from November. Both consumer outlook and economic expectations rose slightly.

In terms of propensity to buy, there was a mixed picture with consumer durables slightly better, housing down, and a gap upwards in the appetite to buy vehicles (from -70.1% to -51.6%). From this one number it is hard to draw any conclusions but there appears to be a stubbornness to both the economy and sentiment that few expected at this point.

The latest financial sector numbers for October saw a 1.3% MoM in the overall loan portfolio but analysts are pointing to another sizable increase in provisions and more especially the 3.05% increase in NPLs MoM; one to keep an eye on.

A few weeks ago, I spoke optimistically about the improving weather. In my defense I mentioned the fragility of the situation, and it was clearly a case of heart over head. Since then, I have reported on a disappointing year for the coffee sector and now the rains have returned once again and maybe here for a few months still. President Petro was forced to cut short his trip to Chile in order to visit Cauca where the Pan-American highway has been blocked by landslides, causing tremendous issues for the local population. Again, a situation to keep an eye on.

Later today the Central Bank will release their latest economist survey which will be watched with interest – where will their call be on the terminal interest rate – a week ago we saw JP Morgan move to 13.5%.

Please find below the LinkedIn Video :

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_colombia-economy-peso-activity-7019637902506631168-SI8s?utm_source=share&utm_medium=member_desktop

That is it for this week – have a restful weekend

Roops

Most of the headlines were reserved for the December Inflation data which rose 1.26% MoM and 13.12% YoY – both higher than expected and causing media distress. When we look back on 2022 the standout issue is food which rose over 27% (2.66% alone in December) – Colombia is not unique in this owing to global events but it has certainly felt the impact as hard as most. This helped contribute to a core inflation of 9.99% for 2022 – a number that also moved up from 9.48% in November. It is worth noting that both the monthly and annual reading was above all 19 analysts’ consensus estimates according to Bloomberg.

Now what? For the authorities this is a key moment they are going to have to ride out. This isn’t on them, but it is on them to manage the situation. Much has been made of Finance Minister Ocampo, who has done outstanding work, and his calls for the Central Bank to not raise rates due to this being supply side inflation – but rates will have to be increased to at least 12.5% when the committee meet again at the end of the month.

That was the terminal rate when Bloomberg & Fedesarrollo last conducted their surveys but can that line hold? The 16% minimum wage increase is about to start being paid, with the government furiously—and correctly—trying to prevent a knock-on effect with 200 products and services in the market. Now, 13.12% will become the benchmark for a mass of other products – somehow the authorities must break the cycle. The reality is that CPI may yet go higher, obviously not to those seen on the streets of Caracas or Buenos Aires, but only Chile (13.3%) amongst the mainstream Latam economies has higher inflation.

Away from inflation, although it is hard to ignore there were a couple of other data points…

PMI Manufacturing from Davivienda, surprisingly perhaps, in December rose to 51.1 from 47.3 the previous month. The number has bobbled about, and this latest reading demonstrates there is still some stubbornness in the system.

Coffee Production for 2022 totaled 11.1 million sacks – down 12% YoY and here we see the clear impact of La Niña. One never wants to blame “the little girl,” but the rains have been close to unprecedented, and coffee is just one area of agriculture that has been impacted. The knock-on effect is seen from inflation to exports.

Another commodity which has disappointed in the first week of 2023 is oil. It has slipped due to global factors and that presses on the Peso which yesterday (Thursday) fell below 5000 once again before recovering. Obviously, the dollar is enjoying a global bump and this has an impact but also the dearth of traders in the offices of Colombia also impacts.

Please find below LinkedIn video:

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_what-jumps-out-inflation-concerns-as-expected-activity-7017051855004291072-nmmK?utm_source=share&utm_medium=member_desktop

That is about it, the next update will be from Medellín, in the meantime have a wonderful weekend wherever you are.

Roops