Colombia’s national gross domestic product figures obscure significant differences among the country’s departments, according to an analysis by the economic research team at Bancolombia, the banking subsidiary of Grupo Cibest S.A. (NYSE: CIB; BVC: CIBEST, PFCIBEST). Based on 2025 preliminary departmental GDP data and departmental economic activity indicators for the first half of 2026 published by Colombia’s Departamento Administrativo Nacional de Estadística (DANE), the analysis shows that a small number of regions account for most of the country’s output while others remain much more exposed to individual industries and commodity cycles.

“Some departments start from a more favorable position to face a cyclical challenge in their most productive sector.” – Bancolombia’s Economic Research team

Colombia’s economy grew 2.2% year over year in the first quarter of 2026, but the national figure masks a wide range of regional outcomes. Santander led departmental growth at 3.1%, followed by Antioquia at 2.9%, Cundinamarca at 2.7%, Bogotá D.C. at 2.5% and Valle del Cauca at 2.3%, according to the Bancolombia analysis. All five outperformed the national economy.

This regional picture comes as Colombia’s broader growth outlook remains constrained by inflation and fiscal pressures. Grupo Cibest previously cut its full-year 2026 growth forecast to 2.6%, while Bancolombia’s more recent consumption data showed real household consumption growth slowing to 1.2% in the second quarter, its weakest pace in more than a year.

Five of Colombia’s largest regional economies outperformed national GDP growth in the first quarter of 2026. Source: DANE; calculations by Bancolombia / Grupo Cibest.

A small group of departments dominates national output

Bogotá D.C. accounted for 25.4% of Colombia’s national GDP in 2025, according to preliminary DANE figures. Commerce, transportation and lodging, together with financial services, underpin the capital’s economic weight, with Bogotá accounting for roughly half of the country’s financial-sector value added.

Antioquia, whose capital is Medellín, contributed 15.0% of national GDP. Its economy is more diversified, combining manufacturing and agriculture with commerce and services. Valle del Cauca, home to Cali, contributed another 9.8%, with commerce operating alongside a substantial manufacturing base.

Together, Bogotá D.C., Antioquia and Valle del Cauca represented 50.2% of Colombia’s GDP in 2025. DANE independently reports that these three economies accounted for nearly half of national output. Adding Santander, Cundinamarca and Atlántico brings the six largest departmental economies to 67.3% of Colombia’s total GDP.

Bogotá, Antioquia and Valle del Cauca together accounted for 50.2% of Colombia’s 2025 GDP. Source: DANE; calculations by Bancolombia / Grupo Cibest. Chart: Finance Colombia.

That concentration is not simply a reflection of population. It also reflects decades of accumulated infrastructure, specialized labor, financial activity and established production chains. DANE’s departmental GDP series shows Bogotá D.C. and Antioquia as the country’s two largest departmental economies, while Vaupés and Guainía remain at the opposite end of the scale.

A consumption-driven model faces a tougher test

Bancolombia’s researchers caution that the strength of commerce and services in the largest departmental economies does not eliminate concerns about the durability of consumption-led growth.

Household income is likely to face pressure from elevated inflation, interest rates, unemployment and weaker remittance inflows, according to the analysis. Bancolombia’s August consumption report provides a similar signal: real consumption grew 1.2% in the second quarter of 2026, the lowest rate in more than a year, with every major region losing momentum compared with the previous quarter.

That makes the performance of other sectors increasingly important. Bancolombia points specifically to mining and construction as activities with greater potential for a rebound as Colombia’s economic cycle develops.

For the country’s departments, however, the implications are very different depending on their underlying economic structure. A slowdown in household consumption can have a relatively broad impact on diversified economies, while a recovery in commodities can have a disproportionately large effect on regions where mining and hydrocarbons dominate.

Where Colombia’s departments specialize

Bancolombia’s researchers use a location quotient to identify the sectors in which individual departments are unusually specialized. The measure compares the weight of a sector in a department’s economy with that sector’s weight nationally.

A location quotient of 1 means that the sector has approximately the same relative importance locally as it does in Colombia as a whole. A figure above 1 indicates that the sector is more important to that department than it is nationally.

The differences can be striking. Meta recorded a location quotient of 9.0 for mining and quarrying, with the sector accounting for 36.7% of the department’s GDP. Casanare recorded a quotient of 8.1, La Guajira 7.3, Arauca 7.0 and Cesar 6.7.

By contrast, Vichada had a location quotient of 3.8 for agriculture, while San Andrés recorded a quotient of 3.0 for commerce, transportation and lodging.

Mining dominates the economic profiles of several commodity-producing departments, while agriculture and commerce dominate elsewhere. Source: DANE; calculations by Bancolombia / Grupo Cibest. Chart: Finance Colombia.

The concentration of mining and hydrocarbons in departments such as La Guajira, Cesar, Casanare and Meta means their economic performance is more closely connected to international commodity prices and production cycles than that of the country’s largest diversified economies.

That exposure was visible in the first quarter of 2026. Cesar and Meta each recorded a 0.3% year-over-year contraction, while Casanare contracted 2.0%.

The pattern does not necessarily mean that specialization is a permanent disadvantage. Instead, it means that regional performance can change sharply when the economic cycle turns. A recovery in mining, housing and infrastructure investment could disproportionately benefit departments that already have the workforce, companies and physical capacity required to expand those activities.

Bancolombia therefore expects some commodity-dependent regions to have greater room for recovery if those sectors regain momentum. Bolívar and Boyacá, meanwhile, could benefit from a recovery in construction given their relatively high specialization in that activity.

Diversification creates a different kind of resilience

The distinction between specialization and diversification becomes clearer when Bancolombia’s production-concentration coefficient is applied to departmental economies.

The coefficient ranges from 0, representing a highly diversified production structure, to 1, representing an economy concentrated in a single activity.

San Andrés recorded the highest concentration coefficient among the departments examined, at 0.39, followed by Vaupés at 0.30, Vichada at 0.25 and Guainía at 0.21.

At the other end of the scale, Antioquia had the lowest coefficient at 0.04, followed by Boyacá at 0.05, Valle del Cauca at 0.06 and Bogotá D.C. at 0.07.

Antioquia, Boyacá, Valle del Cauca and Bogotá have among Colombia’s most diversified regional economies. Source: DANE; calculations by Bancolombia / Grupo Cibest. Chart: Finance Colombia.

The distinction matters because diversification can provide a degree of protection against shocks concentrated in a single industry. Antioquia, for example, combines manufacturing, agriculture, commerce and services rather than depending overwhelmingly on one commodity or activity.

Commodity specialization can work in the opposite direction. When international prices, production volumes or investment conditions move against a dominant sector, the effects can spread through employment, local demand, government revenues and business investment across the department.

At the same time, a specialized economy can benefit rapidly when conditions turn favorable. Bancolombia’s analysis therefore frames specialization less as a weakness in itself than as a structural characteristic that determines how departments respond to different stages of the economic cycle.

Competitiveness follows a similar geographic pattern

The same concentration appears in Colombia’s competitiveness rankings.

The 2026 edition of the Índice Departamental de Competitividad, produced by the Consejo Privado de Competitividad and Universidad del Rosario, ranks Bogotá D.C., Antioquia and Valle del Cauca among the country’s strongest-performing territories. The index measures 32 departments plus Bogotá D.C. using indicators drawn from official sources.

At the opposite end, Vaupés, Vichada and Guainía rank among the weakest-performing territories.

The competitiveness gap reflects many of the same structural advantages visible in GDP data: infrastructure, human capital, institutions, connectivity and established economic networks tend to reinforce one another over long periods.

These advantages are difficult to reproduce quickly. A department cannot easily replicate in a few years the industrial base, universities, financial institutions, transport infrastructure and supplier networks that have accumulated in Bogotá, Antioquia or Valle del Cauca over decades.

That suggests that regional development policies may be more effective when they build on existing capabilities rather than attempting to create entirely new economic ecosystems from scratch.

Colombia’s regional economy is more uneven than the headline GDP suggests

Taken together, the data present two very different pictures of Colombia’s economy.

The first is a relatively small group of large, diversified departmental economies led by Bogotá D.C., Antioquia and Valle del Cauca. These regions account for roughly half of national output and combine commerce and services with manufacturing, agriculture and other activities.

The second is a much larger group of smaller economies with far greater dependence on individual sectors. In commodity-producing departments, international prices and production cycles can matter more than the trajectory of domestic household consumption. In other regions, agriculture, tourism-linked commerce or public-sector activity can play an outsized role.

That distinction matters for investors, businesses and policymakers because a national growth rate does not tell the whole story. Colombia can record moderate expansion while individual departments simultaneously experience very different combinations of growth, contraction, opportunity and risk.

Bancolombia’s latest NowCast estimated that Colombia’s economy grew 2.7% in the second quarter of 2026. The departmental analysis suggests that understanding where that growth is generated, and which sectors are responsible for it, is just as important as the headline national figure.

For regional policymakers, the implication is equally important: diversification can reduce exposure to individual shocks, but existing specialization can also become an advantage when the economic cycle turns in favor of the sectors in which a department already has deep productive capabilities.

Headline picture : Picture of Cali Colombia Cathedral (Courtesy of Cathey Comm)

Historically, not only in Colombia but around the world, incoming presidents and prime ministers typically achieve only a fraction of what is promised during their campaigns. Even if 30% of commitments are delivered, Abelardo could still disappoint some of his supporters, particularly those in Medellín who became deeply disaffected with Gustavo Petro’s administration. Ultimately, only time will tell. Much has been promised, but the pudding still has to be proven.

One major challenge will be the currency, which has moved to levels not seen in many years. The peso reached COP 3,100 against the dollar on Friday, and while many had feared a move toward COP 3,000, the surprise decision by Banco de la República to leave interest rates unchanged at 12%, despite rising inflation, quickly reversed that trajectory. COP 3,200 appears possible as the week begins.

These are extremely challenging levels for exporters and, in turn, for Abelardo, who has promised a golden age for overseas sales. Key sectors such as coffee and flowers have already publicly expressed concerns about declining competitiveness. Even if the new administration succeeds in creating a new oil boom, revenues generated at current peso levels will be significantly lower than anticipated.

The past four years have been dominated by discussions around debt and deficits, which economists understand are the cumulative result of decisions made by previous governments. These pressures are unlikely to ease if the peso remains at current levels.

Consumer confidence from Fedesarrollo remains solid. Retail sales are supporting imports of durable goods, particularly vehicles and electronics, adding more than $1 billion USD to the monthly deficit.

Other sectors likely to feel pressure include tourism and real estate, both of which have experienced significant growth in recent years. Colombia has become an increasingly fashionable destination, and many visitors have later returned to invest in houses and apartments. Today, however, those investments have slowed, while visitors are finding hotels, restaurants and excursions considerably more expensive than they were two years ago.

The reasons behind the peso’s current level are many, but a key factor has been investment flows into Colombia’s attractive local TES bond market through carry trade strategies. That said, profit-taking could soon emerge, particularly if investors begin positioning for a stronger dollar.

Let’s see how “The Tiger” addresses the challenge.

My regards,

Roops

The Colombian peso strengthened 115 pesos against the US dollar last week to close at $3,335.46 COP, a 3.35 percent weekly appreciation that Grupo Cibest’s economic research team attributed to a weaker US dollar globally and to a larger-than-expected interest-rate increase at home. In its July 6 weekly report, Radar Bancolombia, the research unit of Bancolombia argued that the currency now trades well below the level its fundamentals would justify.

The Junta Directiva del Banco de la República (the central bank’s board of directors) raised its benchmark policy rate by 75 basis points to 12.00 percent, its highest level since March 2024, surprising a market that had priced in a 50-basis-point move. Even so, the bank argued that a rate consistent with Colombia’s macroeconomic and fiscal conditions should push the exchange rate toward a range between $3,400 and $3,650 COP.

What is moving the peso?

To isolate the drivers of the currency, the research team estimated a structural vector autoregression (SVAR) model that breaks the annual change in the market representative exchange rate (TRM) into international factors, local factors, exchange-rate dynamics and a speculative gap. The exercise found that during 2026 local factors have gained prominence and now explain close to half of the peso’s movements.

In June, Colombia’s sovereign risk premium corrected sharply, reflecting an improved perception of country risk tied to the coming change of administration. The nation’s five-year credit default swaps fell 69 basis points from the first round of the presidential vote — a 29 percent annual decline in June — and now sit about 24 basis points below the level the bank considers consistent with fair value. Among regional peers, Colombia’s policy rate is exceeded only by Brazil’s 14.25 percent, which the bank said keeps carry-trade strategies attractive.

The chart shows how the Colombian peso and the US dollar has detached from the fair value rate of the government. Chart by Finance Colombia.

Measured against where it should trade if it merely tracked its peer currencies and incorporated the deterioration in external fundamentals, the exchange rate should stand near $3,720 COP, Bancolombia estimated. The bank placed the currency’s fair value in a range between $3,710 and $3,880 COP, and noted that the United States economy has shown resilience, backed by technology investment, while inflationary pressures continue to limit the room for maneuver of the US Federal Reserve.

From September 2025, the observed rate detached significantly from that fair value. The bank linked the move first to monetization by the Ministerio de Hacienda (Finance Ministry) — foreign-currency sales of roughly $9 billion USD between September and December, against average daily spot volume of about $1,337 million USD in 2026 — and later to optimism over the change of administration. Those operations drew on a Total Return Swap, new euro-denominated bond issues and a direct placement to Pimco of $23 trillion COP, which raised about $5 billion USD. The gap against peer currencies turned negative after the first-round vote and has since averaged -$225 COP.

The bank described the pattern as a trade electoral — a repricing of Colombian assets in anticipation of a more market-friendly government — that held through much of the second half of 2025 and into 2026, interrupted only when polls showed a wider gap among the presidential candidates.

Bancolombia expects the peso to stay stronger than its fundamentals over the coming months, but not indefinitely. The bank projected the exchange rate in a range between $3,400 and $3,650 COP for the second half of 2026, converging gradually toward fair value in 2027. As long as the local interest-rate cycle keeps favoring long-peso carry positions and optimism persists, the bank said, the peso could reach the lower bound of that range.

“A persistent deviation looks unlikely, since over the long run the exchange rate has not structurally departed from the level observed in its peers.” — Grupo Cibest economic research, Radar Bancolombia

On the external side, the bank flagged persistent pressure toward depreciation from falling international oil prices and limited room for further US dollar weakness. Brent crude, which rose 5.8 percent year over year in the first quarter and 51.2 percent in the second amid the Middle East conflict, had already fallen 26 percent from a peak near $118 USD per barrel to around $72 USD. The bank cautioned that sustaining the currency’s current strength would depend on credible fiscal consolidation, given challenges related to inflation, the El Niño phenomenon, weak investment, the health system, security conditions and the lag in strategic sectors such as mining, energy and construction.

International backdrop

The US unemployment rate fell 0.1 percentage point to 4.2 percent in June, its lowest in a year, the Bureau of Labor Statistics reported, though the economy added just 57,000 jobs, below the 114,000 analysts expected. Hiring concentrated in professional services, up 36,000, social assistance, up 25,000, and health, up 22,000, while lodging shed 61,000. The labor participation rate fell 0.3 percentage point to 61.5 percent, its lowest since March 2021, as 720,000 people left the labor force.

Eurozone inflation eased 0.4 percentage point to 2.8 percent in June, a three-month low and below the 3.0 percent consensus, though still a fourth month above the European Central Bank’s 2 percent target. Core inflation fell to 2.4 percent. In China, the composite purchasing managers’ index rose to 50.6, above the 50 threshold that separates expansion from contraction, with manufacturing at 50.3 and non-manufacturing at 50.2, while construction stayed in contraction.

Colombia’s economy

The Banco de la República resumed its tightening cycle, lifting the policy rate to its highest level since March 2024. Bancolombia expects a further 75-basis-point increase, to 12.75 percent, as inflation expectations drift higher. Consumer inflation was set to rise for a fourth straight month in June, to about 6.13 percent annually and its highest reading since July 2024, on the bank’s estimate of a 0.38 percent monthly gain; analysts polled by the central bank had expected 0.32 percent. Analysts see inflation ending 2026 near 6.52 percent, against the bank’s own 6.4 percent scenario.

Colombia’s national unemployment rate stood at 8.0 percent in May, down 1.04 percentage points from a year earlier and a record low for the month, according to the national statistics department (DANE). Informality was 54.2 percent, and the bank maintained its 9.0 percent urban unemployment projection for 2026. Business sentiment moved the other way: Fedesarrollo’s commercial confidence index fell to 20.5 points and its industrial confidence index to -2.9 points in May, which the bank tied to uncertainty around the presidential election.

Goods exports likely extended double-digit growth in May, to an estimated $5.46 billion USD FOB, up 25 percent year over year, led by non-traditional products — non-monetary gold, copper ores and flowers — and by oil sales at an average price near $107 USD. The bank noted a 37 percent accumulated drop in the first quarter and expected exports to stabilize following the normalization of the tariff dispute with Ecuador.

Fixed income and yields

The US Treasury curve steepened bearishly, with short-dated yields up about 8 basis points and long-dated yields up about 11, after Iran’s foreign minister said no direct US-Iran meetings were scheduled and after US Federal Reserve chair Kevin Warsh, speaking at the European Central Bank’s Sintra forum, reiterated the central bank’s commitment to its 2 percent inflation target. Citi’s economic surprise index held in positive territory for a sixth consecutive month at 57.8. Advanced-economy 10-year yields were mixed over the month, with Japan up 10 basis points and France up 3, against declines of 12 in Germany and the eurozone and 11 in the United Kingdom.

Colombia’s fixed-rate TES curve rallied, with yields down 22 basis points at the short end, 23 in the middle and 9 at the long end, supported by calmer Middle East conditions, the fall in the country’s five-year CDS to levels last seen in 2021, and announcements from the incoming government — among them, the report said, the naming of Miguel Gómez as finance minister. The cash balance of the Dirección del Tesoro Nacional (National Treasury) rose to an average of $20.7 trillion COP in June, up $5.6 trillion from May, or 1.16 percent of GDP. Tax collection grew 7.4 percent year over year in May, to $35.1 trillion COP, led by income tax at $15.3 trillion COP and internal value-added tax at $11.8 trillion COP, according to the tax authority (DIAN).

Commodities and equities

Gold rose to about $4,112 USD per ounce after the US jobs report, while Brent crude closed at $71.94 USD per barrel and West Texas Intermediate at $68.69 USD, little changed on the week as traffic through the Strait of Hormuz recovered and the Organization of the Petroleum Exporting Countries prepared to announce a production increase at its July 5 meeting.

The COLCAP index closed the week up 0.4 percent at 2,295.7 points. The biggest gainers were Cementos Argos (BVC: CEMARGOS, PFCEMARGOS), up 3.5 and 3.1 percent, and Grupo Cibest (NYSE: CIB; BVC: CIBEST), up 3.1 percent, while Davivienda (BVC: PFDAVVNDA), the PEI real estate vehicle and Grupo Nutresa (BVC: NUTRESA) led the declines. Grupo Nutresa launched a share-repurchase offer for up to 3,333,333 shares at $300,000 COP each, with an acceptance deadline of July 3. Davivienda placed $270.1 billion COP in the sixth tranche of its twelfth ordinary bond issuance, drawing offers of $343.99 billion COP.

The figure shows the change in the Colombian peso and how local and international factors seem to be affecting it in a negative direction. Chart created by Finance Colombia.

On Wall Street, the S&P 500 rose 1.8 percent, the Dow Jones 2.0 percent and the Nasdaq 2.1 percent, their best quarter in six years, led by semiconductor and artificial-intelligence infrastructure shares even as investors questioned the sustainability of those valuations. Tesla (NASDAQ: TSLA) lifted deliveries 25 percent year over year in the second quarter, and Lime (NASDAQ: LIME), the shared electric-bike and scooter operator, debuted on the Nasdaq with a $167 million USD raise and a valuation near $1.6 billion USD.

European indices advanced, with the Stoxx 600 up 2.7 percent, the DAX 4.5 percent, the CAC 40 1.5 percent, the FTSE 100 1.6 percent and the IBEX 35 2.2 percent, led by defense shares and with Siemens (XETRA: SIE) contributing to the DAX. KNDS postponed a planned Frankfurt and Paris listing, while Renk (XETRA: R3NK) agreed to acquire Britain’s David Brown Defence for about $200 million USD. In Asia, the Hang Seng rose 3.0 percent, the Nikkei 225 0.6 percent and the Shanghai Composite 0.4 percent; China Resources New Energy staged Asia’s largest listing so far in 2026, raising about $3,600 million USD in Shenzhen.

The full report, Fortaleza del peso colombiano bajo la lupa: entre el optimismo y sus fundamentales, was published by Grupo Cibest’s Dirección de Investigaciones Económicas, Sectoriales y de Mercado, led by Laura Clavijo.

Headline image description: The chart shows how the Colombian peso has depreciated significantly in comparison to other similar currencies in the market by a margin of 500 points. Chart created by Finance Colombia.

Grupo Cibest, the Medellín-based financial holding company that owns Bancolombia (NYSE: CIB), has cut its 2026 economic growth forecast for Colombia to 2.6% from 2.9%, warning that the economy is losing traction as its main growth engines tire, inflation reaccelerates, and the public finances deteriorate.

The downgrade came in the bank’s mid-year update of economic projections, prepared by its economic, sectoral, and market research division under research director Laura Clavijo. The team framed 2026 as a year of macroeconomic stabilization shadowed by mounting medium-term challenges, with risks tilted to the downside for growth and to the upside for inflation and interest rates.

Growth concentrated in consumption and public spending

According to the report, gross domestic product expanded 2.2% year over year in the first quarter of 2026, and just 0.6% from the previous quarter in seasonally adjusted terms, undershooting the bank’s earlier expectations. Grupo Cibest attributes the slowdown to the exhaustion of the two drivers that carried the post-pandemic recovery: private consumption and public spending. The bank had earlier shown Colombia’s economy accelerating into the second quarter, but its NowCast model has since held growth estimates near 2.6%.

“In sum, the Colombian economy moves through 2026 in an environment of converging risks that challenges progress on structural gains.” — Grupo Cibest economic research team

The research team expects private consumption growth to ease to 2.8% in 2026 from 3.5% in 2025, pressured by high interest rates and inflation, even as remittances and a resilient labor market continue to support household spending. Public spending is projected to grow about 6.0%, after 8.4% in 2025, helped by the activation of the escape clause in the Regla Fiscal (Fiscal Rule), which gives the government more room to run an elevated deficit. Fixed investment is forecast to rise 3.5%.

The expansion would be uneven across sectors. Mining is expected to keep contracting, falling about 5.3% on lower coal and oil extraction, while construction declines 1.6% amid high financing costs and a difficult housing market. Manufacturing growth depends largely on household demand, and services, led by entertainment, remain the principal driver of the economy. On the external side, the bank sees exports growing 2.9% and imports 6.3%, narrowing the goods trade gap relative to prior forecasts.

Inflation reaccelerates, central bank turns more restrictive

The report describes a fresh setback in the inflation cycle that will slow convergence toward the central bank’s target. Consumer inflation rose to 5.84% in May from 5.10% at the close of 2025, and Grupo Cibest expects it to climb to roughly 6.4% by the end of 2026, driven by widespread price indexation, this year’s minimum-wage increase, and inflationary inertia. A strong El Niño event, recently declared, poses an additional upside risk through food and energy supply shocks, with the bank estimating a severe episode could add 0.7 to 1.9 percentage points to annual inflation. Pressures are most persistent in services, which make up close to half of the consumption basket.

Against that backdrop, the Banco de la República (Colombia’s central bank) has interrupted its rate-cutting cycle and shifted to a more contractionary stance, having already moved to lift rates earlier in the year amid inflationary pressure. Grupo Cibest projects the policy rate will reach 12.75% by the end of 2026, an additional 150 basis points from current levels and a level not seen since February 2024, and stay elevated through much of 2027 before a gradual normalization that would bring it toward 7.0% by 2030. Twelve-month inflation expectations stand at 5.5% and 24-month expectations at 4.3%, both above the central bank’s 2.0% to 4.0% tolerance range.

Fiscal deterioration the main vulnerability

Grupo Cibest singles out the fiscal front as the principal source of macroeconomic vulnerability. The bank projects a Central National Government deficit of about 6.5% of GDP in 2026, above the 5.3% the Ministerio de Hacienda (Finance Ministry) laid out in its Marco Fiscal de Mediano Plazo (Medium-Term Fiscal Framework) in early June. The research team considers the official framework optimistic, particularly on inflation and primary spending, and estimates the primary deficit will near 3.2% of GDP rather than the official 2.1%.

Revenue performance has been strong: tax collection reached roughly 139.3 trillion COP by May, up 9.4% year over year and surpassing the targets set by the national tax authority, DIAN. But high budget execution and spending rigidity have made the required adjustment difficult, with commitments through May reaching 259.8 trillion COP, about 27.5 trillion COP above plan. To hit its fiscal target, the government would need to cut some 33.2 trillion COP from the 2026 budget, which the bank calls improbable given recent execution. As a result, gross public debt could rise to 65.9% of GDP, approaching 66%, and the heavier reliance on local-currency bond issuance to cover financing needs would keep upward pressure on yields. Grupo Cibest argues the absence of structural adjustment reinforces the need for a tax reform raising close to 1.6% of GDP to stabilize the debt trajectory. The fiscal picture echoes recent warnings from rating agencies, including Fitch’s view that revised deficit targets heighten fiscal uncertainty.

External accounts improve, peso firms

The external picture is more favorable. The bank estimates the current account deficit will narrow to 2.3% of GDP in 2026 from 2.4% in 2025, well below the pre-pandemic decade average, before widening gradually toward 3.3% over the medium term. The improvement reflects stronger exports, favorable commodity prices led by oil, and record remittance inflows that have climbed to near 4.0% of GDP. The bank sees Brent crude averaging $86 USD per barrel in 2026.

The Colombian peso has appreciated 9.2% so far this year, supported by capital flows returning to Latin America, the central bank’s rate-hike cycle, strong remittances, and expectations around the change of government. Grupo Cibest revised its average exchange rate forecast down to 3,635 COP per dollar and expects the currency to trade between 3,400 and 3,650 COP per dollar in the second half, with the trajectory hinging on credible signals of fiscal consolidation. The bank had earlier flagged a firmer peso after the currency’s appreciation in April.

Stabilization, with conditions

For the medium term, Grupo Cibest expects growth to stabilize around potential, near 2.6% to 2.7% annually through 2030, with the unemployment rate averaging 9.0% in 2026, and credit growth moderating to 1.9% in real terms while loan quality holds near a 3.9% non-performing ratio. The bank notes that a new administration, after Colombia confirmed a change of government on June 21, could improve investor expectations to the extent it advances a more market-oriented agenda, though it cautions that high interest rates will continue to weigh on private investment in capital-intensive sectors such as mining and construction.

The report ties its outlook to the persistence of converging risks. “In sum, the Colombian economy moves through 2026 in an environment of converging risks that challenges progress on structural gains,” the research team wrote, pointing to the loss of momentum in growth drivers, persistent inflationary pressures, significant fiscal deterioration, and more restrictive financial conditions.

In Colombia’s local fixed-income market, the Títulos de Tesorería (TES) fixed-rate curve appreciated across its entire structure over the last month. As of March, the total balance of TES in circulation stood at 747.9 trillion COP. Despite this positive market valuation, macroeconomic headwinds remain a central concern for the Ministerio de Hacienda y Crédito Público. The fiscal balance of the Gobierno Nacional Central (GNC) reported an accumulated deficit of 1.7% of GDP through February.

These persistent fiscal imbalances were cited as the primary driver behind the recent decision by S&P Global (NYSE: SPGI) to downgrade Colombia’s sovereign credit rating. The administration continues to manage these debt instruments against a backdrop of tight monetary conditions, which remain a primary focus for institutional investors holding Colombian sovereign paper.

Colombian fixed-income markets show valuation gains despite a recent S&P credit downgrade linked to ongoing fiscal imbalances.

The international fixed-income landscape experienced notable shifts between March 25 and April 23, 2026. The yield curve for US Treasury bonds displayed mixed performance, defined by a decrease in short-term rates and an increase in long-term yields. Analysts attribute this volatility primarily to conflicting signals regarding the ongoing conflict in the Middle East.

Economic indicators released by the Bureau of Labor Statistics show that annual consumer inflation, measured by the Consumer Price Index (CPI), accelerated by 0.9 percentage points to reach 3.3% in March. This data triggered a rebound in short-term inflation expectations within the Treasury bond market, while medium and long-term outlooks remained stable. Consequently, the Intercontinental Exchange (NYSE: ICE) MOVE index—which tracks public debt market volatility—and the Cboe (NYSE: CBOE) VIX—which monitors S&P 500 equity volatility—both registered significant declines during the period.

The upcoming monetary policy meeting of the Banco de la República, scheduled for April 30, takes place as the balance of financial risks has shifted significantly compared to the first quarter of 2026. Analysts from Bancolombia (NYSE: CIB) expect the Junta Directiva to increase the benchmark interest rate by 75 basis points, bringing the policy rate to 12.00%.

The convergence of elevated inflation, recent reversal episodes, and misaligned market expectations has reinforced the perceived need for a restrictive monetary stance. This strategy aims to contain domestic demand while preserving the institutional credibility of the central bank. Unlike previous sessions, the current decision-making process is influenced by a shifting global environment where markets have moved toward a higher-for-longer interest rate scenario amid increased uncertainty.

Recent discussions regarding the participation of the Ministro de Hacienda in the Junta Directiva sessions have introduced an additional element of analysis. However, current assessments suggest this does not alter the fundamental policy diagnosis, and no disruptions to the decision-making process are anticipated. Monetary policy is expected to maintain consistency, with the strategic focus shifting from reaching a contractive level to determining the necessary duration of that posture.

Analysts project Banco de la República will raise rates to 12.00% to combat inflation despite slowing domestic economic growth.

The international economic context provides a mixed backdrop for the Colombian decision. Private sector activity in the US appeared to accelerate in April, following a 1.7% monthly increase in retail sales during March. In contrast, the Eurozone reported a contraction in economic activity during April. Energy markets have also seen volatility, with US crude inventories rising in the second week of April while gasoline stocks saw a significant decline. Furthermore, crude prices surged following reports of new security incidents in the Strait of Hormuz.

Domestically, the Departamento Administrativo Nacional de Estadística reported that the Índice de Seguimiento a la Economía grew by 1.6% in February. While imports maintained growth during the same month, the urban unemployment rate across the 13 primary metropolitan areas continued a downward trend through March 2026. In the fixed income market, the central government reported debt levels at 64.2% of GDP for the first quarter, with internal debt accounting for 71.2% of that total.

Market movements reflected these broader trends as the US Treasury curve saw valuation increases driven by investor caution. In the region, Colombia, Brazil, and Uruguay emerged as the primary beneficiaries of the J.P. Morgan (NYSE: JPM) GBI index rebalancing in March. Locally, fixed-rate Títulos de Tesorería experienced devaluations across the entire curve last week. According to the April Encuesta de Opinión Financiera, these devaluations are expected to persist in the coming months. In currency markets, the COP appreciated last week against a backdrop of global and local factors, while the Euro lost ground against the USD.

Headline photo: Bogotá headquarters of Banco de la República (Banrepublica). Photo credit Juan Enrique Rodríguez, courtesy Banrepublica

The National Oceanic and Atmospheric Administration (NOAA) and the Climate Prediction Center (CPC) have confirmed that ENSO-neutral conditions are currently present in the equatorial Pacific Ocean. However, technical indicators suggest a rapid transition, with a 61% probability of El Niño emerging between May and July 2026. For international investors and executives operating in Colombia, this shift indicates a looming period of increased operational costs, specifically within the energy and agricultural sectors.

The El Niño Southern Oscillation (ENSO) is a recurring climate pattern involving changes in the temperature of waters in the central and eastern tropical Pacific Ocean. During El Niño, trade winds weaken, allowing warm water to move toward the west coast of South America. Conversely, La Niña is characterized by stronger trade winds and cooler ocean temperatures. These fluctuations disrupt global atmospheric circulation, altering rainfall and temperature patterns across the planet.

In Colombia, the effects of these phenomena are distinct and significant. El Niño typically results in a sharp decrease in precipitation and a rise in average temperatures. Because Colombia relies on hydroelectricity for more than 60% of its total power generation, extended dry periods lead to lower reservoir levels. This forces the grid to rely on more expensive thermal generation fueled by natural gas and coal, which historically drives up spot market electricity prices for industrial and residential consumers.

“There is a 25% probability that the index reaches or exceeds +2.0°C during the Northern Hemisphere winter,” according to the National Oceanic and Atmospheric Administration.

The current technical diagnostic from NOAA shows that while the sea surface temperature index in the Niño-3.4 region was recently -0.2°C, the easternmost indices have already moved into positive territory. Furthermore, the equatorial subsurface temperature index has increased for five consecutive months. This accumulation of ocean heat is a primary driver behind the high probability of El Niño persistence through the end of 2026. Some models, including those from the European Centre for Medium-Range Weather Forecasts (ECMWF), suggest a 25% chance of a “strong” or “very strong” event, where temperatures exceed the 2.0°C anomaly threshold.

The Ministerio de Minas y Energía and the Comisión de Regulación de Energía y Gas (CREG) are monitoring these developments closely. A strong El Niño would place additional stress on a natural gas system already facing structural supply constraints. Reduced hydroelectric output coupled with a potential deficit in gas supply could lead to significant energy price volatility. In past events, such as the 2015-2016 cycle, these conditions resulted in substantial financial pressure on the national utility system and necessitated emergency conservation measures.

Agricultural productivity is equally at risk. The Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM) has identified the Caribbean and Andean regions—including departments such as La Guajira, Magdalena, and Antioquia—as highly vulnerable. During El Niño, these areas face increased risks of forest fires, water scarcity, and crop failure. For agribusinesses and exporters, this translates to disrupted planting cycles and higher production costs for staples like corn, potatoes, and vegetables, which can fuel domestic food inflation.

Conversely, when La Niña is in effect, Colombia faces the opposite extreme. The cooling of the Pacific leads to excessive rainfall, which can cause devastating landslides and flooding in mountainous terrain. While La Niña can replenish reservoirs, it often damages infrastructure and logistics networks, complicating the transport of goods to port. The current transition out of a La Niña phase provides a brief window of ENSO-neutral stability, which the CPC estimates has an 80% chance of lasting through June 2026.

For the international business community, the significance of these weather cycles extends to macro-economic stability. Persistent dry weather can impact GDP growth by raising the cost of basic services and reducing agricultural output. Strategic planning for 2026 and 2027 must account for these climatic variables. Meteorologists at Colorado State University note that El Niño also tends to reduce hurricane activity in the Atlantic, which may provide some relief for coastal logistics, but the primary threat remains the inland hydrological deficit.

As the Ministerio de Ambiente y Desarrollo Sostenible activates preventive mechanisms, companies are encouraged to review their energy procurement strategies and water management protocols. The next comprehensive diagnostic update from NOAA is scheduled for May 14, 2026, which will provide further clarity on the intensity of the projected warming trend. Understanding the mechanics of the ENSO cycle is no longer a matter of environmental interest but a necessity for risk mitigation in the Colombian market.

Satellite sea surface temperature departure in the Pacific Ocean for the month of October 2015, where darker orange-red colors are above normal temperatures and are indicative of El Niño. (Image credit: NOAA)

Headline photo: the Pacific Ocean from Guachalito Beach, Chocó, Colombia (photo © Loren Moss)

On April 8, 2026, S&P Global Ratings (NYSE: SPGI) lowered its long-term foreign currency sovereign credit rating on Colombia to BB- from BB and its long-term local currency rating to BB from BB+. The outlook for both ratings is stable, reflecting expectations that the Government of Colombia will gradually reduce its fiscal deficit while sustaining moderate growth in the national gross domestic product.

The rating action follows persistent fiscal imbalances and a policy environment that has become less predictable since the pandemic-related recession. The government decision to suspend the national fiscal rule in 2025 marked a significant shift in the policy framework. Pro-cyclical fiscal policies have provided marginal support for employment and consumption, but have also contributed to higher inflation expectations and a wider current account deficit. S&P expects the general government fiscal deficit to reach 5.6% of the national gross domestic product in 2026, compared to 5.3% in 2025.

“We expect Colombia to have consistently large fiscal deficits over the next few years.” — S&P Global Ratings

Institutional stability remains a key factor in the rating, though challenges persist. A fragmented legislature followed the March 2026 elections, where Pacto Histórico and Centro Democrático emerged with the largest minorities. The upcoming presidential election, scheduled for May 31, 2026, adds further uncertainty. Candidates such as Iván Cepeda of Pacto Histórico, Paloma Valencia, and Abelardo de la Espriella have proposed varying approaches to fiscal consolidation. The new administration will inherit spending pressures related to domestic security, rising healthcare costs, and pension payments linked to minimum wage increases.

The Banco de la República, the independent central bank of the country, has maintained a tight monetary policy to combat inflationary pressures. Annual inflation reached 5.3% in February 2026, prompting the bank to increase reference rates to 11.25%. S&P anticipates that inflation will not return to the target range of 3% +/- 1% until early 2029. While the independent status of the central bank provides a buffer against external shocks, high interest rates and lower-than-expected revenue collections have contributed to the widening deficit since 2024.

Economic growth is projected at 2.5% for 2026, slightly below the 2.6% recorded in 2025. Per capita growth is estimated at $9,900 USD for 2026, with real growth expected to average just above 2% through 2029. Despite being a net energy exporter, the performance of the US economy and international energy prices continue to influence national outcomes. Hydrocarbon exports declined to 35% of goods exports in 2025, down from 67% in 2013, showing some diversification even as the sector remains a primary source of volatility.

Net general government debt is forecast to approach 66% of the national gross domestic product by 2029, rising from 60.4% in 2025. S&P notes that the government interest burden will average 12.3% of general government revenue over the next three years. The shift toward issuing shorter-term debt instruments has reduced reported interest payments but increased vulnerability to interest rate fluctuations. External indicators remain a concern, with narrow net external debt expected to stabilize at 130% of current account receipts through 2029. Foreign direct investment is expected to be the primary source for funding the current account deficit, which is projected to stabilize around 2.6% of the national gross domestic product.

Vise photo credit © Loren Moss

Colombia’s Banco de la República is preparing for a significant shift in monetary policy as inflationary risks deteriorate. According to the latest report from the Dirección de Investigaciones Económicas, Sectoriales y de Mercados at Bancolombia (NYSE: CIB), persistent internal pressures and a less favorable external environment are driving the need for a more restrictive stance.

Bancolombia’s analysts expect the Junta Directiva of the Banco de la República to increase its policy interest rate by 100 basis points, bringing it to 11.25 percent. This forecast suggests that the first half of 2026 will be characterized by a more aggressive tightening cycle than previously anticipated, with the rate potentially reaching 12.75 percent.

The international landscape is playing an increasingly decisive role in these local policy configurations. A recent week of central bank decisions globally revealed a shift in tone among major financial institutions, primarily due to rising uncertainty stemming from the conflict in Iran. This geopolitical tension has directly impacted costs for energy, transportation, and agricultural inputs.

“The increase responds to the need to send a clear signal of commitment to price stability.” — Dirección de Investigaciones Económicas, Sectoriales y de Mercados at Bancolombia.

In the US, economic activity shows signs of moderation, yet producer price inflation in February exceeded expectations. The yield curve for US Treasuries, managed by the US Department of the Treasury, has shown mixed behavior as the conflict escalates, with the spread between 10-year and 3-month bonds reaching levels not seen since 2023. Inflation expectations in the US have rebounded in the short term, though they remain anchored over longer horizons.

Domestically, the business indices from think-tank Fedesarrollo showed mixed results for February. However, there are positive indicators in the labor market, as the urban unemployment rate across the 13 primary metropolitan areas continued its downward trend. Additionally, goods exports recorded an advance during the same period.

In the local fixed-income market, the TES fixed-rate curve saw a recovery last week. However, the March Financial Institutions Survey suggests that devaluations of TES may persist in the short term. Long-term TES Class B placements in the first quarter reached 1.0 percent of the GDP.

Chart based on data from Grupo Cibest & the Banco de la República.

Energy markets remain volatile as crude oil inventories in the US increased beyond expectations in the third week of March. Despite this, the price of Brent crude rose toward the end of the week, driven by skepticism regarding a potential ceasefire in the Middle East. The Colombian peso appreciated over the past week, tracking the intensity of the regional conflict.

The equity market results for the fourth quarter of 2025 remained neutral and aligned with market expectations. Global volatility continues to be shaped by energy shocks, geopolitical strife, and a cautious approach toward investments in artificial intelligence.

The projected rate hike by the Banco de la República is intended to send a definitive signal of commitment to price stability. This adjustment reflects not only recent inflation trends but also a strategic effort to prevent the further deterioration of expectations in a high-risk environment.

Headline image: Bogotá headquarters of Banco de la República (Banrepublica). Photo credit Juan Enrique Rodríguez, courtesy Banrepublica

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