Tendencia Económica No. 262

Abstract

Editorial: On September 15, 2025, the United States government announced the decertification of Colombia in the fight against drug trafficking, accompanied by a national interest waiver. This waiver prevented the immediate application of sanctions such as the suspension of bilateral cooperation and the veto of Colombia’s financing requests before multilateral development banks. However, the risk remains that the United States could adopt a full decertification if corrective measures are not implemented in Colombia’s anti-narcotics policy to demonstrate greater commitment to combating drug trafficking. This situation also reflects a deterioration in diplomatic relations between the two countries, leaving Colombia exposed to potential sanctions in the short term, even outside the formal framework of the decertification process. This vulnerability became evident between October 19 and 24, when the U.S. government announced the suspension of cooperation and sanctions against Colombian government officials and their relatives amid growing diplomatic tensions. .

If the waiver were to be fully lifted, either during the certification review process or through the unilateral application of sanctions, 29% of Colombia’s exports would be at risk, deepening the trade deficit and external pressures while weakening the exchange rate. Likewise, 40% of foreign direct investment would be affected, with negative effects on the economy’s productive capacity. Furthermore, such sanctions would worsen sovereign risk and external financing conditions. In a scenario of limited sanctions, the effects would be moderate and temporary, supported by expectations of future recertification. In contrast, broader and more persistent sanctions, such as trade restrictions, would significantly erode confidence, increase financing costs, and trigger a sharper depreciation of the peso. This would translate into higher inflation and interest rates, alongside greater uncertainty, reducing consumption and investment and slowing economic growth.

Actualidad: Fedesarrollo projects that in 2025, the economic growth of Colombia's main trading partners will decelerate compared to the previous year, in the context of the ongoing trade war and increased financial market volatility. In this scenario, a slight depreciation of the exchange rate is expected compared with the average exchange rate across 2024. This result will be driven by high fiscal uncertainty, falling commodity prices, and a reduction in oil production. In terms of productive activity, Fedesarrollo sustains its growth projection of 2.6% for 2025, supported by the dynamism of the artistic and entertainment services, commerce, and agricultural sectors. From the demand-side, growth is expected to be driven by both public and private consumption. On the external front, a rise in the current account deficit to 2.6% of GDP (up from 1.7% in 2024) is anticipated, explained by a larger trade deficit due to increased imports of consumer goods and a decline in traditional exports. Regarding prices, inflation is expected to close the year at 5.01%, primarily driven by greater indexing of effective and imputed rents compared to previous forecasts and higher costs of imported agricultural and industrial imported inputs.

Finally, the deterioration of public finances has solidified as the primary risk to macroeconomic stability in the short and medium term. After failing to meet the fiscal rule in 2024, the government activated the escape clause in the 2025 Medium-Term Fiscal Framework, allowing for higher deficits over the next three years. In this context, Fedesarrollo projects that the government deficit will reach 7.5% of GDP in 2025, and starting in 2028, when compliance with the fiscal rule is expected to be restored. However, in the medium term a fiscal effort between 3.7% and 4.2% of GDP will be needed to meet the target for structural net primary balance and ensure a downward trajectory for public debt. In response, Fedesarrollo emphasizes the need to implement a comprehensive fiscal adjustment package, combining tax and expenditure measures, and complemented by a strategy to strengthen fiscal credibility, which would in turn help reduce the cost of debt service.