Former minister Juan Carlos Echeverry does not see a viable tax hike in Colombia to overcome the crisis

Former Colombia’s finance minister Juan Carlos Echeverry said today that indicators such as energy demand – as measured by the XM company – reveal an economic rebound back to levels earlier this year.

From the company E-concept, of which he is a member, Echeverry said that the national unemployment rate in Colombia is expected to reach 13% by the end of 2020 (after reaching 21% by mid-year) and that drops to 11% in 2021.

In his concept, a brief but severe recession will occur for most sectors of the economy.

From the company E-Concept, Colombia’s GDP is expected to close the year at -6.4% levels, placing it below the Banco de la República forecast which was adjusted yesterday at -7.6%.

Related: Colombia’s BanRep Improves GDP Forecasts for 2020-21; see a better rebound than expected

Furthermore, his view is that inflation in Colombia will increase from 1.8% at the end of 2020 to 2% in 2021 and that Banco de la República still has room to lower interest rates from the current 1. 75% to 1.50%, to then bring them to levels close to 2% in 2021.

These are the main economic forecasts of the former minister for Colombia in 2020 and 2021:

The Colombian government, Echeverry said, has been “a little strained” in its fiscal push to meet the needs of businesses and households.

On the basis of this, the former minister sees as “impossible” the possibility that the national government of Colombia will carry out a fiscal adjustment like the one he proposed because he believes that it will not be able to implement a tax reform of two points of GDP and privatizations of 1.5% of GDP.

Getting people to pay more rent and pay more VAT to low-income families “is unrealistic”, so the former Colombian minister believes these resources should be obtained in a “less costly” way.

Doing a tax reform of this level, he said, requires too much of citizens and to politicians in times of strong crisis such as that of the coronavirus.

The government has limited room to implement reforms and therefore estimates that it can get the approval of reforms such as capital market and tax reforms, but not others such as labor and pension reforms.

Echeverry participated as a panelist in the launch of El Libro 2021 on behalf of the economic research departments of the Davivienda bank and the commission agent Davivienda Corredores.

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