Colombia Falls Victim to Global Commodity Prices
The fall in global commodity prices has slowed the Colombian economy, as it has across Latin America. The collapse in prices for oil, Colombia's primary export, has slashed estimates for growth and government revenue. Though the waning economy is still likely to experience moderate growth this year, the decline could complicate political endeavors such as the implementation of controversial tax reforms and important post-insurgency programs with the Revolutionary Armed Forces of Colombia, or FARC, next year.
Colombia depends on its commodities to drive economic growth. The country produces an average of 1 million barrels per day of crude oil, most of which is also exported, accounting for over half of total exports and making up around 20 percent of government revenue in 2014.
The drop in global oil prices by nearly 60 percent over the past year has understandably hurt Colombia's economy. Oil exports fell 47 percent in value in the first six months of 2015 compared to the same period last year, declining further in August. Overall, Colombia's exports dropped from around $28 billion in the first half of 2014 to less than $20 billion this year. Consequently, Colombia's external debt has grown to nearly 33 percent of GDP, compared to 25 percent of GDP last year. The Colombian peso decreased by over 40 percent in value since August 2014, and the country's GDP forecast for this year has been revised down from 3.1 percent to 2.8 percent. The inflation rate, though at a manageable 4.5 percent, is still above the government's target of between 2 and 4 percent for the year.
Projections for 2016 do not offer Colombia much relief either. The government announced that it expects to receive $1.1 billion in oil revenue next year, far below the $6.7 billion it made in 2014. Colombia's finance minister has said that the peso's depreciation will raise the cost of the country's foreign debt by 10 percent in 2016. The prices of Colombia's other major commodity exports, including coffee, nickel and coal, have also tumbled and are unlikely to rebound in the near term.