Colombia should invest mining revenues for growth, says OECD

1 Feb 13

Colombia should invest revenues from its commodity boom in education and infrastructure projects to boost its long-term competitiveness, the Organisation for Economic Co-operation and Development said yesterday.

By Nick Mann |1 February 2013

In an economic assessment, the OECD said that while Colombia’s resource boom was ‘a blessing’, it had also created social, economic and environmental challenges.

Foreign investment, economic growth and government revenues have increased, but rising terms of trade have sharply increased the value of the Colombian peso, undermining the competitiveness of other sectors.

Ensuring balanced growth will require the Colombian economy to become more productive and competitive. The government should invest in education and training and also improve transport infrastructure, reduce barriers to entrepreneurship and tackle corruption, the OECD said.

‘Promoting greater openness to trade, stronger competition and flexibility across the economy, in particular through labour market reforms, are important additional steps,’ it added.

The introduction of a new structural fiscal balance rule will help Colombia to guard against the ‘unsound use’ of commodity resources and also enhance fiscal discipline, it noted. Under the rule, the central government’s structural deficit should be reduced from 2011’s 2.7% of gross domestic product to 1% by 2022.

‘The fiscal rule is a clear improvement,’ the OECD said. ‘However, it could be strengthened further.’ In particular, the profits and losses of public enterprises and entities should be explicitly taken into account when performance against the rule was assessed because they could contribute to slippage. The government should also define more clearly what action would be taken if the targets – and the interim goals set for 2014 and 2018 – were missed.

Pier Carolo Padoan, chief economist at the OECD, said: ‘Commodity exports are booming, improved security is attracting new investment and confidence is on the rise, but there is still more to be done. The challenge is to ensure that the benefits of today's mining boom pays forward a better future for the next generation.’