Venezuelan migrants boost Colombian economy, says IMF

2 May 19

Colombia’s economy is benefitting from the political and social crisis in neighbouring Venezuela as migrants fuel demand for services.

The IMF said substantial migration from Venezuela – where the economy has all but collapsed – is expected to contribute to a rise in growth in its neighbour to 3.6% this year and next.

The fund’s latest report on the Colombian economy praises “strong policy frameworks and well-executed policies” for nurturing a recovery.

The report, based on an ‘Article IV’ mission to take stock of the South American country’s fiscal conditions, said Colombia’s economy is gaining momentum. 

Despite slowing global and regional growth, GDP growth strengthened in 2018 to 2.7% from 1.4% in 2017, underpinned by private consumption and a modest recovery in investment.

The IMF said substantial migration inflows from Venezuela – which have been caused by a confrontation between the socialist government and the US-backed rightwing opposition – have fuelled domestic demand in Colombia, especially for services.

Government figures indicate that 1.5 million migrants from Venezuela resided in Colombia as of December 2018, and that number is projected to reach 2.5 million by the end of 2020.

While providing humanitarian support such as health care and education to these people will result in fiscal costs for Colombia – estimated to be about 0.5% of GDP this year – these will gradually decline to 0.1% by 2024 as migrants integrate into the economy.

The IMF praised Colombia’s use of fiscal rules but supported “understandable” flexibility in applying these to cope with extra spending caused by the migration shock.

The fund said achieving fiscal consolidation in the medium-term will be “challenging” given migration-related costs, spending rigidities, and revenue losses from recent tax reforms, and has advised Colombian authorities to raise tax revenues and spend more efficiently.

It warns that further deterioration of the economic and social crisis in Venezuela could swell migration to Colombia, but if the number of migrants were to double to 6 million this could further increase potential GDP growth by an additional half a percentage point.

If there were a rapid and peaceful resolution of Venezuela’s political and social conflicts, this could prompt migrants to return home – in turn slowing the rate of Colombian growth.

  • Gavin O'Toole, expert on Latin America
    Gavin O'Toole

    A freelance journalist. He has written six books about Latin America and taught the politics of the region at Queen Mary, University of London.

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