BOGOTA, March 24 (Reuters) - Colombia will grow around 3.5 percent this year, the IMF said on Tuesday, at the end of an annual evaluation mission in which it recommended the Andean nation increase taxation to meet its spending needs as income from crude oil exports tumbles.
The IMF had previously forecast expansion of 4.5 percent for this year. Its new estimate is also lower than the government’s estimate of 4.2 percent growth in 2015 and slower than the 4.6 percent achieved last year.
“Of course the oil price shock will bring challenges that will be felt this year and together with a weak external scenario, that will be what will impact growth most in 2015 and 2016,” said Valerie Cerra, an IMF adviser heading the mission.
Colombia’s government has been tweaking its finances to cope with the halving of the international price of crude oil, its top export and it has cut non-essential budget spending. Oil royalties and taxes provide about 20 percent of government income.
The mission said it expects Colombia, Latin America’s fourth-biggest oil producer, to return to higher growth of around 4.5 percent in the coming years with an expected recovery in oil prices.
Cerra praised Colombia’s fiscal responsibility, enshrined since 2012 in a law limiting public deficits, and said raising Value Added Tax would be one avenue for bolstering government income.
Strong economic growth which has been above 4 percent every year since 2010, is lifting many out of poverty, Cerra said. The government said on Tuesday the portion of the population in poverty had fallen to its lowest level in more than a decade.
The mission also advocated making state pensions to the poorest that would not require beneficiaries to contribute. (Reporting by Carlos Vargas; Writing by Peter Murphy; Editing by Lisa Shumaker)