Colombia is entering a critical political transition with an economy defined by a sharp duality: significant social improvements on one side and growing macroeconomic vulnerabilities on the other. As President Gustavo Petro prepares to leave office on August 7, his administration leaves behind the lowest unemployment rate of the century and a historic reduction in multidimensional poverty, alongside a rapidly expanding public debt burden and a fiscal deficit that ranks among the highest in Latin America outside the pandemic period.
On the social front, Colombia’s labor market has shown notable strength. More than 600,000 jobs were created in 2025, bringing unemployment down to 8.9%, the lowest level recorded this century. At the same time, multidimensional poverty—which measures access to education, healthcare, housing, and employment conditions rather than income alone—fell to 9.9%, marking the first time it has dropped into single digits. These gains have been reflected in improved household consumption, supported by increases in the minimum wage, expanded public transfers, and higher remittance inflows from Colombians abroad.
Key sectors also contributed to growth. Tourism expanded rapidly, with arrivals increasing from 4.7 million visitors in 2022 to 6.5 million in 2025, generating more than $11 billion in annual foreign currency earnings. This surge allowed tourism revenues to surpass traditional exports such as coal for the first time, even as fossil fuel industries weakened amid policy shifts away from hydrocarbons. Meanwhile, agriculture experienced a boom driven by record international prices for coffee and cocoa, injecting liquidity into rural economies and supporting hundreds of thousands of farming households.
Despite these gains, economists warn that the underlying structure of growth has become increasingly fragile. Colombia’s economy grew 2.6% in 2025, but much of that expansion has been driven by public consumption rather than private investment or productivity gains. Analysts estimate that government spending accounted for roughly 63% of recent growth, supported by wage increases, subsidies, and a growing public payroll. Remittances also played a major role, reaching nearly $13.1 billion in 2025 and contributing close to 3% of GDP.
At the same time, warning signs are accumulating in the productive economy. Investment in infrastructure, machinery, and industrial capacity has fallen to around 16% of GDP, its lowest level in two decades. Construction has been particularly affected, with 11 consecutive quarters of contraction during Petro’s presidency. Housing starts dropped sharply to 112,000 units in 2025, far below the estimated demand of 235,000 to 250,000 new households per year, while the sector lost an estimated 136,000 jobs. Business leaders and economists attribute this decline to regulatory uncertainty, repeated structural reforms, security concerns, and one of the highest corporate tax burdens in the region.
The fiscal picture has become increasingly tense. Colombia closed 2025 with a fiscal deficit of 6.4% of GDP, better than earlier projections but still the second largest among major Latin American economies after Brazil, according to international assessments. Public debt has risen sharply, climbing from 55% of GDP at the start of Petro’s mandate to around 63.7% in 2026. Interest payments now absorb a significant share of tax revenue, limiting the government’s fiscal flexibility and pushing total spending to historically high levels.
Independent fiscal authorities have raised concerns about the sustainability of current policies. The Autonomous Fiscal Rule Committee has warned that demand in the economy is growing significantly faster than production, creating inflationary pressure and external imbalances. It has also criticized official fiscal adjustment plans as insufficient, calling for spending cuts equivalent to 4% to 5% of GDP over the next four years to stabilize debt and prevent financial stress.
Inflation remains another pressure point. Although it has fallen from double-digit levels seen in previous years, it closed 2025 at around 5%, above the central bank’s 3% target, with forecasts suggesting it could exceed 6%. To contain price pressures, the central bank has raised interest rates, which has helped stabilize inflation but also increased borrowing costs for households, businesses, and the government itself.
Economists warn that Colombia is approaching a difficult macroeconomic trade-off. Persistently high interest rates and weak investment risk slowing growth further, while fiscal expansion could fuel inflation and worsen debt dynamics. Some analysts have even raised the possibility of stagflation if productivity does not recover. In this context, the next administration will inherit an economy with strong social indicators but significant structural imbalances, facing urgent decisions on fiscal consolidation, investment revival, and long-term growth strategy.
