How Colombia managed to become one of the best economies of 2025 and what challenges it faces

“Private consumption has shown a positive response after a somewhat weaker development in previous years,” former minister Ocampo told BBC Mundo.

Employment also shows positive figures.

The unemployment rate is at a historic low of 8.2%. “That is a more than good number for Colombia,” believes Barone.

Ocampo emphasizes that “informality is still very high, but if you look at employment growth this year, you can see that three quarters of the growth is due to formal employment.”

Although Donald Trump’s return to the White House and his differences with Colombian President Gustavo Petro raised fears that Colombia would be one of the countries most punished by his tariffs, this ultimately was not the case.

The country is subject to the general 10% tax imposed on exports from most Latin American countries to the United States and has benefited from the rise in coffee prices.

“The agricultural sector has developed well and employs a lot of people,” says Barone.

Illegal crops such as coca may have had a boosting effect on the economy, although this is harder to measure due to a lack of official figures.

The last few months have also been marked by the appreciation of the peso against the dollar.

The devaluation of the dollar, due in part to doubts related to the increase in US national debt and the Federal Reserve’s interest rate cut, has increased the relative value of several Latin American currencies, including the Colombian peso.

For Colombia it has ambivalent effects.

“The agricultural sector is having a hard time as it receives fewer pesos for its exports, but we could also have a stimulating effect on the import sectors,” explains Barone.

But it’s not all good news.

“If you break down a little what’s behind this growth in activity, red flags appear because one of the factors driving it is unsustainable public spending,” Marc Hoffstetter of the University of Los Andes told BBC Mundo.

“The number of foreign investments has been in complete decline for several years, which raises serious doubts about our ability to sustain this growth.”

Hoffstetter and other economists suggest that the increase in private consumption may be largely due to high levels of employment in the public sector and that this could be affected as the task of cleaning up public finances, which many believe is urgent, is tackled.

The latest estimates suggest that Colombia’s public finances will end 2025 with a deficit of about 6.2%, a figure that worries experts and authorities.

To correct the deficit by increasing income, the Petro government promoted a tax increase that was rejected by Congress. He previously activated the constitutional clause that allows him to suspend the fiscal rule for public spending.

Ocampo warns: “The budget deficit caused by the increase in public spending is the most serious problem and has not really been addressed by the government.”

The Bank of the Republic has warned that the high deficit that has accumulated over the past two years may contribute to rising prices and threaten government debt reduction goals.

Another black point of the Colombian economy has been the decline in activity and investment in the mining and oil sectors, the latter affected by the fall in international crude oil prices and the tax increases on hydrocarbons promoted by Petro.

Inflation, whose decline shows signs of stalling, is another looming challenge for the Colombian economy.

Some voices warned of the possible catastrophic impact on the economy of the coming to power of Gustavo Petro, the first left-wing president in Colombia’s modern history.

But the numbers do not suggest a collapse in the Colombian economy since Petro took office in 2022.

According to the consulting firm Deloitte, developments over the past two years have been “moderately positive.”

Petro has launched far-reaching projects, such as labor reform that will improve wages for formal workers and increase burdens on companies.

The new rule was finally passed in June 2025 after an arduous journey through Congress that saw significant cuts to the original project. However, it has only been in force for a short time, making it difficult to assess its impact.

Critics believe it will hurt economic activity by increasing labor costs for employers and stress it will not benefit the country’s informal workers, who make up the majority.

But for the government, “it is a reform that not only protects workers but also contributes to the consolidation of the country’s productive apparatus,” said Labor Minister Antonio Sanguino.

Petro failed to get Congress to approve several of his tax reforms, proposals that were aimed at increasing revenues and government resources and that could have had a significant impact on the economy.

Although the economy hasn’t suffered the collapse that some predicted with Petro, the reality is that economists don’t think the president can take the silver lining.

Barone explained that “the foundations were laid long before the pandemic and that the Colombian economy was doing well. Although it needed some stimulus, investments were performing well.”

The expert believes that the arrival of Petro “has caused fear in the business world and investments have declined significantly in the last two years.”

Colombia’s future will largely be decided in the elections that Colombians will call in May.

Whoever is chosen to succeed Petro, the new president will face the challenge of reducing the budget deficit and balancing the accounts.

“The elected government will face a complex task because it will have to make adjustments,” says Ocampo.

The extent of the spending cuts and their potential impact on public servants will be one of the first uncomfortable questions to cross the desk of Colombia’s next president.

Barone believes that the adjustments can be made “gradually” and that “drastic measures” are not yet necessary.

“We are in a moment of early warning,” summarizes the expert.

If it corrects the budget deficit and does not lose market confidence, Colombia could remain on the growth path it has embarked on in recent years and which has allowed it to reduce informality and inequality, two of its biggest structural problems.

Ocampo believes that the country has benefited from the fact that it has become clear in recent years “that institutions work in Colombia. There is a separation of powers and in that sense we look like Peru.”

“The outlook for Colombia in 2026 is one of cautious optimism,” concludes Barone.

*Graphics by Laís Alegretti from BBC Mundo’s visual journalism team

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