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Colombia’s economy has recovered remarkably well from the COVID-19 crisis, as strong fiscal and monetary policy support have successfully averted a stronger contraction of incomes. New social programmes have saved millions from falling into poverty. Medium-term growth prospects hinge on reforms to expand social protection and boost productivity.
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Colombia’s economy has recovered remarkably well from the COVID-19 crisis, and strong fiscal and monetary policy support have averted a stronger contraction of incomes. Solid macroeconomic policy frameworks are laying the grounds for a continuous recovery of domestic demand, although the sustainability of fiscal accounts will require further action. In a longer view, however, both growth and social inclusion are trapped by weak structural policy settings that preclude more than half of income earners from formal jobs and social protection, while preventing firms from growing and becoming more productive. Solving this vicious circle through ambitious reforms would allow a significant leap forward for material well-being in Colombia.
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The pandemic has highlighted significant gaps in social protection, in particularly among informal workers. With around 60% of workers in informal jobs, many of those most in need of social protection are left behind. The government has attempted to fill this gap with non-contributory benefits, but coverage and benefit levels are low. By contrast, formal workers have access to a full range of social protection benefits, involving large-scale public subsidies to the better-off. Labour informality and social protection coverage are interlinked, as high social contributions are one of the main barriers to formal job creation. Ensuring some basic social protection coverage for all, while simultaneously reducing the cost of formal employment, would reduce labour informality, raise productivity, and decrease poverty and inequality, all of which are long-standing challenges in Colombia.