Financing conditions are gradually improving as inflation moderates and interest rates are expected to stay at relatively high levels throughout 2026. Colombia’s fiscal deficit remains high – projected above 4% of GDP through 2027 – due to suspended fiscal rules, the upcoming election cycle and ongoing spending pressures. Public debt is elevated, hovering slightly above 60% of GDP, and the risk premium remains above regional peers. While foreign direct investment continues to finance the current account deficit, investor sentiment is sensitive to fiscal and political developments. Insolvency data for 2025 indicated a slight uptick in business bankruptcies, particularly in construction and retail, though the overall rate remains manageable – we forecast a peak in 2026 followed by a moderate reduction in 2027. The banking sector is well capitalized, but credit growth is cautious amid regulatory tightening. An orderly electoral cycle, fiscal consolidation and credible medium-term debt anchors are essential to restore investor confidence and reduce financing risks.

Colombia’s business environment is shaped by a mix of resilience and persistent structural challenges. The country benefits from a stable institutional framework, multiple trade agreements and a large domestic market. However, productivity growth has stagnated for over two decades, hampered by infrastructure deficits, regulatory complexity and a burdensome tax system. High informality and labor market rigidity limit competitiveness, while public spending remains inflexible, constraining growth-enhancing investments. Efforts to diversify exports and attract FDI are ongoing but face headwinds from global uncertainty and domestic policy shifts. Addressing these structural issues – through tax reform, improved infrastructure and labor market modernization – will be critical for unlocking Colombia’s long-term growth potential and reducing internal inequalities.

Colombia faces heightened political risk in 2026 as the country prepares for general elections on 31 May, with President Petro constitutionally barred from seeking reelection. Troubled relations with the US weigh heavily on the situation. Despite nearly 60% of respondents having expressed dissatisfaction with the administration in recent surveys, voters are likely to coalesce behind the ruling coalition, while opposition forces remain fragmented across multiple platforms. Corruption and violence dominate the political agenda, but consumer confidence remains positive and elevated inflation (around 5.5%) is not dampening household consumption, thanks to extensive subsidies and public spending targeting low- and middle-income groups. Foreign interference is expected to be confined to aggressive statements and trade measures, but the risk of spillover from Venezuela remains significant, with potential for major disruption should instability escalate. Colombia’s resilient institutions and electoral tradition provide some stability, yet the deteriorating security environment, persistent polarization and risk of social unrest pose serious challenges to democratic continuity and investor confidence before and after the elections.