Colombia’s Financial Future in Jeopardy: Savings and Investment Plummet to Alarming Lows
The financial system is key to development, but the capital market in Colombia has been eliminated, limiting its contribution to economic growth.
The figure of the financial system as an antagonist of development in the country has been part of various discussions in recent years. However, this view is wrong. A sound and deep financial system is essential for long-term development, as it is the main mechanism that converts savings into investment, a key part of the economic growth and well-being of nations, according to ANIF’s analysis.
In Colombia, when the financial system is mentioned, the banks are the first direct link. However, these are only one of the many actors that make it up. Historically, the capital market, which is responsible for managing and channeling investment, has played a secondary role, wasting its strategic potential for the country and for households. The depth of this market is limited: between 2019 and 2024, the number of issuers of securities decreased from 367 to 332. Comparatively, Colombia has the least number of listed companies in the region, with only 63 issuers, while Brazil with 353, Chile with 297, Peru with 195 and Mexico with 136.
Beyond the lack of attention to the capital market, a number of macroeconomic and fiscal factors have hindered its expansion. The first is the low level of savings in the economy, the basic input for investment. An adequate level of domestic savings provides stability to the cost of financing and investment decisions. Contrary to what is desired, in Colombia savings have decreased since the end of 2016.
Although there was some improvement in 2022, this was neutralized by reductions recorded during 2023. In this way, gross domestic savings went from representing 17% of GDP in 2016 to just 11% in 2023, which suggests that fewer resources are available for the investment.
The analysis by sector shows that, after the pandemic, household savings temporarily increased, but were allocated to consumption in the reaction phase. Subsequently, with the increase in interest rates, savings returned to levels similar to those seen before the pandemic. This recovery process could be threatened by the recent pension reforms, given that around a third of domestic savings comes from compulsory pension contributions. With the expansion of the pay-as-you-go regime, the depletion of the public savings fund could further weaken the national savings position.
As for companies, after a brief rebound in savings driven by the post-pandemic recovery, this was quickly reduced with the contraction in production and consumption dynamics, directly affecting profits. Despite recent developments in economic growth, the main sectors continue to lag behind and recovery does not appear to be coming in the short term. Therefore, it appears that the prospects for savings and investment in the country show a greater contraction of resources, further limiting the capital available to promote development.
For his part, domestic tax conditions are another disincentive to invest. Before the pandemic, Colombia was in a position to be an attractive destination for foreign investment, thanks to its responsible fiscal management. However, the pandemic brought difficulties in returning to a sustainable fiscal path, a situation exacerbated by increased spending pressures and the inability to generate structural income.
In addition, the tax burden on companies in Colombia is excessive: although the OECD average is around 22%, in Colombia the effective tax rate is 35%, without taking into account overpayments in some sectors. This imbalance has prevented access to foreign capital and weakened the country’s attractiveness as an investment destination.
Recent reforms and the energy transition, together with their effects on public finances and political uncertainty, have increased the perception of risk among investors. This has contributed to a significant reduction in the investment rate, which fell in 2023 to levels similar to those seen during the pandemic, reaching 17% of GDP. This situation is worrying if we consider that today’s investments are the ones that will define growth in the medium and long term.
In short, it is urgent to establish favorable conditions for investment. Although the increase in physical investment is essential to develop the country’s productivity, establish clear rules of the game and encourage new players in the capital market, it will favor the flow of resources precisely to those strategic sectors of the real sector that need new sources of leverage.
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