Colombia's Trade Deficit Is Ballooning

The oil crash will hit Colombia hard.

The South American country was already in trouble before last month’s sudden drop in oil prices: as of September, the trade deficit had exploded to $US449.6 million this year, up from $US66.2 million in that period last year, Reuters reported.

That’s an expansion of 579 per cent, all other things being equal.

Oil exports are Colombia’s number one source of foreign exchange, according to Reuters. It’s the fourth-largest oil producer in the region, the Financial Times reported, and crude makes up more than half of the country’s exports.

So the crash is likely to have harmful long-term effects.

The trade deficit was already up to 4.4 per cent of GDP in the first half of this year – from 3.4 per cent last year – Reuters reported, and it’s unlikely that the government’s 2.4 per cent target will be met in 2015.

Colombia could also face a drop in foreign direct investment, as investors lose interest in oil projects there — or capital flight on expectations of higher interest rates to come, Reuters reported.

Analysts predict the government will begin issuing more external debt to help meet fiscal targets.

The 2015 budget does not account for a drop in oil prices below $US98 per barrel, the FT reported. Right now prices are hovering closer to $US70 per barrel.

It looks like the government will have to make some changes soon.

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