Dividends, Benefits, and Costs of Colombia's Peace Process
40 Pages Posted: 18 May 2017
Date Written: May 11, 2017
This paper was written with the objective of contributing in the analysis, from an economics perspective, of the Colombian Peace Agreement considering these three issues: i) peace dividends that may result from reducing budgetary allocations to the Colombian Armed Forces (= military expenditure law enforcement expenditure, which is close to 3.5% of GDP); ii) benefits from reaching an accelerated growth rate of real GDP on account of an improvement in the business environment; and iii) additional budgetary costs resulting from the “short-term implementation” of the Agreement and costs related to the “economic sustainability” in the medium term of productive conditions in rural areas.
The following main conclusions can be drawn: i) there is little space for reducing budget allocations to the defense sector, therefore peace dividends are inexistent; ii) benefits resulting from guerrilla demobilization and a reduction in drug-trafficking could result in an estimated growth potential of 0.5% to 1% per year, during the next decade; iii) the implementation of the Peace Agreement will convey “immediate” budgetary costs of 2.23% of GDP per year during the next half-decade (2017-2022) and post conflict “sustainability” costs (tertiary roadwork, rural financing and education) will add another 3% of GDP per year, hence peace-budget costs will range from 2.23% of GDP to 5.23% per year throughout the following decade; and iv) additional fiscal pressure (apparently not taken into consideration by the government) will amount to 2.7% of GDP in 2018 and increase to 4.8% of GDP in 2020, where tax replenishment of 1.3% of GDP would help in reducing the fiscal shortfall to 3.5% of GDP in 2020.
JEL Classification: F51, H62
Suggested Citation: Suggested Citation