Academic literature on the topic 'Annual Tax Return Submission'

This chapter challenges the widely held Perennialist view that Ibn ‘Arabi rejected the supersessionist doctrine of abrogation (naskh), by demonstrating that his positions on the religious Other should be understood within a larger religio-political cosmology that envisions all religions and their laws as subject to the cosmic rule of Muhammad. Even though this chapter clearly shows that Ibn ‘Arabi held Judaism and Christianity as abrogated by Islam, it nuances this assertion by showing that through obedience to the Qur’anic command requiring submission and the payment of the indemnity tax (jizya), the People of the Book are metaphysically subsumed within the broader cosmography of Ibn ‘Arabi’s conception of Islam and the absolute cosmological authority of the Prophet Muhammad.

As we write these words, the COVID-19 pandemic has become part of our lives in a much more controlled way. For instance, some of our habits have changed and we are able to resume our activities in the way of a “new normal,” returning to social contact with family, friends, and colleagues. In returning to a life without the constraint of the virus at such a high level, the academy tries to resume its rituals, including scholarly events. Email boxes and physical boards at universities are once again filling up with calls for submission of abstracts for congresses, seminars, and workshops. As these events are happening again, academia seems to be reflecting on the pros and cons of onsite scientific events. While acknowledging the importance of such scientific events and their potential for strengthening scholarly communities and collaborations, many academics have begun questioning the real impact of being physically present. This questioning seems to be based on several factors. On the one hand, it is clear that universities have been increasingly devaluing academics’ presence in congresses (unless by invitation). They allocate less funding for these activities, especially for those academics who wish to attend an event without presentation. With no presentation, institutions devalue attendance in performance appraisal processes. Increasingly, academic institutions value publications (indexed, despite some positive movement seeking to counter the tyranny of the “publish or perish” motto), and an academics ability to raise funding. Yet, not all congresses are associated with publication processes in indexed journals or proceedings. Books of abstracts (once edited by any congress) are almost extinct, namely because of their devaluation by institutes of higher learning (and funding entities). On the other hand, the massive and necessary use of online scientific events in 2020 and 2021 allowed us to realize that it is possible, efficient, and effective to hold these events in a format different from the traditional one. The internet offers versatility and more and more congresses are now offered online or in hybrid formats. These formats allow academics to overcome financial and physical complications caused by in-person scholarly events. Academics can request less funding and, at the same time, mitigate concerns of acceptance without presentations, covering classes while away, or having to supplement university sponsorship with personal funds. At some universities, funding comes after attendance regardless of availability of those funds and academics are asked to pay registration fee, plane tickets, and lodging with the expectation of being reimbursed upon return. This is particularly challenging given the present economic situation around the globe. At the same time, while physically at the event and away from families, work continues to accumulate for academics. They then must wade through this excess upon returning home, adding to an already excessive workload. This makes maintaining a work-life balance challenging. We at New Trends in Qualitative Research (NTQR) believe it is particularly relevant to discuss this topic within the context of the release of NTQR Volume 11. NTQR is an indexed journal associated with international scientific events in the field of qualitative research - Congreso Ibero-Americano en Investigación Cualitativa (CIAIQ) and the World Conference on Qualitative Research (WCQR). Specifically, the volume that we edit here aggregates works that, having been originally presented at WCQR2022 (held in an online format), went through a double-blind review process. This volume, annually edited (as WCQR is an annual event), allows us, as editors, to condense a diverse set of qualitative research work, focusing on different topics, and with different methodological designs. And, our concern as editors has always been to assure the quality of the published works, namely through a careful review and editing process. We do not know if we are ready to give up our physical presence at scientific events. But, with opportunities such as online presentations and online publishing venues, we may now be much more judicious in this presence. We may now take time to ponder the relevance of investing in attending a scientific event, and selecting (hand-drawn) two or three events per year, at most. WCQR has a strong emphasis in the building of a scientific community (in this case, bonded by the interest in qualitative research), reconciling physical and online presence, and is associated with quality journals. These aspects help academics to select it as one of the events where it is important to be present. Sincerely, The Editors

This project was developed with the purpose of analyzing the tax situation of natural persons in the salary and wage system of the municipality of Valle de Bravo, with the objective of proposing strategies that generate an economic benefit derived from the management of personal deductions, analyzing the factors and problems that have led to the little or no presentation of the annual declaration

Historical cost is the main basis for assessing tangible assets in the annual financial statements. However, the accounting regulations applicable in Romania allow the valuation of tangible investments at fair value determined by authorized persons. Once chosen, this option must be applied consistently for the entire class of tangible assets subject to revaluation. By January 1, 2015, national regulations did not allow the return from the fair value method to historical cost method. The chapter aims to present both the accounting and tax treatments to be adopted when choosing the fair value, as well as those related to returning to the cost-based approach.

Indonesia has adopted a new oil and gas fiscal system called Gross Split PSC (Production Sharing Contract). The objective is to implement a better system for developing oil and gas projects in Indonesia, which will empower the government to secure a higher government take (GT) from the early stages of production and reduce bureaucracy for contractors. This individual project compares the new PSC scheme and the Traditional PSC system using deterministic sensitivity analysis to determine the most optimal fiscal terms under the Gross Split PSC. The discussion includes profitability index, such as the government’s share of gross revenue (GSGR), project’s net present value (NPV) and the internal rate of return (IRR). The work was carried out from both the contractor’s and government’s perspective in an Indonesian Petroleum Association (IPA) simulation gas case study field development in deep offshore. The results of the economic modelling analysis provides that Gross Split PSC will have the same IRR as the Traditional PSC if the project is accelerated for one year, receives a 5% deductible effective tax rate and gets an additional progressive split of cumulative production.

Abstract High-CO2 gas fields present a dilemma to Host Government wanting to both ensure security of supply and achieve net zero aspiration. While carbon capture and storage (CCS) technology holds promise of technical feasibility to unlock these fields, its commercial success ultimately hinges on the choice of an appropriate business model. This study compares the economics of the traditional business model i.e., CCS as part of the upstream petroleum operation dedicated to a Production Sharing Contract (PSC) vs. the alternative business model i.e., a regional CCS hub separately managed by a Special-Purpose Vehicle (SPV). To maximize the return on its investment in a gas value chain, Host Government aims to minimize the upstream cost of gas (COG), which in turn comprises the technical cost, fiscal/tax charge, and cost of capital components. Thus, in this paper, the business models are compared in terms of their COG, and the reasons for the differences are further analyzed by looking at the drivers affecting the components. To illustrate the comparison numerically, synthetic technical data based on several recent CCS projects are evaluated under Malaysian petroleum fiscal arrangement and tax regime. The scope of the CCS projects contemplated in this study is restricted to managing the CO2 inherent in upstream high-CO2 gas fields. The paper finds that the alternative business model outdoes the traditional in several ways. The economies of scale of a hub design optimize capital expenditure, while utilization by multiple users reduces hub operator’s risk, potentially lowering tariff. The SPV can better realize tax incentives and also benefit from a lower tax rate. In PSCs where cost recovery provisions prioritize operating expenditure over capital expenditure, upstream Contractors may prefer paying tariff per usage rather than building their own CCS facility up front. Access to cheaper financing from environmental, social, and governance (ESG) investors and government agencies, coupled with the perception of lower business risks, should also translate into a lower cost of capital. There are various spin-offs and qualitative benefits too. While the paper affirms the intuitive expectation that the alternative business model generally surpasses the traditional, it also cautions that the optimal choice may switch beyond certain thresholds (number of fields, distance between PSCs, volume of CO2, etc.). In addition to the between-model selection problem, the paper also discusses within-model fine tunings and optimization. This paper lays out important caveats and considerations that might be of interest to petroleum authority and government policymakers tasked with the development of business model for upstream CCS projects.

Abstract When offshore structures reach their end of life it becomes necessary to remove them and return the environment to its initial state. Generally, there are three options for decommissioning which are complete removal, leave in place, and partial removal. The choice of option takes into consideration, economic environmental, technical, safety, stakeholders, and regulatory factors. This work aims to critically evaluates the environmental, economic, and regulatory aspects of oil and gas facility decommissioning in Nigeria and assesses the feasibility of various strategies in minimizing environmental impact and decommissioning cost. Following best practices of the United Kingdom, a leading country that has decommissioned several offshore facilities, the study highlights the challenges and opportunities associated with the Nigeria environment. A systematic approach was employed to evaluate the strategies, utilizing both ranking systems and sensitivity analysis. The findings indicate that the choice of decommissioning strategy has multifaceted implications, necessitating a thorough evaluation process. The study also proposes establishing a "Decommissioning Fund" and offering tax incentives for decommissioning activities. Technological advancements such as modern bond logging techniques, rig less intervention equipment and innovative containment approaches is deemed crucial for cost reduction and enhancing efficiency of decommissioning process. Theoretical insights derived from this study offer a fresh perspective on decommissioning in the Oil and Gas sector, highlighting both its challenges and opportunities. Practical implications of the findings are also discussed, providing industry practitioners with actionable recommendations.

Abstract Petroleum fiscal regime defines the extent to which the host government and the prospective investor can apportion risks and share project rewards. Ghana's petroleum industry has become an attractive place for most investors because the current fiscal regime governing the industry is based on old petroleum tax laws and systems and doesn't capture wind-fall profit. In this paper the petroleum fiscal regime currently used in Ghana was modelled, reviewed and evaluated. A proposed progressive fiscal regime was then put forward which has a slidingscale royalty tied to production to increased the government share (GTake). The models incorporated successfully Monte Carlo simulation using @Risk software to account for risk and uncertainties in decision making. This study addresses the petroleum industry structure and performance of the modelled fiscal regimes of Ghana. An optimum fiscal regime should be efficient, effective and equitable. The fiscal regime optimality were evaluated by testing the IRR which accounts for the efficiency, FLI which accounts for effectiveness and GTake which accounts for equity in order to achieve pareto optimality. Other range of profitability indicators were also tested in the economic evaluation and they are contractor's take (CTake), Net present value (NPV), Profitability index (PI), Present value ratio (PVR). The deterministic result of the analysis shows that, the government take (GTake) increased when the proposed fiscal regime was put forward from 30.15% to 69.85%. The Internal rate of return (IRR) for the fixed royalty is 21% and the sliding scale royalty is 16%. Both values are positive which means there is value for every dollar invested. This study will help both investors and Government in decision making.

Abstract Globally, there are two types of petroleum fiscal system; the concessionary and the contractual petroleum fiscal system. The main differences between the two types of petroleum fiscal system is the ownership of the resources and some distinct fiscal terms. The contractual petroleum fiscal system specifies a cost recovery option and profit oil split unlike the concessionary petroleum fiscal system that allows the contractor to recoup his capital before payment of tax. This tends to increase the risk associated with the host government revenue as investment in the production of hydrocarbon is filled with uncertainties. There is a need to redesign the concessionary petroleum fiscal to enable it reduce the risk associated with the host government revenue by making the host government to earn revenue early from petroleum investment. This research therefore evaluated a hybrid petroleum fiscal system for investment in the exploration and production of hydrocarbon. The concessionary petroleum fiscal system was adjusted to include a cost recovery option. Petroleum economic model for investment in a typical onshore oil field was built using spreadsheet modelling technique with the fiscal terms in the hybrid petroleum fiscal system embedded in it. The cost recovery option and oil price in the model were varied between 0-100% and $20-$100 per barrel. The NCF, IRR and payout period of the investment were determined. It was observed that the lower the cost recovery option, the higher the host government revenue. From the profitability analysis of the investment in the hybrid petroleum fiscal system, it was observed that when the price of oil was $100/bbl, the NCF of the host government was $9146 and $8426.3 for 0% and 80% cost recovery option. The lower the cost recovery option, the higher the payout period and the lower the internal rate of return. Though lower cost recovery increased the host government revenue more but it may make the hybrid petroleum fiscal system unattractive for investment in periods of low oil price. Hence a higher cost recovery option was recommended for the use of this type of petroleum fiscal system.

Corporate income tax (CIT) compliance is a critical aspect of maintaining a fair and robust tax system. It ensures that businesses fulfil their legal tax obligations and contribute their fair share to public finances. However, achieving high compliance rates is often challenging due to various factors including, among others, the complexity of the tax system, economic factors (income levels, audit probabilities, liquidity constraints, tax benefits etc.) and businesses’ perceptions about the tax system and government. The Eswatini Revenue Service (ERS) database was used to access returns and payments data covering a six-year period from 2017 to 2022, to study patterns of non-compliance with CIT tax payments and to understand the key factors explaining them. We present several results. First, large firms are more likely to comply with tax payments compared to smaller businesses. This results in the smaller companies attracting interest and penalties on top of their declared liabilities. Second, in terms of sectoral analysis, the tertiary sector evidently recorded the highest compliance with tax payments. Third, payments made through electronic bank transfers were associated with being timely and more complete than those made through cash and by card. However, mobile money payments do not perform as well as electronic transfers in terms of being associated with timely payments. Additionally, taxpayers in their first three years since registration were found to be more likely to comply when compared to those that have been in the system for longer. Lastly, the correlational evidence revealed that taxpayers filing their tax returns late were less likely to pay their liabilities and that compliance was found to be higher for taxpayers who correctly filed two provisional declarations and one annual tax return in the year. From the findings of the study, some administrative and policy considerations can be adopted by the ERS, in order to enforce and support compliance with CIT. These include strategies to ensure simplified processes for smaller taxpayers to reduce their tax compliance burden, and proactive approaches to boosting voluntary compliance, such as investing in comprehensive taxpayer education programmes.

Most people in low-income countries contribute substantially to the financing of local public goods through informal revenue generation (IRG). However, very little is known about how IRG works in practice. We produce novel evidence on the magnitude and regressivity of IRG and its relationship with the state in a fragile context, Somalia. We rely on original data from surveys with over 2,300 households and 117 community leaders in Gedo region, as well as on extensive qualitative research. We first show that IRG is prevalent. Over 70 per cent of households report paying at least one informal tax or fee in the previous year, representing on average 9.5 per cent of annual income. We also find that, among households that contribute, poorer ones contribute larger amounts than richer ones, with higher incidence in relation to their income. Further, in line with theory and expectations, informal payments have inequitable community-level effects, with individuals in wealthier communities making more informal payments than in poorer ones and, correspondingly, having access to a greater number of public goods. We then consider four explanations for the prevalence of IRG. First, IRG clearly fills gaps left by weak state capacity. Relatedly, we show that IRG can bolster perceptions and legitimacy of the state, indicating that sub-national governments may actually benefit from informal taxation. Second, informal taxing authorities are more effective tax collectors than the state, with informal taxing authorities having greater legitimacy and taxpayers perceiving informal payments to be fairer than those levied by the state. Third, dispelling the possibility that informal payments should be classified as user fees, taxpayers overwhelmingly expect nothing in return for their contributions. Fourth, in contrast to hypotheses that informal payments may be voluntary, taxpayers associate informal payments with punishment and informal institutions of enforcement. Our research reinforces the importance of IRG to public goods provision in weak formal institutional contexts, to everyday citizens, and to policymakers attempting to extend the influence of the federal state in south-central Somalia. Foremost, informal tax institutions need to be incorporated within analyses of taxation, service delivery, social protection, and equity. At the same time, our findings of the complementary nature of IRG and district-level governance and of the relative efficiency of revenue generation by local leaders have important implications for understanding statebuilding processes from below. Indeed, our findings suggest that governments may have little incentive to extend their taxing authority in some fragile contexts.

In 2023, the Colombian economy made progress in the macroeconomic adjustment required to achieve growth compatible with its productive capacity and external and price stability. This adjustment was reflected in the beginning of the convergence of inflation towards the target, which closed the year at 9.3%. This adjustment is an important step forward in the Board of Directors’ (BDBR) intention to drive inflation toward its target by mid-2025. Net foreign reserves increased and at the end of 2023 reached USD 59,608.3 million, and Banco de la República’s (the Central Bank of Colombia, Banrep) profit amounted to COP 9,226 billion. International Macroeconomic Environment IMF measurements indicate that global gross domestic product (GDP) growth was reduced from 3.5% in 2022 to 3.1% in 2023, and according to World Bank estimates, from 3.3% to 3.0%. This is due to the contractionary monetary policy of many central banks, fiscal tightening in most advanced countries, and high international uncertainty due to the conflicts between Russia and Ukraine and in the Middle East, among others. Global total inflation moderated in 2023 as a result of lower energy prices, normalization of global supply chains, lower food prices, and reduced demand dynamism in many countries resulting from the synchronized cycle of contractionary monetary policy and less expansionary fiscal policies. Thus, by December 2023, annual inflation for OECD members stood at 6.0%, after the maximum level observed in October 2022 (10.7%). The various international agencies forecast global economic growth for 2024 to be equal to or marginally lower than that recorded in 2023. Thus, according to the IMF, world growth in 2024 would remain unchanged at 3.1%; for the World Bank, it would fall from 3.0% to 2.9%, and according to the OECD, it would decrease from 3.1% to 2.9%. For Latin America and the Caribbean, after an estimated growth of 2.5% in 2023, the IMF forecasts a slowdown to 1.9% in 2024. Economic Activity in Colombia According to the information from DANE (National Administrative Department of Statistics), the Colombian economic growth in 2023 was 0.6%, which was below all forecasts. This slowdown was caused by a combination of factors after recording all-time high growth in 2021 (10.7%) and 2022 (7.3%) that led the GDP to levels higher than those recorded before the pandemic. The reasons for this slowdown include contractionary monetary policy, moderation of expenditure towards levels compatible with the economy's productive capacity, and a lower dynamism of all types of credit. Likewise, the adjustment in public finances related to an increase in tax collection that caused a 4-point decrease in the General Government deficit, the contraction in civil works, and the uncertainty that affected investment decisions. The technical staff's growth projections foresee a moderate expansion in 2024 of around 0.8% and forecast that by 2025, the economy will enter a significant recovery phase, achieving an annual growth of 3.5%. Employment The national unemployment rate decreased in 2023 to 10.4% at the end of the year, driven by the urban area. This was partially offset by the increase in unemployment in other municipalities and the rural area as of the third quarter. Salaried and formal employment was the most dynamic segment during 2023, with an increase of 2.9%. This was reflected in a decrease of the informality rate from 57.1% at the end of 2022 to 55.1% in December 2023, reaching all-time lows. Forecasts on the evolution of the unemployment rate for this year suggest that urban unemployment will average between 9.0% and 12.1%, with 10.5 % being the most likely value. In turn, the national unemployment rate could be between 9.3% and 12.4%, with 10.8% being the most likely value. Inflation and Monetary Policy Annual consumer price inflation in Colombia peaked at 13.34% in March 2023, and as of April, it began a downward trend, reaching a level of 9.28% at the end of 2023. Thereby, the annual inflation rate returned to single-digit territory after 17 months of remaining above 10%. In January 2024, inflation continued to decline, at 8.35% yearly, below the technical staff's expectations. This meant a new and important step forward in the process of inflation convergence towards the target. With clear signs of lower inflationary pressures, the BDBR proceeded to cut the policy rate by 25 bps in each of its December and January sessions, bringing it to 12.75%. Balance of Payments According to the information on the balance of payments the current account deficit during 2023 stood at 2.7% of GDP, 3.5 pp of GDP lower than that recorded in the same period of 2022 (6.2% of GDP). All components of the current account contributed to this correction. The largest adjustment occurred in the trade balance of goods, whose deficit was USD 5,310 million lower than a year ago. This is explained by the significant fall in imports, which exceeded the reduction in the value of exports. By 2024, Banco de la República's technical staff projects a current account deficit close to 3.0% of GDP in an environment of low economic growth and moderate recovery of domestic demand. Public Finances The General Government (GG) deficit was reduced from 6.5% of GDP in 2022 to 2.5% in 2023. This important correction was possible due to the adjustment made in most of the components of this level of government, particularly in the Fuel Price Stabilization Fund (FEPC in Spanish) and in the Central National Government (CNG). In 2023, the CNG achieved a substantial adjustment to its finances due to the increased tax collections derived from the 2021 and 2022 tax reforms, the higher oil revenues, increased dividends from Ecopetrol, and increased profits from Banco de la República. By 2024, the CNG’s total and primary deficits are projected to widen by 5.3% and 0.9% of GDP, respectively. The tax revenues would increase from 16.6% of GDP in 2023 to 17.3% in 2024, reaching an all-time high. Foreign Reserves Net foreign reserves at the end of 2023 totaled USD 59,608.3 m, i.e., an increase of USD 2,339 m during the year. The main factor explaining this increase is the interests received on investments. The return on foreign reserves during 2023, excluding the foreign exchange component, was 4.0% (USD 2,355 m). In the last months of the year, there was an increase in investment prices due to the reduction in short and medium-term interest rates in the main markets in which foreign reserves are invested. The indicators that evaluate foreign reserves suggest that as of December 2023, their level are adequate. Profits of Banco de la República At the end of 2023, the Bank's profit was at an all-time high and amounted to COP 9,226 billion, resulting from revenues of COP 14,798 billion and expenses of COP 5,572 billion. Revenues observed in 2023 were COP 10,350 billion higher than in 2022, mainly due to the yield of foreign reserves. Expenses were COP 2,630 billion higher than those of the previous year, mainly due to the increase in the remuneration of the Colombian Government's deposits in Banrep, given the increases in the interest rate of the monetary policy and higher average balances. For 2024, profit is projected at COP 10,345 billion, higher than that observed for 2023. This result would be the product of revenues of COP 15,620 billion and expenses of COP 5,275 billion.

Banco de la República is celebrating its 100th anniversary in 2023. This is a very significant anniversary and one that provides an opportunity to highlight the contribution the Bank has made to the country’s development. Its track record as guarantor of monetary stability has established it as the one independent state institution that generates the greatest confidence among Colombians due to its transparency, management capabilities, and effective compliance with the central banking and cultural responsibilities entrusted to it by the Constitution and the Law. On a date as important as this, the Board of Directors of Banco de la República (BDBR) pays tribute to the generations of governors and officers whose commitment and dedication have contributed to the growth of this institution.1 Banco de la República’s mandate was confirmed in the National Constitutional Assembly of 1991 where the citizens had the opportunity to elect the seventy people who would have the task of drafting a new constitution. The leaders of the three political movements with the most votes were elected as chairs to the Assembly, and this tripartite presidency reflected the plurality and the need for consensus among the different political groups to move the reform forward. Among the issues considered, the National Constitutional Assembly gave special importance to monetary stability. That is why they decided to include central banking and to provide Banco de la República with the necessary autonomy to use the instruments for which they are responsible without interference from other authorities. The constituent members understood that ensuring price stability is a state duty and that the entity responsible for this task must be enshrined in the Constitution and have the technical capability and institutional autonomy necessary to adopt the decisions they deem appropriate to achieve this fundamental objective in coordination with the general economic policy. In particular, Article 373 established that “the State, through Banco de la República, shall ensure the maintenance of the purchasing power of the currency,” a provision that coincided with the central banking system adopted by countries that have been successful in controlling inflation. In 1999, in Ruling 481, the Constitutional Court stated that “the duty to maintain the purchasing power of the currency applies to not only the monetary, credit, and exchange authority, i.e., the Board of Banco de la República, but also those who have responsibilities in the formulation and implementation of the general economic policy of the country” and that “the basic constitutional purpose of Banco de la República is the protection of a sound currency. However, this authority must take the other economic objectives of state intervention such as full employment into consideration in their decisions since these functions must be coordinated with the general economic policy.” The reforms to Banco de la República agreed upon in the Constitutional Assembly of 1991 and in Act 31/1992 can be summarized in the following aspects: i) the Bank was assigned a specific mandate: to maintain the purchasing power of the currency in coordination with the general economic policy; ii) the BDBR was designatedas the monetary, foreign exchange, and credit authority; iii) the Bank and its Board of Directors were granted a significant degree of independence from the government; iv) the Bank was prohibited from granting credit to the private sector except in the case of the financial sector; v) established that in order to grant credit to the government, the unanimous vote of its Board of Directors was required except in the case of open market transactions; vi) determined that the legislature may, in no case, order credit quotas in favor of the State or individuals; vii) Congress was appointed, on behalf of society, as the main addressee of the Bank’s reporting exercise; and viii) the responsibility for inspection, surveillance, and control over Banco de la República was delegated to the President of the Republic. The members of the National Constitutional Assembly clearly understood that the benefits of low and stable inflation extend to the whole of society and contribute mto the smooth functioning of the economic system. Among the most important of these is that low inflation promotes the efficient use of productive resources by allowing relative prices to better guide the allocation of resources since this promotes economic growth and increases the welfare of the population. Likewise, low inflation reduces uncertainty about the expected return on investment and future asset prices. This increases the confidence of economic agents, facilitates long-term financing, and stimulates investment. Since the low-income population is unable to protect itself from inflation by diversifying its assets, and a high proportion of its income is concentrated in the purchase of food and other basic goods that are generally the most affected by inflationary shocks, low inflation avoids arbitrary redistribution of income and wealth.2 Moreover, low inflation facilitates wage negotiations, creates a good labor climate, and reduces the volatility of employment levels. Finally, low inflation helps to make the tax system more transparent and equitable by avoiding the distortions that inflation introduces into the value of assets and income that make up the tax base. From the monetary authority’s point of view, one of the most relevant benefits of low inflation is the credibility that economic agents acquire in inflation targeting, which turns it into an effective nominal anchor on price levels. Upon receiving its mandate, and using its autonomy, Banco de la República began to announce specific annual inflation targets as of 1992. Although the proposed inflation targets were not met precisely during this first stage, a downward trend in inflation was achieved that took it from 32.4% in 1990 to 16.7% in 1998. At that time, the exchange rate was kept within a band. This limited the effectiveness of monetary policy, which simultaneously sought to meet an inflation target and an exchange rate target. The Asian crisis spread to emerging economies and significantly affected the Colombian economy. The exchange rate came under strong pressure to depreciate as access to foreign financing was cut off under conditions of a high foreign imbalance. This, together with the lack of exchange rate flexibility, prevented a countercyclical monetary policy and led to a 4.2% contraction in GDP that year. In this context of economic slowdown, annual inflation fell to 9.2% at the end of 1999, thus falling below the 15% target set for that year. This episode fully revealed how costly it could be, in terms of economic activity, to have inflation and exchange rate targets simultaneously. Towards the end of 1999, Banco de la República announced the adoption of a new monetary policy regime called the Inflation Targeting Plan. This regime, known internationally as ‘Inflation Targeting,’ has been gaining increasing acceptance in developed countries, having been adopted in 1991 by New Zealand, Canada, and England, among others, and has achieved significant advances in the management of inflation without incurring costs in terms of economic activity. In Latin America, Brazil and Chile also adopted it in 1999. In the case of Colombia, the last remaining requirement to be fulfilled in order to adopt said policy was exchange rate flexibility. This was realized around September 1999, when the BDBR decided to abandon the exchange-rate bands to allow the exchange rate to be freely determined in the market.Consistent with the constitutional mandate, the fundamental objective of this new policy approach was “the achievement of an inflation target that contributes to maintaining output growth around its potential.”3 This potential capacity was understood as the GDP growth that the economy can obtain if it fully utilizes its productive resources. To meet this objective, monetary policy must of necessity play a countercyclical role in the economy. This is because when economic activity is below its potential and there are idle resources, the monetary authority can reduce the interest rate in the absence of inflationary pressure to stimulate the economy and, when output exceeds its potential capacity, raise it. This policy principle, which is immersed in the models for guiding the monetary policy stance, makes the following two objectives fully compatible in the medium term: meeting the inflation target and achieving a level of economic activity that is consistent with its productive capacity. To achieve this purpose, the inflation targeting system uses the money market interest rate (at which the central bank supplies primary liquidity to commercial banks) as the primary policy instrument. This replaced the quantity of money as an intermediate monetary policy target that Banco de la República, like several other central banks, had used for a long time. In the case of Colombia, the objective of the new monetary policy approach implied, in practical terms, that the recovery of the economy after the 1999 contraction should be achieved while complying with the decreasing inflation targets established by the BDBR. The accomplishment of this purpose was remarkable. In the first half of the first decade of the 2000s, economic activity recovered significantly and reached a growth rate of 6.8% in 2006. Meanwhile, inflation gradually declined in line with inflation targets. That was how the inflation rate went from 9.2% in 1999 to 4.5% in 2006, thus meeting the inflation target established for that year while GDP reached its potential level. After this balance was achieved in 2006, inflation rebounded to 5.7% in 2007, above the 4.0% target for that year due to the fact that the 7.5% GDP growth exceeded the potential capacity of the economy.4 After proving the effectiveness of the inflation targeting system in its first years of operation, this policy regime continued to consolidate as the BDBR and the technical staff gained experience in its management and state-of-the-art economic models were incorporated to diagnose the present and future state of the economy and to assess the persistence of inflation deviations and expectations with respect to the inflation target. Beginning in 2010, the BDBR established the long-term 3.0% annual inflation target, which remains in effect today. Lower inflation has contributed to making the macroeconomic environment more stable, and this has favored sustained economic growth, financial stability, capital market development, and the functioning of payment systems. As a result, reductions in the inflationary risk premia and lower TES and credit interest rates were achieved. At the same time, the duration of public domestic debt increased significantly going from 2.27 years in December 2002 to 5.86 years in December 2022, and financial deepening, measured as the level of the portfolio as a percentage of GDP, went from around 20% in the mid-1990s to values above 45% in recent years in a healthy context for credit institutions.Having been granted autonomy by the Constitution to fulfill the mandate of preserving the purchasing power of the currency, the tangible achievements made by Banco de la República in managing inflation together with the significant benefits derived from the process of bringing inflation to its long-term target, make the BDBR’s current challenge to return inflation to the 3.0% target even more demanding and pressing. As is well known, starting in 2021, and especially in 2022, inflation in Colombia once again became a serious economic problem with high welfare costs. The inflationary phenomenon has not been exclusive to Colombia and many other developed and emerging countries have seen their inflation rates move away from the targets proposed by their central banks.5 The reasons for this phenomenon have been analyzed in recent Reports to Congress, and this new edition delves deeper into the subject with updated information. The solid institutional and technical base that supports the inflation targeting approach under which the monetary policy strategy operates gives the BDBR the necessary elements to face this difficult challenge with confidence. In this regard, the BDBR reiterated its commitment to the 3.0% inflation target in its November 25 communiqué and expects it to be reached by the end of 2024.6 Monetary policy will continue to focus on meeting this objective while ensuring the sustainability of economic activity, as mandated by the Constitution. Analyst surveys done in March showed a significant increase (from 32.3% in January to 48.5% in March) in the percentage of responses placing inflation expectations two years or more ahead in a range between 3.0% and 4.0%. This is a clear indication of the recovery of credibility in the medium-term inflation target and is consistent with the BDBR’s announcement made in November 2022. The moderation of the upward trend in inflation seen in January, and especially in February, will help to reinforce this revision of inflation expectations and will help to meet the proposed targets. After reaching 5.6% at the end of 2021, inflation maintained an upward trend throughout 2022 due to inflationary pressures from both external sources, associated with the aftermath of the pandemic and the consequences of the war in Ukraine, and domestic sources, resulting from: strengthening of local demand; price indexation processes stimulated by the increase in inflation expectations; the impact on food production caused by the mid-2021 strike; and the pass-through of depreciation to prices. The 10% increase in the minimum wage in 2021 and the 16% increase in 2022, both of which exceeded the actual inflation and the increase in productivity, accentuated the indexation processes by establishing a high nominal adjustment benchmark. Thus, total inflation went to 13.1% by the end of 2022. The annual change in food prices, which went from 17.2% to 27.8% between those two years, was the most influential factor in the surge in the Consumer Price Index (CPI). Another segment that contributed significantly to price increases was regulated products, which saw the annual change go from 7.1% in December 2021 to 11.8% by the end of 2022. The measure of core inflation excluding food and regulated items, in turn, went from 2.5% to 9.5% between the end of 2021 and the end of 2022. The substantial increase in core inflation shows that inflationary pressure has spread to most of the items in the household basket, which is characteristic of inflationary processes with generalized price indexation as is the case in Colombia. Monetary policy began to react early to this inflationary pressure. Thus, starting with its September 2021 session, the BDBR began a progressive change in the monetary policy stance moving away from the historical low of a 1.75% policy rate that had intended to stimulate the recovery of the economy. This adjustment process continued without interruption throughout 2022 and into the beginning of 2023 when the monetary policy rate reached 12.75% last January, thus accumulating an increase of 11 percentage points (pp). The public and the markets have been surprised that inflation continued to rise despite significant interest rate increases. However, as the BDBR has explained in its various communiqués, monetary policy works with a lag. Just as in 2022 economic activity recovered to a level above the pre-pandemic level, driven, along with other factors, by the monetary stimulus granted during the pandemic period and subsequent months, so too the effects of the current restrictive monetary policy will gradually take effect. This will allow us to expect the inflation rate to converge to 3.0% by the end of 2024 as is the BDBR’s purpose.Inflation results for January and February of this year showed declining marginal increases (13 bp and 3 bp respectively) compared to the change seen in December (59 bp). This suggests that a turning point in the inflation trend is approaching. In other Latin American countries such as Chile, Brazil, Perú, and Mexico, inflation has peaked and has begun to decline slowly, albeit with some ups and downs. It is to be expected that a similar process will take place in Colombia in the coming months. The expected decline in inflation in 2023 will be due, along with other factors, to lower cost pressure from abroad as a result of the gradual normalization of supply chains, the overcoming of supply shocks caused by the weather, and road blockades in previous years. This will be reflected in lower adjustments in food prices, as has already been seen in the first two months of the year and, of course, the lagged effect of monetary policy. The process of inflation convergence to the target will be gradual and will extend beyond 2023. This process will be facilitated if devaluation pressure is reversed. To this end, it is essential to continue consolidating fiscal sustainability and avoid messages on different public policy fronts that generate uncertainty and distrust. 1 This Report to Congress includes Box 1, which summarizes the trajectory of Banco de la República over the past 100 years. In addition, under the Bank’s auspices, several books that delve into various aspects of the history of this institution have been published in recent years. See, for example: Historia del Banco de la República 1923-2015; Tres banqueros centrales; Junta Directiva del Banco de la República: grandes episodios en 30 años de historia; Banco de la República: 90 años de la banca central en Colombia. 2 This is why lower inflation has been reflected in a reduction of income inequality as measured by the Gini coefficient that went from 58.7 in 1998 to 51.3 in the year prior to the pandemic. 3 See Gómez Javier, Uribe José Darío, Vargas Hernando (2002). “The Implementation of Inflation Targeting in Colombia”. Borradores de Economía, No. 202, March, available at: https://repositorio.banrep.gov.co/handle/20.500.12134/5220 4 See López-Enciso Enrique A.; Vargas-Herrera Hernando and Rodríguez-Niño Norberto (2016). “The inflation targeting strategy in Colombia. An historical view.” Borradores de Economía, No. 952. https://repositorio.banrep.gov.co/handle/20.500.12134/6263 5 According to the IMF, the percentage change in consumer prices between 2021 and 2022 went from 3.1% to 7.3% for advanced economies, and from 5.9% to 9.9% for emerging market and developing economies. 6 https://www.banrep.gov.co/es/noticias/junta-directiva-banco-republica-reitera-meta-inflacion-3

In the first quarter of 2024, the figures of the National Administrative Department of Statistics (DANE in Spanish) showed that the economy achieved annual growth of 0.9%. Although this result was moderate, it confirmed the economy's recovery path. Monetary policy has played a critical role in containing inflationary pressures. This has allowed inflation to trend downwards, continuing into the first half of 2024. Net foreign reserves totaled USD 60,901 million as of 30 June 2024, a slight increase over the course of the year. For 2024, the profit of Banco de la República (the Central Bank of Colombia) is projected at COP 8,795 billion. International macroeconomic environment The global economy would continue to grow in 2024 at a rate slightly higher than 3.0%, according to forecasts from the International Monetary Fund (3.2%) and the Organization for Economic Cooperation and Development (3.1%). This dynamic is lower than the pre-pandemic historical average due to the long-term consequences of COVID-19, Russia’s invasion of Ukraine, and growing geoeconomic fragmentation, among other reasons. Various advanced and emerging economies, particularly the United States and some Asian countries, have seen favorable growth due to strong aggregate demands, dynamic private consumption, and high public spending. Meanwhile, inflation has been on a downward trend, but with values exceeding the goals of its central banks. In several developing countries, inflationary pressures have been significant due to the transfer of high international food, energy, and fertilizer costs and higher-than-expected currency declines. These factors have affected growth in these economies amid tight monetary policies. Economic activity in Colombia In the first quarter of 2024, DANE figures showed that the economy achieved annual growth of 0.9%. Although the result was moderate, it confirmed the economy's recovery path after the annual contraction in the third quarter of 2023 (-0.7%), followed by 0.4% annual growth in the last quarter of the previous year. On the expenditure side, the annual growth seen in the first quarter of 2024 was driven by net external demand, given an annual drop in imports (-13.3%) and an annual increase in exports (2.4%). On the supply side, the agriculture sector, public administration, health and education services, and arts and entertainment activities grew the most annually. The tight monetary policy and higher tax rates that characterized the 2023 adjustment continued to impact the economy's aggregate spending, which was also affected by low levels of business and consumer confidence. During the second quarter, the economy would have continued to increase its growth rate, driven by the good performance of the agriculture sector and the dynamics of some services related to public administration, health, education, and entertainment. Banco de la República’s (Banrep) technical staff expects that in the second half of the year, the economy will continue to gradually improve its dynamics to achieve growth of around 1.8% throughout 2024 and approach its potential growth in 2025. Employment Early 2024 saw unemployment rate increases driven by deteriorating employment, after which this indicator has remained relatively stable. Thus, between December 2023 and May 2024, the unemployment rate for the domestic aggregate rose 0.2 percentage points (pp) to reach 10.5% in May. The number of employed people remained relatively stable for the domestic aggregate, with levels close to 22.9 million (m) jobs. The reduction in salaried employment, coupled with recent growth in the non-salaried segment, explains the increased informality rate. This rate stood at 56.2% in May 2024, one percentage point higher than in December 2023. Inflation and Monetary Policy Headline inflation in June was 7.2%, lower than that seen in December (9.3%) and well below the high level reached in March 2023 (13.3%). The downward trend in inflation has primarily resulted from tight monetary policy carried out by the Board of Directors of Banco de la República (BDBR) through progressive increases in the benchmark interest rate initiated as of September 2021. The BDBR’s decision to undertake a monetary policy easing cycle as of last December was based on the downward trend that annual inflation had been exhibiting since April 2023 and evidence that tight monetary policy was meeting its goal of reducing excess spending in the economy. A cumulative 2.5 percentage point policy interest rate cut was completed by July 2024, bringing it to 10.75%. Balance of payments As a share of quarterly gross domestic product (GDP), the current account deficit of the balance of payments decreased from 3.7% of GDP in the first quarter of 2023 to 1.9% in the first quarter of this year. The decrease in the current account deficit balance was explained by the favorable variation in factor income, the services trade balance, and net income from current transfers. By 2024, the technical staff projects a current account deficit close to 2.8% of GDP, moderately higher than the 2.5% deficit observed in 2023 and significantly lower than the 6.1% deficit of GDP recorded in 2022. The smaller current account deficit makes the Colombian economy less vulnerable to negative external shocks. Public finance The 2024 Medium-Term Fiscal Framework (MTFF-24), presented by the Ministry of Finance in mid-June, shows that the General Government produced a 2.7% deficit of GDP in 2023, which means a reduction of 3.6 pp vis-a-vis 2022. This adjustment is explained by the improvement in the balances of the social security sub-sector, of the rest of the central level to which the Fuel Price Stabilization Fund (FEPC in Spanish) belongs, and of the Central National Government (CNG). The surplus of the FEPC, which closed at 0.4% of GDP in 2023, stands out in contrast to the 1.3% deficit registered a year earlier. The adjustment of the CNG’s public finances in 2023 was supported by the boost in tax collection derived from the reforms approved in 2021 and 2022, as well as by the good dynamics of economic and oil activity in those years. According to the MTFF-24, in 2023, the CNG's fiscal deficit and net debt reached 4.3% and 53.8% of GDP, respectively. MTFF-24’s fiscal deficit forecasts are consistent with compliance with the fiscal rule. However, as stated by the Independent Fiscal Rule Committee (CARF in Spanish), there are risks around collection and spending expectations. Foreign reserves Net foreign reserves totaled USD 60,901 m as of 30 June 2024, an increase of USD 1,293 m over the course of the year. This increase is primarily due to the program to accumulate international reserves announced by the BDBR in December 2023. The return on the foreign reserves for the year, excluding the foreign exchange component, amounts to 1.43% (USD 864 m). This result is mainly explained by higher interest rates, which have positively impacted the return on foreign reserves. An economy is considered to maintain adequate reserve levels if, among other indicators, the ratio of the reserves to the appropriate level is between 1.0 and 1.5. With information available as of June 2024, the ARA calculated for Colombia by the IMF was 1.24. Profits of Banco de la República Banco de la República's profit at the end of the first half of 2024 amounted to COP 4,088 billion (b), as a result of revenues of COP 5,903 b and expenses of COP 1,815 b. This profit was COP 39 b higher than that recorded in the same period of 2023. Revenues during this period were mainly due to the yield on foreign reserves, which amounted to COP 3,770 b, with an increase of COP 237 b compared to that received in the first half of the previous year. Expenses originated mainly from the remuneration on national government deposits in Banrep, which amounted to COP 683 b with a reduction of COP 812 b compared to the first half of 2023, mainly due to the lower average balances held in Banrep. For 2024, a profit of COP 8,795 b is projected, COP 431 b lower than that observed in 2023. This estimate has a high degree of uncertainty, taking into account the risks associated with the evolution of foreign reserves yield and the growth and sources of expansion of the monetary base. Boxes Box 1: Comments of Banco de la República (the Central Bank of Colombia) regarding its appointment as Administrator of Reserve Fund of the Contributory Pillar - Report of the Board of Directors to the Congress of Colombia, July 2024 Law 2381 of 2024, “Whereby the Comprehensive Social Protection System for Old Age Disability, and Death (Sistema de Protección Social Integral para la Vejez, Invalidez y Muerte, in Spanish) of common origin is established, and other provisions are issued,” creates the Reserve Fund of the Contributory Pillar (Fondo de Ahorro del Pilar Contributivo, in Spanish), hereinafter the Fund, and assigns its administration to Banco de la República (Banrep). This box highlights the main issues involved in the designation of Banrep as the Fund’s administrator within the framework of its constitutional functions: Box 2: Determinants of the Speed of Adjustment of the MPR Box 3: Primary Liquidity Supply by Banco de la República, 2023-2024

1. Macroeconomic Summary In December, headline inflation (13.1%) and the average of the core inflation measures (10.3%) continued to trend upward, posting higher rates than those estimated by the Central Bank's technical staff and surpassing the market average. Inflation expectations for all terms exceeded the 3.0% target. In that month, every major group in the Consumer Price Index (CPI) registered higher-than-estimated increases, and the diffusion indicators continued to show generalized price hikes. Accumulated exchange rate pressures on prices, indexation to high inflation rates, and several food supply shocks would explain, in part, the acceleration in inflation. All of this is in a context of significant surplus demand, a tight labor market, and inflation expectations at different terms that exceed the 3.0% target. Compared to the October edition of the Monetary Policy Report, the forecast path for headline and core inflation (excluding food and regulated items: EFR) increased (Graphs 1.1 and 1.2), reflecting heightened accumulated exchange rate pressures, price indexation to a higher inflation rate (CPI and the producer price index: PPI), and the rise in labor costs attributed to a larger-than-estimated adjustment in the minimum wage. Nevertheless, headline inflation is expected to begin to ease by early 2023, although from a higher level than had been estimated in October. This would be supported initially by the slowdown forecast for the food CPI due to a high base of comparison, the end anticipated for the shocks that have affected the prices of these products, and the estimated improvement in external and domestic supply in this sector. In turn, the deterioration in real household income because of high inflation and the end of the effects of pent-up demand, plus tighter external and domestic financial conditions would contribute to diluting surplus demand in 2023 and reducing inflation. By the end of 2023, both headline and core (EFR) inflation would reach 8.7% and would be 3.5% and 3.8%, respectively, by December 2024. These forecasts are subject to a great deal of uncertainty, especially concerning the future behavior of international financial conditions, the evolution of the exchange rate, the pace of adjustment in domestic demand, the extent of indexation of nominal contracts, and the decisions taken regarding the domestic price of fuel and electricity. In the third quarter, economic activity surprised again on the upside and the growth projection for 2022 rose to 8.0% (previously 7.9%). However, it declined to 0.2% for 2023 (previously 0.5%). With this, surplus demand continues to be significant and is still expected to weaken during the current year. Annual economic growth in the third quarter (7.1 % SCA)1 was higher than estimated in October (6.4 % SCA), given stronger domestic demand specifically because of higher-than-expected investment. Private consumption fell from the high level witnessed a quarter earlier and net exports registered a more negative contribution than anticipated. For the fourth quarter, economic activity indicators suggest that gross domestic product (GDP) would have remained high and at a level similar to that observed in the third quarter, with an annual variation of 4.1%. Domestic demand would have slowed in annual terms, although at levels that would have remained above those for output, mainly because of considerable private consumption. Investment would have declined slightly to a value like the average observed in 2019. The real trade deficit would have decreased due to a drop in imports that was more pronounced than the estimated decline in exports. On the forecast horizon, consumption is expected to decline from current elevated levels, partly because of tighter domestic financial conditions and a deterioration in real income due to high inflation. Investment would also weaken and return to levels below those seen before the pandemic. In real terms, the trade deficit would narrow due to a lower momentum projection for domestic demand and higher cumulative real depreciation. In sum, economic growth for all of 2022, 2023, and 2024 would stand at 8.0%, 0.2% and 1.0%, respectively (Graph 1.3). Surplus demand remains high (as measured by the output gap) and is expected to decline in 2023 and could turn negative in 2024 (Graph 1.4). Although the macroeconomic forecast includes a marked slowdown in the economy, an even greater adjustment in domestic absorption cannot be ruled out due to the cumulative effects of tighter external and domestic financial conditions, among other reasons. These estimates continue to be subject to a high degree of uncertainty, which is associated with factors such as global political tensions, changes in international interest rates and their effects on external demand, global risk aversion, the effects of the approved tax reform, the possible impact of reforms announced for this year (pension, health, and labor reforms, among others), and future measures regarding hydrocarbon production. In 2022, the current account deficit would have been high (6.3 % of GDP), but it would be corrected significantly in 2023 (to 3.9 % of GDP) given the expected slowdown in domestic demand. Despite favorable terms of trade, the high external imbalance that would occur during 2022 would be largely due to domestic demand growth, cost pressures associated with high freight rates, higher external debt service payments, and good performance in terms of the profits of foreign companies.2 By 2023, the adjustment in domestic demand would be reflected in a smaller current account deficit especially due to fewer imports, a global moderation in prices and cost pressures, and a reduction in profits remitted abroad by companies with foreign direct investment (FDI) focused on the local market. Despite this anticipated correction in the external imbalance, its level as a percentage of GDP would remain high in the context of tight financial conditions. In the world's main economies, inflation forecasts and expectations point to a reduction by 2023, but at levels that still exceed their central banks' targets. The path anticipated for the Federal Reserve (Fed) interest rate increased and the forecast for global growth continues to be moderate. In the fourth quarter of 2022, logistics costs and international prices for some foods, oil and energy declined from elevated levels, bringing downward pressure to bear on global inflation. Meanwhile, the higher cost of financing, the loss of real income due to high levels of global inflation, and the persistence of the war in Ukraine, among other factors, have contributed to the reduction in global economic growth forecasts. In the United States, inflation turned out to be lower than estimated and the members of the Federal Open Market Committee (FOMC) reduced the growth forecast for 2023. Nevertheless, the actual level of inflation in that country, its forecasts, and expectations exceed the target. Also, the labor market remains tight, and fiscal policy is still expansionary. In this environment, the Fed raised the expected path for policy interest rates and, with this, the market average estimates higher levels for 2023 than those forecast in October. In the region's emerging economies, country risk premia declined during the quarter and the currencies of those countries appreciated against the US dollar. Considering all the above, for the current year, the Central Bank's technical staff increased the path estimated for the Fed's interest rate, reduced the forecast for growth in the country's external demand, lowered the expected path of oil prices, and kept the country’s risk premium assumption high, but at somewhat lower levels than those anticipated in the previous Monetary Policy Report. Moreover, accumulated inflationary pressures originating from the behavior of the exchange rate would continue to be important. External financial conditions facing the economy have improved recently and could be associated with a more favorable international context for the Colombian economy. So far this year, there has been a reduction in long-term bond interest rates in the markets of developed countries and an increase in the prices of risky assets, such as stocks. This would be associated with a faster-than-expected reduction in inflation in the United States and Europe, which would allow for a less restrictive course for monetary policy in those regions. In this context, the risks of a global recession have been reduced and the global appetite for risk has increased. Consequently, the risk premium continues to decline, the Colombian peso has appreciated significantly, and TES interest rates have decreased. Should this trend consolidate, exchange rate inflationary pressures could be less than what was incorporated into the macroeconomic forecast. Uncertainty about external forecasts and their impact on the country remains high, given the unpredictable course of the war in Ukraine, geopolitical tensions, local uncertainty, and the extensive financing needs of the Colombian government and the economy. High inflation with forecasts and expectations above 3.0%, coupled with surplus demand and a tight labor market are compatible with a contractionary stance on monetary policy that is conducive to the macroeconomic adjustment needed to mitigate the risk of de-anchoring inflation expectations and to ensure that inflation converges to the target. Compared to the forecasts in the October edition of the Monetary Policy Report, domestic demand has been more dynamic, with a higher observed level of output exceeding the productive capacity of the economy. In this context of surplus demand, headline and core inflation continued to trend upward and posted surprising increases. Observed and expected international interest rates increased, the country’s risk premia lessened (but remains at high levels), and accumulated exchange rate pressures are still significant. The technical staff's inflation forecast for 2023 increased and inflation expectations remain well above 3.0%. All in all, the risk of inflation expectations becoming unanchored persists, which would accentuate the generalized indexation process and push inflation even further away from the target. This macroeconomic context requires consolidating a contractionary monetary policy stance that aims to meet the inflation target within the forecast horizon and bring the economy's output to levels closer to its potential. 1.2 Monetary Policy Decision At its meetings in December 2022 and January 2023, Banco de la República’s Board of Directors (BDBR) agreed to continue the process of normalizing monetary policy. In December, the BDBR decided by a majority vote to increase the monetary policy interest rate by 100 basis points (bps) and in its January meeting by 75 bps, bringing it to 12.75% (Graph 1.5). 1/ Seasonally and calendar adjusted. 2/ In the current account aggregate, the pressures for a higher external deficit come from those companies with FDI that are focused on the domestic market. In contrast, profits in the mining and energy sectors are more than offset by the external revenue they generate through exports. Box 1 - Electricity Rates: Recent Developments and Indexation. Author: Édgar Caicedo García, Pablo Montealegre Moreno and Álex Fernando Pérez Libreros Box 2 - Indicators of Household Indebtedness. Author: Camilo Gómez y Juan Sebastián Mariño