Academic literature on the topic 'Real property, foreign countries'

The purpose of this paper is to examine the impact of real estate transparency (RET) on foreign real estate investments (FREI). Most of the previous studies have argued that the free flow of information and the fair and consistent application of local property laws could attract greater amounts of FREI. Using observations from 32 countries covering 2004, 2006, 2008 and 2010 and applying fixed-effect and the generalized method of moments (GMM) techniques, our empirical results reveal that RET is not a major determinant of FREI. However, we find that the effect of RET on FREI is dependent on its interaction with the level of income implying that the higher the level of income in the host country, the higher the effect of RET on FREI. Finally, the results show that foreign direct investment (FDI) in other sector, market size and property prices are important determinants of FREI.

Financial globalization has enabled investors to allocate some of their portfolio assets to foreign countries and alternative assets. This environment has also created an increase in investment in international real estate especially in the emerging markets. In this study, we investigate whether foreign real estate investors outperform domestic investors after controlling for property specific characteristics. Using property level transaction data of Korea from 2003 to 2016, we also examine the characteristics of commercial real estate investment associated with the probability of an acquirer being a foreign investor versus a domestic investor. The binary and multinomial probability models are used to test our research hypothesis and the structural equation model is applied to find the determinants of the internal rate of return. The result reveals foreign investors perform better than domestic investors in a holding period analysis. Furthermore, the findings support that foreign direct and indirect real estate investments are statistically significant to the age of the building, corporate bond and exchange rates, growth domestic product growth, and the equity market movement in the domestic market.

Abstract There is a wide range of factors - political, economic, legal, etc., which either limit or promote international real property transactions. It is considered that real property alienation to foreigners enhances foreign investment and economic development, however, some countries tend to limit such transactions. The current research provides a scientific view to reveal the reasons why certain countries impose different kinds of restrictions on international real property transactions. The objectives of this publication are: 1) to find out and analyse the existing arguments and reasons for limiting international real property transactions; 2) to determine the number and volume of international real property transactions in Latvia; 3) to identify the main argumentation for the current step and significant decline of international real property transactions in Latvia. Empirical analysis based on the review of scientific publications, statistical and comparative analysis of real property transactions are the main methods employed for this research.

Last years more and more Russians are buying property abroad, not only in order to obtain from her rental income or resale, but also for a family holiday by the sea in a favorite of the country. The article describes the main criteria for the choosing of foreign real estate. Particular attention is paid to the specifics of buying property in countries such as Turkey, Egypt, Greece.

Approaches to the formation of the value of objects of taxation of real estate of individuals in foreign countries and the establishment of tax rates have been examined. An analysis of tax revenues on real estate of individuals in highly developed countries has been carried out. General trends in property taxation of individuals have been identified. Basic provisions, on which modern systems of real estate taxation of individuals are based, have been formulated. Problems of real property taxation in Russia have been identified. Ways of determining the tax base taking into account the world experience and Russian reality have been proposed. Proposals for the application of tax rates and the implementation of the principle of justice have been elaborated.

In their search for new ways of recharging budget revenues, foreign countries repeatedly implement tax reforms including the area of property taxation.The subject of the researchis the state of property taxation in the Russian Federation and abroad.The purposes of the researchwere to study the trends in property tax reforms in the world and the Russian Federation; systematize the OECD experience in reforming property taxation; compare the Russian innovations in the field of corporate property taxation with the trends existing in OECD countries; assess of the adequacy of corporate property tax reforms carried out in Russia in recent years, and propose property tax innovations with account for advanced foreign experience based on OECD data, foreign and domestic publications. The share of property taxes in the Russian GDP is lower compared to the OECD average although it is higher than in the countries with the lowest value of this indicator, which means that the above shares can be increased as shown by a comprehensive analysis of both taxation practices in foreign countries and the socio-economic situation in Russia.It is concludedthat Russian innovations in the field of property taxation generally conform to the world trends both in terms of tax rates and the tax base formation procedure. The paper outlines the most significant areas of the property tax reform comprising a clear legislative distinction between movable and immovable property, reasoned definition of the real estate cadastral value taking into account the developments in the foreign and domestic economic literature on this issue.

The current issues of reforming the current tax system in the Russian Federation in the context of the transition to determining the amount of real estate taxes based on the cadastral value of real estate objects are discussed. The decision on adopting elements of a tax system in practice should be scientifically and methodologically based. The rational construction of the tax system of Russia contributes to the study of foreign tax systems’ models. In the article, the systems for calculating real estate tax established in the foreign countries under consideration are highlighted. Everything is based on analyzing the practice of real estate valuation in the UK, France, Belgium, Latvia, Finland, USA and Chile. A comparison is made of the grounds for calculating the property tax, their distinctive features. The main approaches to determining the cadastral value taking place in the cadastral systems of foreign countries are summarized. The conducted studies provide grounds for identifying trends in real estate valuation, which are being introduced into modern Russian cadastral valuation practice.

A comparative analysis of the principles of the cadastre in the most developed countries and in Russia. It is shown that some of the principles of cadastre, it is advisable to introduce into the Russian legislation. Such principles include the principle of Renzenberger, as well as the principles of Ruoff and Kuranda. The Russian inventory has more than twenty years, however, it cannot be considered complete, as registered in cadastre only 60 % of real estate. Full filling of the cadastre information on real estate is possible, if we abandon the application of the principle of reference. Unlike foreign domestic inventory the inventory contains errors that complicate the procedure of registration of immovable property. In addition, the domestic inventory is not the only source of information about the property that causes the ambiguity of the information about the same object. Important is also that the damage caused inaccurate inventory information bona fide buyer or seller of real property under current law, does not exceed one million rubles, regardless of the value of the lost object. Foreign inventory recognizes the property owner the main participant of the changes, however, the Russian legislation allows for the adjustment of the information object without the application of the property owner. See principles of the foreign inventory is useful for the maintenance of the national cadastre. This will simplify the process of state cadastral accounting of real estate, reduce the time of its formation and to increase the reliability of materials of the Unified state register of real estate.

Abstract There exists sharp competition amongst nations regarding the increasing foreign investments; therefore, nations are willing to offer foreign investors and their families some type of political bonus, such as temporary residence permit, permanent residence permit, or even citizenship. The simplest way to entice investors is to offer them and their family members temporary residence permits in exchange for investments - simply by purchasing real property (via the so-called “Golden Visa” program). Such a program was launched in Latvia in 2010; however, significant limitations were placed on it in 2014. This research (1) compares the “Golden Visa” programs in different countries in the world, (2) determines the impact of the program on the real property market of Latvia, and (3) searches for the main reason why limitations were applied to the temporary residence permit program in 2014, which resulted in a significant decrease in the international investments in Latvia (this part of the paper is based on the results of the following research: Viesturs, J., Auziņš, A., & Štaube, T. (2017). Arguments Used for Restricting International Real Property Transactions: Case Study of Latvia).

Property rights are an important subject of economic theory and as a product of institutional qualities an essential determinant of Foreign Direct Investment (FDI). The purpose of this study is to examine how middle income countries with, on average, weak property rights can attract investments from abroad, given their (formal) institutions, and if differences in institutional qualities have an effect on FDI inflows. Using a panel approach to observe a sample of 20 countries over ten years, we find that there is mixed evidence supporting this theory. Whilst the theoretical background suggests that institutional qualities do affect a country’s ability to attract or deter investments, we cannot conclude a significant effect in our results. Furthermore, the study concludes that certain products of institutional qualities (democracy, corruption) can lead to mixed effects on the net inflows of FDI, but that an important determinant is the market-size of the country.

Financial crisis of 2008 became critical period for Swedish economy and its real estate market. During this period Sweden has experienced sharp decrease in transaction volumes. However compare to other EU and global markets, Sweden managed to perform remarkably well and economic recovery has taken place since 2010. The purpose of this master thesis is to outline general trends in the development of Swedish Real Estate market for FDI in the period of 2008-2013 and provide better understanding of foreign investors behavior and the incentives attracted them to invest in Sweden. The deductive approach has been used based on the previous studies and theory. The quantitative data was obtained from scientific and media sources, while qualitative empirical data relies on survey filled in by real estate consultancy companies operating on Swedish market. Research focuses on the analysis of overall market situation and changes occurred during the 5-year period concerning micro/macro economical issues, behavioral factors, country characteristics, business environment, global trends, investors’ behavior and expectations. Theoretical basis for the research is an overview of previous FDI theories. The results reveal that by the end of 5 year period, the situation on the market became much more favorable with strong recovery as for the end of 2013. Compare to after crisis 2009, when foreign transactions volumes were down to 45 bn sek versus 157 bn sek in 2008, the full year transaction volume 2013 was SEK 99 bn which is in line with 15 year historic average. In 2013 international investment share is amounted to 12%, the most active are institutional investors from Norway, Finland, UK, Germany and US. Overall foreign investors are willing to operate on Swedish market in the future, searching for high yields at low risk levels within safe, transparent and liquid, highly developed business environment with good economical and politically stable regimes. However difficulties with accessing finance and lack of prime quality assets on the market became the main drawbacks for foreign investors on the Swedish market during last years.

Real estate investments are more frequently crossing borders. The national cultural differences, which are influencing investment preferences and decision processes, are challenging Real Estate Companies, whereas not only capital, but also individuals are moving more frequently across country borders. Real Estate Companies’ risk profile concerning uncertainty avoidance, regarding real  estate investments haven’t  been studied before, thus a gap in the literature is identified. This study aims to identify risks, risk management tools, uncertainty avoidance in Real Estate Companies with different national cultural background, helping to develop a deeper understanding of the differences in their risk profiles. I have found that the Israeli respondents are highly uncertainty avoiding and risk loving, but only regarding familiar risks, while concerning unfamiliar risks, they are rather risk averse. The Swedish respondents are weakly uncertainty avoiding and risk neutral, no matter known or unknown ris

Mestrado em Economia Monetária e Financeira
Nosso estudo é com base na recolha de dados relevantes das economias do G20 com a inclusão da Grécia, Portugal, Espanha e Nigéria. Os dados coletados são variados em um período de 35 anos (1980 - 2015) e a metodologia empregada é a Técnica de Regressão Linear na qual três modelos foram estimado, nomeadamente: modelos OLS agrupados, efeitos aleatórios (RE) e efeito fixo (FE). O FE modelo que é nosso modelo preferido e ótimo mostra que a coorte da população em idade de trabalhar - que se diz serem produtivas, têm uma associação depreciadora ao RER doméstico. No entanto, a relação da antiga coorte dependente parece ser ambígua, pois mostra que temos um efeito depreciador sobre o RER doméstico no modelo de referência, tendo uma apreciação efeito sobre o RER doméstico após executar um modelo de forma reduzida - um modelo baseado em dados demográficos variável e termos de troca. Isso só foi interpretado como sendo que nosso modelo não é muito robusto para mostram consistentemente a associação entre a coorte do envelhecimento e o RER de uma economia.
Our study is based on the collection of relevant data from the G20 economies with the inclusion of Greece, Portugal, Spain and Nigeria. The data collected is ranged over a period of 35 years (1980 - 2015) and the methodology employed is the Linear Regression Technique in which three models were estimated, namely: Pooled OLS, Random Effect (RE), and Fixed Effect (FE) models. The FE model which is our preferred and optimal model shows that the working age population cohort - which are said to be productive have a depreciating association to the domestic country RER. However, the relation of the old dependant cohort seems to be ambiguous as it shows us to have a depreciating effect on the domestic RER in the benchmark model while having an appreciating effect on the domestic RER after running a reduced form model - a model based on demographic variable and terms of trade. This was only interpreted to be that our model is not very robust to consistently show the association between the ageing cohort and the RER of an economy.
info:eu-repo/semantics/publishedVersion

Developed, maturing, and emerging market countries are making considerable progress in the legal and institutional reforms necessary to allow and facilitate real estate and tourism (specifically hotel) foreign direct investment (FDI). From a political perspective, countries used to view real estate as one of the "crown jewels" of an economy (Lynn, 2007). No longer does this view hold consistently across countries as countries have recently recognised that real estate and hotel FDI is a way to encourage fixed capital investment, create jobs, and to introduce best practices from multinational corporations. The purpose of this research is to identify the main determinants of foreign direct investment (FDI) in the commercial real estate (CRE) as well as hotel sectors, in selected Middle Eastern countries. Utilising existing theories of FDI, a set of determinants (drivers and barriers) were selected to be empirically tested, utilising Dunning's (Ownership-Location- Internalisation-OLI) eclectic paradigm. As Dunning consider FDI for all industries with a special focus on the manufacturing industry, this research enlarges the scope by commercial real estate and hotels specific considerations. This research utilises the Location dimension of Dunning framework as a basis to explain the determinants of FDI in the CRE and hotel sectors. The literature on both real estate and hotel FDI relies heavily on collecting primary data through surveys; recently however, very few studies (including He & Zhu (2010); He, Wang, & Cheng (2009); Anop (2010) and Rodriguez & Bustillo (2008)) have utilised the availability of data in real estate and started constructing econometric models with the aim of testing set hypotheses. This research fills a gap in the literature by utilising secondary data to develop and test different econometric models, using data from various sources. The empirical work of this research therefore consists of two parts: the first is an econometric analysis of FDI in commercial real estate for eight Middle Eastern and North African (MENA) markets namely, Algeria, Egypt, Morocco, Qatar, Saudi Arabia, Turkey, Tunisia and the UAE during 2003-2009; the second part is an econometric analysis of FDI in hotels for the same countries for the same time period. The econometric analysis is carried out using the pooled Tobin model technique, for panel data, which uses both time-series and cross-sectional data. The findings for the econometric analysis of FDI in commercial real estate shows that country specific factors (i. e. economic health, standards of living and levels human development as well as political stability and absence of violence) as well I as real estate sector-specific variables (size of institutional real estate market), are significant variables and consistently support their hypotheses as explanations for commercial real estate related FDI for the selected MENA countries. The second part of the econometric analysis related to determinants of FDI in hotel greenfield projects, reveals that country specific factors (i. e. taxation environment, human development level and real growth of economy and political stability and absence of violence and terrorism) as well as hotel sector-specific variables (i. e. real visitor expenditure and level of investment freedom); are significant and consistently support their hypotheses as explanations for hotel FDI. These indicators are found to provide -a good explanation of location decision-making in both commercial real estate and hotel sectors.

Cette thèse de doctorat étudie les effets des envois de fonds issus des migrations sur le développement des pays d’origine des migrants et compare ces effets avec ceux de l’aide publique au développement. Dans une première partie, nous étudions les effets des envois de fonds des migrants sur le développement des pays récipiendaires. Il apparaît que les envois de fonds réduisent les inégalités intra-Pays dans les pays relativement plus riches, dont les coûts d’émigration sont faibles et dont la part des émigrés qualifiés est peu importante (Chapitre 1). L’effet sur la croissance économique en Afrique sub-Saharienne est également non-Linéaire et dépend positivement du développement financier et institutionnel des pays récipiendaires (Chapitre 2). Enfin, les envois de fonds ont un effet d’appréciation sur le taux de change réel dans les pays CFA, mais cet effet est non significatif pour les pays à régime de change flexible (Chapitre 3). Dans une seconde partie nous nous intéressons au caractère stabilisateur des transferts des migrants. Le Chapitre 4 montre, au niveau microéconomique, que les envois de fonds ont joué un rôle d’assurance lors de la dernière crise financière et que ce rôle a été d’autant plus important que les migrants n’ont pas été sévèrement touchés par la crise et que les liens conservés avec le pays d’origine étaient forts. Le Chapitre 5 montre à partir d’une approche pays par pays que les transferts sont contra-Cycliques dans une minorité de cas, mais qu’en moyenne, ils répondent négativement au revenu des pays d’origine. Les résultats du Chapitre 6 indiquent que les transferts atténuent l’effet négatif des chocs commerciaux sur la pauvreté. Dans une troisième et dernière partie nous comparons les envois de fonds { l’aide publique au développement. Alors que l’aide permet d’atténuer l’effet négatif de l’instabilité des exportations sur la croissance, les transferts des migrants permettent d’amoindrir l’effet négatif de l’instabilité des exportations sur la pauvreté (Chapitre 7). Enfin, les envois de fonds diminuent la dépendance des pays { l’aide publique au développement lorsque ces flux de capitaux sont investis plutôt que consommés (Chapitre 8)
This dissertation examines the effects of migrant remittances on the development of origin countries and compares these effects with those of official development aid. In a first part we investigate the effects of remittances on the development of recipient countries. Results suggest that remittances reduce within inequality in countries more developed, where migration cost are lower and the share of skilled migrants less important (Chapter 1). Their impact on growth in sub-Saharan Africa is also non-Linear and depends positively on the financial and institutional development of recipient economies (Chapter 2). Finally, remittances have a real exchange appreciation effect in CFA countries, but not in countries with a flexible exchange rate regime (Chapter 3). In a second part we focus on the stabilizing impact of remittances. Chapter 4 shows, at the microeconomic level, that remittances have played an insurance role during the last financial crisis and that this role was all the more acute that migrants have not strongly suffered from the crisis and that family links were strong. Chapter 5 suggests in a country-By-Country approach that remittances are pro-Cyclical in a higher number of cases, while on average, they respond negatively to the home country income. Chapter 6 findings show that remittances dampen the harmful impact of trade instability on poverty. In a third part, we compare migrant remittances with public aid. While public aid mitigates the harmful impact of export instability on output growth, migrant remittances dampen the harmful effect of export instability on poverty (Chapter 7). Finally, migrant remittances reduce aid dependency in countries where remittances are invested rather than consumed (Chapter 8)

The purpose of this research is to generalise the results of the 2000-2010 period development of the Swedish real estate market for FDI and provide a better understanding of it from the point of view of foreign investors. The approach used in the thesis was based on deductive method assuming previous theory and research. Quantitative data relies on both scientific and media sources, qualitative empirical data – on questionnaires filled in by companies involved in real estate FDI process. The study addresses the changes of macro and micro economical issues, cultural, political, geographical patterns, changes of market characteristics, investor preferences and provides an overview of both classical investment theories and FDI theories. The results of current research show that within the indicated 10-year period the major changes in the Swedish property market where: increased difficulties with obtaining finance, higher selectiveness when choosing investment objects, increased use of structured deals, greater importance of diversification, decreased risk and yield levels. The thesis originates from the prior research in the field by KTH scholars - Axelsson, Victrorin (1999), O’Connor (2003) and Falk, Olsén (2009). The main contribution of the current research is adding to the knowledge about real estate FDI and quantifying the changes during the long time-horizon – 2000-2010 period considering both "economical rationale" and "behaviour rationale". Present research may be useful for further investigations in the property FDI area, can provide information for foreign investors about the historical development of the Swedish market and be helpful for analyzing or choosing FDI market strategy.

The article considers approaches to understanding “know-how” in certain foreign countries. The provisions of international documents regulating production secrets are described. The author describes several theories of understanding trade secrets, considers some features of the protection of production secrets in the United States, France, and Switzerland. It is concluded that the legal protection of “know-how” in the EU countries is very effective, and the legislation of these countries regulating this issue is quite developed. The legal norms meet all the criteria established by the World Intellectual Property Organization.

The article analyzes the Constitutions of different countries to study the fundamentals of the economic sphere, namely, property and economic activity based on three countries — the Russian Federation, the United States of America and the People's Republic of China, as well as to find a possible way to develop economic activity and the economy as a whole in the Russian Federation.

A large empirical literature has shown that countries that trade more with each other have more correlated business cycles. We show that previous estimates of this relationship are biased upward because they ignore common trade exposure to other countries. When we account for common trade exposure to foreign business cycles, we find that (1) the effect of bilateral trade on business cycle comovement falls by roughly 25 percent and (2) common exposure is a significant driver of business cycle comovement. A standard international real business cycle model is qualitatively consistent with these facts but fails to reproduce their magnitudes. Past studies have used models that allow for productivity shock transmission through trade to strengthen the relationship between trade and comovement. We find that productivity shock transmission increases business cycle comovement largely because of a country-pair's common trade exposure to other countries rather than because of bilateral trade. When we allow for stronger transmission between small open economies than other country-pairs, comovement increases both from bilateral trade and common exposure, similar to the data.

Violent extremism in the Western Balkans takes many forms, from Western Balkans foreign fighters recruited to participate in conflicts abroad, including in the Middle East and Ukraine; to ethno-nationalist organizations that spread inter-ethnic hatred, some emanating from and glorifying legacies of conflict spanning back to the breakup of the former Yugoslavia and regional conflicts in the 1990s; to chauvinism and anti-EU and anti-NATO ideas that emerge to become even more serious and with greater consequences for the region and socio-political cohesion and dynamics. As violent extremism continues to evolve and adapt in the Western Balkan countries, efforts to address it must also adjust to new threats from both internal and external sources. Recent research on violent extremism in the Western Balkans, and North Macedonia specifically, suggests that education may be an important tool in addressing violent extremism in the region. Some have suggested educational initiatives may assist in addressing online and offline disinformation and extremist narratives. Furthermore, addressing ongoing issues within ethnically divided educational systems may play an important role in working to address some of the ethnic-based divisions that can contribute to ”othering” dynamics. Others have further suggested that education and other support services can play a role in aiding the transition of those imprisoned on charges related to violent extremism and returning families back into society. As countries throughout the Western Balkans continue to update and revise their national action plans and policies to address violent extremism, greater consideration of the role of education and how it might be integrated into these policies is needed. This publication, based on findings from a large-scale literature review mapping the state of research on education in P/CVE in the Western Balkans and beyond,offers a series of considerations for policymakers and practitioners looking to incorporate education in future efforts to address drivers, both real and potential, of violent extremism in Western Balkan states. While findings from this paper are contextualized within the broader experiences of the Western Balkans, specific examples based on experiences in individual countries, North Macedonia most notably, are detailed to provide an in-depth example of considerations for policymakers interested in further incorporating education into P/CVE plans moving forward.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

From this edition, the Financial Stability Report will have fewer pages with some changes in its structure. The purpose of this change is to present the most relevant facts of the financial system and their implications on the financial stability. This allows displaying the analysis more concisely and clearly, as it will focus on describing the evolution of the variables that have the greatest impact on the performance of the financial system, for estimating then the effect of a possible materialization of these risks on the financial health of the institutions. The changing dynamics of the risks faced by the financial system implies that the content of the Report adopts this new structure; therefore, some analyses and series that were regularly included will not necessarily be in each issue. However, the statistical annex that accompanies the publication of the Report will continue to present the series that were traditionally included, regardless of whether or not they are part of the content of the Report. In this way we expect to contribute in a more comprehensive way to the study and analysis of the stability of the Colombian financial system. Executive Summary During the first half of 2015, the main advanced economies showed a slow recovery on their growth, while emerging economies continued with their slowdown trend. Domestic demand in the United States allowed for stabilization on its average growth for the first half of the year, while other developed economies such as the United Kingdom, the euro zone, and Japan showed a more gradual recovery. On the other hand, the Chinese economy exhibited the lowest growth rate in five years, which has resulted in lower global dynamism. This has led to a fall in prices of the main export goods of some Latin American economies, especially oil, whose price has also responded to a larger global supply. The decrease in the terms of trade of the Latin American economies has had an impact on national income, domestic demand, and growth. This scenario has been reflected in increases in sovereign risk spreads, devaluations of stock indices, and depreciation of the exchange rates of most countries in the region. For Colombia, the fall in oil prices has also led to a decline in the terms of trade, resulting in pressure on the dynamics of national income. Additionally, the lower demand for exports helped to widen the current account deficit. This affected the prospects and economic growth of the country during the first half of 2015. This economic context could have an impact on the payment capacity of debtors and on the valuation of investments, affecting the soundness of the financial system. However, the results of the analysis featured in this edition of the Report show that, facing an adverse scenario, the vulnerability of the financial system in terms of solvency and liquidity is low. The analysis of the current situation of credit institutions (CI) shows that growth of the gross loan portfolio remained relatively stable, as well as the loan portfolio quality indicators, except for microcredit, which showed a decrease in these indicators. Regarding liabilities, traditional sources of funding have lost market share versus non-traditional ones (bonds, money market operations and in the interbank market), but still represent more than 70%. Moreover, the solvency indicator remained relatively stable. As for non-banking financial institutions (NBFI), the slowdown observed during the first six months of 2015 in the real annual growth of the assets total, both in the proprietary and third party position, stands out. The analysis of the main debtors of the financial system shows that indebtedness of the private corporate sector has increased in the last year, mostly driven by an increase in the debt balance with domestic and foreign financial institutions. However, the increase in this latter source of funding has been influenced by the depreciation of the Colombian peso vis-à-vis the US dollar since mid-2014. The financial indicators reflected a favorable behavior with respect to the historical average, except for the profitability indicators; although they were below the average, they have shown improvement in the last year. By economic sector, it is noted that the firms focused on farming, mining and transportation activities recorded the highest levels of risk perception by credit institutions, and the largest increases in default levels with respect to those observed in December 2014. Meanwhile, households have shown an increase in the financial burden, mainly due to growth in the consumer loan portfolio, in which the modalities of credit card, payroll deductible loan, revolving and vehicle loan are those that have reported greater increases in risk indicators. On the side of investments that could be affected by the devaluation in the portfolio of credit institutions and non-banking financial institutions (NBFI), the largest share of public debt securities, variable-yield securities and domestic private debt securities is highlighted. The value of these portfolios fell between February and August 2015, driven by the devaluation in the market of these investments throughout the year. Furthermore, the analysis of the liquidity risk indicator (LRI) shows that all intermediaries showed adequate levels and exhibit a stable behavior. Likewise, the fragility analysis of the financial system associated with the increase in the use of non-traditional funding sources does not evidence a greater exposure to liquidity risk. Stress tests assess the impact of the possible joint materialization of credit and market risks, and reveal that neither the aggregate solvency indicator, nor the liquidity risk indicator (LRI) of the system would be below the established legal limits. The entities that result more individually affected have a low share in the total assets of the credit institutions; therefore, a risk to the financial system as a whole is not observed. José Darío Uribe Governor

1.1 Macroeconomic summary In September, headline inflation (11.4% annually) and the average of core inflation indicators (8.6% annually) continued on a rising trend, and higher increases than expected were recorded. Forecasts increased again, and inflation expectations remained above 3%. Inflationary surprises in the third quarter were significant and widespread, and they are the result of several shocks. On the one hand, international cost and price shocks, which have mainly affected goods and foods, continue to exert upwards pressure on national inflation. In addition to these external supply shocks, domestic supply shocks have also affected foods. On the other hand, the strong recovery of aggregate demand, especially for private consumption and for machinery and equipment, as well as a higher accumulated depreciation of the Colombian peso and its pass-through to domestic prices also explain the rise in inflation. Indexation also contributes, both through the Consumer Price Index (CPI) and through the Producer Price Index (PPI), which continues to have a significant impact on electricity prices and, to a lesser degree, on other public utilities and rent. In comparison with July’s report, the new forecast trajectory for headline and core inflation (excluding food and regulated items) is higher in the forecast horizon, mainly due to exchange rate pressures, higher excess demand, and indexation at higher inflation rates, but it maintains a trend of convergence towards the target. In the case of food, a good domestic supply of perishable foods and some moderation in international processed food prices are still expected. However, the technical staff estimates higher pressures on this group’s prices from labor costs, raw material prices, and exchange rates. In terms of the CPI for regulated items, the new forecast supposes reductions in electricity prices at the end of the year, but the effects of indexation at higher inflation rates and the expected rises in fuel prices would continue to push this CPI group. Therefore, the new projection suggests that, in December, inflation would reach 11.3% and would decrease throughout 2023 and 2024, closing the year at 7.1% and 3.5%, respectively. These forecasts have a high level of uncertainty, due especially to the future behavior of international financial conditions, external price and cost shocks, the persistence of depreciation of the Colombian peso, the pace of adjustment of domestic demand, the indexation degree of nominal contracts, and the decisions that would be made regarding domestic fuel and electricity prices. Economic activity continues to surprise on the upside, and the projection of growth for 2022 rose from 6.9% to 7.9% but lowered for 2023 from 1.1% to 0.5%. Thus, excess demand is higher than estimated in the previous report, and it would diminish in 2023. Economic growth in the second quarterwas higher than estimated in July due to stronger domestic demand, mainly because of private consumption. Economic activity indicators for the third quarter suggest that the GDP would stay at a high level, above its potential, with an annual change of 6.4%, and 0.6% higher than observed in the second quarter. Nevertheless, these numbers reflect deceleration in its quarterly and annual growth. Domestic demand would show similar behavior, with a high value, higher than that of output. This can be explained partly by the strong behavior of private consumption and investment in machinery and equipment. In the third quarter, investment in construction would have continued with mediocre performance, which would still place it at levels lower than those observed before the pandemic. The trade deficit would have widened due to high imports with a stronger trend than that for exports. It is expected that, in the forecast horizon, consumption would decrease from its current high levels, partly as a consequence of tighter domestic financial conditions, lower repressed demand, higher exchange rate pressures on imported goods prices, and the deterioration of actual income due to the rise in inflation. Investment would continue to lag behind, without reaching the levels observed before the pandemic, in a context of high financing costs and high uncertainty. A lower projected behavior in domestic demand and the high levels of prices for oil and other basic goods that the country exports would be reflected in a reduction in the trade deficit. Due to all of this, economic growth for all of 2022, 2023, and 2024 would be 7.9%, 0.5%, and 1.3%, respectively. Expected excess demand (measured via the output gap) is estimated to be higher than contemplated in the previous report; it would diminish in 2023 and could turn negative in 2024. These estimates remain subject to a high degree of uncertainty related to global political tension, a rise in international interest rates, and the effects of this rise on demand and financial conditions abroad. In the domestic context, the evolution of fiscal policy as well as future measures regarding economic policy and their possible effects on macroeconomic imbalances in the country, among others, are factors that generate uncertainty and affect risk premia, the exchange rate, investment, and the country’s economic activity. Interest rates at several of the world’s main central banks continue to rise, some at a pace higher than expected by the market. This is in response to the high levels of inflation and their inflation expectations, which continue to exceed the targets. Thus, global growth projections are still being moderated, risk premia have risen, and the dollar continues to gain strength against other main currencies. International pressures on global inflation have heightened. In the United States, core inflation has not receded, pressured by the behavior of the CPI for services and a tight labor market. Consequently, the U.S. Federal Reserve continued to increase the policy interest rate at a strong pace. This rate is expected to now reach higher levels than projected in the previous quarter. Other developed and emerging economies have also increased their policy interest rates. Thus, international financial conditions have tightened significantly, which reflects in a widespread strengthening of the dollar, increases in worldwide risk premia, and the devaluation of risky assets. Recently, these effects have been stronger in Colombia than in the majority of its peers in the region. Considering all of the aforementioned, the technical staff of the bank increased its assumption regarding the U.S. Federal Reserve’s interest rate, reduced the country’s external demand growth forecast, and raised the projected trajectory for the risk premium. The latter remains elevated at higher levels than its historical average, within a context of high local uncertainty and of extensive financing needs from the foreign sector and the public sector. All of this results in higher inflationary pressures associated to the depreciation of the Colombian peso. The uncertainty regarding external forecasts and its impact on the country remain elevated, given the unforeseeable evolution of the conflict between Russia and Ukraine, of geopolitical tensions, and of the tightening of external financial conditions, among others. A macroeconomic context of high inflation, inflation expectations and forecasts above 3%, and a positive output gap suggests the need for contractionary monetary policy, compatible with the macroeconomic adjustment necessary to eliminate excess demand, mitigate the risk of unanchoring in inflation expectations, and guarantee convergence of inflation at the target. In comparison with the July report forecasts, domestic demand has been more dynamic, with a higher observed output level that surpasses the economy’s productive capacity. Headline and core inflation have registered surprising rises, associated with the effects of domestic and external price shocks that were more persistent than anticipated, with excess demand and indexation processes in some CPI groups. The country’s risk premium and the observed and expected international interest rates increased. As a consequence of this, inflationary pressures from the exchange rate rose, and in this report, the probability of the neutral real interest rate being higher than estimated increased. In general, inflation expectations for all terms and the bank’s technical staff inflation forecast for 2023 increased again and continue to stray from 3%. All of the aforementioned elevated the risk of unanchoring inflation expectations and could heighten widespread indexation processes that push inflation away from the target for a longer time. In this context, it is necessary to consolidate a contractionary monetary policy that tends towards convergence of inflation at the target in the forecast horizon and towards the reduction of excess demand in order to guarantee a sustainable output level trajectory. 1.2 Monetary policy decision In its September and October of 2022 meetings, Banco de la República’s Board of Directors (BDBR) decided to continue adjusting its monetary policy. In September, the BDBR decided by a majority vote to raise the monetary policy interest rate by 100 basis points (bps), and in its October meeting, unanimously, by 100bps. Therefore, the rate is at 11.0%. Boxes 1 Food inflation: a comparison with other countries