IMF ups Colombia growth view, suggests tax reform.

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An IMF official said on Thursday the world body was raising its Colombian 2011 economic growth forecast to close to 5 percent, but said the government should reform its tax system to help narrow budget deficits.

Andy Wolfe, the head of an IMF mission to Colombia, told reporters the IMF initially forecast 4.6 percent gross domestic product growth in 2011, but was revising that in light of stronger-than-expected first quarter GDP growth data released earlier in the day by the government.

The DANE statistics agency reported GDP grew 5.1 percent versus a year earlier, stepping up its pace of expansion from a 4.8 percent growth rate in the fourth quarter.

"The first quarter (data) was better than we were predicting," Wolfe, said, "so we're going to change our projection to closer to 5 (percent)."

"Our team is working on the (exact) calculation," he said.

Asked if he saw GDP growth this year reaching 5 percent, Wolfe replied "close to 5 percent."

Colombia's economy grew 4.3 percent in 2010, nearly triple the 1.5 percent GDP growth in 2009.

"There is nothing now that would spawn worries that the economy is overheated," Wolfe said.

"The composition of (GDP) growth is balanced," he added, speaking in a news conference at the end of the IMF's annual consultation visit to Colombia.

Last April, the IMF said Colombia requested a $6.1 billion successor precautionary arrangement under the IMF's flexible credit line for well-performing economies. The FCL acts as a credit backstop without strict conditions.

TAX REVENUE

This month, Colombia enacted fiscal reforms to reduce the budget deficit, a move cited by Fitch Ratings on Wednesday, when it became the third Wall Street ratings agency to lift its credit status from speculative or "junk" territory to investment grade. 

Wolfe commended the reforms, but he noted the government would have to find new sources of revenue if it was to simultaneously cut the deficit and meet the reforms' mandated expenditures in areas such as public health.

"If you have a fiscal rule that requires lowering the deficit and has a demand for an increase in expenditures, then the only way is to have more (tax) income," he said.

"The idea is to increase tax revenue without raising tax rates by widening the (taxpayer) base and eliminating (tax) exemptions," he said.

Citing a local press report, he said Colombia's tax exemptions equaled to 1.6 percent of GDP.

The 2010 consolidated public sector deficit was 3.2 percent.

The government is analyzing the possibilities of raising tax revenues by widening the taxpayer base while preserving current tax rates, officials have said in recent months.

Last week, Finance Minister Carlos Echeverry said he saw the 2011 consolidated deficit at 3.6 percent of GDP.

That incorporated the extraordinary costs stemming from billions of dollars of damage wreaked by torrential rains, sparked by the La Nina weather phenomenon.

The consolidated deficit encompasses national and regional governments, state-owned companies and other public entities.

Under a fiscal plan laid out by Echeverry last week, Colombia's goal is to reduce the consolidated deficit to 2.2 percent of GDP in 2012, 1.1 percent in 2013 and 0.8 percent in 2014, when President Juan Manuel Santos' four-year term ends.(With additional reporting by Nelson Bocanegra, Luis Jaime Acosta, Monica Garcia and Jack Kimball; Editing by Bernard Orr)

Reuters.