Colombia Faces Revenue Losses in Energy Shift, Yet IMF Finds Hope in Reforms

Colombia’s planned shift away from oil and coal will sharply reduce fiscal revenues and disrupt regional labor markets, but large-scale renewable energy expansion and structural reforms could offset long-term economic losses. The IMF concludes that with productivity, financial, and export-competitiveness reforms, the transition can become growth-enhancing rather than economically damaging.

Colombia’s push to shift away from fossil fuels toward a greener and more diversified economy unfolds at a moment of structural fragility, and the IMF’s Selected Issues Paper, produced by researchers across the IMF’s Western Hemisphere, Monetary and Capital Markets, Fiscal Affairs, and Research Departments, portrays this transition as urgent, unavoidable, and economically complex. Petroleum and coal still account for about 10 percent of fiscal revenues, over a third of exports, and nearly 4 percent of value added. Yet dwindling reserves, declining competitiveness, global decarbonization, and the government’s halt on new oil exploration are converging to shrink Colombia’s fossil revenues far earlier and faster than anticipated.

The Coming Collapse of Oil and Coal Revenues

Using global scenarios from the International Energy Agency, the IMF projects oil output falling from today’s 736,000 barrels per day to as little as 35,000 by 2050, and near zero under a net-zero trajectory. Coal production, already on a steep decline, could disappear before 2035 as major mines close. The fiscal impact is stark: royalties and petroleum income taxes nearly vanish by 2050, and combined yearly losses, including Ecopetrol dividends, may exceed one percentage point of GDP within a few years. Royalty-dependent regions face sharp revenue contractions by 2030, with La Guajira, Huila, Antioquia, and coal-heavy Cesar hit hardest. Even Colombia’s largest producers, Meta and Casanare, are projected to lose close to half of their royalty income.

Jobs Lost, Jobs Gained, But Unequally

Direct fossil-sector employment is modest, at about 105,000 jobs, yet the wider employment ecosystem is large. Transport services, extractive-industry suppliers, fuel blending, refining, and gas distribution all depend heavily on fossil extraction. Once these indirect jobs are counted, annual job losses could average over 10,000 throughout the next decade. But Colombia’s electricity sector offers a powerful counterweight. With hydropower already dominant and a major national expansion plan underway, solar and wind projects could boost generation capacity by 65 percent by 2037. If executed on time, they may generate about 135,000 full-time jobs in five years, though mostly temporary construction roles. Still, net national employment effects could turn positive, particularly in areas like La Guajira and Cesar if planned wind farms proceed. By contrast, Boyacá, Huila, Norte de Santander, and Bogotá risk enduring net losses. The IMF stresses the urgency of targeted reskilling, unemployment support tied to retraining, and meaningful engagement with indigenous communities whose consent is essential for new infrastructure.

The Economy After Fossil Fuels

The deeper macroeconomic picture is sobering. IMF modelling suggests GDP would be about 12 percent lower in 30 years compared with a scenario where fossil production stayed constant. Consumption, investment, and exports all contract as capital in oil, coal, and downstream industries erodes by the equivalent of 20 percent of GDP. Labor supply declines modestly, and the real exchange rate depreciates by roughly 12 percent, or 21 percent when markets anticipate depletion. Government revenues fall about 3 percent of GDP, and while the fiscal rule stabilizes debt, reduced transfers suppress consumption among poorer households. The long-term drag is structural, not cyclical.

Reforms That Could Flip the Outcome

Despite the daunting projections, the IMF identifies a pathway in which the transition becomes economically positive. Productivity-boosting domestic reforms, lowering markups, improving competition, and raising total factor productivity slash long-term GDP losses from 12 percent to 4 percent. Financial-sector reforms that lower borrowing costs offer a smaller but meaningful boost. Export-competitiveness reforms deepen global integration and strengthen the tradables sector. Most compelling is the combined reform package: together, these measures not only offset the losses from fossil depletion but lift long-run GDP to about 0.8 percent above the baseline. Still, this optimistic scenario hinges on Colombia mobilizing roughly US$92 billion for the transition by 2050, funding that will need to come largely from private capital. Strengthening ESG finance, improving disclosure standards, and expanding participation in sustainable markets will be essential.