The Executive Board of the International Monetary Fund (IMF) on Friday, September 25, 2020 approved Colombia’s request for an additional SDR 4.4174 billion as an augmentation of access under the Flexible Credit Line (FCL) arrangement. The total amount now available under the line stands at about USD 17.2 billion (SDR 12.267 billion).
The augmentation, the IMF stated, “was approved in light of Colombia’s continued qualification with very strong institutional policy frameworks, track record of economic performance and policy implementation, and against a backdrop of higher external risks and a larger than expected adverse impact from COVID-19 pandemic”.
The Fund further explained that, “the FCL is designed to address both actual and potential balance of payment pressures and help boost market confidence. Combined with the comfortable level of international reserves that Colombia has, the FCL provides added insurance against downside risks”.
“Disbursements are not phased nor tied to compliance with policy targets as in regular IMF-supported programs. This large, upfront access with no ongoing conditions is justified by the very strong policy fundamentals and institutional policy frameworks and sustained track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong”, the Fund said.
Following the Executive Board’s discussion on Colombia, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:
“Colombia’s very strong policy frameworks—anchored by a flexible exchange rate, a credible inflation targeting-regime, effective financial sector supervision and regulation, and a structural fiscal rule— continue to serve the country well and have allowed the authorities to deliver a coordinated and timely response to the Covid-19 pandemic.
“Colombia’s economy was hit harder by the pandemic than anticipated at the time of the approval of the current Flexible Credit Line (FCL) arrangement in May and is now expected to experience its largest recession on record this year.
“The authorities’ early response and continuing actions –including the temporary suspension of the fiscal rule to raise health spending, as well as to assist vulnerable households and businesses—are welcome and supporting the economy through the recession.
“The larger-than-anticipated deterioration in the macroeconomic and fiscal situation due to the pandemic has resulted in larger balance of payments (BOP) needs than envisaged in May. Moreover, external risks are higher and remain sharply skewed to the downside amid an exceptionally weak external environment that raises Colombia’s vulnerability to still lower commodity prices, additional financial market volatility, and a further deterioration of the Venezuelan crisis.
“The augmentation of access under the current FCL arrangement will help Colombia manage heightened external risks, protect ongoing efforts to effectively respond to the pandemic, continue to integrate migrants from Venezuela, foster inclusive growth, and reduce external vulnerabilities. Higher access under the arrangement should also boost market confidence, and combined with comfortable international reserves, provide adequate insurance against downside risks.
“The FCL instrument is flexible to address both actual BOP needs that have emerged and to adequately insure against potential BOP needs given higher external risks for Colombia. In this context, the authorities have expressed their intention to partially draw on the arrangement for budget support to help Colombia effectively respond to the pandemic.
“The authorities’ have also stated their intention to treat the bulk of the FCL arrangement as precautionary and remain committed to a gradual exit strategy from the instrument as exceptional global risks clearly recede.”
The FCL established on March 24, 2009 as part of a major reform of the Fund’s lending framework, is designed for crisis prevention purposes as it provides the flexibility to draw on the credit line at any time.
