IMF Executive Board approves new two-year, $ 10.8 billion flexible line of credit agreement for Colombia
May 1, 2020
- The IMF today approved a new two-year agreement for Colombia under the Flexible Credit Line (FCL), designed for crisis prevention, in the amount of approximately $ 10.8 billion.
- Colombia qualifies for FCL due to its very strong institutional policy frameworks and track record in economic performance and policy implementation.
- The deal is expected to boost market confidence and, combined with the comfortable level of international reserves, provide insurance against downside risks.
The Executive Board of the International Monetary Fund (IMF) today approved a new two-year agreement for Colombia under the Flexible Credit Line (FCL) equivalent to SDR 7.8496 billion ( approximately US $ 10.8 billion) and noted Colombia’s cancellation of the previous provision.
The FCL was created on March 24, 2009 as part of a major reform of the Fund’s lending framework (see press release No. 09/85). FCL is designed for crisis prevention purposes as it provides the ability to draw on the line of credit at any time. Disbursements are not staggered or conditional on compliance with political objectives as in traditional IMF-supported programs. This broad initial access without permanent conditions is justified by the very good track record of the FCL-eligible countries, which gives confidence that their economic policies will remain strong.
Following the Board’s debate on Colombia, Mr. Geoffrey Okamoto, First Deputy Director General and President, made the following statement:
“Colombia has 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 – which have served as the basis for the resilience of the economy before the Covid-. 19 pandemic. Meanwhile, Colombia has made remarkable efforts to integrate large numbers of migrants from Venezuela, which has boosted domestic demand but increased external vulnerabilities.
“Following the pandemic, the Colombian economy is expected to contract for the first time in two decades. In line with their very good track record in economic management, the authorities’ first actions to mitigate the spread of the pandemic, monetary and macroprudential policy responses, and fiscal plans, including the creation of a crisis mitigation fund to support health care spending, vulnerable households and businesses — will help the economy weather the recession. Nevertheless, the balance of risks for the economy is strongly biased downwards and an exceptionally weak external environment increases Colombia’s vulnerability to even lower commodity prices, increased volatility in financial markets and further worsening. of the Venezuelan crisis.
“The new agreement under the FCL will help Colombia manage increased external risks, protect ongoing efforts to respond effectively to the pandemic, integrate migrants, foster inclusive growth and reduce external vulnerabilities. Despite higher external vulnerabilities, risks and tensions, the new deal can be maintained at the same level of access as the authorities have built up higher external buffers by accumulating significant additional reserves since the 2018 FCL request. L The deal is expected to boost market confidence and, combined with the comfortable level of international reserves, provide insurance against downside risks. The authorities intend to continue to treat this instrument as a precautionary instrument and to phase out its use conditional on reducing external risks.