Expanded Flexible Credit Line Will Help Colombia Cope with COVID-19

Food delivery in Bogotá during quarantine. Colombia’s lockdown had to be much longer than initially expected.  (Photo: Ernesto Tereñes/iStock by Getty Images)

Food delivery in Bogotá during quarantine. Colombia’s lockdown had to be much longer than initially expected. (Photo: Ernesto Tereñes/iStock by Getty Images)

September 25, 2020

A country with strong underlying economic fundamentals, Colombia has
maintained a Flexible Credit Line (FCL) arrangement with the IMF since 2009
and renewed it most recently in May. On September 25, 2020, the IMF
Executive Board approved a request to increase it by about US$ 6.2 billion,
to a total of US$ 17.2 billion. 

Due to the COVID19 pandemic, Colombia is
facing its first recession in two decades–and the worst on record. In this
context, the Colombian government has signaled its intention to draw on the
FCL. In doing so, it would be the first country to use these resources
since the line was created in 2009.

IMF Country Focus spoke with the Fund’s mission chief for Colombia, Hamid
Faruqee, about the country’s outlook and how the resources will help in
fighting the pandemic.

Colombia’s Flexible Credit Line had been renewed this May. What

At the time of the renewal, the extent of the pandemic fallout was unknown,
and the economic contraction turned to be deeper and more protracted than
expected in May. The national lockdown needed to mitigate the disease’s
spread was much longer than expected at that time.

External risks are higher, given the substantial uncertainty about the
pandemic’s future course. At the time of renewal, we projected GDP to
shrink by 2.5 percent; now, our growth forecast is -8.2 percent.

The government reacted quickly to protect its people and its economy from
the shutdown’s impact. The central bank cut interest rates and provided
liquidity and credit. The fiscal rule was suspended for two years so the
government has more room to support vulnerable households and businesses.
The central government’s fiscal deficit is expected to reach 8.2 percent of
GDP (from 4.9 percent estimated in May).

Why did Colombia need a larger credit line, instead of simply drawing
on the existing one?

Given unforeseen effects of this pandemic, Colombia’s balance of payments
needs are higher than expected. The larger credit line helps address that.
As a flexible instrument, the FCL will help address both actual and
potential balance of payments needs. Combined with Colombia’s comfortable
level of international reserves, it provides the added insurance against
heightened external risks. Should the country decide to use them, these
resources will also provide support to the budget and help meet unforeseen
external financing needs.

How will the FCL resources help in fighting the pandemic?

If the country uses them, these resources will help finance a budget
deficit that has almost doubled since May. Tax revenue declined sharply
because of the drop in economic activity, while spending increased to pay
for health services and support vulnerable people and businesses. These
funds will support the authorities’ spending plans on health (for example,
more intensive care beds); support vulnerable households, unemployed and
informal workers; help firms with payroll support; and meet the country’s
financing needs.

Does the usage trigger any conditionality?

No. Conditions come beforehand. A country has to pre-qualify by showing a
very strong track record of policies and economic fundamentals. Once it
does, and the IMF’s Executive Board approves the credit line, access to
resources is unconditional. In this case, Colombia had to show it continued
to qualify to have the line increased.

Why is Colombia considering drawing on the FCL rather than going to the

Colombia did go to the markets and has been able to place, for example,
30-year bonds at reasonable interest rates in September. It issued US$4.3
billion abroad and about US$ 10.5 billion domestically. However, the
magnitude of the recession is such that financing needs have increased from
an average of 8 percent of GDP in the last 5 years to about 13 percent in
2020. The country authorities considered that diversifying financing
sources would avoid putting excessive pressure on domestic markets and
“crowd out” the private sector, which happens when investors prefer to lend
to the government (because it’s safer) than funding private sector
investments. Also, in this case, the FCL is attractive because the interest
rate is lower than what Colombia would have gotten with debt issuances.

What does it mean for the Fund that FCL resources might be used the
first time?

The FCL was designed precisely for these types of scenarios: for countries
with strong fundamentals to have upfront access to IMF resources both as
insurance and as backstop during a crisis. That is exactly the case with
Colombia. So far, other countries have not used the line because they did
not have to. But the resources have always been available.

Colombia is also the first country to request a change to its credit line
outside of the regular reviews (one year after approval or renewal after
two years). It shows the Fund’s agility to support a member country when
the situation changes quickly. This process has been a good example that
the “F” in FCL really stands for “flexible.”

Source URL: Read More
The public content above was dynamically discovered – by graded relevancy to this site’s keyword domain name. Such discovery was by systematic attempts to filter for “Creative Commons“ re-use licensing and/or by Press Release distributions. “Source URL” states the content’s owner and/or publisher. When possible, this site references the content above to generate its value-add, the dynamic sentimental analysis below, which allows us to research global sentiments across a multitude of topics related to this site’s specific keyword domain name. Additionally, when possible, this site references the content above to provide on-demand (multilingual) translations and/or to power its “Read Article to Me” feature, which reads the content aloud to visitors. Where applicable, this site also auto-generates a “References” section, which appends the content above by listing all mentioned links. Views expressed in the content above are solely those of the author(s). We do not endorse, offer to sell, promote, recommend, or, otherwise, make any statement about the content above. We reference the content above for your “reading” entertainment purposes only. Review “DMCA & Terms”, at the bottom of this site, for terms of your access and use as well as for applicable DMCA take-down request.

Acquire this Domain
You can acquire this site’s domain name! We have nurtured its online marketing value by systematically curating this site by the domain’s relevant keywords. Explore our content network – you can advertise on each or rent vs. buy the domain. Buy@TLDtraders.com | Skype: TLDtraders | +1 (475) BUY-NAME (289 – 6263). Thousands search by this site’s exact keyword domain name! Most are sent here because search engines often love the keyword. This domain can be your 24/7 lead generator! If you own it, you could capture a large amount of online traffic for your niche. Stop wasting money on ads. Instead, buy this domain to gain a long-term marketing asset. If you can’t afford to buy then you can rent the domain.

About Us
We are Internet Investors, Developers, and Franchisers – operating a content network of several thousand sites while federating 100+ eCommerce and SaaS startups. With our proprietary “inverted incubation” model, we leverage a portfolio of $100M in valued domains to impact online trends, traffic, and transactions. We use robotic process automation, machine learning, and other proprietary approaches to power our content network. Contact us to learn how we can help you with your online marketing and/or site maintenance.