- The IMF approved today a successor two-year arrangement for Colombia under the Flexible Credit Line (FCL), designed for crisis prevention, of about US$8.1 billion.
- Colombia qualifies for the FCL by virtue of its very strong economic fundamentals and institutional policy frameworks and track record of implementing very strong policies and commitment to maintaining such policies.
- The authorities intend to treat the new FCL arrangement as precautionary. The lower access reflects the authorities' goal of continuing to reduce access as risks permit in the context of their gradual exit strategy. The arrangement should boost market confidence, and combined with the comfortable level of international reserves, provide insurance against external downside risks.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved today a successor two-year arrangement for Colombia under the Flexible Credit Line (FCL) in an amount equivalent to SDR 6.1335 billion (about US$8.1 billion) and noted the cancellation by Colombia of the previous arrangement. The Colombian authorities stated their intention to treat the new arrangement as precautionary.
The FCL was established on March 24, 2009, as part of a major reform of the Fund's lending framework (see Press Release No. 09/85). The FCL allows its recipients to draw on the credit line at any time and is designed to flexibly address both actual and potential balance of payments needs to help boost market confidence. Drawings under the FCL are not phased nor tied to ex-post conditionality as in regular IMF-supported programs. This large, upfront access with no ex-post conditionality 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 they will respond appropriately to the balance of payments difficulties that they are encountering or could encounter.
Colombia has maintained access to the FCL instrument since 2009, and this is the country's tenth FCL arrangement. Prior to the pandemic in 2020, Colombia had been gradually lowering access in successive FCL arrangements. The arrangement approved on June 15, 2016 (see Press Release No. 16/279) was for an access amount equivalent to SDR 8.18 billion (about US$11.5 billion). The arrangement approved on May 25, 2018 (see Press Release No. 18/196) was for an access amount equivalent to SDR 7.848 billion (about US$11.4 billion). The arrangement approved on May 1, 2020, was for the same level of access as the 2018 FCL arrangement (see Press Release No. 20/201) and later augmented on September 25, 2020 to SDR 12.267 billion (see Press Release No. 20/300) due to the pandemic. The arrangement approved on April 29, 2022 (see Press Release No. 22/135) was for an access amount equivalent to SDR 7.1557 billion (about US$9.8 billion).
Following the Executive Board's discussion on Colombia, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, made the following statement:
"Colombia has very strong economic fundamentals and policy frameworks anchored by a credible inflation targeting regime, strong medium-term fiscal framework, flexible exchange rate, and effective financial sector supervision and regulation. The authorities remain committed to sustain their track record of very strong policies and to maintain such policies in the future.
"Appropriately tight macroeconomic policies over the last two years have allowed for an impressive reduction in Colombia's domestic and external imbalances. This has improved the resilience of the Colombian economy, which is further bolstered by the ongoing program to accumulate further international reserves.
"Going forward, careful normalization of monetary and fiscal policies and decisive progress on structural reforms are key to durably eliminate imbalances, reinvigorate investment, diversify the economy away from fossil fuels, and raise potential growth.
"External risks have moderated but remain high and to the downside. A global growth slowdown, for example caused by geopolitical tensions in regions critical to global manufacturing value chains, could further tighten global financial conditions, disrupt supply chains, and depress commodity prices, resulting in exchange rate pressures and costly growth-inflation trade-offs. Uncertainties about the global outlook and the direction of policies could raise borrowing costs and undermine already weak private investment. Climate shocks could exacerbate external risks.
"The new arrangement under the Flexible Credit Line will provide added insurance against downside external risks and maintain market confidence. The authorities intend to continue to treat this new arrangement as precautionary and to further reduce access under the FCL arrangement, risks permitting, in the context of their gradual exit strategy."
