IMF approves emergency financing for Panama

IMF approves emergency financing for Panama

Coronavirus Funds Loans Debt Economy & Policy Panama Central America US

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The International Monetary Fund (IMF) said it approved a request from Panama for roughly $515 million in emergency financing to help address the economic impact of the coronavirus outbreak.

The IMF granted Panama the equivalent of 377 million special drawing rights (SDRs) through its Rapid Financing Instrument (RFI) to cover rising healthcare costs and fill part of a gap in the balance of payments of around $3.7 billion, the fund said in a press release.

The Panamanian government is also seeking funds from other multilateral lenders, according to the IMF.

"The pandemic has significantly weakened Panama's macroeconomic outlook for 2020... The RFI provides timely resources to the authorities necessary to mobilize essential COVID-19-related health expenditure and support to the vulnerable population," the IMF said.

The Panamanian government could relax spending limits in 2020 to increase healthcare spending and make cash transfers to the poor through the Panamá Solidario program. The spending limits would again come into effect in 2021, according to the IMF.

"To address the crisis, policies need to be accommodative. A reorientation of fiscal policy towards short-term priorities is necessary to mitigate the impact of the pandemic," IMF Deputy Managing Director Mitsuhiro Furusawa said in the press release.

"Returning to a gradual adjustment once the pandemic recedes would ensure that the public debt-to-GDP ratio remains on a sustainable path... Policy responses and macroprudential measures would need to be recalibrated as the situation evolves," he added.

On Tuesday, the IMF granted $389 million in emergency funding to El Salvador through the RFI program, the first loan from the fund to the Central American nation in more than 30 years.

Ecuador requested $500 million through the RFI in March and sought an additional $500 million in financing from the Inter-American Development Bank (IDB), the World Bank and the Latin American development bank CAF.

The IMF and the World Bank on Thursday helped broker an agreement by the Group of 20 member nations to suspend debt service payments for the world's poorest countries from May 1 and allow them to devote more resources to fighting the coronavirus.

The agreement came after the IMF’s executive board on Wednesday approved a short-term liquidity line (SLL) for member countries in need of moderate balance of payments support to strengthen their responses to the outbreak.