IMF extends new credit line to Colombia

IMF extends new credit line to Colombia

Debt Corporate & Sovereign Strategy Economy & Policy Coronavirus Colombia Andean US Latin America

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The International Monetary Fund (IMF) approved on Friday a two-year, $10.8 billion flexible credit line for Colombia to deal with the effects of the coronavirus pandemic.

"In the wake of the pandemic, Colombia's economy is expected to contract for the first time in two decades," Geoffrey Okamoto, first deputy managing director and chair of the IMF executive board, said in a press release.

Soon after the outbreak, however, the Colombian government instituted a series of measures, including the creation of the Emergencies Mitigation Fund, or FOME, to try to steer the economy through the recession, Okamoto said.

"Colombia has very strong policy frameworks," he said. "Nevertheless, the balance of risks to the economy is sharply skewed to the downside and an exceptionally weak external environment raises Colombia's vulnerability to still lower commodity prices, additional financial market volatility and a further deterioration of Venezuela's crisis."

The two-year credit line equals 7.85 billion special drawing rights (SDRs), or 384% of Colombia's quota. It replaces a two-year arrangement from 2018. Colombia requested the new line on April 9, according to the IMF.

"The new arrangement under the [flexible credit line] will help Colombia manage heightened external risks, protect ongoing efforts to effectively respond to the pandemic, integrate migrants, foster inclusive growth and reduce external vulnerabilities," Okamoto said.

Since the coronavirus spread to Colombia in mid-March, the government has allocated COP15 trillion ($3.79 billion) from the rainy day funds FAE and Fonpet to address the crisis. It is also expected to issue new debt to fund its efforts to treat the pandemic.