## 1colea2020004 ## Source details **Canonical URL:** [1colea2020004](https://www.imf.org/-/media/files/publications/cr/2020/english/1colea2020004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1colea2020004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1colea2020004.pdf.json) --- ### EXECUTIVE SUMMARY — Background and policy framework - Current Flexible Credit Line (FCL) arrangement for Colombia approved in May 2020. - Successor two-year arrangement approved in May 2020 in amount equivalent to SDR 7.8496 billion (about US$10.8 billion). - Authorities intended to treat the instrument as precautionary and gradually phase out its use conditional on reduction of external risks. - Colombia cited for very strong policy frameworks: flexible exchange rate, credible inflation-targeting regime, effective financial sector supervision and regulation, and a structural fiscal rule. ### OUTLOOK AND MACROECONOMIC PROJECTIONS - Covid-19 shock expected to cause Colombia’s first recession in over twenty years and the largest contraction on record. - Growth projections: - Growth at time of FCL approval: -2.5 percent. - Latest outlook for 2020: -8.2 percent. - Rebound in 2021 projected around 4.0 percent (DSA baseline 2021: 4.0; Table 1 DSA baseline: 2021: 4.0; elsewhere 4.2 in some tables). - Inflation: - Central bank three percent target; inflation expected to fall noticeably below 3 percent in 2020 and remain within deviation range thereafter. - CPI inflation, eop: 2020: 3.3; 2021: 1.4 (Table 1). - External sector: - 2020 current account forecast: -4 percent of GDP (narrowing slightly relative to 2019). - 2020Q2 vs 2019Q2 in dollar terms: exports US$ 6 billion (44 percent) lower; imports US$ 6 billion (37 percent) lower; primary income payments declined 53 percent (net income receipts up US$ 1.1 billion); remittances declined 23 percent. - External financing needs around 17 percent of GDP in 2020; 2021 external financing needs around 16½ percent of GDP. ### FISCAL POSITION AND FINANCING NEEDS - Fiscal rule suspended temporarily for 2020 and 2021 to create policy space. - Budget and deficit projections: - Projected deficit under 5 percent of GDP at time of FCL approval; now expected to exceed 8 percent in 2020. - Headline deficits projected at 8.2 and 5.1 percent of GDP in 2020 and 2021 respectively (authorities’ figures); staff projects 2021 headline deficit of 6.2 percent of GDP including privatization proceeds which under GFSM 1986 would yield 5.1 percent. - Gross financing needs expected to exceed 13 percent of GDP in 2020 and 10 percent of GDP in 2021 (Executive Summary); Table figures list public gross financing needs 2020: 7.3 percent (Table row) and other table entries show higher needs in different presentations—staff notes gross external financing need 2020: 16.5 percent of GDP. - Financing obtained and remaining gaps: - FOME resources earmarked around 2.8 percent of GDP. - Authorities issued US$2.5bn external debt (around 0.9 percent of GDP) and secured US$2.7bn from multilaterals (around 1 percent of GDP). - Domestic issuance plans increased by Col$4 trillion (around ½ percent of GDP). - These resources plus pre-pandemic plans cover more than three quarters of overall financing needs for 2020. - Staff estimates remaining financing needs around 2 percent of GDP (or US$5bn) from additional external sources to fully meet budget needs without intensifying pressure on financial markets. - Staff’s estimates for additional fiscal financing required in 2020: range 1½ to 2½ percent of GDP (or US$3-6bn); at FCL approval staff had estimated around 1½ percent with range 1–2 percent of GDP. ### BALANCE OF PAYMENTS NEEDS AND FCL ACCESS REQUEST - Authorities request increase in access to 600 percent of quota (SDR 12.267 billion) under arrangement expiring April 30, 2022. - Rationale: - Higher access warranted given actual and potential pressures on the balance of payments due to lower net financial flows and higher external borrowing requirements relative to May approval. - A moderate actual BOP need exists; authorities intend bulk of access to be precautionary. - Intended use and baseline assumptions: - Staff baseline assumes portion drawn in 2020 (around USD 5 billion or 180 percent of quota) and bulk remains precautionary. - Drawing reduces both BOP needs and remaining access offsettingly; augmentation sought because total BOP needs (actual plus potential) have risen. - Staff assessment: - Colombia continues to meet FCL qualification criteria; augmentation appropriate. - Purchase commensurate with actual BOP needs could help avoid pressure on Colombian financial markets. - Authorities committed to gradually reduce access and phase out use as exceptional global risks decline. ### RISKS AND POLICY RECOMMENDATIONS - Risk outlook: - External risks increased since May; Colombia’s risks sharply skewed to the downside. - Prolonged or second Covid-19 outbreak could precipitate further global economic and financial dislocation. - Increased external financing needs raise vulnerability to further commodity-price falls and financial volatility. - Policy stance and commitments: - Authorities committed to maintaining very strong policy framework and to reinstating the fiscal rule as crisis recedes. - Augmentation of FCL access alongside reserve accumulation strengthens buffers. - Authorities plan to treat most augmented access as precautionary and to reduce access as global risks decline. ### MONETARY, EXCHANGE RATE, AND RESERVES POLICY RESPONSE - Monetary policy: - Policy rate eased by 125bp since May FCL approval and total reduction of 225bp since March. - Staff estimates neutral real rate between 1 and 2 percent. - Monetary accommodation should continue; further easing possible if inflation pressures remain depressed. - Exchange rate: - Authorities committed to flexible exchange rate; intervene only for short-term FX liquidity via Swaps and NDFs. - Reserves: - 2019 reserves 142 percent of ARA metric (121 percent after commodity buffer). - Central bank purchased US$2bn from central government after government liquidated overseas assets. - Reserves rose to US$57 billion by mid-2020; end-year expected coverage 125 percent of ARA including commodity buffer and 146 percent excluding buffer. - Over medium term, reserves coverage expected to decrease slightly but remain adequate. ### FCL ROLE, ACCESS CONSIDERATIONS, AND EXIT STRATEGY - Benefits of FCL: - Enhanced buffers and positive signal to markets; helped Colombia build resilience. - Domestic financial conditions eased since May: 10-year rates down by 150bp in one passage, EMBI and CDS spreads fell. - Staff baseline assumes around USD 5 billion (180 percent of quota) purchase to meet actual 2020 BOP needs. - Remaining access under current arrangement would be insufficient given worsened baseline and pronounced global risks; current arrangement would provide remaining access equivalent to only 204 percent of quota in an adverse scenario (staff). - Requested augmentation to 600 percent of quota would preserve buffers; with a purchase of 180 percent assumed, remaining 420 percent of quota (US$12.3 billion) would provide insurance against potential financing gaps. - Exit strategy: - Authorities view FCL as temporary; intend to reduce access when exceptional global risks meaningfully decline. - Mid-term review important to assess potential reduction of access in 2022, conditional on qualification and external risk evolution. ### STAFF APPRAISAL, FUND LIQUIDITY, AND RECOMMENDATION - Fund finances: - Proposed augmentation would have a limited negative impact on Fund overall liquidity position. - Current FCC: 160,400 (SDR millions); FCC after augmentation: 155,983; change percent: -2.8; FCC after augmentation and FTP fallout: 154,383; change percent: -3.8. - Staff recommendation: - Staff recommends approval of authorities’ request for increased access to 600 percent of quota under current FCL arrangement. - Staff’s baseline envisages partial drawdown around US$5bn (180 percent of quota) in 2020; bulk treated as precautionary. - Even if fully drawn, Colombia’s capacity to repay under adverse scenario would remain adequate. - Team preparing report included Hamid Faruqee (Head), Jorge Alvarez, Emilio Fernandez-Corugedo, Belen Sbrancia, Alberto Behar, Felix Vardy, Nicolas Landeta, Danjing Shen; virtual meetings held July 2, 2020. ### FINANCIAL SECTOR MEASURES, SUPERVISION, AND POLICY AGENDA - SFC measures and relief: - Released countercyclical provisions; allowed temporary grace periods and loan modifications without reclassification as non-performing. - Almost 11 million debtors benefited, representing 38 percent of loans. - Launched PAD (Program to Support Debtors) with triage and differentiated classification/provisioning; non-viable debtors excluded. - Monthly top-down stress tests and contingency plans. - Supervisory recommendations: - Encourage banks to use capital buffers to avoid procyclical tightening. - SFC should align FSIs with underlying conditions while allowing banks space to absorb losses. - Transparent reporting of loans subject to pandemic measures. - Suspend all capital distributions (dividends, buybacks, exceptional bonuses). - Financial sector policy agenda: - Timeline for Basel III and Conglomerates Law unchanged. - Medium-term reforms to reduce high structural unemployment and strengthen governance remain priorities. - FSAP mission scheduled to start in 2021Q1. ### SCENARIOS, ADVERSE CALIBRATIONS, AND KEY ILLUSTRATIVE SHOCKS - Updated External Economic Stress Index (ESI) shows higher external stress in H1 2020 than at time of May approval. - Adverse scenario (2021) key calibrations (percent unless indicated): - Oil exports decline (vis-à-vis baseline for the year): Augmentation scenario 35; Current arrangement 28. - FDI reduction: 20 (both). - MLT public sector rollover: 80 (both). - ST public sector rollover: 80 (both). - MLT private sector rollover: 73 (both). - ST private sector rollover: 80 (both). - Portfolio flows: 1 standard deviation outflow resulting shock increased from $1.1 billion to $3.2 billion (formula revised). - Key contributors to financing gap under adverse scenario (US$ millions): - Current Account Deficit: Augmentation, 2021: 6,564; Current Arrangement, 2020: 4,722. - Financial Account Shock: Augmentation, 2021: 17,697; Current Arrangement, 2020: 15,578. - Reserve drawdown: Augmentation, 2021: 11,986; Current Arrangement, 2020: 9,459. - Remaining gap: Augmentation, 2021: 12,275; Current Arrangement, 2020: 10,841. - Aggregate adverse shocks: - Combined current account (US$ 6.6 billion) and capital flows (US$ 17.7 billion) = US$ 24.3 billion, US$ 2.5 billion greater than under current arrangement. - Assumed reserve drawdown leaves reserves US$ 12 billion lower than baseline (compared to US$ 9.4 billion in May). - After covering almost half the shock, reserves remaining amount to 112 percent of the ARA metric (99 percent with commodity buffer). - Financing gap of US$ 12.3 billion equivalent to 420 percent of quota would remain. ### ADVERSE DRAWING SCENARIO — DEBT, RESERVES, AND CAPACITY-TO-REPAY HIGHLIGHTS - Under adverse drawing scenario (full drawing), key peaks in 2021: - Total external debt: 87.5 percent of GDP. - Public external debt: 61.1 percent of GDP. - Fund credit to Colombia: 8.7 percent of GDP (GRA credit in SDR millions: 12,267.0; percent of quota: 600.0). - Fund credit would represent 9.9 percent of total external debt and 14.2 percent of public external debt at peak; 40 percent of gross international reserves. - Fund debt service dynamics if fully drawn: - Debt service to Fund would peak in 2025 at SDR 5.8 billion (reported as "SDR 5.8 billion"), around 3.2 percent of GDP (53.3 percent of total public external debt service) or around 14.2 percent of exports of goods and services, then fall quickly. - Prudential and liquidity metrics: - Fund credit to Colombia as percent of total GRA credit outstanding if fully drawn: 12.6. - Fund credit as percent of current precautionary balances: 69.3. - Even with full drawing, Fund’s overall liquidity position expected to remain adequate though monitoring warranted. ### SELECTED KEY STATISTICS AND PROJECTIONS (preserved exactly as presented) - DSA and fiscal table highlights (selected exact figures): - Nominal gross public debt (percent of GDP): 2018: 41.4; 2019: 53.7; 2020: 52.3; 2021: 68.2; 2022: 68.1; 2023: 67.3; 2024: 65.5; 2025: 62.3; 2026: 59.5. - Public gross financing needs (percent of GDP): 2018: 5.4; 2019: 6.9; 2020: 7.3; 2021: 10.8; 2022: 9.1; 2023: 6.6; 2024: 6.3; 2025: 5.9; 2026: 5.6. - Real GDP growth (selected): DSA baseline 2020: -8.2; 2021: 4.0; 2022: 3.6; 2023: 3.8; 2024: 3.8; 2025: 3.7. - Current account balance (US$ millions): 2019: -13,740; 2020 (staff projection): -10,520. - Exports, f.o.b. (US$ millions): 2019: 42,368; 2020: 33,358. - Gross international reserves (end-2019): US$53 billion; mid-2020: US$57 billion. - FCL augmentation requested: SDR 12.267 billion (600 percent of quota); proposed augmentation amount SDR 4.417 billion (216 percent of quota) to reach that total. - Staff baseline partial purchase: around US$5bn or around 180 percent of quota (SDR 3.6801 billion shown in some tables for 2020). - Identified fiscal support (Central Government Covid-19 measures, percent of GDP): Total: 8.2; FCL: 4.9; Difference: 3.3. Breakdown: Health Total 0.8; FCL 0.7; Vulnerable household support Total 1.0; FCL 0.5; Firms & employment support Total 0.6; FCL 0.3; Automatic Stabilizers Total 3.5; FCL 1.0; Pre Covid-19 headline deficit Total 2.3; FCL 2.3. ### APPENDIX I — WRITTEN COMMUNICATION (authorities’ request and context) - Bogota, August 31, 2020 letter to IMF Managing Director requesting increase in access under current FCL from 384 percent of quota to 600 percent of quota to address heightened external risks and BOP needs from Covid-19 and oil price decline. - Authorities’ intended use: - Partial drawing commensurate with actual BOP needs; most treated as precautionary. - Augmentation temporary and authorities willing to reduce access as global situation improves. - Communication strategy in coordination with IMF for first-time drawing under FCL and catalytic role to diversify financing and mitigate crowding out. - Policy actions described: fiscal suspension of rule for 2020–2021 with commitment to return by 2022; liquidity provision by Banco de la República including USD 2 billion purchase from government in May; monetary easing of 225 bps since March; reserve requirement reductions; repo operation expansions. *Source: 1colea2020004 — IMF staff report and supporting tables as provided in the source PDF.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and policy framework - The current Flexible Credit Line (FCL) arrangement for Colombia was approved in May 2020. - Colombia was cited for its 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—and a track record of very strong policy implementation that served as a basis for the economy’s resilience prior to the Covid-19 pandemic. - At the May 2020 approval the IMF’s Executive Board approved a successor two-year arrangement in an amount equivalent to SDR 7.8496 billion (about US$10.8 billion). - At that time the authorities intended to treat the instrument as precautionary and to gradually phase out its use conditional on a reduction of external risks. ### Outlook and macroeconomic projections - The Covid-19 pandemic and associated shutdowns are expected to cause a severe downturn—Colombia’s first recession in over twenty years and the largest contraction on record. - Growth projections: - Growth was expected at -2.5 percent at the time of the FCL approval. - Latest outlook revised to -8.2 percent for 2020. - Growth should rebound in 2021 as the global health situation stabilizes, lockdown restrictions are eased, policy actions gain traction and Colombia’s previous growth drivers gradually return. - Inflation: - With a more severe downturn, inflation should fall noticeably below the central bank’s three percent target this year before rising slowly but remain within its deviation range. - External sector: - Despite weaker external demand and lower remittances relative to the assessment at the time of the approval of the FCL in May, the current account is projected to narrow slightly in 2020 relative to 2019 due to significantly weaker internal demand and lower profit outflows. - The financial account in 2020 is expected to deteriorate somewhat more than previously projected due to lower private investment flows. ### Fiscal position and financing needs - The fiscal rule was suspended on a temporary basis to create added policy space needed to respond to the crisis. - Budget and deficit projections: - Compared to a projected deficit under 5 percent of GDP at the time of the FCL approval, the deficit is now expected to exceed 8 percent this year. - Gross financing needs are expected to exceed 13 and 10 percent of GDP in 2020 and 2021 respectively. - Financing obtained and remaining gaps: - Resources from the newly created National Emergency Mitigation Fund (FOME) were earmarked around 2.8 percent of GDP for the crisis. - Authorities issued another US$2.5bn of external debt (around 0.9 percent of GDP) and secured an additional US$2.7bn from multilateral organizations (around 1 percent of GDP). - Domestic issuance plans were increased by 4 Col$ trillion (around ½ percent of GDP). - These resources together with pre-pandemic plans cover more than three quarters of the overall financing needs for 2020. - Staff estimates remaining financing needs around 2 percent of GDP (or US$ 5bn) would need to come from additional external sources to fully meet budget needs this year without intensifying pressure on Colombian financial markets. - Staff’s estimates for additional fiscal financing required this year are in the range of 1½ to 2½ percent of GDP (or US$3-6bn). At the time of the approval of the FCL in May 2020, staff’s estimates were around 1½ percent of GDP with a range between 1 and 2 percent of GDP. ### Balance of payments needs and FCL access request - Rationale for augmentation: - The authorities are requesting an increase in access to 600 percent of quota (SDR 12.267 billion) under the current arrangement that expires on April 30, 2022. - They consider higher access warranted given both actual and potential pressures on the balance of payments. - A moderate actual balance of payments need exists due to lower-than-expected net financial flows and the government’s higher-than-expected external borrowing requirements relative to what was envisaged at the time of the approval of the FCL arrangement in May. - Intended use and precautionary nature: - The authorities intend to use the flexibility provided by the FCL arrangement to address this actual balance of payments need while helping to meet higher government borrowing requirements amidst an unprecedented pandemic. - However, the authorities would treat the bulk of access as precautionary. - Staff’s baseline assumes that a portion of the funds are drawn in 2020 but that the bulk of the FCL remains precautionary. - Drawing on the FCL reduces both BOP needs and remaining access under the FCL in an offsetting manner; augmentation is sought because total BOP needs (actual plus potential) have risen relative to needs identified in May. - Staff assessment: - Staff’s assessment is that Colombia continues to meet the qualification criteria for access to Fund resources under the FCL arrangement and that augmentation of access is appropriate. - Given actual balance of payments needs, a purchase commensurate with these needs could help avoid pressure on Colombian financial markets. - Conditional on a meaningful reduction in exceptional global risks, the authorities remain committed to gradually reduce access and eventually phase out Colombia's use of the instrument. - The sustained efforts by the authorities to reinforce the country’s external liquidity position have been geared towards this aim. ### Risks and policy recommendations - Risk outlook: - Since the approval of the FCL arrangement in May, external risks have increased while Colombia’s risks remain sharply skewed to the downside. - A prolonged or second Covid-19 outbreak could result in further global economic and financial dislocation. - Increased external financing needs from a weak external environment raise Colombia’s vulnerability to a further fall in commodity prices and additional financial market volatility amid heightened global uncertainty. - Policy stance and commitments: - Authorities remain firmly committed to maintaining their very strong policy framework, including reinstating the fiscal rule when the pandemic-related crisis recedes. - The augmentation of FCL access, alongside increased international reserve holdings, strengthens buffers to confront current challenges given Colombia’s external vulnerabilities and higher external risks. - The authorities plan to treat most of the augmented access as precautionary and to gradually reduce access as exceptional global risks meaningfully decline. ### Fund liquidity and staff appraisal - Fund finances: - The proposed augmentation of access under the FCL arrangement would have a limited negative impact on the Fund's overall liquidity position. - Staff and report preparation: - The report was prepared by a team comprised of Hamid Faruqee (Head), Jorge Alvarez, Emilio Fernandez-Corugedo, Belen Sbrancia (all WHD), Alberto Behar (SPR), and Felix Vardy (MCM) with support from Nicolas Landeta, and Danjing Shen (all WHD). - On July 2, 2020, the team held virtual meetings with senior officials and staff from the Central Bank, Ministry of Finance and Public Credit, and Financial Superintendency of Colombia to update IMF staff views on the outlook, risks and policy setting for this report. *Source: EXECUTIVE SUMMARY, 1colea2020004 - EXECUTIVE SUMMARY (IMF).* ### 7. Alongside weaker global growth and an extended domestic lockdown, a sharper ### 7. Alongside weaker global growth and an extended domestic lockdown, a sharper recession is now projected in Colombia ### Economic outlook and growth projections - GDP is projected to contract by about 8 percent in 2020, led by weaker private domestic demand and exports. - Growth rebound in 2021 is expected to be around 4 percent, assuming domestic and global Covid-19 effects moderate in the second half of 2020 and additional policy support. - The largest quarterly decline on record occurred in 2020Q2; unemployment rose to over 20 percent in May and June. - Net migration flows from Venezuela are now projected to be zero in 2020. - Private credit growth is projected to contract in 2020, driven by lower household credit demand; commercial credit is expected to be less affected due to authorities’ policies to support credit lines for working capital and payrolls. - Sectoral impacts: - Hardest hit sectors in 20Q1 and 20Q2: mining, manufacturing, transportation, construction, accommodation and entertainment services, and sectors exposed to oil and international trade as well as those where teleworking was not feasible. - Rebound starting in May led by construction, manufacturing and mining. - Air transport and some services such as restaurants and accommodation remain depressed and are not projected to return to pre-pandemic levels during the projection horizon. - IMF staff attribution of downward revisions relative to projections at time of FCL approval: - Weaker 20Q1 release: -2.5 (percent) - Additional impact from domestic lockdown: -3.6 (percent) - Lower oil production: -0.2 (percent) - Lower global growth: -0.2 (percent) - Additional fiscal support: 0.2 (percent) - Projection at the time of FCL approval to updated projection results in an updated projection of -8.2 (percent) for 2020 GDP growth. ### External sector and financing - Revised current account forecast for 2020: -4 percent of GDP (slightly lower than the 2019 deficit and around ¾ pp lower than at time of the FCL arrangement approved in May). - In dollar terms for 2020Q2 vs 2019Q2: - Goods and services exports were US$ 6 billion (44 percent) lower. - Goods and services imports were US$ 6 billion (37 percent) lower. - Net income receipts increased by US$ 1.1 billion as primary income payments including profit outflows declined by 53 percent. - Remittance inflows declined by 23 percent. - External financing needs remain significant at around 17 percent of GDP in 2020 due to denominator effects from the mark down to Colombia’s U.S. dollar GDP; expected to be partially met by portfolio and other investment inflows including public-sector borrowing. - Private flows including FDI have been marked down owing to weaker global conditions. - The liquidation of overseas assets to finance the FOME mitigated a starker deterioration in the balance of payments. - 2021 current account forecast: slightly lower than 4 percent (deficit) with expected external financing needs of 16½ percent of GDP. - 2020Q2 foreign investment and private flows (authorities’ Informe): - Foreign direct investment in Colombia: US$ 1.3 billion (down by two-thirds relative to the same quarter of 2019). - Net outflows of other private foreign investment: US$ 0.8 billion. - Private capital flows abroad by Colombians: US$ 3.1 billion. ### Risks and scenarios - Large downside external risks: - A second Covid-19 outbreak in 2021 could cause more prolonged disruptions domestically and abroad, negatively affecting exports and remittances. - Sharp tightening of global financial conditions could slow global growth and interrupt external financing needed for Colombia’s recovery. - Effects could be amplified due to exposure of regional trading partners to similar risks. ### Monetary, exchange rate, and reserves policy response - Monetary policy: - Authorities eased the policy rate by an additional 125bp since the May FCL approval, for a total reduction of 225bp since the start of the pandemic in March. - Staff estimates of the neutral real rate are between 1 and 2 percent. - Monetary accommodation should continue; further easing may be considered if underlying inflation pressures remain depressed. - Central bank boosted liquidity in domestic and foreign currency markets, provided short and longer-term liquidity, and expanded admissible collateral and counterparts in domestic liquidity operations. - Exchange rate: - Authorities remain committed to the flexible exchange rate regime; intervene only to provide short-term FX liquidity through Swaps and Non-Deliverable Forward (NDF) contracts that do not imply permanent use of reserves. - Reserves: - Reserves in 2019 were 142 percent of the ARA metric (121 percent after including a commodity buffer) but would not fully meet financing needs in a severe stress scenario under the authorities’ framework. - Since FCL approval in May, the central bank purchased US$ 2bn from the central government after the latter liquidated overseas assets to meet budgetary needs. - Over the medium term, reserves coverage is expected to decrease slightly but remain adequate according to the ARA metric. ### Fiscal policy, rule suspension, and governance - Fiscal rule: - Authorities suspended the fiscal rule for two years (2020 and 2021) to accommodate short-term spending needs such as health expenditures and to support the economy through the recession—consistent with Fund advice. - Headline deficits projected at 8.2 and 5.1 percent of GDP in 2020 and 2021 respectively. - Staff’s projected deficit of 6.2 percent of GDP in 2021 includes 1.1 percent of GDP of projected privatization proceeds which under GFSM 1986 would yield a 5.1 percent deficit. - Design of the suspension aligned with Fund recommendations: targeted, temporary, well-specified to reinstate the rule, and well communicated. - Targeted: suspension triggered specifically by the pandemic and associated effects on fiscal revenues and spending; space to exclusively finance expenditures related to the pandemic. - Temporary: time-limited to two years with authorities guided by principles of sustainability and an explicit commitment to return to the rule by 2022 with a transitional budget in 2021. - Well-specified to reinstate the rule: commitment and financial plan to return to the rule by 2022; quarterly monitoring by the FRCC of fiscal aggregates against government plans during suspension. - Well communicated: 2020 Medium Term Fiscal Framework (MTFF) provided guidance on projected headline deficits for 2020 and 2021, details on expenditure and revenue plans, and headline deficit targets for 2022 and beyond consistent with the fiscal rule. - Central Government Covid-19 measures for 2020 (Percent of GDP; total and FCL components as per IMF staff estimates): - Total: 8.2 - FCL: 4.9 - Difference: 3.3 - Breakdown: - Health: Total 0.8; FCL 0.7; Difference 0.1 - Vulnerable household support: Total 1.0; FCL 0.5; Difference 0.5 - Firms & employment support: Total 0.6; FCL 0.3; Difference 0.3 - Automatic Stabilizers (lost revenue & maintained spending): Total 3.5; FCL 1.0; Difference 2.5 - Pre Covid-19 headline deficit: Total 2.3; FCL 2.3; Difference - - Governance and transparency: - All pandemic-related spending subject to existing governance principles. - Procurement contracts must be published in SECOP (Public Procurement Electronic System). - National Comptroller with NAO conducts annual audits and can investigate public concerns; execution of public funds uses national systems and databases subject to fiscal control. - SECOP should ensure prompt reporting of procurement contracts; NAO should ensure prompt publication of independent external audits including emergency financing. ### Financial sector measures and supervision - Supervisory and regulatory responses aim to balance financial stability and support for economic activity. - Measures by Superintendency of Financial Corporations (SFC): - Released countercyclical provisions built up in the past. - Allowed temporary grace periods, extensions and other loan modifications on a case-by-case basis without affecting the credit rating of the debtor or leading to loan reclassification as non-performing. - Almost 11 million debtors benefited from these measures, representing 38 percent of loans. - Launched the PAD (Program to Support Debtors) to support viable borrowers with triage by degree of crisis impact and differentiated classification and provisioning rules. - Non-viable debtors do not qualify for PAD and are dealt with separately. - Running (top-down) stress tests on a monthly basis and drawn up contingency plans for activation if needed. - Supervisory recommendations: - Encourage banks to make full use of capital buffers (regulatory capital exceeding minimum requirement) to avoid procyclical credit tightening. - SFC should strive for Financial Soundness Indicators (FSIs) to reflect underlying banking sector conditions while allowing banks breathing space to absorb losses. - Transparently report any loans subject to pandemic-related measures. - Suspend all capital distributions (dividend payouts, share buybacks, exceptional bonus payments) during this period. *Source: IMF staff estimates and analysis in the 2020 Article IV / FCL-request country material for Colombia contained in the provided content.* ### 16. The financial sector policy agenda to further strengthen the regulatory and ### 16. The financial sector policy agenda to further strengthen the regulatory and supervisory framework is on track ### Financial sector policy agenda and structural reforms - The financial sector policy agenda to further strengthen the regulatory and supervisory framework is on track. - No changes are expected to the timeline for implementing Basel III and the Conglomerates Law. - The 2020 Article IV consultation report and the request of the FCL arrangement report in May (Country reports 20/104 and 20/148) provide more details. - Authorities’ structural reform agenda should strengthen competitiveness and governance. - Medium-term reforms to reduce high structural unemployment and to generate economic prosperity on a broad basis become paramount, given risks of setbacks to progress in reducing income inequality and poverty due to the pandemic (see 2020 Article IV and May FCL report). ### Role of the Flexible Credit Line (FCL) — Benefits - The FCL has served Colombia well and allowed the authorities to build resilience. - Previous FCL arrangements have enhanced Colombia’s buffers as insurance against heightened external risks in recent years and during the pandemic. - Since Colombia’s FCL arrangement was approved in May, domestic financial conditions have eased, including lower risk spreads and yields (e.g., 10-year rates down by 150 basis points). - The instrument provides a cushion of international liquidity, creating space to further strengthen the policy framework and to rebuild policy buffers, while sending a positive signal to international financial markets. - Staff’s baseline assumes that part of FCL resources (around USD 5 billion or 180 percent of quota) would help meet actual balance of payment needs in 2020 given the pandemic. - FCL resources would diversify and complement financing from other sources, allowing the authorities to fund their existing plans to respond to the pandemic while avoiding excessive pressures on Colombian credit markets and crowding out of private sector financing and investment. ### Role of the FCL — Flexibility and remaining access - Under the current FCL arrangement, remaining access would be insufficient due to the worse baseline and pronounced global risks. - Under staff’s baseline, the access level of the current arrangement would provide remaining access equivalent to only 204 percent of quota to meet potential additional BOP needs in an adverse scenario. ### Evolution of risks and exposures - Colombia’s exposures to global risks have increased; the external economic stress index (ESI) for Colombia indicates higher stress than at the time of the approval. - External downside scenarios highlighted: - A second global Covid-19 outbreak in 2021 could cause more prolonged disruptions; June WEO downside scenario shows global GDP growth in 2021 would be 5 percent lower than under the baseline. - A sharp tightening of global financial conditions could slow global growth and interrupt financing needed to support Colombia’s recovery. - Other regional and global risks include higher-than-expected migration flows from Venezuela, re-escalation of social discontent in neighboring countries, protectionism, a retreat from multilateralism, policy uncertainty, high debt, geopolitical tensions, and policy missteps. - Oil and other commodity prices remain volatile; oversupply could compound demand effects and prevent expected moderate recovery. - Within Colombia, internal downside risks include: - A larger-than-expected Covid-19 infection rate or protracted economic stoppages could lead to a more severe or prolonged recession. - Deterioration of labor market conditions, corrosion of the credit portfolio affecting credit supply, and tax revenue shortfalls that could prompt cuts in social and infrastructure spending. ### Updated External Economic Stress Index (Box 1) — key points - The updated ESI shows recent stress levels have exceeded those anticipated at the time of the approval of the FCL arrangement in May. - The four variables in the ESI are: the level of the oil price, U.S. real GDP growth, the emerging market volatility index (VXEEM) and the change in the 10-year U.S. Treasury yield. - Modelled baseline stress has increased substantially so far in 2020; for the first half of 2020, external stress is slightly higher than modelled at the time of the approval. - The adverse scenario reflects external risks from a second Covid-19 wave in 2021; in the adverse scenario, U.S. GDP growth is weaker by 4½ percentage points. - In the adverse scenario: oil prices are 28 percent below baseline, the VXEEM two standard deviations above baseline, and yields 100 bps above baseline. ### Access considerations and requested augmentation - The requested augmentation to 600 percent of quota would help preserve buffers against heightened external vulnerabilities for the remainder of the arrangement. - With a purchase of 180 percent of quota assumed in staff’s baseline, the remaining 420 percent of quota (US$ 12.3) billion would provide adequate insurance against potential financing gaps. - Main changes to staff’s framework for the adverse scenario: - A larger current account shock that now includes lower oil production and lower remittances. - A larger financial account shock that includes more acute portfolio outflows. - A larger reserves drawdown. ### Assumptions underlying the illustrative adverse scenario (In percent, unless otherwise indicated) - Assumption | Augmentation, 2021 | Current Arrangement, 2020 - Oil exports decline (vis-à-vis baseline for the year) | 35 | 28 - FDI reduction (vis-à-vis baseline for the year) | 20 | 20 - MLT public sector rollover | 80 | 80 - ST public sector rollover | 80 | 80 - MLT private sector rollover | 73 | 73 - ST private sector rollover | 80 | 80 - Portfolio flows: 1 standard deviation outflow (note: formula revised; resulting shock size increased from $ 1.1 billion to $ 3.2 billion) ### Key contributors to financing gap under adverse scenario (US$ millions) - Assumption | Augmentation, 2021 | Current Arrangement, 2020 - Current Account Deficit | 6,564 | 4,722 - Financial Account Shock | 17,697 | 15,578 - Reserve drawdown | 11,986 | 9,459 - Remaining gap | 12,275 | 10,841 ### Sectoral and external effects under the adverse scenario - Both traditional and non-traditional exports are likely to decline further: - A 28 percent shock to the oil price would yield a price of US$ 27 per barrel on average for 2021. - Consistent with the 2016 request, the revised scenario compounds this effect with a 10 percent reduction in oil export volumes, such that export values decline by 35 percent in 2021. - Lower inward remittances would aggravate the current account shock: - The decline in global GDP in the WEO adverse scenario for 2021 could reduce Colombia’s inward remittances by US$ 0.5 billion. - Assuming migration inflows from Venezuela are twice as high as in the baseline could increase government spending needs and imports. - Private sector outflows and rollover difficulties: - The gradual FDI recovery assumed for 2021 would be postponed in the adverse scenario. - The adverse scenario assumes a one standard deviation shock to portfolio equity liability flows and a one standard deviation shock to overseas portfolio investment by Colombians, yielding a resulting shock of US$ 3.2 billion (substantially larger than US$ 1.1 billion at the time of the May approval). - Public-sector financing shortfalls: - An 80 percent rollover rate would result in a financing gap of US$ 7.4 billion relative to baseline (substantially larger than for the FCL approval in May, which was US$ 4 billion) because of the considerable increase in baseline external public borrowing. ### Aggregate financing gap and reserves - Combined shocks to the current account deficit (US$ 6.6 billion) and capital flows (US$ 17.7 billion) would amount to US$ 24.3 billion, which is US$ 2.5 billion greater than under the current arrangement. - The assumed reserve drawdown would leave reserves US$ 12 billion lower than under the baseline, compared to US$ 9.4 billion assumed at the time of the approval in May 2020. - After covering almost half the shock, the reserves remaining would amount to 112 percent of the ARA metric (99 percent with the commodity buffer included). - A financing gap of US$ 12.3 billion, equivalent to 420 percent of quota and US$ 1.4 billion larger than in the request of the FCL arrangement in May, would remain. ### Exit strategy - The authorities regard the FCL arrangement as temporary, with a future path for the level of access that should be decreasing, risks permitting. - The requested increase in access is considered temporary and will allow the country to maintain its external liquidity buffers while overcoming potential balance of payments challenges in the current volatile global environment. - The Colombian authorities intend to reduce access as soon as the exceptional set of risks in the global economy clearly recede. - The evaluation in the mid-term review will be important to assess the magnitude of a potential reduction of access in 2022, assuming continued qualification and conditional on the evolution of external risks and the outlook for the balance of payments. *International Monetary Fund — Colombia: 16. The financial sector policy agenda to further strengthen the regulatory and supervisory framework is on track* ### 30. Staff’s updated assessment is that Colombia continues to meet the qualification ### Staff’s updated assessment is that Colombia continues to meet the qualification criteria for an FCL arrangement ### Overall assessment and qualification - Staff’s updated assessment is that Colombia continues to meet the qualification criteria for an FCL arrangement. - The IMF Executive Board noted that Colombia maintains very strong economic fundamentals and institutional policy frameworks, with sustained track record of implementing very strong policies, which the authorities are firmly committed to maintaining going forward. - The authorities’ response to the pandemic has showcased the strength of Colombia’s fundamentals and institutional policy framework. ### External position and current account - A sustainable external position: staff assesses the external position to be sustainable. - EBA current account approach estimated a current account gap of 1.7 percent of GDP. - 2019 current account balance: -4¼ percent of GDP. - Current account projected to narrow modestly in 2020; assessment unchanged. - Over the medium term, the current account deficit is expected to continue narrowing, supported by fiscal consolidation expected after the fiscal rule is reinstated in 2022. - Exchange rate dynamics in 2020: depreciated by about 20 percent in a two-week period in March; appreciated by about 10 percent by September 9. - FDI is expected to recover in 2021 and continue to finance the bulk of the current account deficit into the medium term. ### Capital account and financing composition - Capital account position dominated by private flows. - Q2 2020: public liabilities account for 22 percent of Colombia’s international investment liability stocks; FDI accounts for 58 percent of liabilities. - 2017-2019 average: public flows accounted for 21 percent of Colombia’s direct, portfolio, and other asset and liabilities flows; FDI accounted for 66 percent. - Forecast for 2020: share of public flows expected to rise to about one-half due to a larger government deficit and weak private investment; recovering private flows and falling fiscal deficit expected to restore private flows thereafter. - Reliance on portfolio inflows projected to remain low over the medium term at about 1 percent of GDP. - Long-term expectation: stable funding sources—especially FDI—expected to continue to finance the bulk of the current account deficit in the medium term. ### Sovereign market access and ratings - Track-record of steady sovereign access to international capital markets at favorable terms since the early 2000s. - Public sector issued or guaranteed external bonds or disbursements of public and publicly-guaranteed external commercial loans in international markets during each of the last five years, cumulative amount over that period equivalent to around 480 percent of Colombia’s Fund quota (for the central government). - The three major credit rating agencies all continue to assign an investment grade rating to Colombia (two with a negative outlook) as at the time of the approval of the FCL in May 2020. - Since approval of current FCL arrangement, Colombia issued US$2.5bn on June 1st for longer-dated maturities (10 and 30 year bonds); sovereign bond spreads have continued to perform in line with spreads in the region. ### International reserves - Gross international reserves rose in 2019 and stood at US$53 billion as of end-2019. - Reserves as percent of ARA metric: 121 percent including a commodity buffer, and 142 percent excluding the buffer, at end-2019. - Reserves have exceeded 100 percent of the ARA metric in each of the last three years. - Reserves rose to US$57 billion by mid-2020 in part due to a purchase of foreign exchange from the government. - Reserve coverage at the end of the year is expected to be 125 percent of the ARA metric including a commodity buffer and 146 percent excluding the buffer. - Over the medium term, reserves are expected to continue to be adequate. ### Public finances and debt dynamics - Sound public finances, including a sustainable public debt position. - Fiscal rule temporarily suspended in 2020 and 2021 due to the pandemic; suspension has been transparent (trigger, magnitude and length of suspension, adjustment mechanisms to return to the rule). - Authorities committed to fiscal sustainability and tasked the FRCC to monitor fiscal aggregates against government plans to ensure deviations are pandemic-related. - Authorities plan a sharp headline deficit adjustment in 2021 to ensure the structural balance rule returns in 2022. - Authorities anticipate additional revenue-enhancing and expenditure efficiency measures and have tasked an independent advisory committee to evaluate effectiveness of current tax exemptions. - Staff projects lower public investment and higher headline deficits relative to the authorities’ plans because these measures have not been enacted. - Staff projection: gross debt peaking at 68 percent of GDP in 2020; public debt placed on a firmly declining path over the medium term under projected primary surpluses and favorable growth dynamics. - Staff assesses Colombia’s public debt to be sustainable over the medium term. - Note: projections do not envisage the injection of public funds to support corporates that may face bankruptcy; authorities’ response has focused instead on providing credit guarantees of around 1½ percent of GDP. ### Monetary policy, inflation, and exchange rate framework - Low and stable inflation in the context of a sound monetary and exchange rate policy. - Colombia has maintained single digit inflation since 2000. - Following the 2014-16 oil price shock, the central bank adjusted its policy rate; inflation steadily declined since mid-2016. - Pandemic-related monetary easing has been compatible with moderating inflation (down to 1.9 percent at end August 2020) and well-anchored inflation expectations while supporting the economy through recession. - Staff projects inflation to be slightly below the deviation range around the three percent inflation target in the near term, with rapid return to the deviation range thereafter. - Medium-run inflation expectations (2 to 5 years) remain anchored. - Authorities remain committed to their inflation-targeting framework and flexible exchange rate. ### Financial system health and supervision - Sound financial system and absence of solvency problems that may threaten systemic stability. - Financial system dominated by banks. - As of December 2019, the banking system was liquid and well-capitalized. - Pandemic impacts on banking metrics: average capital adequacy ratio (CAR) fell from around 17 percent in March to 15 percent in July; expected to fall further to around 13 percent by year end—still above the 9 percent regulatory minimum. - Liquidity Coverage Ratio (LCR) for banks around 200 percent. - Non-performing loans (NPLs) fell from 4.5 percent in March to 4.1 percent at end-June, explained by grace periods and extensions afforded by banks. - SFC stress test assuming cumulative GDP contraction of 9 percent: 82 percent of institutions holding 92 percent of assets will continue to satisfy capital requirements, including systemic buffers. - Effective financial sector supervision: many 2013 FSAP recommendations finalized and implemented; timelines for implementing the Conglomerates’ Law and Basel III remain unchanged. - Since the start of the pandemic, supervisory enhancements include monthly stress tests, associated supervisory responses, and release of countercyclical provisions. - PAD (Program to Support Debtors) launched to put earlier, temporary relief measures on a more sustainable footing. - A FSAP mission scheduled to start in 2021Q1. ### Data transparency, governance, and institutional strength - Data transparency and integrity: Colombia remains in observance of the Special Data Dissemination Standards (SDDS) and publishes relevant data on a timely basis. - Fiscal transparency evaluation (April 2017) noted significant progress in building strong fiscal institutions and good transparency practices. - Colombia scores relatively high in areas covered by the Fiscal Transparency Code (FTC) and has begun to implement recommendations, such as improved reporting of fiscal risks shown in the 2019 and 2020 Medium Term Fiscal Frameworks. - Track record: staff’s assessment that all relevant core indicators were met in each of the five most recent years. - Institutional policy framework described as very strong; Colombia became a member of the OECD in April 2020. - Government effectiveness and control of corruption (Worldwide Governance Indicators): government effectiveness improved from -0.3 in 2000 to -0.085 in 2018; control of corruption improved from -0.4 to -0.3 over the same period. - Law No. 2022 (enacted July 2020) instructs the National Procurement Agency to design and provide templates for all public bidding processes, promoting competition and monitoring compliance. - Remaining governance priorities: full implementation of the law requiring public servants to publicly declare income and assets, improving court efficiency to reduce backlogs, and publishing detailed statistics to strengthen anti-corruption framework. ### Impact on Fund finances, access, and safeguards - Proposed augmentation of access under the FCL arrangement to SDR 12.267 billion or 600 percent of quota. - Fund liquidity expected to remain adequate after approval of the proposed augmentation. - Staff’s baseline projection envisages a partial drawdown under the FCL arrangement of around US$5bn or around 180 percent of quota to meet an actual BOP need in 2020; the bulk of access expected to be treated as precautionary. - Even if Colombia were to draw all resources available under the new FCL arrangement, its capacity to repay the Fund under an adverse scenario would remain adequate. - Colombia’s external debt expected to rise to 64 percent of GDP in 2020 compared to 59 percent at time of approval of the FCL arrangement in May 2020. - Under an adverse scenario of further depreciation, external debt would peak at 89 percent of GDP in 2021 and remain on a sustainable medium-term path. - External balance sheet sustainable given sizeable non-debt-creating capital inflows; debt service manageable. - Colombia has an excellent track-record of meeting its financial obligations. - Safeguards procedures completed for Colombia's 2020 FCL arrangement with no significant issues emerging. ### Staff appraisal and recommendation - Staff's assessment: Colombia continues to meet the qualification criteria for access to FCL resources. - Risks: volatility in financial and oil markets; prolonged periods of low oil prices or capital outflows from emerging markets; increased external risks sharply skewed to the downside; potential resumption of significant migration inflows from Venezuela. - Role of FCL: provides important insurance against external tail risks. - Augmented access level judged appropriate given actual and potential BOP needs. - Given a materially worse recession, wider budget deficit, and weaker balance of payments due to the pandemic, increasing access to 600 percent of quota would: - provide sufficient resources to meet actual BOP needs while retaining precautionary insurance, - reinforce market confidence, avoid instability, and diversify financing options amid heightened global uncertainties, - help avoid excessive pressures on Colombian credit markets and crowding out of private sector financing and investment, - support vulnerable households during the pandemic, - complement additional market financing being sought by the authorities. - Staff recommends approval of the authorities’ request for increased access under the current FCL arrangement for Colombia. *IMF staff assessment as presented in the provided content.* ### 38. Staff welcomes the authorities’ continued commitment to an exit strategy from the ### 38. Staff welcomes the authorities’ continued commitment to an exit strategy from the FCL. ### Assessment - Staff welcomes the authorities’ continued commitment to an exit strategy from the FCL. - Colombia has a "very strong policy framework" and a "comfortable reserve position." - The exceptional set of external shocks and risks is expected to recede. ### Policy recommendations - Consider reducing access under the FCL arrangement given the very strong policy framework and comfortable reserve position. - Pursue steady reserve accumulation over the medium term to enhance reserves coverage. - Aim to sufficiently cover financing needs in the authorities’ adverse scenarios to facilitate a gradual exit from the FCL from a strong reserve position. ### Assumptions and conditions - "Assuming risks sufficiently subside and market conditions clearly improve," the recommended approach would be appropriate. *1colea2020004 - 38.* ### 39. Staff considers that the proposed augmentation of access under the FCL arrangement ### 1colea2020004 - 39. Staff considers that the proposed augmentation of access under the FCL arrangement ### Summary assessment of FCL augmentation and Fund liquidity impact - Staff considers that the proposed augmentation of access under the FCL arrangement will have a limited negative net impact on the Fund's overall liquidity position. - The authorities view the FCL and requested increase in access as temporary and most of the arrangement as precautionary. - The Fund’s credit exposure to Colombia would be sizeable with a full drawing. - Risks are further contained by Colombia’s very strong repurchasing record with the Fund and manageable external debt service profile. - The Fund's overall liquidity position is expected to remain adequate after the approval of the proposed augmentation of access under the FCL arrangement. - If Colombia were to draw under the FCL arrangement, as currently assumed in staff’s baseline, it would automatically be excluded from the Financial Transaction Plan. ### Key fiscal and debt projections and indicators (selected from Public Sector DSA and tables) - Nominal gross public debt (percent of GDP): - 2018: 41.4 - 2019: 53.7 - 2020: 52.3 - 2021: 68.2 - 2022: 68.1 - 2023: 67.3 - 2024: 65.5 - 2025: 62.3 - 2026 (column shown as 59.5 in table head): 59.5 - Public gross financing needs (percent of GDP): - 2018: 5.4 - 2019: 6.9 - 2020: 7.3 - 2021: 10.8 - 2022: 9.1 - 2023: 6.6 - 2024: 6.3 - 2025: 5.9 - 2026: 5.6 - Real GDP growth (in percent): - 2018: 3.6 - 2019: 2.5 - 2020: 3.3 (table shows 3.3 then lists -8.2 for 2020 in baseline rows — the DSA baseline projection row indicates Real GDP growth -8.2 for 2020 and 4.0 for 2021) - DSA baseline: 2020: -8.2; 2021: 4.0; 2022: 3.6; 2023: 3.8; 2024: 3.8; 2025: 3.7 - Inflation (GDP deflator, in percent): - 2018: 3.9 - 2019: 4.5 - 2020: 4.3 - DSA baseline projections: 2020: 3.4; 2021: 2.7; 2022: 2.9; 2023: 3.0; 2024: 3.0; 2025: 3.1 - Effective interest rate (in percent): - 2018: 8.2 - 2019: 6.5 - 2020: 6.3 - DSA baseline projections: 2020: 8.3; 2021: 6.0; 2022: 5.3; 2023: 6.1; 2024: 6.0; 2025: 6.0 - Change in gross public sector debt (percent of GDP, cumulative in DSA): - 2018: 1.9 - 2019: 4.2 - 2020: -1.4 - 2021: 15.9 - 2022: -0.2 - 2023: -0.7 - 2024: -1.9 - 2025: -3.1 - 2018–2025 cumulative: 7.2 - Identified debt-creating flows (percent of GDP): - 2018: 1.0 - 2019: 4.2 - 2020: -0.8 - 2021: 12.4 - 2022: 2.1 - 2023: -0.9 - 2024: -1.8 - 2025: -2.8 - 2018–2025 cumulative: 6.3 - Primary deficit (percent of GDP): - 2018: 0.2 - 2019: 0.6 - 2020: 0.0 - 2021: 6.2 - 2022: 2.9 - 2023: 0.0 - 2024: -1.2 - 2025: -2.2 - 2018–2025 cumulative: 3.6 - Automatic debt dynamics contribution (percent of GDP): - 2018: 0.8 - 2019: 1.7 - 2020: -0.5 - 2021: 7.3 - 2022: -0.6 - 2023: -0.9 - 2024: -0.6 - 2025: -0.6 - 2018–2025 cumulative: 4.1 - Of which: real interest rate contribution (percent of GDP): cumulative 11.4 (annual: 2018: 1.5; 2019: 0.9; 2020: 0.9; 2021: 2.8; 2022: 2.0; 2023: 1.4; 2024: 1.8; 2025: 1.7) - Of which: real GDP growth contribution (percent of GDP): cumulative -7.4 (annual: 2018: -1.3; 2019: -1.2; 2020: -1.6; 2021: 4.5; 2022: -2.6; 2023: -2.3; 2024: -2.4; 2025: -2.4) - Contingent liabilities contribution (percent of GDP): 2019: 1.9; 2020: -0.3; 2021: -1.0; 2022: -0.3; 2018–2025 cumulative: -1.3 - Residual, including asset changes (percent of GDP): annual examples: 2018: 0.9; 2019: 0.1; 2020: -0.6; 2021: 3.5; cumulative 0.9 ### External sector highlights and financing (selected from Balance of Payments and external financing tables) - Current account balance (US$ millions): - 2015: -18,564 - 2016: -12,036 - 2017: -10,241 - 2018: -13,117 - 2019: -13,740 - 2020 (staff projection): -10,520 - Exports, f.o.b. (US$ millions): 2019: 42,368; 2020: 33,358; projections: 2021: 36,371; 2022: 39,155; 2023: 41,559; 2024: 43,568; 2025: 45,625 - Imports, f.o.b. (US$ millions): 2019: 50,818; 2020: 41,303; projections: 2021: 44,159; 2022: 46,841; 2023: 49,131; 2024: 51,523; 2025: 53,741 - Financial account balance (US$ millions): 2019: -13,051 (in Table 2a labelled Financial account balance -18,244 ... -13,051 for 2019); staff projections show the financial account balance matching the current account balance in magnitude as shown in analytic presentation. - External debt (percent of GDP, Table 1 projections): 2020: 59.2; 2021: 64.1; 2022: 57.3; 2023: 63.0; 2024: 62.0; 2025: 59.7; 2026: 57.7; 2027: 55.3 - External debt service (percent of exports or ratio shown in Table 1): 2018: 73.6; 2019: 69.5; 2020: 73.9; 2021: 98.5; 2022: 99.0; projections continue elevated before moderating. - Gross international reserves (end-2019, percent in Table 4/GIR): 47.1 (billion? table lists "Gross official reserves 6/47.1" and later in Table 3 "Gross international reserves 6/47,897" in US$ millions) - Table 3 staff projections (external financing requirements and sources, US$ millions): - Gross financing requirements (2018 baseline): 46,169; 2019: 48,305; 2020 baseline: 46,119; 2021 baseline: 42,020 - Financing gap (May 2020 approval) in adverse scenario: 12,710 (US$ millions) for one column; other financing-gap entries: 7,592 and 12,275 (US$ millions) depending on calibration and year. - Key scenario calibrations (Table 3): - Adverse scenario includes "35% shock to oil exports (prices and volumes); 10% shock to non-oil exports; migration shock (imports); remittances" and alternative calibrations "28% shock to oil price; 10% shock to non-oil exports; migration shock". - Calibrations apply to 2021, which is the year used to justify precautionary access. ### Macroeconomic and fiscal projections (selected from Table 1 and Table 4) - Real GDP growth (Table 1 projections row): 2020: -8.2; 2021: 4.2; 2022: 4.0; 2023: 3.6; 2024: 3.8; 2025: 3.8; later entries include 3.7 - Output gap: 2020: -8.0; 2021: -3.2; 2022: -5.6; 2023: -4.0; 2024: -2.6; 2025: -1.4; 2026: -0.5 - Consumer prices (end of period) (Table 1): 2020: 3.3; 2021: 1.4; 2022: 3.1; 2023: 2.4; 2024: 2.6; 2025: 2.7; 2026: 2.9; 2027: 3.0 - Central government balance (percent of GDP) (Table 1): 2018: -3.6; 2019: -4.8; 2020: -2.5; 2021: -4.9; 2022: -8.2; 2023: -3.7; 2024: -6.2; 2025: -3.4; 2026: -2.3; 2027: -1.9; 2028: -1.7 - Combined public sector (CPS) balance (percent of GDP): 2018: -2.4; 2019: -4.5; 2020: -1.9; 2021: -3.8; 2022: -8.9; 2023: -3.1; 2024: -6.1; 2025: -3.0; 2026: -1.8; 2027: -0.7; 2028: -0.8 - Public debt (percent of GDP, Table 1 last rows): 2018: 49.4; 2019: 53.7; 2020: 52.3; 2021: 59.3; 2022: 68.2; 2023: 58.2; 2024: 58.4; 2025: 68.1; 2026: 67.3; 2027: 65.5; 2028: 62.3; 2029: 59.5 (table spans many years; preserve entries as presented) ### Scenario and stress-test diagnostics (selected) - External DSA bound tests and shock scenarios considered include: interest rate shock, current account shock, growth shock, combined shocks, and a 30 percent real depreciation shock occurring in 2021. - Figure comparisons show Colombia's reserve coverage and FCL amounts in international perspective using metrics such as GIR to GDP, GIR to Broad Money, GIR to Short-term External Debt at Remaining Maturity plus Current Account Deficit, and GIR to ARA Metric (2019). The document notes reserve coverage regarded as adequate ranges and that Colombia's metrics are presented alongside other emerging market economies (specific country lists and diagrams present relative positions). - Figure 6 adverse scenario probability-density comparisons include COL2020a (current arrangement) and COL2020b (proposed augmentation using a scenario for 2021) among other past FCL/PCL/PLL arrangements. ### Operational fiscal details (selected from Table 4) - Total revenue (percent of GDP): 2017: 15.7; 2018: 15.3; 2019: 16.2; 2020 (20/148): 15.0; 2021 projection: 14.6; 2022 projection: 15.2; subsequent projections show values around 14.6–15.7. - Tax revenue (percent of GDP): 2017: 13.8; 2018: 13.7; 2019: 14.0; 2020: 12.8; 2021: 12.5; later projections near 13.9–14.4. - Total expenditure and net lending (percent of GDP): 2017: 19.3; 2018: 20.1; 2019: 18.6; 2020 (20/148): 19.9; 2021 projection: 22.8; 2022: 18.9; subsequent projections decline toward 17.3. - Net FCL uses (US$ million) listed: 0.0 for earlier years; 51 (in a row showing "0.0 0.0 0.05 118.2 0.0 -639.8 -2559.1 -1919.3" — entries appear in the row labelled "Net FCL uses (US$ million)"; staff-preserved numeric values appear in the Table 4 row: "Net FCL uses (US$ million)0.00.00.05118.20.0-639.8-2559.1-1919.3") *Source: IMF staff.* ### 0.6 percent of GDP respectively) that under GFSM 1986 produces headline deficits of 5.1 and 2.8 percent of GDP. ### 1colea2020004 - 0.6 percent of GDP respectively) that under GFSM 1986 produces headline deficits of 5.1 and 2.8 percent of GDP. ### Fiscal operations of the combined public sector (Table 5) - Total revenue (in percent of GDP): 2017: 26.8; 2018: 30.0; 2019: 29.4; 2020: 28.6; 2021: 26.0; 2022: 29.2; 2023: 26.6; 2024: 27.4; 2025: 28.1; 2026: 28.5; 2027: 28.3. - Tax revenue (in percent of GDP): 2017: 18.8; 2018: 21.3; 2019: 21.6; 2020: 20.5; 2021: 20.2; 2022: 21.6; 2023: 21.2; 2024: 21.7; 2025: 21.9; 2026: 21.9; 2027: 21.9. - Nontax revenue (in percent of GDP): 2017: 8.0; 2018: 8.8; 2019: 7.7; 2020: 8.1; 2021: 5.7; 2022: 7.7; 2023: 5.4; 2024: 5.7; 2025: 6.3; 2026: 6.6; 2027: 6.4. - Total expenditure and net lending (in percent of GDP): 2017: 29.4; 2018: 34.6; 2019: 31.8; 2020: 32.6; 2021: 35.5; 2022: 32.5; 2023: 32.8; 2024: 30.6; 2025: 30.1; 2026: 29.4; 2027: 29.2. - Current expenditure (in percent of GDP): 2017: 24.9; 2018: 31.5; 2019: 27.6; 2020: 30.0; 2021: 31.3; 2022: 28.7; 2023: 28.6; 2024: 27.3; 2025: 26.8; 2026: 26.5; 2027: 26.2. - Capital expenditure (in percent of GDP): 2017: 4.6; 2018: 3.1; 2019: 4.2; 2020: 2.6; 2021: 4.2; 2022: 3.8; 2023: 4.2; 2024: 3.3; 2025: 3.3; 2026: 2.8; 2027: 3.0. - Nonfinancial public sector balance (in percent of GDP): 2017: -2.5; 2018: -4.7; 2019: -2.5; 2020: -4.0; 2021: -9.5; 2022: -3.2; 2023: -6.2; 2024: -3.2; 2025: -2.0; 2026: -0.9; 2027: -0.9. - Combined public sector balance (in percent of GDP): 2017: -2.4; 2018: -4.5; 2019: -1.9; 2020: -3.8; 2021: -8.9; 2022: -3.1; 2023: -6.1; 2024: -3.0; 2025: -1.8; 2026: -0.7; 2027: -0.8. - Overall financing (in percent of GDP): 2017: 2.4; 2018: 4.5; 2019: 1.9; 2020: 3.8; 2021: 8.9; 2022: 3.1; 2023: 6.1; 2024: 3.0; 2025: 1.8; 2026: 0.7; 2027: 0.8. - Foreign net financing (in percent of GDP): 2017: 2.6; 2018: 1.3; 2019: 0.9; 2020: 1.0; 2021: 10.8; 2022: 0.2; 2023: 2.6; 2024: 1.6; 2025: 0.1; 2026: -0.4; 2027: -0.5. - Domestic net financing (in percent of GDP): 2017: -0.2; 2018: 3.2; 2019: 1.0; 2020: 2.8; 2021: -1.9; 2022: 2.9; 2023: 3.5; 2024: 1.4; 2025: 1.7; 2026: 1.2; 2027: 1.3. - Overall structural balance (in percent of potential GDP): 2017: -1.3; 2018: -2.1; 2019: -2.0; 2020: -2.5; 2021: -7.1; 2022: -1.2; 2023: -3.8; 2024: -1.5; 2025: -0.9; 2026: -0.4; 2027: -0.7. - Primary balance (in percent of GDP): 2017: 0.8; 2018: -1.5; 2019: 1.2; 2020: -0.3; 2021: -5.2; 2022: 0.4; 2023: -2.3; 2024: 0.6; 2025: 1.8; 2026: 2.8; 2027: 2.7. - Oil-related revenues (in percent of GDP): 2017: 1.1; 2018: 1.9; 2019: 2.4; 2020: 2.2; 2021: 2.0; 2022: 1.8; 2023: 1.3; 2024: 1.5; 2025: 1.7; 2026: 1.8; 2027: 1.7. - Total public debt (in percent of GDP): 2017: 49.4; 2018: 53.7; 2019: 52.3; 2020: 59.3; 2021: 68.2; 2022: 58.4; 2023: 68.1; 2024: 67.3; 2025: 65.5; 2026: 62.3; 2027: 59.5. - Nominal GDP (In Col$ trillion): 2015: 920.5; 2016: 985.9; 2017: 1061.7; 2018: 1081.3; 2019: 1008.4; 2020: 1167.1; 2021: 1078.0; 2022: 1150.3; 2023: 1230.9; 2024: 1317.1; 2025: 1409.4. ### Monetary indicators (Table 6) - Central Bank net foreign assets (In billions of Col$): 2015: 145,823.2; 2016: 138,859.3; 2017: 140,586.1; 2018: 155,542.5; 2019: 172,577.7; 2020: 208,959.2; 2021: 212,670.7; 2022: 217,155.0; 2023: 222,106.9; 2024: 227,391.4; 2025: 232,914.7. - Gross official reserve assets (In billions of Col$): 2015: 145,726.0; 2016: 138,631.7; 2017: 140,724.9; 2018: 155,646.7; 2019: 172,548.8; 2020: 208,988.8; 2021: 212,675.6; 2022: 217,165.2; 2023: 222,119.5; 2024: 227,401.3; 2025: 232,925.5. - Gross official reserves (In billions of US$): 2015: 46.3; 2016: 46.2; 2017: 47.2; 2018: 47.9; 2019: 52.7; 2020: 55.0; 2021: 55.4; 2022: 56.0; 2023: 56.7; 2024: 57.5; 2025: 58.3. - Monetary base (In billions of Col$): 2015: 82,522.0; 2016: 84,599.9; 2017: 88,812.7; 2018: 98,081.0; 2019: 112,453.8; 2020: 106,809.8; 2021: 114,176.5; 2022: 121,829.8; 2023: 130,368.8; 2024: 139,505.1; 2025: 149,282.6. - Currency in circulation (In billions of Col$): 2015: 66,739.5; 2016: 69,222.0; 2017: 74,057.6; 2018: 80,653.3; 2019: 91,659.3; 2020: 87,058.9; 2021: 93,063.4; 2022: 99,301.5; 2023: 106,261.5; 2024: 113,708.3; 2025: 121,677.8. - Deposit money banks reserves (In billions of Col$): 2015: 15,711.5; 2016: 15,283.3; 2017: 14,671.5; 2018: 17,322.5; 2019: 20,649.2; 2020: 37,366.5; 2021: 37,546.6; 2022: 40,100.5; 2023: 42,848.6; 2024: 45,851.7; 2025: 49,065.1. - Broad money (In billions of Col$): 2015: 404,525.1; 2016: 443,018.6; 2017: 471,457.6; 2018: 498,405.4; 2019: 548,134.8; 2020: 534,289.0; 2021: 586,088.3; 2022: 641,401.6; 2023: 701,379.7; 2024: 764,845.5; 2025: 833,355.0. - CPI inflation, eop (annual percent change): 2015: 6.8; 2016: 5.8; 2017: 4.1; 2018: 3.2; 2019: 3.8; 2020: 1.4; 2021: 2.4; 2022: 2.6; 2023: 2.7; 2024: 2.9; 2025: 3.0. - Nominal GDP (In Col$ billions): 2015: 804,692; 2016: 863,782; 2017: 920,471; 2018: 985,931; 2019: 1,061,730; 2020: 1,008,442; 2021: 1,077,995; 2022: 1,150,253; 2023: 1,230,874; 2024: 1,317,134; 2025: 1,409,448. ### Medium-term outlook (Table 7) - Real GDP (percent change): 2015: 3.0; 2016: 2.1; 2017: 1.4; 2018: 2.5; 2019: 3.3; 2020: -8.2; 2021: 4.0; 2022: 3.6; 2023: 3.8; 2024: 3.8; 2025: 3.7. - Consumer prices (percent change; eop): reported above under Monetary indicators. - Gross national savings (percent of GDP): 2015: 17.4; 2016: 18.9; 2017: 18.3; 2018: 17.4; 2019: 18.0; 2020: 15.8; 2021: 16.7; 2022: 17.3; 2023: 17.6; 2024: 18.1; 2025: 18.2. - Gross domestic investment (percent of GDP): 2015: 23.8; 2016: 23.2; 2017: 21.6; 2018: 21.3; 2019: 22.3; 2020: 19.7; 2021: 20.7; 2022: 21.1; 2023: 21.4; 2024: 21.9; 2025: 21.9. - Nonfinancial public sector (percent of GDP): - Revenue: 2015: 27.8; 2016: 27.7; 2017: 26.8; 2018: 30.0; 2019: 29.4; 2020: 26.0; 2021: 26.6; 2022: 27.4; 2023: 28.1; 2024: 28.5; 2025: 28.3. - Expenditure: 2015: 31.2; 2016: 30.1; 2017: 29.4; 2018: 34.6; 2019: 31.8; 2020: 35.5; 2021: 32.8; 2022: 30.6; 2023: 30.1; 2024: 29.4; 2025: 29.2. - Primary balance (percent of GDP): 2015: -0.5; 2016: -1.1; 2017: -0.7; 2018: -2.0; 2019: 0.4; 2020: -4.9; 2021: -2.8; 2022: -0.1; 2023: 1.0; 2024: 1.3; 2025: 1.5. - Overall balance (percent of GDP): 2015: -3.5; 2016: -2.3; 2017: -2.5; 2018: -4.7; 2019: -2.5; 2020: -9.5; 2021: -6.2; 2022: -3.2; 2023: -2.0; 2024: -0.9; 2025: -0.9. - External current account balance (percent of GDP): 2015: -6.3; 2016: -4.3; 2017: -3.3; 2018: -3.9; 2019: -4.2; 2020: -4.0; 2021: -3.9; 2022: -3.8; 2023: -3.8; 2024: -3.8; 2025: -3.8. - Gross public sector debt (percent of GDP): 2015: 50.4; 2016: 49.8; 2017: 49.4; 2018: 53.7; 2019: 52.3; 2020: 68.2; 2021: 68.1; 2022: 67.3; 2023: 65.5; 2024: 62.3; 2025: 59.5. - Crude oil, spot price (US$ per barrel): 2015: 52; 2016: 44; 2017: 54; 2018: 71; 2019: 64; 2020: 43; 2021: 48; 2022: 50; 2023: 51; 2024: 52; 2025: 53. ### Financial soundness indicators (Table 8) - Regulatory capital to risk-weighted assets (percent): 2010: 17.3; 2011: 16.9; 2012: 18.1; 2013: 17.0; 2014: 17.0; 2015: 16.9; 2016: 17.5; 2017: 18.6; 2018: 18.5; 2019: 17.6; 2020: 16.9. - Regulatory Tier 1 capital to risk-weighted assets (percent): 2010: 13.0; 2011: 13.4; 2012: 13.7; 2013: 12.0; 2014: 11.7; 2015: 11.4; 2016: 11.4; 2017: 12.4; 2018: 12.7; 2019: 12.2; 2020: 11.9. - Capital (net worth) to assets (percent): 2010: 14.2; 2011: 14.3; 2012: 14.7; 2013: 14.8; 2014: 14.9; 2015: 14.1; 2016: 16.2; 2017: 16.1; 2018: 16.6; 2019: 17.0; 2020: 15.8. - Nonperforming loans to gross loans (30-day, percent): 2015: 2.9; 2016: 3.2; 2017: 4.3; 2018: 4.6; 2019: 4.3. - Provisions to nonperforming loans (percent): 2010: 175.0; 2011: 182.0; 2012: 163.9; 2013: 160.7; 2014: 151.3; 2015: 155.5; 2016: 153.5; 2017: 134.7; 2018: 137.5; 2019: 142.4; 2020: 140.6. - ROAA (percent): 2010: 3.4; 2011: 3.3; 2012: 3.1; 2013: 2.8; 2014: 2.9; 2015: 2.7; 2016: 3.0; 2017: 2.2; 2018: 2.6; 2019: 2.9; 2020: 3.0. - ROAE (percent): 2010: 23.7; 2011: 23.0; 2012: 21.2; 2013: 19.5; 2014: 19.8; 2015: 18.9; 2016: 18.3; 2017: 13.7; 2018: 16.0; 2019: 17.3; 2020: 18.2. - Liquid assets to total assets (percent): 2010: 22.1; 2011: 21.5; 2012: 21.6; 2013: 21.4; 2014: 19.8; 2015: 18.9; 2016: 18.0; 2017: 18.6; 2018: 19.2; 2019: 17.7; 2020: 18.3. - Deposit to loan ratio (percent): 2010: 93.5; 2011: 91.4; 2012: 94.7; 2013: 96.3; 2014: 91.6; 2015: 93.2; 2016: 92.6; 2017: 92.7; 2018: 92.0; 2019: 91.2; 2020: 95.0. - Foreign-currency-denominated loans to total loans (percent): 2010–2014: not shown; 2015: 6.9; 2016: 7.7; 2017: 7.5; 2018: 7.3; 2019: 8.4; 2020: 8.3; 2021: 6.9; 2022: 6.1; 2023: 5.9; 2024: 5.0; 2025: 6.7. ### Indicators of external vulnerability (Table 9) - Exports of GNFS (US$ billions): 2015: 46.0; 2016: 41.8; 2017: 48.2; 2018: 54.1; 2019: 52.4; 2020: 41.0; 2021: 45.6; 2022: 48.9; 2023: 51.8; 2024: 54.3; 2025: 56.8. - Imports of GNFS (US$ billions): 2015: 64.3; 2016: 54.5; 2017: 56.7; 2018: 63.1; 2019: 64.7; 2020: 51.4; 2021: 55.9; 2022: 59.3; 2023: 62.4; 2024: 65.5; 2025: 68.5. - Current account balance (US$ billions): 2015: -18.6; 2016: -12.0; 2017: -10.2; 2018: -13.1; 2019: -13.7; 2020: -10.5; 2021: -11.0; 2022: -11.2; 2023: -11.9; 2024: -12.6; 2025: -13.2. - Current account balance (percent of GDP): 2015: -6.3; 2016: -4.3; 2017: -3.3; 2018: -3.9; 2019: -4.2; 2020: -4.0; 2021: -3.9; 2022: -3.8; 2023: -3.8; 2024: -3.8; 2025: -3.8. - Total external debt (percent of GDP): 2015: 42.1; 2016: 49.4; 2017: 47.2; 2018: 46.6; 2019: 49.9; 2020: 64.1; 2021: 63.0; 2022: 62.0; 2023: 59.7; 2024: 57.7; 2025: 55.3. - Public sector external debt (percent of GDP): 2015: 26.5; 2016: 31.9; 2017: 30.3; 2018: 28.9; 2019: 30.1; 2020: 42.3; 2021: 42.2; 2022: 41.2; 2023: 38.7; 2024: 36.1; 2025: 33.6. - Gross international reserves (US$ billions): 2015: 46.3; 2016: 46.2; 2017: 47.1; 2018: 47.9; 2019: 52.7; 2020: 55.0; 2021: 55.4; 2022: 56.0; 2023: 56.7; 2024: 57.5; 2025: 58.3. - Reserves in months of prospective GNFS imports: 2015: 10.2; 2016: 9.8; 2017: 9.0; 2018: 8.9; 2019: 12.3; 2020: 11.8; 2021: 11.2; 2022: 10.8; 2023: 10.4; 2024: 10.1; 2025: 9.8. - Short-term external debt (percent of GDP): 2015: 5.5; 2016: 5.3; 2017: 5.3; 2018: 6.2; 2019: 6.6; 2020: 7.7; 2021: 7.2; 2022: 6.9; 2023: 6.6; 2024: 6.4; 2025: 6.2. ### FCL arrangement and impact on IMF finances (Tables 10–12) - Current Forward Commitment Capacity (FCC): 160,400 (SDR millions). - FCC after approval of augmented access: 155,983 (SDR millions); change percent: -2.8. - FCC after augmented access and falling out of FTP effect: 154,383 (SDR millions); change percent: -3.8. - Fund credit to Colombia under full FCL drawing: Stocks from prospective drawings (Fund credit in millions of SDR): 2019: 0; 2020: 3,680; 2021: 12,267; 2022: 12,267; 2023: 11,807; 2024: 6,747; 2025: 1,073. - Fund credit (in percent of quota): 2019: 0; 2020: 180.0; 2021: 600.0; 2022: 600.0; 2023: 577.5; 2024: 330.0; 2025: 52.5. - Fund credit (in percent of GDP): 2019: 0; 2020: 1.9; 2021: 8.7; 2022: 8.0; 2023: 7.3; 2024: 3.9; 2025: 0.6. - Flows from prospective drawings — amortization (SDR millions): 2019: 0; 2020: 0; 2021: 0; 2022: 0; 2023: 460; 2024: 5,060; 2025: 5,673. - Debt service due on GRA credit (SDR millions): 2019: 0; 2020: 25; 2021: 291; 2022: 299; 2023: 759; 2024: 5,347; 2025: 5,751. - Debt service due on GRA credit (percent of quota): 2019: 0.0; 2020: 1.2; 2021: 14.2; 2022: 14.6; 2023: 37.1; 2024: 261.5; 2025: 281.3. - Stocks from prospective drawings (Table 12, GRA credit to Colombia in SDR millions): 2019: --; 2020: 3,680.1; 2021: 12,267.0; 2022: 12,267.0; 2023: 11,807.0; 2024: 6,746.9; 2025: 1,073.4. - GRA credit to Colombia (in percent of quota in Table 12): 2020: 180.0; 2021: 600.0; 2022: 600.0; 2023: 577.5; 2024: 330.0; 2025: 52.5. - Capacity-to-repay indicators (Table 12 excerpts): - Total external debt (percent of GDP): 2019: 49.9; 2020: 64.1; 2021: 87.5; 2022: 86.0; 2023: 82.8; 2024: 80.1; 2025: 76.8. - Total external debt service (percent of GDP): 2019: 12.0; 2020: 15.3; 2021: 20.7; 2022: 17.1; 2023: 19.5; 2024: 21.7; 2025: 20.7. - GRA credit to Colombia (in percent of gross international reserves): 2020: 9.3; 2021: 40.0; 2022: 38.4; 2023: 36.5; 2024: 20.6; 2025: 3.2. ### External debt sustainability framework (Table 13 excerpts) - Baseline external debt (percent of GDP): 2015: 42.1; 2016: 49.4; 2017: 47.2; 2018: 46.6; 2019: 49.9; 2020: 64.1; 2021: 63.0; 2022: 62.0; 2023: 59.7; 2024: 57.7; 2025: 55.3. - Change in external debt (percent of GDP): 2015: 12.1; 2016: 7.3; 2017: -2.1; 2018: -0.6; 2019: 3.2; 2020: 14.3; 2021: -1.1; 2022: -1.1; 2023: -2.3; 2024: -2.0; 2025: -2.4. - Identified external debt-creating flows (percent of GDP): 2015: 12.4; 2016: 4.1; 2017: -4.0; 2018: -0.8; 2019: 2.6; 2020: 8.0; 2021: -1.1; 2022: -1.1; 2023: -1.2; 2024: -1.3; 2025: -1.3. - Current account deficit excluding interest payments (percent of GDP): 2015: 4.8; 2016: 2.6; 2017: 1.6; 2018: 2.2; 2019: 1.9; 2020: 1.2; 2021: 1.1; 2022: 0.9; 2023: 0.9; 2024: 1.1; 2025: 1.1. - Automatic debt dynamics contribution (percent of GDP): 2015: 9.3; 2016: 2.8; 2017: -2.7; 2018: -1.4; 2019: 3.0; 2020: 7.8; 2021: 0.4; 2022: 0.7; 2023: 0.6; 2024: 0.6; 2025: 0.6. - External debt-to-exports ratio (percent): 2015: 268.5; 2016: 333.6; 2017: 305.4; 2018: 287.6; 2019: 307.7; 2020: 414.0; 2021: 387.2; 2022: 375.1; 2023: 361.5; 2024: 353.6; 2025: 343.1. - Gross external financing need (US$ billions): 2015: 43.1; 2016: 35.8; 2017: 40.5; 2018: 45.0; 2019: 45.0; 2020: 43.8; 2021: 44.4; 2022: 42.6; 2023: 46.9; 2024: 50.7; 2025: 50.4. - Gross external financing need (percent of GDP): 2015: 14.7; 2016: 12.7; 2017: 13.0; 2018: 13.5; 2019: 13.9; 2020: 16.5; 2021: 15.8; 2022: 14.4; 2023: 14.9; 2024: 15.3; 2025: 14.3. - Key macro assumptions (selected): Real GDP growth (percent): historical and projections reported under Medium-term outlook; GDP deflator in US dollars (change percent): 2015: -25.2; 2016: -5.6; 2017: 8.8; 2018: 4.3; 2019: -6.0; 2020: 0.4; 2021: 11.9; 2022: -10.8; 2023: 1.7; 2024: 1.9; 2025: 2.0. - Oil Price (WEO APSP, US$ per barrel): 2019: 61.39; 2020: 41.69; 2021: 33.86; 2022: 48.09; 2023: 49.21; 2024: 50.20; 2025: 51.16. *Source: Ministry of Finance; Banco de la República; Colombian authorities; Superintendencia Financiera; IMF staff estimates and projections, as presented in the source PDF.* ### Appendix I. Written Communication ### Appendix I. Written Communication ### Context and purpose - Bogota, August 31, 2020. - Letter to Ms. KRISTALINA GEORGIEVA, Managing Director, International Monetary Fund. - Purpose: request an increase in access under the current Flexible Credit Line (FCL) arrangement from 384 percent of quota to 600 percent of quota to address heightened external risks and balance of payments (BOP) needs arising from the Covid-19 shock and the decline in oil prices. - Statement by Mr. Villar on Colombia: September 25, 2020 — provides follow-up justification, context, and intended use of augmented access. ### Macroeconomic shock and policy response - Shocks and impacts: - Global Covid-19 pandemic and containment measures deteriorated global demand and increased risk aversion. - Severe drop in oil prices caused a decline in terms of trade, external revenues, and foreign investment flows. - GDP growth forecasts for Colombia reduced from -3.5 percent in April to around -8 percent (as of the Statement). - Unemployment rate reached 20.2 percent in July, an increase of 8 pps since February. - Inflation and inflation expectations fell below 2 percent, outside the range of +/-1 pps around the 3 percent target. - Fiscal impacts and measures: - Fiscal deficit expected to rise significantly in 2020 due to a temporary fall in revenues and sanitary, humanitarian, and countercyclical fiscal responses. - Central Government deficit expected to reach 8.2 percent of GDP in 2020. - Authorities agreed with the Fiscal Rule Committee to temporarily suspend the fiscal rule for two years, with a commitment to reduce the fiscal deficit to -5.1 percent of GDP in 2021 and to reinstate the fiscal rule in 2022. - Fiscal response measures include credit guarantees for SMEs, direct transfers for low-income households, and payroll subsidies to protect formal employment. - Monetary and FX measures: - Banco de la República provided significant liquidity to ensure orderly functioning of financial markets and payment systems. - Since March, the allotment, maturity, admissible collateral and set of counterparties for repo operations were expanded. - Central bank bought private and public debt securities in the secondary market to inject longer-term liquidity. - Reserve requirements were reduced by 2 percentage points on average. - Monetary policy rate was significantly lowered; monetary authorities reduced policy interest rates by 225 bps to support economic activity and bring inflation and expectations to target. - FX policies executed cautiously via auctioning of non-deliverable forwards and FX swaps to enhance FX market liquidity and reduce exchange rate volatility. - Banco de la República purchased USD 2 billion from the Government in May, reinforcing international liquidity. ### Rationale for FCL augmentation and intended use - External risks and liquidity needs: - New pressures on the balance of payments could arise from a deeper decline in external demand, further deterioration in terms of trade, and episodes of higher global risk aversion affecting capital flows. - Greater levels of external liquidity buffers—international reserves and FCL access—are desirable to preserve confidence, avoid instability, and diversify financing options during a severe crisis. - Request specifics: - Authorities request increase in FCL access to 600 percent of quota (from current 384 percent of quota approved in May). - Augmentation described as temporary; authorities are willing to reduce access as the exceptional global situation improves and risks recede. - Intended use of augmented access: - A portion of the proposed increase would be used for budgetary support to help address BOP challenges, support international reserves and market confidence, and avoid added pressures on Colombian credit markets and crowding out of private agents lacking external access. - Authorities intend to make a partial drawing commensurate with actual BOP needs; most of the FCL would be treated as precautionary. - Authorities plan a careful communication strategy, in full coordination with the IMF, to explain the first-time drawing on the FCL and its catalytic role in diversifying financing and mitigating crowding out. ### Assessment of policy framework and institutional strengths - Authorities emphasize a very strong and comprehensive policy framework: - Fully-fledged inflation targeting regime with a flexible exchange rate. - Public finances anchored by a sound institutional arrangement. - Adequate financial regulation and supervision. - Financial sector and oversight: - Financial Superintendence facilitated debtor relief packages and established a program to restructure debts while revealing loan quality and adjusting provisions. - Regulatory and supervisory authorities aimed to balance financial stability and mitigation of procyclical credit tightening, maintaining transparency on financial system health. - Colombia has an effective financial sector supervision and has finalized and implemented many of the 2013 FSAP recommendations; the planned FSAP mission for second half of 2020 was postponed to the first semester of 2021 due to operational difficulties. ### Risks, commitment, and exit strategy - Risks: - High uncertainty about pandemic evolution, world economic outlook, terms of trade, speed of global recovery, liquidity conditions, and global risk aversion. - Increased balance of payments needs relative to the time of the last FCL renewal. - Commitments and exit approach: - Authorities commit to very strong economic policies and to respond appropriately to shocks. - The augmentation will be treated as temporary with a gradual exit strategy; access would be reduced when exceptional global conditions improve and risks clearly recede. - Fiscal Rule Committee to play a role of quarterly oversight of new fiscal targets during the temporary suspension of the fiscal rule. *Source: Appendix I. Written Communication (Bogota, August 31, 2020) and Statement by Mr. Villar (September 25, 2020).* ### INTRODUCTION ### INTRODUCTION ### Overview of the proposed augmentation - The proposed augmentation amounts to SDR 4.417 billion (216 percent of quota) and would bring total access to an amount equivalent to SDR 12.267 billion (600 percent of quota). - The full amount of access following the proposed augmentation would be available throughout the arrangement period, in one or multiple purchases. - The authorities intend to treat the bulk of the access as precautionary. - Staff’s baseline projection envisages a partial purchase of around 180 percent of quota to meet an actual BOP need caused by the Covid-19 crisis, with the remaining access assumed to be treated as precautionary. - This would be the first ever drawing under an FCL arrangement. - The note analyzes the impact of Colombia’s increased FCL access on the Fund’s finances and liquidity position against the backdrop of a sharply deteriorated world economy, including in a downside scenario where all FCL access would be drawn. ### Background — Colombia’s FCL history and role - Colombia is on its eighth FCL arrangement since 2009. - Historical FCL arrangements and amounts (as described): - One-year FCL arrangement approved May 11, 2009 in an amount equivalent to SDR 6.966 billion (900 percent of quota), treated as precautionary. - Followed by a one-year FCL arrangement in an amount equivalent to SDR 2.322 billion (300 percent of quota). - Followed by three two-year FCL arrangements in the amount of SDR 3.870 billion (500 percent of quota), treated as precautionary; the third was cancelled before expiration on June 13, 2016. - Successor two-year FCL arrangement approved June 13, 2016 in the amount of SDR 8.180 billion (400 percent of quota). - Two-year successor FCL arrangement approved May 25, 2018 in the amount of SDR 7.848 billion (384 percent of quota). - New FCL arrangement approved May 1, 2020 for two years at unchanged access of SDR 7.850 billion (384 percent of quota). - No purchases have been made under any of the FCL arrangements to date. - Colombia is on its eleventh arrangement since 1999 but has not drawn on Fund resources since 1971. ### Role of the FCL in Colombia’s policy framework - Colombia’s very strong policy frameworks and timely policy actions have allowed successful adjustment to important external shocks (2008-09 global financial crisis, 2014-16 terms of trade shock). - The FCL arrangement has provided an additional liquidity buffer to international reserve holdings and helped limit fiscal and balance-of-payments impacts from shocks including the influx of refugees from Venezuela, sharply lower oil prices, and the global Covid-19 pandemic. - Since the FCL arrangement was approved in May, domestic financial conditions have eased: - 10-year rates down by 100 basis points. - EMBI and 5 year CDS spreads have fallen around 120bp and 200pp respectively, averaging below 300bp and 175bp. - EMBI and CDS spreads fell by more than Latin American peers (Brazil, Chile, Mexico, Peru and Uruguay) in the aftermath of the official request for renewal of the FCL arrangement (press release 20/142 on April 9th). They also fell at the time of formal renewal of the FCL on May 1st in line with peers. ### External debt outlook and DSA findings - Staff's updated external debt sustainability analysis (DSA) suggests Colombia's external debt will rise to 64.1 percent of GDP this year under the baseline scenario (compared to 59 percent of GDP at the time of the approval of the FCL arrangement in May) on account of higher external and fiscal financing needs and weaker growth prospects given the effects of the pandemic. - Table 1 (Total External Debt, 2014-20) — selected figures (in millions of US Dollars; percent of GDP): - Total External Debt (levels): 2014: 114,263; 2015: 123,505; 2016: 139,569; 2017: 147,338; 2018: 155,550; 2019: 161,369; 2020 Proj. 1/: 169,899 - Private (levels): 2014: 42,142; 2015: 45,760; 2016: 49,319; 2017: 52,767; 2018: 59,198; 2019: 63,914; 2020 Proj. 1/: 57,782 - Public (levels): 2014: 72,120; 2015: 77,745; 2016: 90,250; 2017: 94,572; 2018: 96,353; 2019: 97,454; 2020 Proj. 1/: 112,118 - Total External Debt (percent of GDP): 2014: 33.7; 2015: 46.0; 2016: 48.8; 2017: 47.2; 2018: 46.6; 2019: 49.8; 2020 Proj. 1/: 64.1 - Private (percent of GDP): 2014: 11.1; 2015: 15.6; 2016: 17.4; 2017: 16.9; 2018: 17.8; 2019: 19.7; 2020 Proj. 1/: 21.8 - Public (percent of GDP): 2014: 22.6; 2015: 30.4; 2016: 31.4; 2017: 30.3; 2018: 28.9; 2019: 30.1; 2020 Proj. 1/: 42.3 ### Debt sustainability under stress - Debt is expected to remain sustainable, including under the DSA’s stress scenarios. - If an adverse scenario of a further real exchange rate depreciation of 30 percent were to materialize in 2021, DSA stress tests indicate that Colombia's external debt would peak at 87.5percent of GDP in 2021 (compared with 81 percent of GDP at the time of the approval of the FCL arrangement in May) but remain on a sustainable medium-term path. - Colombia has an excellent track-record of meeting its financial obligations, and its refinancing risks are mitigated by a diversified foreign investor base. ### Proposed augmentation under the FCL—risks and impact on Fund finances - Risks and impact from augmentation are assessed in the context of a downside scenario reflecting the unprecedented global crisis from the Covid-19 pandemic and the expectation of a first-ever (partial) drawing under an FCL. - Scenario assumptions and staff projections: - Under staff’s baseline, Colombia is assumed to make a purchase of some SDR 3.7 billion (180 percent of quota) to meet actual balance of payments needs related to the Covid-19 crisis. - Under the downside scenario, the purchase of the full approved amount under the FCL arrangement is expected to take place, assuming that macroeconomic conditions notably worsen vis-a-vis the baseline projections, consistent with the full realization of potential shocks considered by staff to justify the augmented access level under the FCL arrangement. - The adverse scenario increases the BOP financing gap and: - Reduces real GDP by 4.7 percentage points relative to the baseline in 2021. - Results in a nominal exchange rate depreciation of 20 percent, which also lowers nominal GDP measured in U.S. dollars. - After a temporary drop, flows (e.g. real GDP growth) return to those assumed under the baseline, but with no bounce back in subsequent years, and the depreciation is permanent. - Reserves increase by the same amount as under the baseline from 2022 onwards. - If the full amount of access available under the FCL following access augmentation were purchased under the realization of a downside scenario, capacity to repay would remain adequate: - Colombia's total external debt would temporarily peak, but with Fund credit representing still a relatively modest fraction. *Source: INTRODUCTION (1colea2020004) — IMF staff note as provided.* ### 87.5 and 61.1 percent of GDP respectively in 2021 under an adverse drawing scenario, with Fund ### 1colea2020004 - 87.5 and 61.1 percent of GDP respectively in 2021 under an adverse drawing scenario, with Fund ### Key projections and scenarios - Under the adverse drawing scenario, total external debt would reach "87.5 and 61.1 percent of GDP respectively in 2021" with Fund credit representing "8.7 percent of GDP." - At its peak, Colombia's outstanding use of GRA resources would account for: - "9.9 percent of total external debt" - "14.2 percent of public external debt" - "40 percent of gross international reserves" - Baseline and adverse scenario GDP and reserves snapshots (selected): - Baseline nominal GDP: "323,561", "264,933", "280,401", "296,234", "313,858", "332,528", "352,311" - Adverse nominal GDP: "323,561", "264,933", "201,985", "213,390", "226,085", "239,534", "253,784" - Gross international reserves (baseline): "52,654", "54,972", "55,391", "56,000", "56,710", "57,484", "58,298" - Gross international reserves (adverse): "52,654", "54,972", "43,826", "44,434", "45,144", "45,918", "46,732" - Exports of goods and services (baseline/adverse): "52,431", "41,042", "45,639", "48,935", "51,806", "54,265", "56,784" / "52,431", "41,042", "38,821", "48,935", "51,806", "54,265", "56,784" ### Capacity to repay and debt service - Projected Fund debt service dynamics: - Debt service to the Fund would peak in 2025 at "SDR 5.8 billion", around "3.2 percent of GDP" ("53.3 percent of total public external debt service"), or around "14.2 percent of exports of goods and services", before falling quickly after 2025. - Table 3 selected capacity-to-repay indicators (adverse scenario assumptions as noted in table footnotes): - GRA credit to Colombia (in SDR millions) around peak years: "--3,680.1", "12,267.0", "12,267.0", "11,807.0", "6,746.9", "1,073.4" - GRA credit to Colombia (in percent of quota): "--180.0", "600.0", "600.0", "577.5", "330.0", "52.5" - Charges due on GRA credit: "--24.8", "291.2", "298.8", "298.8", "286.6", "77.5" - Debt service due on GRA credit: "--24.8", "291.2", "298.8", "758.8", "5,346.7", "5,751.0" - Total external debt (in percent of GDP): "49.9", "64.1", "87.5", "86.0", "82.8", "80.1", "76.8" - Public external debt (in percent of GDP): "30.1", "42.3", "61.1", "59.5", "55.9", "52.2", "48.5" - GRA credit to Colombia (in percent of GDP): "--1.9", "8.7", "8.0", "7.3", "3.9", "0.6" - Total external debt service (in percent of GDP): "12.0", "15.3", "20.7", "17.1", "19.5", "21.7", "20.7" - Debt service due on GRA credit (in percent of GDP): "--0.0", "0.2", "0.2", "0.5", "3.1", "3.2" - Total external debt service (in percent of exports of goods and services): "73.9", "99.0", "107.5", "74.4", "85.3", "96.0", "92.6" - Debt service due on GRA credit (in percent of exports): "--0.1", "1.1", "0.9", "2.0", "13.8", "14.2" ### Impact on IMF liquidity, concentration, and prudential metrics - Impact on Fund liquidity (FCC and related measures): - Current Forward Commitment Capacity (FCC): "160,400" - FCC after approval of augmented access: "155,983" - Change in percent: "-2.8" - FCC after approval and considering falling out of FTP effect: "154,383" - Change in Percent: "-3.8" - Prudential measures, assuming full FCL drawing: - Fund credit to Colombia as percent of total GRA credit outstanding: "12.6" - Fund credit to Colombia as percent of current precautionary balances: "69.3" - Fund credit outstanding to five largest debtors in percent of total GRA credit outstanding, before approval: "73.0" - Including Colombia's assumed full drawing: "71.7" - Commitments under GRA arrangements (as of referenced dates): - Commitments under FCL arrangements stood at around "SDR 77.9 billion" on August 28, 2020 (around "81 percent" of total GRA commitments). With the proposed FCL augmentation for Colombia, the share of FCL commitments in total would increase to "82 percent." - Regional concentration: - Western Hemisphere currently accounts for about "65 percent" of GRA credit and undrawn balances; with the proposed augmentation for Colombia that share would increase to "66 percent." ### Assessment and policy implications - Liquidity and monitoring: - The proposed augmentation and assumed partial purchase under staff’s baseline would have a "moderate negative net impact" on the Fund's overall liquidity position; the overall liquidity position is expected to remain adequate but "close monitoring of the liquidity position is warranted." - The scale of potential new demand for Fund resources after the global Covid-19 pandemic is "subject to large uncertainty and could be unprecedented." - Colombia-specific assessment: - If fully drawn, the arrangement would account for about "12.6 percent of total GRA credit outstanding" and about "69 percent of the existing level of precautionary balances." - Some capacity-to-repay indicators point to a temporary peak of relatively sizeable debt service obligations to the Fund before falling quickly after 2025; overall the external debt trajectory, including Fund borrowing, is assessed as "sustainable over the medium-term." - Colombia's sustained track record of implementing very strong policies and commitment to maintain such policies mitigate risks to the Fund. - Authorities remain committed to a gradual exit from the FCL, conditional on the reduction of exceptional external risks. ### Selected historical and memorandum items - Colombia IMF arrangement history (selected): - Eleven Fund arrangements since 1999; last drawings made in 1971 earlier in history, with multiple FCL arrangements from 2009 through 2020. - Memo items from Table 3: - U. S. dollars per SDR (period average): "1.38", "1.39", "1.43", "1.39", "1.40", "1.40", "1.40" - U. S. dollars per SDR (end of period): "1.38", "1.38", "1.39", "1.39", "1.40", "1.40", "1.41" - Oil Price (WEO APSP, US$ per barrel): "61.39", "41.69", "33.86", "48.09", "49.21", "50.20", "51.16" *Source: 1colea2020004 PDF (IMF).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1colea2020004.pdf_