## 1colea2022004

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### Executive summary — context, request, and staff view
- Authorities request a two-year FCL arrangement in the amount of SDR 7.1557 billion (350 percent of quota), to be treated as precautionary.
- Authorities notify cancellation of the current arrangement approved in May 2020 and augmented in September 2020 (600 percent of quota, SDR 12.267 billion with remaining access of SDR 8.517 billion, 417 percent of quota).
- Lower access in the requested FCL reflects the authorities’ strategy of gradual phasing out Colombia’s use of the instrument, risks permitting.
- Staff assessment: Colombia continues to meet the qualification criteria for access under the FCL arrangement, and staff supports the authorities’ request.
- Process note: An informal meeting to consult with the Executive Board on a possible new FCL arrangement for Colombia was held on March 30, 2022.

### Developments and outlook — growth, inflation, and monetary policy
- GDP growth:
  - 2021: 10.6 percent.
  - 2022 (forecast): 5.8 percent.
  - 2023 (forecast): 3.6 percent.
- Inflation:
  - Above the central bank’s target of 3 percent since August 2021; climbed to 8.5 percent in March.
  - Central bank raised the policy rate by 325 basis points cumulatively to 5 percent between September 2021 and March 2022; largest hikes were 100 basis points in January and March.
  - Staff expects inflation to gradually return to the central bank’s target by mid-2024, while noting upside risks to inflation.
- Monetary policy guidance:
  - Further steps to raise interest rates in the first half of the year recommended to sufficiently tighten monetary and financial conditions.
  - Authorities concur that monetary tightening needs to continue; recent normalization: cumulative increase of 325 basis points since October 2021, including 100 basis points in March.

### Public finances, fiscal framework, and debt outlook
- Fiscal outcomes and projections:
  - Central government fiscal deficit, 2021: 8.2 percent of GDP.
  - A lower fiscal deficit (6.1 percent of GDP) than what is required to comply with the new fiscal rule (7.9 percent of GDP) appears within reach in 2022.
  - Gross public debt: decreased to 64.6 percent of GDP in 2021; projected to decline from 60.6 percent of GDP in 2022 to about 53 percent in 2027.
- Fiscal framework reforms:
  - Social Investment Law (SIL) raised medium-term revenues and outlines a transition path towards a structural balance rule with a new debt anchor.
  - New medium-term debt anchor of 55 percent of GDP; full implementation of SIL is critical to contain fiscal risks and ensure debt sustainability.
  - Autonomous Fiscal Rule Committee (CARF) to provide independent oversight.
- Revenue mobilization recommendation:
  - Durably raise revenues by an additional 1 – 1 ½ percent of GDP over the medium term.
  - Possible options include raising wealth and dividend taxes (could generate ¼ percent of GDP in the medium-term), environmental taxes for corporates, and progressive taxes targeting high income earners.

### External sector, reserves, and financing
- Current account:
  - Widened from 3.4 percent of GDP in 2020 to 5.7 percent of GDP in 2021.
  - Projected to decline to 3.3 percent of GDP in 2022 and to widen to around 4 percent of GDP over the medium term.
- Reserves and operations:
  - Colombia’s SDR allocation was USD 2.8 billion or 0.9 percent of GDP; central bank sold foreign currency to the ministry of finance in an amount commensurate with the SDR allocation in exchange for TES.
  - Gross international reserves: USD 59.1 billion in December 2021; USD 58.5 billion in December 2020.
  - Reserve coverage: around 139 percent of the ARA metric on average over three years; exceeds FCL threshold of 100 percent and never below 80 percent of ARA in any of the last four years.
  - Internal reserves holdings remained around $60 billion (137 percent of ARA metric) after modest reserve accumulation and the SDR allocation and subsequent operation.
- External debt and capital flows:
  - External debt/GDP projected to decline to 58 percent of GDP and stabilize around this ratio over the medium term.
  - FDI remained a strong and stable source of financing; portfolio inflows were positive in 2021 but decelerated after a sovereign ratings downgrade.

### Financial sector soundness and macroprudential stance
- Banking system indicators (end-2021, data up to Nov 2021):
  - Regulatory capital to risk-weighted assets: 22.0.
  - Regulatory Tier 1 capital to risk-weighted assets: 17.8.
  - Capital (net worth) to assets: 12.1.
  - Provisions to nonperforming loans: 157.6.
  - LCR: around 200 percent.
- Financial sector developments:
  - Banks have withstood the pandemic well; the financial system remains sound.
  - Credit growth, particularly consumer loans, appears to be entering an upswing.
  - Leverage ratios remain elevated, particularly for non-financial firms.
  - Pandemic-era regulatory support measures have been successfully rolled back.
  - 2022 FSAP concluded regulatory and supervisory frameworks have been materially strengthened since 2012.
- Remaining needs and recommendations:
  - Expand coverage of macroprudential tools (for instance, expand the DSTI tool to include non-mortgage debt).
  - Close data and oversight gaps on household indebtedness.
  - Further strengthen institutional arrangements for bank resolution and macroprudential frameworks.
  - Monitor household and corporate indebtedness given past credit cycle vulnerabilities.
  - Address public concerns related to financial conglomerates (double-gearing, opacity, international spillovers, related party lending); conglomerates law (September 2017) provides SFC powers to oversee FCs.

### Structural policies and inclusive growth
- Structural reform priorities:
  - Address labor informality, raise financial inclusion, reduce entry barriers, and strengthen governance to promote inclusive growth and external competitiveness.
- Social protection and migration:
  - Social Protection Floor (SPF) grants access to social security benefits for nearly 10 million workers earning less than minimum wage.
  - Temporary Protection Status (TPS) program for nearly 2 million Venezuelan migrants to strengthen economic integration and raise potential output.
  - Expanded social protection (e.g., Ingreso Solidario) increased financial inclusion through higher access to financial services via social transfers.
- Governance and climate recommendations:
  - Continue progress in AML/CFT legal and regulatory framework and enhance implementation of AML/CFT regime and national anti-corruption framework.
  - Introduce new environmental taxes and green bonds to create room for continued investment in climate-related areas.

### Risks and External Economic Stress Index (ESI)
- Elevated external risks skewed to the downside, including:
  - The war in Ukraine and associated volatility in financial and commodity markets.
  - Rising and volatile international prices for food and energy and persistent global supply-chain disruptions.
  - Faster-than-expected policy normalization by major central banks tightening external financial conditions.
  - Ongoing pandemic uncertainty.
  - Political uncertainty from upcoming national elections.
- ESI findings:
  - Baseline stress improved since the previous FCL arrangement in 2020, driven by an upward revision in oil prices and improved U.S. growth dynamics, but baseline stress remains worse than 2019 levels.
  - Adverse scenario assumes higher financial market volatility, protracted Covid-19 effects on U.S. growth, and lower oil prices; in that scenario U.S. growth is weaker by 0.7 percent in 2022 and 1.7 in 2023.
  - Despite improvement, the ESI indicates sizable external risks remain for Colombia.

### Adverse scenario, financing gap, and FCL access rationale
- Requested access: SDR 7.1557 billion or 350 percent of quota.
- Adverse scenario key assumptions and selected percentage shocks:
  - Oil price decline: 24 (2022 New arrangement) | 35 (2021) | 28 (2020).
  - FDI reduction: 20 (2022) | 20 (2021) | 20 (2020).
  - MLT public sector rollover: 60 percent of baseline disbursement (2022) | 80 (2021) | 80 (2020).
  - Other portfolio flows: 1 standard deviation (2022) | 1 standard deviation (2021) | $1 billion outflow (2020).
- Key contributors to estimated financing gap (US$ millions, deviations from baseline):
  - Current Account Deficit: 5,274 (2022 New arrangement).
  - Financial Account Shock: 17,246 (2022).
  - Reserve drawdown: 12,491 (2022).
  - Remaining gap: 10,029 (2022).
  - Remaining gap in percent of quota: 350 (2022).
- Sectoral impacts:
  - Oil price decline of 24 percent estimated to reduce oil exports, impacting current account by US$ 5.3 billion.
  - Private sector corporate debt shortfalls and rollover assumptions generate a financing gap of roughly US$7 billion in 2022 under the adverse scenario.
  - Shock to MLT public debt flows (40 percent decline relative to baseline) corresponds to US$5.2 billion gap.
  - Combined financial account shock estimated at US$17.2 billion.
- Aggregate balance and reserves:
  - Combined shocks to current account and financial account amount to US$22.5 billion.
  - Assumed reserve drawdown US$12.5 billion would cover roughly half the balance of payments shock.
  - Reserve coverage under the adverse scenario remains at 103 percent of ARA—within the 100–150 percent adequate range.
  - A remaining financing gap of US$10 billion is consistent with requested access.

### Impact on Fund finances, safeguards, and staff appraisal
- Fund liquidity and exposure:
  - Proposed new commitment and cancellation of the current arrangement would have a net positive impact on the Fund’s liquidity position.
  - Cancellation of existing FCL would free up SDR 8.517 billion; approval of proposed FCL would increase Forward Commitment Capacity from SDR 146,430 million to SDR 147,791 million as of March 28, 2022 (change in percent: 0.9).
  - If entire proposed FCL were drawn, credit to Colombia would be about 7 percent of total GRA credit outstanding as of March 28, 2022, and Colombia would become the third largest GRA borrower among current arrangements.
- Risks to the Fund:
  - Staff considers the proposed FCL arrangement "carries moderate risks to the Fund."
  - Mitigating factors: Colombia’s very strong repurchasing record with the Fund; manageable external debt service profile; authorities’ intention to treat arrangement as precautionary.
  - Safeguards procedures for Colombia's 2022 FCL arrangement substantially completed with no significant issues; KPMG Colombia issued an unmodified audit opinion on the BRC’s 2021 financial statements.
- Staff recommendations:
  - Support proposed reduction in access to 350 percent of quota, reflecting authorities’ exit strategy and reserve accumulation.
  - As risks recede and market conditions improve, consider further reducing access and resume reserve accumulation to better cover financing needs in adverse scenarios and facilitate a steady exit from the FCL.
  - Continue policy efforts to strengthen domestic resilience: build more international liquidity buffers, strengthen effectiveness of policy instruments, and durably raise revenues over the medium-term.

### Political timeline and institutional assurances
- Presidential elections: first round scheduled for May 29; second-round (if needed) on June 19; new administration takes office on August 7.
- Four main candidates: two from the center, one from the center-right, and one from the left.
- Political assurances on policy continuity and maintaining very strong institutional frameworks from leading candidates provide a necessary safeguard for the proposed arrangement.

### Selected quantitative indicators and projections (high-frequency excerpts)
- Real GDP growth: 2020: -7.0; 2021: 10.6; 2022: 5.8; 2023: 3.6; 2024–2027 (annual): 3.4, 3.4, 3.4, 3.4.
- GDP per capita (US$), 2021: 6,157.
- Consumer prices, end of period (eop): 2020: 1.6; 2021: 6.9; 2022–2024 projections (eop): 3.8, 3.0, 3.0.
- External debt (percent of GDP): 2017: 47.3; 2018: 46.7; 2019: 50.1; 2020: 65.6; 2021: 60.3; 2022–2027 projections: 58.1, 58.4, 59.1, 59.0, 58.6, 58.2.
- Public (gross) debt (percent of GDP): 2020: 65.7; 2021: 64.6; 2022–2027 projections: 60.6, 59.2, 57.5, 56.3, 54.5, 52.9.
- Banking sector indicators (2021, up to Nov 2021): Regulatory capital to RWA: 22.0; Tier-1: 17.8; Provisions to NPLs: 157.6.
- Key social indicators: Population (million), 2021: 51.0; Gini coefficient, 2020: 54.4; Poverty rate, 2020: 42.5.

*Source: IMF staff.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and overview
- Colombia’s policy frameworks and comprehensive pandemic response supported resilience and stronger-than-expected growth in 2021.
- Authorities have reactivated the fiscal framework with a new fiscal rule and debt anchor.
- Further monetary policy tightening is expected to drive inflation towards the central bank’s inflation target by mid-2024.
- Credit support measures in the financial sector are being phased out; financial sector supervision and regulation have been enhanced since the previous staff assessment.
- Political assurances on policy continuity from leading candidates provide a necessary safeguard for the proposed arrangement.

### Risks
- External risks are elevated and skewed to the downside, with key uncertainties including:
  - The war in Ukraine, which can impart further volatility in financial and commodity markets amid heightened global risk aversion.
  - Rising and volatile international prices for food and energy and/or more persistent disruptions in global supply chains could exacerbate domestic inflationary pressures.
  - Faster-than-expected policy normalization by major central banks could tighten external financial conditions.
  - Ongoing uncertainty around the pandemic.
  - Political uncertainty from upcoming national elections could amplify impacts of external shocks.

### FCL request, access, and Fund liquidity
- Authorities request a two-year FCL arrangement in the amount of SDR 7.1557 billion (350 percent of quota), to be treated as precautionary.
- Authorities notify cancellation of the current arrangement approved in May 2020 and augmented in September 2020 (600 percent of quota, SDR 12.267 billion with remaining access of SDR 8.517 billion, 417 percent of quota).
- Lower access in the requested FCL reflects the authorities’ strategy of gradual phasing out Colombia’s use of the instrument, risks permitting.
- Staff assessment: Colombia continues to meet the qualification criteria for access under the FCL arrangement, and staff supports the authorities’ request.
- The proposed new commitment and cancellation of the current arrangement would have a net positive impact on the Fund’s liquidity position.
- Process note: An informal meeting to consult with the Executive Board on a possible new FCL arrangement for Colombia was held on March 30, 2022.

### Developments and outlook — Growth and inflation
- GDP growth for 2021 was 10.6 percent.
- GDP growth is forecast at 5.8 percent in 2022 and 3.6 percent in 2023.
- Inflation has been above the central bank’s target of 3 percent since August 2021 and climbed to 8.5 percent in March.
- The central bank raised the policy rate by 325 basis points cumulatively to 5 percent between September 2021 and March 2022; the largest rate hikes were 100 basis points in January and March.
- Staff expects inflation to gradually return to the central bank’s target by mid-2024, while noting upside risks to inflation.

### Public finances and fiscal framework
- Central government fiscal deficit was 8.2 percent of GDP in 2021, about 1½ percent of GDP lower than the 2021 Medium-Term Fiscal Framework target.
- A lower fiscal deficit (6.1 percent of GDP) than what is required to comply with the new fiscal rule (7.9 percent of GDP) appears within reach in 2022.
- Gross public debt decreased to 64.6 percent of GDP in 2021 and is projected to decline from 60.6 percent of GDP in 2022 to about 53 percent in 2027.
- The Social Investment Law (SIL) strengthened the fiscal framework by raising medium-term revenues and outlining a transition path towards a structural balance rule with a new debt anchor.
- Public debt is expected to remain sustainable with high probability in the medium term.

### External sector and reserves
- The current account deficit widened from 3.4 percent of GDP in 2020 to 5.7 percent of GDP in 2021.
- The current account deficit is projected to decline to 3.3 percent of GDP in 2022 and to widen to around 4 percent of GDP over the medium term.
- FDI remained a strong and stable source of financing; portfolio inflows were positive in 2021 but decelerated after a sovereign ratings downgrade.
- Colombia’s SDR allocation was USD 2.8 billion or 0.9 percent of GDP; the central bank sold foreign currency to the ministry of finance in an amount commensurate with the SDR allocation in exchange for local treasury bonds (TES), allowing the government to boost liquidity buffers without new debt issuance.
- Colombia’s reserve coverage would remain adequate according to the ARA metric.

### Financial sector and macroprudential stance
- Colombia’s banks have withstood the pandemic well; the financial system remains sound.
- Credit growth, particularly consumer loans, appears to be entering an upswing.
- Leverage ratios remain elevated, particularly for non-financial firms.
- Banks exhibit strong capital and liquidity buffers; Basel III implementation continues on track.
- Financial regulatory support measures introduced in 2020 have been successfully rolled back.
- The 2022 Financial Sector Assessment Program (FSAP) concluded that Colombia has considerably strengthened its regulatory and supervisory system.
- Remaining needs: enhance data availability and certain institutional arrangements for bank resolution and macroprudential frameworks.

### External Economic Stress Index (Box 1)
- The updated ESI shows baseline stress improved since the previous FCL arrangement in 2020, driven by an upward revision in oil prices and improved U.S. growth dynamics.
- Baseline stress is forecasted to stabilize but remains worse than 2019 levels.
- An adverse scenario assumes higher financial market volatility, protracted Covid-19 effects negatively affecting U.S. growth, and lower oil prices; in that scenario U.S. growth is weaker by 0.7 percent in 2022 and 1.7 in 2023.
- Despite improvement, the ESI indicates Colombia still faces sizable external risks.

### Political timeline and implications
- Presidential elections: first round scheduled for May 29; second-round (if needed) on June 19; new administration takes office on August 7.
- Four main candidates: two from the center, one from the center-right, and one from the left.
- Political assurances on policy continuity and maintaining very strong institutional frameworks from leading candidates provide a necessary safeguard for the proposed arrangement.

*Prepared by IMF staff; April 15, 2022.*

### 11.      Going forward, carefully recalibrating Colombia’s policies will help ensure an inclusive

### 11.      Going forward, carefully recalibrating Colombia’s policies will help ensure an inclusive recovery and safeguard credibility of its very strong policy frameworks.

### Monetary policy
- Recent acceleration in monetary policy tightening is welcome given low excess capacity, negative real interest rates, and lags in monetary transmission.
- Further steps to raise interest rates in the first half of the year to sufficiently tighten monetary and financial conditions should help guide inflation lower and safeguard credibility of the central bank’s inflation targeting framework.
- The authorities concur that monetary tightening needs to continue in the upcoming months.
- Recent normalization: cumulative increase of 325 basis points since October 2021, including 100 basis points in March.

### Fiscal policy
- 2021 fiscal outturns were better than expected: narrower fiscal deficit and lower public debt levels compared to the government’s 2021 financial plan.
- In the 2022 financial plan, a stronger economic recovery opens space for additional fiscal consolidation if tax revenue gains from stronger growth are saved and pandemic-related fiscal support measures are phased out (subject to continuation of strong economic momentum and lower Covid-19 cases).
- The MTFF and SIL in 2021 have reactivated Colombia’s fiscal framework—anchored by a new fiscal rule and debt mechanism with an explicit transition path for fiscal deficit targets.
- Full implementation of the SIL is critical to contain fiscal risks and ensure debt sustainability.
- Strong and independent oversight by the new Autonomous Fiscal Rule Committee (CARF) will be important to guide deficit reduction goals and meet or exceed targets in the revamped fiscal framework.
- Revenue mobilization recommendation: durably raise revenues by an additional 1 – 1 ½ percent of GDP over the medium term to safeguard key social protection programs and public investment.
- Possible revenue options listed in the staff report include raising wealth and dividend taxes (could generate ¼ percent of GDP in the medium-term), environmental taxes for corporates, and progressive taxes targeting high income earners.

### Reserve accumulation and exchange rate policy
- Internal reserves holdings remained around $60 billion (137 percent of ARA metric) after modest reserve accumulation and the SDR allocation and subsequent operation.
- Staff notes gross international reserves increased to USD 59.1 billion in December 2021 from USD 58.5 billion in December 2020.
- Colombia’s gross international reserve holdings stand at around 139 percent of the ARA metric on average over three years, exceeding the FCL threshold of 100 percent and never below 80 percent of ARA in any of the last four years.
- Given elevated external vulnerabilities and risks, reserve accumulation over time should continue.
- Authorities’ commitment to a flexible exchange rate regime remains important to help the economy adjust to changing global conditions.

### Financial sector policies and macrofinancial risks
- Pandemic-era exceptional measures (e.g., borrowers support program (PAD)) are being phased out.
- Despite rollback of regulatory support, NPLs remain well provisioned and supervision has continued to be effective.
- The 2022 FSAP concluded regulatory and supervisory frameworks have been materially strengthened since 2012, including for financial conglomerates.
- As lending to households is expected to grow strongly in the near-term, it is necessary to:
  - expand coverage of macroprudential tools (for instance, expand the DSTI tool to include non-mortgage debt),
  - close data and oversight gaps on household indebtedness.
- Monitoring household and corporate indebtedness remains important given debt vulnerabilities from past credit cycles.
- Certain institutional arrangements underpinning resolution and macroprudential frameworks could be further strengthened.
- Financial conglomerates: public concerns include double-gearing, opacity, international spillovers, and related party lending; the conglomerates law (September 2017) provides the SFC powers to oversee FCs.

### Structural policies and inclusive growth
- Structural reforms should address labor informality, raise financial inclusion, reduce entry barriers, and strengthen governance to promote inclusive growth and enhance external competitiveness.
- Social Protection and migration measures:
  - Social Protection Floor (SPF) grants access to social security benefits for nearly 10 million workers earning less than minimum wage.
  - Temporary Protection Status (TPS) program for nearly 2 million Venezuela migrants should strengthen economic integration and help raise Colombia’s economic potential.
- Expanded social protection (e.g., Ingreso Solidario) has increased financial inclusion through higher access to financial services via social transfers.
- Policy recommendations include boosting competition for financial services to lower costs and enhance access.
- Continue building on recent progress in AML/CFT legal and regulatory framework and enhance implementation of AML/CFT regime and national anti-corruption framework to support governance, investment, and inclusive growth.
- Introduce new environmental taxes and green bonds to create room for continued investment in key climate-related areas, complementing the authorities’ climate policy framework.

### The authorities’ FCL request and exit strategy
- Colombia has maintained access to the FCL since 2009; authorities value the FCL as a buffer against external risks and as a signal of very strong macroeconomic policies and institutional frameworks.
- In December 2020, the partial FCL drawing helped meet higher budget financing needs and avoid additional market pressures during the Covid-19 crisis.
- The authorities request a new two-year FCL arrangement with reduced access: requesting access of 350 percent of quota.
- Authorities remain committed to an exit strategy and to resume gradually reducing access under the FCL arrangement, evolution of risks permitting.
- Historical path prior to the pandemic: access declined from 500 percent of quota in 2015 to 400 percent of quota under the 2016 arrangement; access was further reduced by 16 percentage points of quota in 2018 and maintained in May 2020 prior to augmentation.
- Staff’s view: reduced access going forward and an eventual exit should depend on the evolution of key external risks and a framework for exit considerations that includes:
  - An updated assessment of relevant external risks (examples: uncertainty related to the war in Ukraine; future path of the pandemic; faster-than-expected policy tightening in advanced economies; heightened volatility in commodity prices or global risk premia).
  - Policy efforts to strengthen domestic resilience: build more international liquidity buffers, strengthen effectiveness of policy instruments, durably raise revenues over the medium-term, and continue reserve accumulation to preserve adequacy ratios.

### Assessment of FCL qualification
- Staff assesses Colombia continues to meet FCL qualification criteria; Colombia has very strong macroeconomic policies and institutional policy frameworks.
- Sustainable external position:
  - 2021 external position assessed moderately weaker than level implied by medium-term fundamentals and desirable policies.
  - Current account deficit projected to narrow from 5.7 to 3.3 percent of GDP this year (driven mainly by higher export prices, recovery in services exports, and moderating import growth).
  - Over the medium term, current account deficit expected to widen to around 4 percent of GDP.
  - External debt/GDP ratio projected to decline to 58 percent of GDP and stabilize around this ratio over the medium term.
- Capital account position:
  - Public liabilities account for 24 percent of international investment liability stocks; FDI accounts for 57 percent.
  - Reliance on net portfolio inflows projected to remain low at about 1 percent of GDP over the medium term.
- Sovereign access to international capital markets:
  - Colombia has had uninterrupted access since the early 2000s.
  - Public sector issued or guaranteed external bonds or commercial loan disbursements in international markets during each of the last 6 years in cumulative amount equivalent to around 686 percent of Colombia’s Fund quota (well above FCL threshold of 50 percent of quota).
- International reserve position:
  - Gross international reserves: USD 59.1 billion in December 2021; USD 58.5 billion in December 2020.
  - Gross international reserve holdings around 139 percent of ARA metric on average over three years, exceeding FCL threshold of 100 percent.
- Public finances and debt sustainability:
  - Staff assesses public debt to be sustainable with high probability.
  - Fiscal policy underpinned by strengthened fiscal framework with structural balance rule and a debt anchor.
  - Gross public debt projected to converge to the debt anchor of 55 percent of GDP by 2026 if authorities meet SIL fiscal targets; debt could rise with fiscal slippages or global shocks.
  - Favorable maturity and currency structure of public debt mitigates risks.
- Inflation and monetary regime:
  - Colombia has maintained single digit inflation since 2000; central bank committed to inflation targeting and flexible exchange rate.
  - Headline inflation has risen well above the central bank’s target of 3 percent; central bank has raised the policy rate.
- Financial system soundness:
  - Banking system capital adequacy ratio stood at 22 percent as of November 2021; Tier-1 capital at 17.8 percent.
  - Liquidity: LCR of around 200 percent.
  - 2022 FSAP concluded banks are largely resilient to solvency and liquidity shocks.
- Financial sector supervision and regulatory alignment:
  - Regulatory and supervisory frameworks considerably strengthened; capital and liquidity standards being brought in line with Basel III.
  - Capital requirement for operational risk introduced in 2019Q3.
  - Capital conservation and systemic risk buffers being phased in over 2020-24.
  - The conglomerates law (September 2017) is being implemented.
- Data transparency and integrity:
  - Colombia remains in observance of the SDDS and publishes relevant data on a timely basis.
  - Fiscal transparency evaluation (April 2017) noted significant progress in building strong fiscal institutions and implementation of FTC recommendations (e.g., improved reporting of fiscal risks in the Medium-Term Fiscal Framework).
- Track record:
  - Staff’s assessment that all relevant core indicators were met in each of the five most recent years supports Colombia’s sustained track record of implementing very strong policies.

*Source: IMF staff.*

### 17.      Regarding government effectiveness, Colombia compares relatively well to peers and

### 1colea2022004 - 17.      Regarding government effectiveness, Colombia compares relatively well to peers and

### Governance performance and recent reforms
- Colombia has combined strengthening of the legal framework for governance and transparency with wider access to information and organizational changes to improve governance.
- The OECD has noted fundamental changes over the last ten years and significant progress in implementing its governance agenda.
- Worldwide Governance Indicators (ranges from approximately -2.5 (weak) to 2.5 (strong) governance performance) show Colombia’s scores improved in recent years on government effectiveness and control of corruption.
- Colombia exhibits strong governance indicators, well above peers, on:
  - regulatory quality,
  - government effectiveness,
  - voice and accountability.
- The rule of law is an area of recent weakening, and past social unrest has been in part motivated by the perception of corruption.
- Recent governance achievements include the publication of income tax returns for public servants and the increased use of big data and analytics to improve risk management.

### Access considerations under adverse scenario — rationale and requested access
- Staff considers access of 350 percent of quota requested by Colombia should provide sufficient coverage against balance of payments risks.
- The requested access is SDR 7.1557 billion or 350 percent of quota.
- Reduced FCL access aligns with a reduction in external vulnerabilities given lower external financing needs with higher commodity prices compared to 2020-21.
- The reduction in access reflects the authorities’ intended gradual exit path from the FCL.

### Adverse scenario composition and key assumptions
- The adverse scenario modifies the composition of shocks relative to the 2020 FCL arrangement and 2020 augmentation:
  - Shock to MLT public debt flows calibrated as a 40 percent decline in disbursements relative to baseline (in US dollar terms, this shock is US$5.2 billion).
  - Oil price shock reduced to a 24 percent price decline from baseline levels (compared to 28 percent in the 2020 request and 35 percent for the augmentation request).
  - Assumed drawdown of reserves is higher given additional reserves accumulated since the 2020 FCL request; drawdown still leaves reserves modestly above 100 percent of ARA (100–150 percent adequate range).
- Selected scenario assumptions (In percent change vis-à-vis baseline, unless otherwise indicated):
  - Oil price decline: 24 (2022 New arrangement) | 35 (2021 2020 FCL augmentation) | 28 (2020 2020 FCL arrangement)
  - FDI reduction: 20 (2022) | 20 (2021) | 20 (2020)
  - MLT public sector rollover: 60 percent of baseline disbursement (2022) | 80 (2021) | 80 (2020)
  - ST public sector rollover: 80 (2022) | 80 (2021) | 80 (2020)
  - MLT private sector rollover: 73 (2022) | 73 (2021) | 73 (2020)
  - ST private sector rollover: 80 (2022) | 80 (2021) | 80 (2020)
  - Other portfolio flows: 1 standard deviation (2022) | 1 standard deviation (2021) | $1 billion outflow (2020)

### Key contributors to estimated financing gap (deviations from baseline)
- Current Account Deficit: 5,274 (2022 New arrangement) | 6,564 (2021 2020 FCL augmentation) | 4,722 (2020 2020 FCL arrangement)  (US$ millions)
- Financial Account Shock: 17,246 (2022) | 17,697 (2021) | 15,578 (2020)  (US$ millions)
- Reserve drawdown: 12,491 (2022) | 11,986 (2021) | 9,459 (2020)  (US$ millions)
- Remaining gap: 10,029 (2022) | 12,275 (2021) | 10,841 (2020)  (US$ millions)
- Remaining gap in percent of quota: 350 (2022) | 420 (2021) | 384 (2020)
- Note: 600 percent of quota was approved in September 2020 (from the original 384), of which 183 percent of quota has been disbursed.

### Sectoral and flow-specific impacts (adverse scenario)
- Current account:
  - A projected decline in the price of oil by 24 percent on average for 2022 leads to a proportional decline in oil exports.
  - Estimated impact on the current account deficit is US$ 5.3 billion.
- Private sector corporate debt:
  - Short-term private external debt rose about 30 percent between 2017 and 2019 under favorable conditions.
  - During 2020, 2021, and 2022 more than US$33 billion of private sector debt comes due per year, compared to US$25 billion in 2018.
  - Assumed rollover rates under adverse scenario: short-term private external debt 80 percent, long-term private external debt 73 percent.
  - These assumptions generate a financing gap of roughly US$7 billion under the adverse scenario in 2022.
- Government financing and FDI:
  - A shock where expected disbursements fall by 40 percent generates a financing gap of US$5.2 billion.
  - Shocks to FDI and other capital flows equal US$4.8 billion.
  - Combined with private-sector debt shortfalls, the combined shock to the financial account is US$17.2 billion.

### Aggregate balance of payments and reserve use
- Combined shocks to the current account deficit and financial account would amount to US$22.5 billion.
- Assumed reserve drawdown would reduce reserves by US$12.5 billion and would cover roughly half the balance of payments shock.
- Despite larger drawdown, reserve coverage as measured by the ARA metric would be 103 percent—within the 100-150 percent adequate range.
- Even after these measures, a financing gap of US$10 billion would remain—consistent with the requested level of access.

### Impact on Fund finances, risks, and safeguards
- The Fund’s liquidity is expected to remain adequate after approval of the proposed FCL arrangement (SDR 7.1557 billion or 350 percent of quota) and cancellation of the current arrangement.
- Credit-related risks to the Fund are judged to remain moderate.
- Colombia’s external debt is expected to decline to 58.1 percent of GDP this year on account of a better-than-expected fiscal outturn.
- In an adverse scenario of further depreciation, Colombia's external debt would peak at 82 percent of GDP in 2024 and remain on a sustainable medium-term path.
- Safeguards procedures for Colombia's 2022 FCL arrangement are substantially completed with no significant issues; KPMG Colombia issued an unmodified audit opinion on the BRC’s 2021 financial statements.

### Staff appraisal and policy recommendations
- Colombia continues to benefit from the FCL as insurance against external risks and as a signal of the quality of macroeconomic policies and institutional policy frameworks.
- Colombia meets the qualification criteria for an FCL arrangement, demonstrating external, financial, and fiscal stability; meets all quantitative qualification criteria.
- Staff considers the proposed reduction in access to 350 percent of quota appropriate, reflecting:
  - authorities’ strategy of gradually phasing out FCL use,
  - authorities’ reserve accumulation in recent years,
  - persistence of high external financing needs and vulnerability to external shocks.
- Staff welcomes the authorities’ commitment to an exit strategy from the FCL and recommends that, as risks recede and market conditions improve, Colombia:
  - consider further reducing access to the FCL,
  - resume reserve accumulation to better cover financing needs in adverse scenarios and facilitate a steady exit from the FCL from a stronger international liquidity position.
- Political context note: a new administration will take office on August 7, 2022; leading presidential candidates have provided political assurances on continuity of key policies and maintaining very strong policy frameworks.

*Source: IMF staff analysis and Country Report material in the provided content unit.*

### 31.      Staff considers that the proposed  FCL arrangement carries moderate risks to the Fund.

### 1colea2022004 - 31.      Staff considers that the proposed  FCL arrangement carries moderate risks to the Fund.

### Assessment of FCL Risks to the Fund
- Staff considers that the proposed FCL arrangement "carries moderate risks to the Fund."
- Colombia intends to treat the FCL arrangement as precautionary.
- The Fund’s credit exposure to Colombia, including the past FCL disbursement, would remain moderate even with a possible drawing under the new arrangement.
- Risks are further contained by:
  - Colombia’s "very strong repurchasing record with the Fund."
  - A "manageable external debt service profile."
- The proposed new commitment and cancellation of the current arrangement would have a "net positive impact on the Fund’s liquidity position."

### Recent Economic Developments (selected indicators and projections)
- Real GDP growth:
  - 2020: -7.0
  - 2021: 10.6
  - 2022 (projection): 5.8
  - 2023 (projection): 3.6
  - 2024–2027 (annual projections): 3.4, 3.4, 3.4, 3.4
- GDP per capita (US$), 2021: 6,157
- GDP (in billion of Col$), 2021: 1,176,695
- GDP (in billion of US$), 2021: 314
- Unemployment rate, 2021 (SA, percent): 13.7
- Consumer prices, end of period (eop):
  - 2020: 1.6
  - 2021: 6.9
  - 2022–2024 projections (eop): 3.8, 3.0, 3.0

### External Sector, Reserves, and Financing
- Current account (percent of GDP):
  - 2017: -3.2
  - 2018: -4.2
  - 2019: -4.6
  - 2020: -3.4
  - 2021: -5.7
  - 2022–2027 (projections): -3.3, -3.4, -3.8, -3.9, -3.9, -3.9
- Gross international reserves (end-2021):
  - In US$ billions (end-2021): 58.5 (Table 6 shows Gross official reserve assets in billions of US$ as 58.5)
  - GIR to GDP, end-2020 (In percent): reported in figure context; specific comparative metrics include:
    - "Without the buffer, reserves coverage excluding the FCL is 145percent."
- External debt (percent of GDP):
  - 2017: 47.3
  - 2018: 46.7
  - 2019: 50.1
  - 2020: 65.6
  - 2021: 60.3
  - 2022–2027 (projections): 58.1, 58.4, 59.1, 59.0, 58.6, 58.2
- External debt service (percent of GNFS exports):
  - 2017: 73.7
  - 2018: 70.8
  - 2019: 77.8
  - 2020: 113.0
  - 2021: 87.0
  - 2022–2027 (projections): 59.5, 62.6, 72.1, 73.1, 72.8, 73.7

### Financial Developments and Vulnerabilities
- Sovereign spreads, government bond issuance, and reserve coverage are presented in context showing:
  - Sovereign spreads and bond issuance trends across 2011–2021 (Figure 4).
  - Financial conditions tightened but real credit growth appears to be entering an upswing.
- Banking sector indicators (Table 9 and Table 8 context):
  - Nonperforming loans (NPLs) are declining rapidly below pre-pandemic levels (Figure 3).
  - Financial soundness (end-of-period values, 2021 data up to Nov 2021):
    - Regulatory capital to risk-weighted assets (2021): 22.0
    - Regulatory Tier 1 capital to risk-weighted assets (2021): 17.8
    - Capital (net worth) to assets (2021): 12.1
    - Provisions to nonperforming loans (2021): 157.6

### Public Debt, Fiscal Outlook, and Debt Sustainability
- Public (gross) debt (percent of GDP):
  - 2020: 65.7
  - 2021: 64.6
  - 2022–2027 (projections): 60.6, 59.2, 57.5, 56.3, 54.5, 52.9
- Central government headline and structural balances:
  - Central government overall balance, 2021: -8.2 percent of GDP (headline, includes one-off receipts under GFSM 1986)
  - Central government structural balance trajectory shows large deficits in 2020–21 and gradual consolidation thereafter.
- Public gross financing needs (in percent of GDP, Figure 8/Table summaries):
  - 2020: 8.7
  - 2021: 10.0
  - Projected path declines to single digits over the medium term.
- Debt sustainability analyses and stress tests show:
  - Baseline, historical, and combined shocks present alternative paths for gross external and public debt.
  - Stress tests include Primary Balance Shock; Real GDP Growth Shock; Real Interest Rate Shock; Real Exchange Rate Shock; Combined Shock; 30 percent depreciation scenarios.
  - Under several shocks, gross nominal public debt and public gross financing needs rise relative to baseline, with explicit projections shown across 2022–2027 in Figures 8–10 and accompanying tables.

### External Financing Needs and Adverse Scenarios
- Table 3 (External Financing Requirements and Sources, 2021−23) highlights:
  - Gross financing requirements (2021 baseline): 55,789 (US$ millions)
  - Available financing (2021 baseline): 55,789 (US$ millions)
  - Under an adverse scenario, available financing falls (e.g., 31,119 in one adverse calibration) generating a financing gap of 10,029 (US$ millions) in the staff’s adverse scenario calibration.
  - Calibrations include shocks such as:
    - "24% shock to oil price; 5% shock to commodity prices."
    - "35% shock to oil exports (prices and volumes); 10% shock to non-oil exports; migration shock; remittances."
    - Reductions to FDI and portfolio flows (e.g., 20% reduction; 100% reduction in equity portfolio investment + $1 bln sell-off in certain scenarios).

### Key Social and Demographic Indicators (selected)
- Population (million), 2021. Projection: 51.0
- Urban population (percent of total), 2020: 81.4
- Life expectancy at birth (years), 2019: 77.3
- Gini coefficient, 2020: 54.4
- Poverty rate, 2020: 42.5

*Source: IMF staff report and statistical tables (Colombia: Selected Economic and Financial Indicators, balance of payments, public debt sustainability analyses, and monetary and financial sector tables).*

### Appendix I. Written Communication

### Appendix I. Written Communication

### Letter from Colombian authorities to IMF Managing Director (Bogotá, March 31, 2022)
- Authorities express gratitude for the approval of the Flexible Credit Line (FCL) in May 2020 and augmentation of access from 384 percent to 600 percent of quota in September 2020.
- Partial disbursement equivalent to 183 percent of quota (SDR 3.75 billion) was effectively made at the end of 2020 to mitigate Balance of Payments pressures related to Covid-19 emergency spending.
- The augmentation and subsequent partial disbursement had a favorable impact on markets and investors, aided by coordinated communication with the IMF.
- Colombia highlights the FCL as:
  - A complement to external liquidity buffers.
  - A confidence-signaling mechanism supporting market access for government, private financial institutions, and corporates.
- Authorities request a new two-year FCL arrangement with:
  - Access level of 350 percent of quota (SDR 7.1557 billion).
  - Cancellation of the current arrangement upon approval.
  - Intention to treat the new FCL as precautionary and to gradually reduce access as external risks recede.
- Institutional commitments emphasized:
  - Reinstatement of the fiscal rule in 2022 via the Social Investment Law (SIL).
  - New medium-term debt anchor of 55 percent of GDP.
  - Autonomous Fiscal Rule Committee (CARF) to bolster independent oversight.
  - Maintenance of independence of powers and an independent Central Bank.

### Recent economic performance and fiscal/monetary stance
- 2021 GDP growth: 10.6 percent; level of output surpasses 2019.
- 2022 projected GDP growth: range of 4.3 percent to 5.0 percent; investment and net exports expected to be main drivers.
- 2021 fiscal deficit: 7.1 percent of GDP (better than Ministry of Finance projection of 8.6 percent).
- 2022 expected fiscal deficit: 6.2 percent of GDP (0.8 percentage points lower than previous forecast).
- Central government debt:
  - 2020: 64.7 percent of GDP
  - 2021: 63.9 percent of GDP
  - 2022 estimated: 62.8 percent of GDP
- Social Investment Law (SIL) measures:
  - Enhances social protection for the most vulnerable.
  - Increases permanent revenues through higher corporate income tax rates.
  - Introduces provisions to reduce tax evasion and informality.
  - Reinstates fiscal rule and sets debt anchor of 55 percent of GDP.
- Monetary policy normalization:
  - Began September 2021.
  - Policy interest rate raised by 225 basis points.
  - Central Bank will continue to monitor conditions to deliver on price stability mandate.
- Financial sector assessment: sound, resilient, and well supervised (as stated in recent IMF FSAP).

### Background on Colombia’s FCL history and current arrangement
- Colombia has had eight FCL arrangements since 2009.
- Timeline highlights:
  - May 11, 2009: one-year FCL SDR 6.966 billion (900 percent of quota).
  - Subsequent one-year and two-year arrangements with varying access (SDR 2.322 billion, SDR 3.870 billion, SDR 8.180 billion, SDR 7.848 billion, SDR 7.850 billion).
  - September 2020: augmentation to 600 percent of quota (SDR 12.267 billion).
  - December 2020: partial drawing SDR 3.75 billion (183.4 percent of quota) — the first-ever FCL drawing by Colombia and first-ever drawing by a member under a FCL arrangement.
- Remaining access under existing arrangement prior to proposed successor:
  - SDR 8.517 billion (417 percent of quota).
- Proposed successor arrangement:
  - Two-year FCL, SDR 7.1557 billion (350 percent of quota).
  - Existing arrangement to be cancelled upon approval.

### Impact on Fund finances and liquidity — baseline and adverse scenarios
- Proposed arrangement would have a net positive impact on the Fund’s liquidity position under staff analysis.
- Baseline projection:
  - Staff envisages no purchase, consistent with authorities’ intention to treat the arrangement as precautionary.
  - Full amount of access would be available throughout the arrangement period, in one or multiple purchases.
- Adverse scenario (where full amount is purchased):
  - Adverse scenario assumes macroeconomic conditions notably worsen vis-à-vis baseline, including shocks similar to those used in 2020 but with somewhat smaller current account shock (less decline in oil prices) and larger reserve drawdown.
  - Adverse scenario assumptions include:
    - Real output drop: real GDP reduced by 5.4 percentage points relative to baseline in 2022.
    - Nominal exchange rate depreciation of 25 percent.
  - Under the adverse scenario:
    - Colombia's total external debt would increase by 26 percentage points of GDP compared with the baseline in 2022.
    - Total external debt and public external debt would peak at 84.9 percent of GDP in 2024, and 57.4 percent in 2022, respectively.
    - Fund credit-to-GDP ratio would peak at 6.4 percent of GDP in 2022.
    - At its peak, outstanding use of GRA resources would account for:
      - 6.4 percent of GDP,
      - 31.6 percent of gross international reserves,
      - 7.6 percent of total external debt.
    - Projected outstanding Fund credit in percent of quota around the peak would be well below that of recent exceptional access cases and FCL arrangements.
    - External debt service including obligations to the Fund would increase over the medium term:
      - Projected debt service to the Fund would peak in 2025 at SDR 3.9 billion, around 2 percent of GDP and about 7.6 percent of exports of goods and services, then decline by 2027.
    - If fully drawn in 2022, Colombia's total external debt service as a share of exports of goods and services would be higher than the median of recent exceptional access cases, reflecting Colombia’s relatively small share of exports in GDP.

### Key projected figures (baseline and adverse scenario excerpts)
- Baseline (selected):
  - Real GDP growth: 2021: 10.6; 2022: 5.8; 2023: 3.6; 2024: 3.4 (percent).
  - Nominal GDP: 2021: 314,268; 2022: 351,281; 2023: 370,470; 2024: 391,832 (in millions of US dollars).
  - Gross international reserves: 2021: 59,124; 2022: 60,165; 2023: 61,490; 2024: 62,944 (in millions of US dollars).
  - Total external debt (percent of GDP): 2021: 60.3; 2022: 58.1; 2023: 58.4; 2024: 59.1.
  - Public external debt (percent of GDP): 2021: 38.7; 2022: 37.8; 2023: 37.4; 2024: 36.8.
  - Oil Price (WEO APSP, US$ per barrel): 2021: 69.1; 2022: 106.8; 2023: 92.6; 2024: 84.2.
  - Consumer prices (percent change, average): 2021: 3.5; 2022: 7.7; 2023: 4.2; 2024: 3.5.
- Adverse scenario (selected):
  - Real GDP growth: 2021: 10.6; 2022: 0.4; 2023: 3.3; 2024: 3.4 (percent).
  - Nominal GDP: 2021: 314,268; 2022: 239,598; 2023: 254,048; 2024: 270,105 (in millions of US dollars).
  - Gross international reserves: 2021: 59,124; 2022: 48,715; 2023: 50,040; 2024: 51,494 (in millions of US dollars).
  - Total external debt (percent of GDP): 2021: 60.3; 2022: 84.2; 2023: 84.3; 2024: 84.9.
  - Public external debt (percent of GDP): 2021: 38.7; 2022: 57.4; 2023: 56.4; 2024: 55.1.
  - Oil Price (WEO APSP, US$ per barrel): 2021: 69.1; 2022: 81.2; 2023: 70.4; 2024: 84.2.
  - Consumer prices (percent change, average): 2021: 3.5; 2022: 8.8; 2023: 5.4; 2024: 4.4.

*Source: Appendix I. Written Communication, Colombia — Assessment of the Impact of the Proposed Arrangement under the Flexible Credit Line on the Fund’s Finances and Liquidity Position (April 15, 2022).*

### 11.      The approval of the proposed FCL arrangement and cancellation of the existing one

### 11.      The approval of the proposed FCL arrangement and cancellation of the existing one

### Impact on Fund liquidity (Forward Commitment Capacity)
- Cancellation of the existing FCL arrangement would free up SDR 8.517 billion, compared with SDR 7.1557 billion committed upon approval of the proposed arrangement.
- Other things equal, access under the FCL arrangement would increase the FCC slightly from currently SDR 146.4 billion to SDR 147.8 billion as of March 28, 2022.
- Liquidity measures (as of 3/28/22):
  - Current Forward Commitment Capacity (FCC): 146,430
  - FCC on approval: 147,791
  - Change in percent: 0.9
- Assessment (paragraph 14) clarifies cancellation of the current FCL arrangement in the amount of SDR 12.267 billion (with undrawn balance at SDR 8.5256 billion), followed by approval of a new FCL arrangement in the amount of SDR 7.1557 billion, is expected to marginally increase the Fund's overall liquidity.

### Fund exposure to Colombia and concentration risks
- If the entire amount available under the proposed FCL arrangement were drawn:
  - Credit to Colombia would be about 7 percent of total GRA credit outstanding as of March 28, 2022.
  - Colombia would become the third largest GRA borrower among current arrangements.
  - The concentration of Fund credit toward the top five users would increase modestly from 69.1 percent to about 70.1 percent of total GRA credit outstanding.
  - Potential GRA exposure to Colombia would be about 35 percent of the Fund's current precautionary balances.
- Prudential measures, assuming full FCL drawing:
  - Fund credit to Colombia:
    - In percent of total GRA credit outstanding: 7.0
    - In percent of current precautionary balances: 35.0
  - Fund credit outstanding to five largest debtors:
    - In percent of total GRA credit outstanding, before approval: 69.1
    - In percent of total GRA credit outstanding including Colombia's assumed full drawing: 70.1
- Memo items:
  - Current precautionary balances (January 31st, 2022): 20,443
  - Total FCL commitments, including proposed FCL arrangement: 68,257
  - Quota of FTP members with actual and proposed FCLs, in percent of total quota of FTP members: 3.0

### Regional and facility composition effects
- Regional concentration:
  - Western Hemisphere currently accounts for about 73 percent of GRA credit and undrawn balances, including for arrangements treated as precautionary.
  - With the proposed FCL arrangement for Colombia and cancellation of the current FCL arrangement, that share would remain mostly unchanged.
- Facility composition:
  - Commitments under FCL arrangements stood at around SDR 73.4 billion on March 29, 2022, or 60 percent of total GRA commitments.
  - With the proposed FCL for Colombia and cancellation of the current FCL, the share of commitments from FCL arrangements in total would decrease to 58 percent.

### Assessment of risks, capacity to repay, and policy implications
- Staff view (paragraph 14): the proposed new arrangement will have a positive net impact on the Fund's overall liquidity position; if Colombia were to draw the full amount, the effect on the Fund's liquidity would be relatively small.
- Staff considers that the proposed FCL arrangement carries moderate credit related risks to the Fund (paragraph 15):
  - Full drawing would account for about 7 percent of total GRA credit outstanding and about 35 percent of existing precautionary balances.
  - Mitigating factors:
    - Colombia intends to treat the FCL arrangement as precautionary.
    - Colombia has a sustained track record of implementing very strong policies through past shocks.
    - Political assurances from leading presidential candidates provide safeguards for policy continuity despite a new administration taking office on August 7, 2022.
    - Colombia's capacity to repay is projected to remain adequate under both the baseline and the adverse scenario requiring full drawing.
    - External debt trajectory is assessed as sustainable over the medium term, including in an adverse scenario.
    - Colombia has an excellent track-record of meeting its financial obligations.
- Policy recommendation (paragraph 16):
  - Authorities remain committed to a gradual exit from the FCL, risks permitting.
  - Once external shocks and risks clearly recede, Colombia should consider further reducing access to the FCL given its very strong policy framework and adequate reserve position.
  - When market conditions improve, resuming reserve accumulation would help meet authorities’ objectives to cover financing needs in adverse scenarios and facilitate a steady exit from the FCL from a stronger international liquidity position.

### Selected quantitative capacity-to-repay and debt-service indicators (Table 3, illustrative entries)
- GRA credit to Colombia (in SDR millions), scenarios shown in Table 3:
  - 2019: --3,750.0
  - 2020: 3,750.0
  - 2021: 10,905.7
  - 2022: 10,905.7
  - 2023: 9,030.7
  - 2024: 5,366.8
  - 2025: 1,788.9
- GRA credit to Colombia (in percent of quota), selected years:
  - 2019: --183.4
  - 2020: 183.4
  - 2021: 533.4
  - 2022: 533.4
  - 2023: 441.7
  - 2024: 262.5
  - 2025: 87.5
- Charges due on GRA credit (in SDR millions), selected entries:
  - 2020: 18.8
  - 2021: 37.2
  - 2022: 188.4
  - 2023: 278.1
- Memo items in Table 3:
  - U. S. dollars per SDR (period average) by year: 2019: 1.38; 2020: 1.39; 2021: 1.42; 2022: 1.41; 2023: 1.43; 2024: 1.44; 2025: 1.45; 2026: 1.46; 2027: 1.47
  - Oil Price (WEO APSP, US$ per barrel) by year: 2019: 61.44; 2020: 41.36; 2021: 69.11; 2022: 106.89; 2023: 92.68; 2024: 84.27; 2025: 78.57; 2026: 74.77; 2027: 72.5

*International Monetary Fund — 1colea2022004, “The approval of the proposed FCL arrangement and cancellation of the existing one”*

### Annex I. History of IMF Arrangements

### Annex I. History of IMF Arrangements

### Overview of IMF engagement (1999–2020)
- Colombia had eleven Fund arrangements since 1999 and has drawn on Fund resources in 2020.
- The proposed FCL in 2022 is the twelfth Fund arrangement for Colombia.

### Chronology of major arrangements and key amounts
- 1999: Extended Fund Facility (EFF) approved 20-Dec-99 to 19-Dec-02, Amount SDR 1,957 million (253 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2003: Stand-by Arrangement (SBA) approved 15-Jan-03 to 2-May-05, Amount SDR 1,548 million (200 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2005: Stand-by Arrangement (SBA) approved 2-May-05 to 2-Nov-06, Amount SDR 405 million (52 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2009: Flexible Credit Line (FCL) approved 11-May-09 to 6-May-10, Amount SDR 6,966 million (900 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2010: FCL approved 7-May-10 to 5-May-11, Amount SDR 2,322 million (300 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2011: FCL approved 6-May-11 to 5-May-13, Amount SDR 3,870 million (500 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2013: FCL approved 24-Jun-13 to 16-Jun-15, Amount SDR 3,870 million (500 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2015: FCL approved 17-Jun-15 to 12-Jun-16, Amount SDR 3,870 million (500 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2016: FCL approved 13-Jun-16 to 24-May-18, Amount SDR 8,180 million (400 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2018: FCL approved 25-May-18 to 24-May-20, Amount SDR 7,848 million (384 percent of quota), Drawn 0, Purchases 0, Repurchases 0, Outstanding 0.
- 2020: FCL approved 1-May-20 to 30-Apr-22, Initial access SDR 7.85 billion (see note 1/); augmented to SDR 12.267 billion in September 2020 (600 percent of quota); Purchases SDR 3.75 billion in December 2020; Table entry shows Amount SDR 12,267 (1/), 600 percent of quota, Drawn/Purchases 3.75/103.75.

Note: 1/ The initial access approved starting May 1st, 2020 was SDR 7.85 billion, which was later augmented to SDR 12.267 billion in September 2020.

### Purpose and evolution of FCL usage
- The FCL arrangements were designed to support Colombia’s economic policies and bolster confidence during crises.
- Colombia treated access to the FCL as a precautionary buffer and has progressively adjusted access levels over time.
- The 2020 FCL was used for a purchase of SDR 3.75 billion in December 2020.

### Statement by Romero Tarazona — Key messages and policy context (April 29, 2022)
- Appreciation and objective:
  - Authorities thanked IMF management, Board and staff for support in considering the Flexible Credit Line (FCL) for Colombia.
  - The request is for a new two-year FCL agreement with a reduction in the level of the FCL to signal commitment to an exit plan aligned with the instrument's temporary nature.

- Political assurances and policy continuity:
  - Authorities provided and complied with the need to provide political assurances to the Fund.
  - Policy continuity is underpinned by a strong political consensus in Colombia on macroeconomic stability and very strong policy frameworks.
  - Commitment to maintain very strong policies and to respond appropriately to shocks.

- Economic performance and outlook:
  - Growth rate for 2021 was 10.6 percent, with GDP exceeding pre-pandemic levels earlier than anticipated.
  - Forecast for 2022 is to grow above initial expectations.
  - Inflation has trended upward, driven mainly by supply-side shocks amid strong domestic demand; the Central Bank has stepped up the pace of tightening its policy stance.
  - External deficit expected to narrow from -5.7 percent in 2021 to -3.3 percent in 2022, following improved terms of trade and positive performance of non-commodity exports.

- Fiscal developments:
  - Fiscal deficit in 2021 was lower than in 2020 and 1.5 percent of GDP below the level expected in the medium-term fiscal framework published in July by the government.
  - In the second half of 2021, the Government and Congress passed a fiscal consolidation plan into law, including tax adjustments expected to increase fiscal revenues starting next year.
  - The law introduced the debt level as an anchor in the Fiscal Rule (FR), clarified escape clauses, and provided oversight by an Autonomous Fiscal Committee (CARF).
  - Modernization of the Tax Authorities is financed through a public project fund created by law (Fondo DIAN para Colombia), set to continue execution in following years.

- Risks and external environment:
  - High global uncertainty due to the war in Ukraine, global inflation, and the need to build external buffers for low- and middle-income countries.
  - Latent liquidity risk: recent inflation dynamics in advanced economies could lead to faster-than-expected normalization of monetary policy and unexpected tightening of international financial conditions.
  - Recent slowdown in capital inflows to emerging market economies.
  - Pandemic risks persist with potential new waves affecting supply chains, global trade, activity, and prices.
  - Short-term effects of the Ukraine–Russia war: some emerging markets may benefit from capital inflows and higher commodity prices; as an oil exporter, Colombia’s terms of trade have improved and portfolio capital appears to have flowed into the country, inducing currency appreciation.
  - Medium-term concerns: higher inflationary pressures, persistence of geopolitical tensions, trade disruptions increasing inflationary pressures, tighter global financial conditions dampening global recovery, and potential second-round effects on risk perceptions toward emerging markets affecting capital inflows.

- Rationale for new FCL request and access level:
  - The FCL was a key complement to Colombia’s macroeconomic policy framework during the pandemic and provided an important signal to markets.
  - Authorities requested a new FCL arrangement with a reduction of access to 350 percent of quota to treat access as precautionary and to exit the instrument responsibly.
  - Intention to continue reducing access by the end of the new arrangement in 2024, risk permitting, and to propose a supported FCL exit plan at the mid-term FCL review if conditions stabilize.

- Closing acknowledgments:
  - Gratitude expressed to IMF directors for constructive comments and support for the FCL as a buffer for external risks and a signal supporting policy credibility.
  - Specific thanks to Hamid Faruqee and his team for their work.

*Source: Finance Department.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1colea2022004.pdf_