IMF Executive Board Approves US$2.7 billion Precautionary and Liquidity Line for Panama to Address COVID-19 Pandemic
IMF News, January 20, 2021
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- Published: January 20, 2021
Overview
- The IMF Executive Board approved a two-year arrangement for Panama under the Precautionary and Liquidity Line (PLL) in the amount equivalent to US$2.7 billion (SDR 1.884 billion).
- The arrangement is intended to serve as insurance against extreme external shocks stemming from the COVID-19 pandemic.
- The access under the PLL in the first year will be equivalent to about US$1.35 billion (0.942 billion SDR).
- The authorities intend to treat the arrangement as precautionary.
Key figures and terms
- Total PLL amount: US$2.7 billion (SDR 1.884 billion).
- First-year access: about US$1.35 billion (0.942 billion SDR).
- PLL amount expressed as percent of quota: 500 percent of Panama’s quota.
- Duration: two-year arrangement.
Economic context and rationale
- In 2020, Panama experienced:
- A significant reduction in economic activity due to containment measures, especially in tourism.
- Additional damage from hurricane Eta and tropical storm Iota that curtailed a large part of agricultural production.
- An estimated output drop of 9 percent.
- A significantly deteriorated fiscal position amid revenue shortfalls and expenditure pressures.
- While Panama can cover its external financing needs under present conditions, the PLL provides insurance against downside risks and is expected to boost market confidence.
IMF assessment and Executive Board statement (Mitsuiro Furusawa)
- Panama qualifies for the PLL because of:
- Sound economic fundamentals.
- Strong institutional policy frameworks.
- Long track record of good economic performance and policy implementation.
- Commitment to maintain such policies in the future.
- Qualification specifics cited by Mr. Mitsuhiro Furusawa:
- Panama performs strongly in three out of the five qualification areas: external, fiscal and monetary.
- Panama does not substantially underperform in the other two areas: financial and data.
- Panama meets the criteria for exceptional access.
- The PLL will help:
- The authorities’ economic recovery efforts against the pandemic.
- Address outstanding vulnerabilities.
- Boost market confidence.
Policy priorities and recommended measures under the PLL
- Support an adequate level of spending on health and the social sectors during the pandemic.
- Continue strengthening institutional policy frameworks, including:
- Financial integrity.
- Data adequacy.
- Prepare the economy for the post-pandemic recovery.
- Specific measures implemented by the authorities cited in the statement:
- Temporary relaxation of fiscal deficit limits under the Social and Fiscal Responsibility Law to support health and social-related expenditures.
- Permitting banks to drawdown their accumulated dynamic provisioning to absorb credit losses.
- Loan restructurings for affected borrowers.
- Commitment to a gradual fiscal consolidation and recalibration of policy responses once the pandemic recedes.
- Policy agenda during the PLL will focus on:
- Facilitating prompt exit from the FATF grey list.
- Strengthening data adequacy and public financial management.
- Preparing the economy for post-pandemic recovery.
PLL features and context
- The PLL was introduced in 2011 to more flexibly meet liquidity needs of member countries with sound fundamentals and strong records of policy implementation but with some remaining vulnerabilities.
- The arrangement is declared precautionary by the Panamanian authorities.
IMF Press Release No. 21/19 — January 19, 2021