## Expanded Flexible Credit Line Will Help Colombia Cope with COVID-19

_IMF News, September 25, 2020_

## Source details

**Canonical URL:** [Expanded Flexible Credit Line Will Help Colombia Cope with COVID-19](https://www.imf.org/en/news/articles/2020/09/25/na092520-expanded-flexible-credit-line-will-help-colombia-cope-with-covid-19)

## Other formats

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## Bibliographic details
- Published: September 25, 2020

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### Overview
- Colombia has maintained a Flexible Credit Line (FCL) arrangement with the IMF since 2009 and renewed it most recently in May.
- On September 25, 2020, the IMF Executive Board approved a request to increase it:
  - "about US$ 6.5 billion, to a total of US$ 17.3 billion."
  - (Elsewhere in the same text the increase is reported as) "about US$ 6.2 billion, to a total of US$ 17.2 billion."

### Economic context and rationale for expanding the FCL
- Colombia is facing its first recession in two decades, and "the worst on record" due to the COVID19 pandemic.
- At the time of the May renewal, GDP was projected to shrink by 2.5 percent; the updated growth forecast is "-8.2 percent."
- The national lockdown was "much longer than expected" and external risks are higher given substantial uncertainty about the pandemic’s future course.
- The central government’s fiscal deficit is expected to reach "8.2 percent of GDP" (from "4.9 percent estimated in May").
- Financing needs rose from an average of "8 percent of GDP in the last 5 years" to "about 13 percent in 2020."

### How the larger FCL helps
- The larger credit line addresses higher-than-expected balance of payments needs arising from the pandemic.
- As a flexible instrument, the FCL can address both actual and potential balance of payments needs and, combined with Colombia’s international reserves, provides added insurance against heightened external risks.
- If used, the resources will:
  - finance a budget deficit that "has almost doubled since May";
  - support spending on health (for example, more intensive care beds);
  - support vulnerable households, unemployed and informal workers;
  - help firms with payroll support;
  - meet the country’s financing needs.
- The FCL interest rate is noted as lower than what Colombia would have gotten with debt issuances.

### Usage, access, and conditionality
- Conditions come beforehand: a country must pre-qualify by showing a very strong track record of policies and economic fundamentals.
- Once approved, access to resources is unconditional; usage does not trigger ex-post conditionality.
- For the increase, Colombia had to show it continued to qualify to have the line increased.

### Colombia’s financing choices and market access
- Colombia continued to access markets in 2020:
  - placed "30-year bonds" in September;
  - "issued US$4.3 billion abroad and about US$ 10.5 billion domestically."
- Reasons for considering drawing on the FCL rather than relying solely on markets:
  - diversifying financing sources to avoid putting excessive pressure on domestic markets and "crowd out" the private sector;
  - the FCL offers lower interest rates compared with potential market debt issuances.

### Implications for the IMF and the FCL instrument
- The FCL was designed to provide upfront access to IMF resources for countries with strong fundamentals as insurance and backstop during crises—exactly the circumstances in Colombia.
- Other countries have not used the line so far because they did not have to; the resources have always been available.
- Colombia is the first country to request a change to its credit line outside of the regular reviews (one year after approval or renewal after two years), illustrating the IMF’s agility and the "flexible" nature of the FCL.

*Source: IMF news article "Expanded Flexible Credit Line Will Help Colombia Cope with COVID-19", September 25, 2020.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the press release](https://www.imf.org/en/News/Articles/2020/09/25/pr20300-colombia-imf-executive-board-approves-augmentation-of-the-flexible-credit-line)
- [Flexible Credit Line factsheet](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/40/Flexible-Credit-Line)
- [Colombia and the IMF](https://www.imf.org/en/Countries/COL)
- [Outlook for Latin America and the Caribbean: An Intensifying Pandemic](https://blogs.imf.org/2020/06/26/outlook-for-latin-america-and-the-caribbean-an-intensifying-pandemic/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/09/25/na092520-expanded-flexible-credit-line-will-help-colombia-cope-with-covid-19_