## Precautionary Credit Line Provides Panama with Crisis Insurance

_IMF News, January 20, 2021_

## Source details

**Canonical URL:** [Precautionary Credit Line Provides Panama with Crisis Insurance](https://www.imf.org/en/news/articles/2021/01/19/na012021-precautionary-credit-line-provides-panama-with-crisis-insurance)

## Other formats

- [Markdown version](/en/news/articles/2021/01/19/na012021-precautionary-credit-line-provides-panama-with-crisis-insurance/index.md)
- [Structured JSON version](/en/news/articles/2021/01/19/na012021-precautionary-credit-line-provides-panama-with-crisis-insurance/index.json)
- [Bundle manifest](/en/news/articles/2021/01/19/na012021-precautionary-credit-line-provides-panama-with-crisis-insurance/bundle-manifest.json)

## Bibliographic details
- Published: January 20, 2021

---

### Pandemic impact and macroeconomic fallout
- Panama was "severely affected" by the COVID-19 pandemic due to its role as a regional trade, transportation, and finance hub.
- Key observed impacts:
  - Ship traffic through the Panama Canal dropped by "about 10 percent".
  - Use of electricity fell by "some 7 percent in 2020".
  - Output dropped by "an estimated 9 percent in 2020".
  - Health and social spending pressures "surged".
  - Panama has "one of the highest COVID-19 fatality rates in the world".
  - Nationwide lockdowns were enforced; contagion "remain high, particularly around Panama City".
  - Tax revenues—already "well below the regional average"—have fallen, resulting in a widening fiscal deficit and an increase in public debt.

### Rationale for the 2-year Precautionary Liquidity Line of $2.7 billion
- The arrangement is described as an "insurance policy against risks" and aims to "boost investor confidence".
- It provides contingent access to liquidity if a second wave of COVID-19 or other shocks trigger a deeper recession or disruptions in private capital flows.
- Qualifying for a precautionary credit line requires "sound economic fundamentals and institutional policy frameworks, and a good track record of economic performance", which the line also signals to markets.

### Policy priorities supported by the arrangement
- Immediate priorities:
  - Facilitating vaccination.
  - Supporting an adequate level of social and health spending.
  - Continuing to strengthen institutional policy frameworks, including financial integrity and data adequacy.
  - Preparing the economy for a post-pandemic recovery.
- How the precautionary line helps:
  - Boosts market confidence.
  - Provides protection against risks, helping the country "weather the crisis and lay the groundwork for recovery".

### Past IMF engagement and structural reforms
- Historical engagement:
  - Panama has had "20 IMF programs, two-thirds of them precautionary".
- Reforms achieved under past programs included:
  - Reinforcing expenditure controls.
  - Strengthening revenue collection.
  - Privatizing enterprises.
  - Improving financial supervision.
  - Combating money laundering.
  - Establishing targeted transfer programs to reduce poverty.
- Outcomes attributed to these reforms:
  - The economy grew at an "average rate of 6 percent between 1992 and 2019".
  - Achieved "the highest per capita income in Latin America".

### Financial integrity and FATF de-listing efforts
- Panama agreed on an action plan with the Financial Action Task Force (FATF) to address weaknesses related to financial integrity.
- Authorities have hired "highly qualified international experts on anti-money laundering and combating the financing of terrorism" to guide the de-listing process and ensure adherence to international standards.
- The IMF is providing technical assistance in this area.

*International Monetary Fund — "Precautionary Credit Line Provides Panama with Crisis Insurance" (January 20, 2021).*

---


## 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/2021/01/20/pr2119-imf-executive-board-approves-billion-precautionary-and-liquidity-line-for-panama)
- [Panama and the IMF](https://www.imf.org/en/Countries/PAN)
- [Factsheet: IMF Precautionary and Liquidity Line](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/45/Precautionary-and-Liquidity-Line)
- [IMF and COVID-19](https://www.imf.org/en/Topics/imf-and-covid19)
- [Regional Focus: Central America](https://www.imf.org/en/News/Articles/2020/12/15/na121720when-it-rains-it-pours-pandemic-and-natural-disasters-challenge-central-americas-economies)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/01/19/na012021-precautionary-credit-line-provides-panama-with-crisis-insurance_