Front Matter Page
IMF Country Report No. 18/150
COLOMBIA
ARRANGEMENT UNDER THE FLEXIBLE CREDIT LINE AND CANCELLATION OF CURRENT ARRANGEMENT—PRESS RELEASE AND STAFF REPORT
June 2018
In the context of the arrangement under the Flexible Credit Line and cancellation of current arrangement, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 25, 2018. Based on information available at the time of these discussions, the staff report was completed on May 14, 2018.
A Staff Supplement of May 18, 2018 on the assessment of the impact of the proposed Flexible Credit Line arrangement on the Fund’s finances and liquidity position.
A Statement by the Executive Director for Colombia.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
Front Matter Page
COLOMBIA
ARRANGEMENT UNDER THE FLEXIBLE CREDIT LINE AND CANCELLATION OF CURRENT ARRANGEMENT
May 14, 2018
Executive Summary
Background: Colombia is near completion of a successful adjustment to large external shocks guided by its very strong economic policy framework and timely policy actions. The flexible exchange rate, combined with an inflation-targeting regime, effective financial sector supervision and regulation, and a fiscal rule, allowed the country to smooth the impact of a large permanent terms of trade deterioration. Amid continued strong appetite for Colombian assets, foreign participation in the local public debt and equity markets has continued to increase.
Outlook: Growth is expected to accelerate this year and further over the medium term underpinned by a rebound in investment and non-traditional exports. The current account deficit will continue to gradually decline, financed mostly by FDI. The authorities are firmly committed to maintaining their strong policy frameworks and strengthening policy buffers in the period covered by the proposed arrangement. Colombia is in the middle of the campaign for the presidential election, scheduled for May 27. Political assurances on policy continuity from the leading candidates provide a necessary safeguard for the proposed arrangement.
Risks: While the ongoing recovery in global growth has reduced some near-term external risks, global financial markets are vulnerable to a sudden, sharp tightening of financial conditions as a result of an unexpected increase in inflation and/or an escalation of trade or geopolitical tensions. Colombia’s exposure to some of these tail risks has increased in line with larger foreign participation in the local government debt market.
FCL: The authorities are requesting a two-year FCL arrangement for 384 percent of quota (SDR 7.848 billion), which they intend to treat as precautionary, and are notifying the Fund of the cancellation of the current arrangement (SDR 8.18 billion) which expires on June 12, 2018. They consider that a new FCL arrangement in the requested amount would complement existing buffers to provide sufficient insurance against external tail risks and protect Colombia’s ongoing efforts to foster economic diversification and inclusive growth. Staff’s assessment is that Colombia meets the qualification criteria for access to Fund resources under the FCL arrangement. The authorities stated that, conditional on a reduction of global risks, they intend to lower access to Fund resources in any subsequent FCL arrangements, with a view to gradually phasing out Colombia’s use of the FCL instrument. They also intend to prepare a communication strategy to prepare markets for an eventual exit from the instrument.
Fund liquidity: The proposed commitment of SDR 7.848 billion would have a marginal impact on the Fund’s liquidity position.
Process: An informal meeting to consult with the Executive Board on a possible new FCL arrangement for Colombia was held on April 27, 2018.
Approved By
Robert Rennhack and Mary Goodman
The report was prepared by a team comprised of Jorge Roldós (Head), Frederik Toscani, Daniel Rodríguez-Delgado (all WHD), Alina Iancu (SPR), and Farid Jimmy Boumediene (MCM) with support from Cristina Barbosa, and Adrian Robles (all WHD).
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND POLICIES
ROLE OF THE FLEXIBLE CREDIT LINE ARRANGEMENT
A. Benefits of the FCL
B. Evolution of Risks and Exposures
C. Access Considerations Under an Adverse Scenario
D. Exit Strategy
E. Assessment of Qualification
F. Impact on Fund Finances, Risks, and Safeguards
STAFF APPRAISAL
BOXES
1. Foreign Investors’ Participation in Local Government Debt
2. External Economic Stress Index
FIGURES
1. FCL Qualification Criteria
2. Reserve Coverage in an International Perspective
3. Colombia and Selected Countries: Comparing Adverse Scenarios
TABLES
1. Selected Economic and Financial Indicators
2a. Summary Balance of Payments (In millions of US$)
2b. Summary Balance of Payments (In Percent of GDP)
3. External Financing Requirements and Sources, 2016–19
4. Operations of the Central Government
5. Operations of the Combined Public Sector
6. Monetary Indicators
7. Medium-Term Outlook
8. Financial Soundness Indicators
9. Indicators of External Vulnerability
10. Public Sector Debt Sustainability Analysis (DSA) – Baseline Scenario
11. Public DSA – Composition of Public Debt and Alternative Scenarios
12. Indicators of Fund Credit, 2017–23
13. External Debt Sustainability Framework, 2013–24
14. External Debt Sustainability: Bound Tests
APPENDIX
I. Written Communication
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COLOMBIA
ASSESSMENT OF THE IMPACT OF THE PROPOSED FLEXIBLE CREDIT LINE ARRANGEMENT ON THE FUND’S FINANCES AND LIQUIDITY POSITION
May 18, 2018
Approved By
Andrew Tweedie and Mary Goodman
Prepared by the Finance and Strategy, Policy, and Review Departments.
Contents
INTRODUCTION
BACKGROUND
THE PROPOSED FLEXIBLE CREDIT LINE ARRANGEMENT—RISKS AND IMPACT ON FUND FINANCES
ASSESSMENT
TABLES
1. Total External Debt, 2012-17
2. Capacity to Repay Indicators
3. FCL Arrangement—Impact on GRA Finances
ANNEX
History of IMF Arrangements
Front Matter Page
Press Release No. 18/196
FOR IMMEDIATE RELEASE
May 25, 2018
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