IMF Approves $6.2 Billion Credit Line for Colombia

Colombian economy doing well, policy performance strong

New credit line will protect Colombia against continued global risks

Main external risks include commodity price shocks, external financing difficulties

The two-year successor arrangement is the third time Colombia has requested a Flexible Credit Line—an insurance option created in 2009 for the IMF’s strongest performing members. The credit line is available to countries, such as Colombia, that have demonstrated a very strong track record of sound economic policies.

The Colombian government has announced it intends to treat the credit line as precautionary, as before.

“In the authorities’ view, Colombia remains exposed to downside risks, including from severe commodity price fluctuations and other adverse external developments,” said IMF First Deputy Managing Director John Lipsky in a statement after the Board decision on May 6. “Under these circumstances, the authorities have requested a new Flexible Credit Line arrangement, which would provide appropriate insurance against shocks,” he added.

Solid performance

The country’s economic performance has been strong in recent years. Growth has averaged about 4 percent from 2004 to 2009, boosted by buoyant private investment and exports, especially of oil. The inflation targeting regime—adopted in the late 1990s—was successful in anchoring expectations and bringing inflation down to single digits, while a flexible exchange rate helped mitigate external shocks.

In addition, a rolling 5-year fiscal framework, which would be strengthened by the fiscal rule under discussion in Congress, has guided fiscal consolidation and enabled a decline in the public debt-to-GDP ratio of almost 7 percentage points from 2004 to 2009. At the same time, effective financial sector supervision and regulation protected the integrity of the financial system and maintained financial soundness indicators at solid levels.

The Colombian economy exhibited great resilience during the global crisis, and the output recovery is well entrenched. Following a short-lived contraction, economic activity started to recover in the second half of 2009, supported by a large fiscal and monetary stimulus. Activity gained further momentum in 2010 and real GDP grew by 4.3 percent, despite output disruptions late in the year caused by severe flooding.

The outlook for 2011 is generally positive. Growth is expected to exceed 4.5 percent, driven by still strong domestic demand.

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