Colombia will gradually bring in IMF credit dollars

The Vice Minister of Finance and Public Credit of Colombia, Juan Pablo Zarate, said that the country will enter the US $ 5.3 billion of its credit with the International Monetary Fund gradually, to avoid turbulence in the markets. This cautious approach also improves the nation’s chances of getting a more favorable exchange rate, Zarate said in a video interview Thursday.

Colombia It will be the first country to access a flexible line of credit from the IMF, a pre-approved source of financing with no conditions on its spending.

The government says it will use the money to fund its response to the pandemic. Colombia is suffering from deepest contraction in its history this year, with thousands of bankruptcies and more than three million jobs lost.

Colombia will be the first country to access a flexible credit line from the IMF

He Treasury it expects the economy to contract 5.5% this year. It would be the worst performance in more than a century, although Fitch Ratings, among others, have criticized that it is an overly optimistic outlook.

Zárate said the ministry is currently reviewing its outlook, as well as its projection of a 6.6% rebound by 2021. The peso has weakened 15% this year, a drop larger than that of its Andean peers Peru and Chile.

Soften the shock

When the pandemic hit, the country suspended its fiscal rule for the next two years. But although the government is increasing spending to try to smooth the collapse, it wants to keep its debt at manageable levels and protect its credit rating, Zárate said.

“A shock like this implies that one has a greater expense, but neither should one be carried away by the siren songs that tell them that any deficit pays for itself or that there is no thinking about long-term sustainability,” said Zárate . “The line towards radically better balances I hope will start in 2022.”

Colombia is rated at the second lowest level of investment grade by Moody’s Investors Service, while S&P Global Ratings and Fitch Ratings rank the country above speculative grade.

Although the government is increasing spending to try to smooth the collapse, it wants to keep its debt at manageable levels

The Ministry of Finance points to a 8.2% fiscal deficit of gross domestic product this year, reducing to 5.1% in 2021. The government will begin the work of reducing the deficit next year, said Zárate.

To finance next year’s budget, the government plans to sell assets that could include stakes in Ecopetrol SA, power operator Interconectado Eléctrica SA and regional power generation companies.

The government is confident that it can raise funds equivalent to more than 1% of GDP through such sales, but has not yet decided what assets it will offer. “The other year we are going to carry out the disposal plan but we have cash strategies for any contingency, we have cash reserves for reasonable contingencies, but I think we have the time to make the disposals, ”said Zárate.

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