The IMF approved a two-year agreement in favor of the Central American country under the Precautionary and Liquidity Line for an amount equivalent to $2.7 billion, which will serve as insurance against extreme external shocks derived from the Covid-19 pandemic.
Access to the LPL in the first year will be in an amount equivalent to about $1.35 billion. The authorities plan to manage this financing in a precautionary manner, according to the International Monetary Fund (IMF).
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From the IMF press release:
Washington, DC – January 19, 2021: The Executive Board of the International Monetary Fund (IMF) approved today Panama’s request for a two-year arrangement under the Precautionary and Liquidity Line (PLL) for SDR 1.884 billion (500 percent of Panama’s quota, equivalent to about US$2.7 billion), which the authorities intend to treat as precautionary. The PLL will serve as insurance against extreme external shocks. stemming from the COVID-19 pandemic.
In 2020, Panama was severely affected by the global pandemic as containment measures significantly reduced economic activity, especially tourism. In addition, the country was hit by hurricane Eta and tropical storm Iota which curtailed a large part of the country’s agricultural production. As a result, output is estimated to have dropped by 9 percent, with the fiscal position deteriorating significantly amid revenue shortfalls and expenditure pressures.
While Panama is able to cover its external financing needs under present conditions, the arrangement provides insurance against downside risks. Policy priorities under the PLL include supporting an adequate level of spending on health and the social sectors during the pandemic, continuing strengthening further institutional policy frameworks, including financial integrity and data adequacy, and preparing the economy for the post-pandemic recovery.
The PLL was introduced in 2011 to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong records of policy implementation but with some remaining vulnerabilities.
Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Chair, made the following statement:
“Panama’s sound macroeconomic policies have led to over three decades of dynamic growth. However, the impact of COVID-19 pandemic has caused a considerable deterioration in the country’s macroeconomic situation and outlook. The two-year arrangement under the Precautionary and Liquidity Line (PLL) for 500 percent of quota (SDR 1.884 billion) will help the authorities’ economic recovery efforts against the pandemic, address outstanding vulnerabilities, and boost market confidence.
“Panama qualifies under the PLL, as it performs strongly in three out of the five qualification areas (external, fiscal and monetary) and does not substantially underperform in the other two areas (financial and data). It also meets the criteria for exceptional access. The authorities intend to treat the PLL arrangement as precautionary.
“The authorities have resolutely implemented measures to contain the pandemic and mitigate its impact on the economy. These include a temporary relaxation of fiscal deficit limits under the Social and Fiscal Responsibility Law to support health and social-related expenditures, permitting banks to drawdown their accumulated dynamic provisioning to absorb credit losses, and loan restructurings for affected borrowers. They are committed to a gradual fiscal consolidation and recalibration of policy responses once the pandemic recedes.
The policy agenda during the PLL will focus on facilitating prompt exit from the FATF grey list, strengthening data adequacy and public financial management, as well as preparing the economy for the post-pandemic recovery.”
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