This Wednesday, January 20, the Executive Board of the International Monetary Fund (IMF) reported that it approved Panama's request for a two-year agreement within the framework of the Precautionary and Liquidity Line (PLL) $ 2.7 billion.
The SDR (Special Drawing Rights) requested was 1.9 billion dollars (500% of Panama's quota, which is equivalent to 2.7 billion dollars), indicates the Fund.
The LPL will serve as insurance against extreme external shocks derived from the COVID
The entity reports that in 2020, Panama was seriously affected by the global pandemic since containment measures significantly reduced economic activity, especially tourism. In addition, it considers the affected situation of the country, which was hit by Hurricane Eta and Tropical Storm Iota , which reduced a large part of the country's agricultural production. As a result, production is estimated to have declined by 9 percent, and the fiscal situation deteriorated significantly amid falling revenue and spending pressures.
"While Panama can meet its external financing needs under current conditions, the agreement provides insurance against downside risks. Policy priorities under the PLL include maintaining an adequate level of spending on health and social sectors during the pandemic, continue to strengthen institutional policy frameworks, including financial integrity and data adequacy, and prepare the economy for post-pandemic recovery, "the IMF statement explained.
“Panama's sound macroeconomic policies have led to more than three decades of dynamic growth. However, the impact of the COVID
-19 pandemic has caused a considerable deterioration in the country's macroeconomic situation and outlook. The two-year agreement under the Precautionary and Liquidity Line (PLL) for 500 percent of the quota (SDR 1,8 billion) will help authorities in their efforts to achieve economic recovery against the pandemic, address pending vulnerabilities and shore up market confidence," said Deputy Managing Director and Chairman of the Board, Mitsuhiro Furusawa.
The PLL was introduced in 2011 to more flexibly meet the liquidity needs of member countries with strong economic fundamentals and a strong track record of policy implementation, but with some remaining vulnerabilities.
“Panama qualifies under the PLL as it performs very solidly in three of the five rating areas (external, fiscal, and monetary) and does not perform substantially lower in the other two areas (financial and data). It also meets the criteria for exceptional access. The authorities intend to treat the financing of the PLL agreement in a precautionary manner," the deputy managing director said.
According to Furusawa, the authorities have decidedly implemented measures to contain the pandemic and mitigate its impact on the economy.
"These include a temporary relaxation of fiscal deficit limits under the Fiscal and Social Responsibility Law to support health and social sector-related expenditures, authorization for banks to use their accumulated dynamic provisions to absorb credit losses. and loan restructurings for affected borrowers. The authorities are committed to gradual fiscal consolidation and a recalibration of policy responses once the pandemic recedes," said the IMF representative.
For its part, the policy agenda during the PLL, as urged by Furusawa, will focus on facilitating the early exit from the FATF gray list, strengthening data adequacy and public financial management, as well as preparing the economy for post-pandemic recovery.