IMF Approves New Two-Year US$5.4 Billion Flexible Credit Line Arrangement for Peru

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved today a successor two-year arrangement for Peru under the Flexible Credit Line (FCL) in an amount equivalent to SDR 4.0035 billion (about US$ 5.4 billion)[1]and noted the cancellation by Peru of the previous arrangement in the amount of SDR 8.07 billion. The Peruvian authorities stated their intention to treat the new arrangement as precautionary.

The FCL was established on March 24, 2009, as part of a major reform of the Fund's lending framework (see Press Release No. 09/85). It allows its recipients to draw on the credit line at any time and is designed to flexibly address both actual and potential balance of payments needs to help boost market confidence. Drawings under the FCL are not phased nor tied to ex-post conditionality as in regular IMF-supported programs. This large, upfront access with no ex-post conditionality is justified by the very strong policy fundamentals and institutional policy frameworks and sustained track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong, and they will respond appropriately to the balance of payments difficulties that they are encountering or could encounter.

Following the Executive Board's discussion on Peru, Mr. Kenji Okamura, Deputy Managing Director, made the following statement:

"Peru's very strong economic fundamentals and policy frameworks—anchored by a credible inflation targeting framework, a flexible exchange rate, effective financial sector supervision and regulation, and a solid medium-term fiscal framework—have allowed the authorities to deliver a comprehensive and timely response to the COVID-19 pandemic and promote growth. As a result, and spurred by robust external demand, favorable terms of trade, and a surge in construction, Peru's economy recovered strongly in 2021, registering one of the highest growth rates in the region.

"Nevertheless, the Peruvian economy remains exposed to elevated risks, including from renewed waves of the COVID-19 pandemic, slowing economic activity in key trade partner countries, the war in Ukraine, tighter global financial conditions, and political uncertainty. The new arrangement under the Flexible Credit Line will continue to play an important role in supporting the authorities' macroeconomic strategy by providing insurance against tail risks and bolstering market confidence.

"The authorities intend to treat the arrangement as precautionary and exit the arrangement when external conditions allow. The lower level of access requested—300 percent of quota, down from 600 percent in the FCL approved in 2020—as part of the authorities' strategy of gradually phasing out the use of the facility is a reflection of the country's very strong fundamentals, including the additional buffers built with the accumulation of international reserves, as well as the decline in external financing needs, since the 2020 arrangement."