Banco de la Republica de Colombia

08/30/2021 | Press release | Distributed by Public on 08/30/2021 13:33

Allocation of SDRs to Colombia by the IMF and Sale of Foreign Reserves to the National Government

On August 2nd the Board of Governors of the International Monetary Fund (IMF) approved the general allocation of Special Drawing Rights (SDR) for SDR 456 billion (equivalent to USD 650 billion). This allocation strengthens the countries' international liquidity of the Fund's 190 member countries by providing them with an asset that is easily exchanged for freely usable currencies. This is an extraordinary measure taken by the IMF to build confidence, and to promote the resilience and stability of the global economy, that has been severely affected by the fallout of the COVID-19 pandemic. With this aim, the IMF left the decision on the use of the allocation at the discretion of member countries in accordance to their legal frameworks.

The SDRs were allocated on August 23rd 2021. The SDRs were credited to IMF member countries in proportion to their quota in the Fund. Colombia received SDR 1.96 billion, equivalent to USD 2.79 billion. As per its constitutional and legal framework, the allocation of SDRs was received by Banco de la República as part of the international reserves of the country that the central bank manages.

Prior to the SDR allocation, the country had sufficient international liquidity buffers, represented by an adequate level of its foreign reserves (USD 58.9 billion) and the IMF Flexible Credit Line (approximately USD 12.2 billion). In these circumstances and in line with the purpose of the IMF's SDR allocation, the Board of Directors of Banco de la República and the Ministry of Finance and Public Credit found it desirable to strengthen the liquidity of the National Government in a period in which the country continues to face major challenges on account of the pandemic and its consequences. To this end, the Bank sold international reserves to the Government in an amount in USD equivalent to the SDR allocation, receiving class B TES bonds from the portfolio of the General Directorate of Public Credit and National Treasury as payment. With this operation the Government obtained immediate liquidity in USD and improved the profile of its domestic debt, since part of the TES used to pay for the international reserves came from internal swaps undertaken by the Treasury in which bonds with initial maturity in 2022 were exchanged for long term maturity securities.

The operation was carried out entirely at market prices. Specifically, today the National Government bought USD 2.79 billion from the Banco de la República at the current exchange rate. As payment for the US dollars, the Government provided Banco de la República with public debt TES bonds from its diversified portfolio, valued at market prices. These securities are liquid and belong to references that must be acquired by primary dealers, and so, are actively traded in the secondary market and can be easily used by the Bank in its monetary policy operations.

Since the payment of the reserves was made with securities belonging to the portfolio of the General Directorate of Public Credit and National Treasury of the Ministry of Finance and Public Credit, the total amount of the public debt remains unchanged. Therefore, the sale of reserves is not a financing operation, but a transaction that facilitates the Government's access to liquid resources that may be used now or in the future. The country's international reserves remain at the adequate levels prior to the allocation of SDRs, which are complemented by the IMF's Flexible Credit Line. Also, there is no change in the monetary base.

The Board of Directors of Banco de la República and the Ministry of Finance and Public Credit reiterate that this operation is possible thanks to the allocation of SDRs by the IMF to Colombia, to the adequacy of the country's international liquidity, and to the fact that the transaction does not involve an increase in public deficit and its financing and, consequently, the transaction does not generate an increment in the public debt level.