Peru to Exit IMF's Flexible Credit Line Arrangement in May 2024

Peru's initial FCL arrangement was approved by the IMF's Executive Board in May 2020 at the onset of the COVID-19 pandemic.

The Peruvian authorities have informed the International Monetary Fund (IMF) that they will let the current Flexible Credit Line (FCL) arrangement expire on May 26, 2024, without seeking a successor. This decision aligns with their previously stated intention to exit the arrangement, conditional on the evolution of external risks.

Background of Peru's FCL Arrangement

Peru's initial FCL arrangement was approved by the IMF's Executive Board in May 2020 at the onset of the COVID-19 pandemic. The arrangement provided access to 600 percent of Peru’s IMF quota, aimed at offering strong signaling, additional buffers, and insurance against external shocks amidst heightened global risks. In May 2022, Peru reduced its access to 300 percent of quota due to improved international reserves and lower external financing needs, reflecting the authorities’ strategy to gradually exit the instrument as conditions allowed. Throughout both arrangements, Peru treated the FCL as precautionary and maintained strong foreign exchange reserves, low public debt, and a prudent fiscal position.

Midterm Review and Intention to Exit

During the midterm review in May 2023, Peruvian authorities reiterated their intention to exit the FCL, contingent on external risk conditions. The 2024 Article IV Consultation, concluded on May 20, 2024, highlighted reduced external risks and ample international reserves, underpinning the decision to exit the FCL. The IMF’s Executive Board commended Peru for its strong economic fundamentals, resilient institutional policy frameworks, and consistent implementation of robust macroeconomic policies despite political turmoil. The Board also emphasized that maintaining these strong policies and institutions would enhance Peru’s resilience against future external risks.

About the IMF’s Flexible Credit Line

The IMF's FCL instrument, established in 2009 and enhanced in 2010 and 2023, is designed for crisis prevention and mitigation, offering qualifying members flexibility to draw on the credit line or use it as precautionary. The FCL does not phase disbursements or condition them on policy targets, as seen in traditional IMF programs. It is available to countries with very strong fundamentals, institutional frameworks, and track records of policy implementation. The FCL is renewable for one or two years, with no cap on access to IMF resources, which is determined case-by-case.

Peru's Economic Resilience and Future Outlook

Peru’s decision to let the FCL expire reflects confidence in its economic stability and reduced dependency on external financial support. With strong foreign exchange reserves, prudent fiscal management, and ongoing policy commitments, Peru aims to maintain economic resilience and continue its positive track record of sound macroeconomic policies. This move signifies Peru's readiness to navigate external risks independently, supported by its robust economic framework and institutional strength.