Colombia’s Finance Minister Alberto Carrasquilla said Tuesday he had requested the International Monetary Fund (IMF) to extend a $11 billion loan to confront the coronavirus pandemic.
The announcement came days after the World Bank bank extended a $250 millon credit line as part of a regional aid initiative and while Carrasquilla is trying to somehow balance the budgets for 2020 and 2021.
The perfect storm
Peso vs. dollar over the past year. (Image: Bloomberg)
The government’s budget and the economy in general are not just taking a major hit because of the pandemic, but also because dropping oil prices sunk the peso.
While revenue dropped, the government embarked on a major spending spree to bolster Colombia’s fragile healthcare and financial systems, and provide food while the country is in quarantine until at least April 26.
Meanwhile, much of the country’s economic activity has come to a standstill.
According to W Radio, the lost revenue and increased public spending would add another $6.4 billion to this year’s budget deficit that was projected to be $6 billion.
We have ongoing struggles for additional resources, the International Monetary Fund is now considering our request that we have access as a country to $11 billion of what is called the liquidity facility.
Finance Minister Alberto Carrasquilla
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Healthcare overtaking defense in 2021 budget draft
The government provisionally added $830 million (COP3.3 billion) to this year’s budget under the pretext that the cost of confronting the crisis could cost the treasury $4.6 billion (COP18.2 billion).
According to the Health Ministry, $1.2 billion (COP4.9 billion) of this would be the cost for healthcare alone.
For the first time in history, Colombia’s finance minister drew up a preliminary draft budget for 2021 in which the healthcare sector would receive more than defense.
Preliminary 2021 draft budget priorities
Source: Finance Ministry
Whether the healthcare budget will remain as high as projected or require even more, depends on how long the coronavirus is going to swallow emergency spending, according to former Health Minister Jaime Arias.
The former minister said that the initial budget to confront the coronavirus came short and that even the increased spending wouldn’t be enough to fill up the historic healthcare deficits.
It all depends on how the crisis progresses because if it extends into the next year we will have to attend to Covid-19 cases for several months. For the pandemic, COP4.2 billion ($1 billion) has already been allocated, which is not enough, and this would only be enough to attend to the crisis for about three weeks, reducing the contagion curve. The health sector is short between COP5 billion ($1.3 billion) and COP10 billion ($2.6 billion) per year.
Former Health Minister Jaime Arias
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From economic crisis to financial crisis?
The cost of healthcare isn’t the only thing keeping the finance minister awake at night.
In a virtual meeting with the House of Representatives, Carrasquilla expressed concern over the stability of the country’s financial sector.
Fortunately it has not occurred and we do not expect it to occur, but some problems may start to arise in the financial sector and the economic crisis may lead to a financial crisis.
Finance Minister Alberto Carrasquilla
Both the central bank and the finance minister have already pumped billions into the financial sector to prevent the possible failing of banks, but this was apparently not enough to ease Carrasquilla’s worries.
