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Europe > Ukraine

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Cover The IMF’s Exceptional Access Policy
The IMF’s Exceptional Access Policy
Evaluation Report Dec 2024
Vivek B Arora
,
Miguel de Las Casas
,
Yasemin Bal Gündüz
,
Jérémie Cohen-Setton
,
Kelsie J Gentle
,
Jiakun Li
,
Carmen Rollins
, and
Sandra Saveikyte

Abstract

The evaluation assesses the EAP’s rationale, evolution, and implementation during the period since its adoption in 2002. It assesses whether the EAP has fulfilled the objectives that guided its creation, namely, shaping members’ and market expectations, providing clearer benchmarks for Board decisions on program design and exceptional access, safeguarding the Fund’s resources, and helping to ensure uniformity of treatment of members. The evaluation draws on background papers comprising both thematic and country studies that draw on experience with the 38 exceptional access programs completed through mid-2023. The thematic papers analyze the rationale and evolution of the EAP as well as the three building blocks of the policy: the exceptional access criteria, enhanced Board decision-making procedures, and ex post evaluations. The country papers comprise both cross-country studies and country-specific studies of the completed programs with Argentina (2018), Ecuador (2020), and Egypt (2020).

Keywords:
Exceptional access; IMF lending; safeguarding Fund resources; program design; uniformity of treatment; risk management; program success; EA program; surcharge rate; ToC of an Na arrangement; detailed Theory of Change; Debt sustainability; Reputational risk; Balance of payments need; Capital account crisis; Global
Cover Policy Papers
Review Of Charges And The Surcharge Policy—Reform Proposals
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Strategy, Policy, & Review Department
On October 11, 2024, the IMF’s Executive Board concluded the Review of Charges and the Surcharge Policy. The review is part of a broader ongoing effort to ensure that the IMF’s lending policies remain fit for purpose to meet the evolving needs of the membership. Charges and surcharges are important elements of the IMF’s cooperative lending and risk-management framework, where all members contribute and all can benefit from support when needed. Together, they cover lending intermediation expenses, help accumulate reserves to protect against financial risks, and provide incentives for prudent and temporary borrowing. This provides a strong financial foundation that allows the IMF to extend vital balance of payments support on affordable terms to member countries when they need it most.



Against the backdrop of a challenging economic environment and high global interest rates, the Executive Board reached consensus on a comprehensive package of reforms that substantially reduces the cost of borrowing for members while safeguarding the IMF's financial capacity to support countries in need. The approved measures will lower IMF borrowing costs by about US$1.2 billion annually or reduce payments on the margin of the rate of charge as well as surcharges on average by 36 percent. The number of countries subject to surcharges in fiscal year 2026 is expected to fall from 20 to 13.



Key reforms include a reduction in the margin for the rate of charge, an increase in the threshold for level-based surcharges, a reduction in rate for time-based surcharges, an alignment of thresholds for commitment fees with annual and cumulative access limits for GRA lending facilities, and institution of regular reviews of surcharges.



The series of three papers informed the Executive Board’s first and second informal engagements (July and September 2024) and the formal meeting (October 2024) on this review.
Keywords:
General Resources Account; Charges; Margin for the basic rate of charge; Surcharges; Commitment Fees; Precautionary Balances; Income; transparency Policy; IMF's lending policy; surcharge structure; surcharge payment; surcharge rate; surcharge payer; SDR interest rate; Credit; Income distribution; Financial statements; Global
Cover Policy Papers
Review of the Adequacy of the Fund’s Precautionary Balances
International Monetary Fund. Finance Dept.
On March 20, 2024, the IMF’s Executive Board reviewed the adequacy of the Fund’s precautionary balances. The review took place somewhat ahead of the standard two-year cycle, in view of the imminent attainment of the current indicative medium-term indicative target of SDR 25 billion for the first time. Precautionary balances comprise the Fund’s general and special reserves. They are a key element of the IMF’s multi-layered framework for managing financial risks. Precautionary balances provide a buffer to protect the Fund against potential losses, resulting from credit, income, and other financial risks. The review was based on the assessment framework established in 2010, which uses an indicative range for precautionary balances, linked to a forward-looking measure of total IMF non-concessional credit, to guide decisions on adjusting the medium-term target over time. While financial risks remain high, they are broadly unchanged from the last review, taking into account the further accumulation of reserves and strengthening of some risk mitigants. Against this background, Executive Directors broadly supported staff’s proposal to retain the current medium-term target of SDR 25 billion and increase the minimum floor from SDR 15 billion to SDR 20 billion. The Board also supported maintaining the biennial review cycle, with earlier reviews if warranted by developments that could materially affect the adequacy of precautionary balances.
Keywords:
Non-concessionary; Lending; Risks; Reserves; Credit; Mitigation; Provisioning; management framework; income risk; concentration risk; Fund credit; I. financial risks; demand scenario; lending portfolio; Credit risk; Income; Capital adequacy requirements; Market risk; Global
Cover IMF Staff Country Reports
St. Lucia: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Western Hemisphere Dept.
The 2023 Article IV Consultation highlights that St. Lucia’s tourist-dependent economy has rebounded strongly after the coronavirus disease 2019 pandemic and the commodity import price shock due to Russia’s war in Ukraine. Output is currently near the pre-pandemic level, while higher government revenue has narrowed the fiscal deficit. The gross domestic product growth projection in 2023, at 3.2 percent, is lower than 2022 as tourism demand continues the recovery and the economy approaches the existing production capacity. Afterward, it is projected to gradually decline toward a potential rate of 1.5 percent in the medium-term. With output approaching full recovery, the priority is to start rebuilding fiscal and financial buffers and place public debt on a solid downward trend, anchored on the regional debt ceiling, through growth-friendly fiscal consolidation and fiscal rules. In the banking sector, it is important to reach full compliance with the regional central bank’s provisioning requirements. The momentum of reforms to address disincentives to bank lending should be maintained by passing legislation to expedite loan collateral appropriation. Draft legislation to strengthen the regulation and supervision of credit unions should be passed, and the planned asset quality review carried forward.
Keywords:
CARTAC TA; St. Lucia economy; CARTAC country; full employment; investment portfolio; Credit bureaus; Credit; External sector statistics; Global; Caribbean
Cover IMF Working Papers
Determinants of Zombie Banks in Emerging Markets and Developing Economies
Torsten Wezel
,
Hannah Sheldon
, and
Zhengwei Fu
While deeply undercapitalized banks have been shown to misallocate credit to weak firms, the drivers of such zombie banks are less researched, particularly across countries. To furnish empirical evidence, we compile a dataset of undercapitalized banks from emerging markets and developing economies. We classify zombie banks as those not receiving remedial treatment by owners or regulators or, alternatively, remaining chronically undercapitalized. Using logit regressions, we find that country-specific factors are more influential for zombie status than bank characteristics, alhough some become significant when disaggreating by region. The paper’s overall findings imply the need for a proper regulatory framework and an effective resolution regime to deal with zombie banks more decisively.
Keywords:
Banks; Capital Requirements; Financial Crises; summary statistics; zombie bank; zombie share; zombie status; equity ratio; Banking crises; Bank resolution; Credit; Asia and Pacific; Global; Europe; Africa
Cover Policy Papers
Review of the Policy on Staff-Monitored Program With Executive Board Involvement
International Monetary Fund. Strategy, Policy, & Review Department
,
International Monetary Fund. Finance Dept.
, and
International Monetary Fund. Legal Dept.
This paper reviews the policy on Staff-Monitored Program with Executive Board Involvement (PMB). The PMB plays an important niche role in the Fund’s toolkit in supporting members in circumscribed circumstances, while not supplanting the Staff-Monitored Programs (SMPs) as the primary tool for building or rebuilding a track record towards a Fund arrangement that supports a UCT-quality program. Experience with the PMB is limited to three country cases over the past sixteen months. Further experience would be needed to draw more definitive conclusions in terms of the usefulness of the PMB vis-à-vis alternative instruments and a more parsimonious Fund toolkit. In this context, the PMB is kept in the toolkit, and it will be expected to be reviewed in three years.
Keywords:
Concessional external borrowing; Debt sustainability; External Debt; Monetary policy; Political economy; PMB approval; PMB policy; use criteria; IMF toolkit; transparency policy; Credit; Debt relief; Debt restructuring; Global
Cover IMF Staff Country Reports
Kenya: 2023 Article IV Consultation-Sixth Reviews Under the Extended Fund Facility and Extended Credit Facility Arrangements, Requests for Augmentations of Access, Modification of Performance Criteria, Waiver of Nonobservance of Performance Criteria, Waiver of Applicability of Performance Criteria, and First Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Kenya
International Monetary Fund. African Dept.
This paper discusses 2023 Article IV Consultation, Sixth Reviews under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) Arrangements, Requests for Augmentations of Access, Modification of Performance Criteria, Waiver of Nonobservance of Performance Criteria, Waiver of Applicability of Performance Criteria, and First Review under the Resilience and Sustainability Facility (RSF) Arrangement. Performance under the EFF/ECF arrangements is aligned with the program’s objectives, while the RSF arrangement is supporting the authorities’ climate agenda. Steadfast implementation of the package of mutually reinforcing policies and reforms is the key to maintaining macroeconomic stability, strengthening debt sustainability, and building buffers against shocks. Near-term policy responses should complement measures needed to bolster Kenya’s medium-term prospects toward a vibrant, inclusive, green, and market-driven economy. Unlocking Kenya’s potential and realizing its positive medium-term prospects will require resolute efforts at sustaining structural reforms to support more job creation, poverty reduction, and making the economy greener and more resilient.
Keywords:
ECF arrangement; biodiversity target; carbon markets regulation; EFF arrangement; State corporation; AFRITAC East; Credit; Debt sustainability analysis; Global; Africa
Cover Policy Papers
Interim Review of Access Limits Under the Poverty Reduction and Growth Trust and Initial Considerations for Access Limits under the General Resource Account
International Monetary Fund. Strategy, Policy, & Review Department
The interim review on PRGT access limits follows the call from the Executive Board in March 2023 and confirmed by the IMFC in October 2023. Low-income countries (LICs) face high economic uncertainty and pressures, while grappling with limited policy space and a funding squeeze. In March 2023, access limits under the General Resources Account (GRA) were temporarily increased for 12 months to give space for countries to face such economic pressures. The IMF Executive Board emphasized the importance of the alignment of the Poverty Reduction and Growth Trust (PRGT) access limits with those of the GRA that was achieved in 2021. The Board also agreed that, once substantial progress with PRGT fundraising toward the SDR 2.3 billion first-stage target for subsidy resources agreed in 2021 has been made—with total pledges of SDR 2 billion or more—access limits under the PRGT would be reviewed at an ad hoc interim review. This target has now been reached, paving the way for the review, also called for by the IMFC during the Annual Meetings in October 2023, in a context where the LICs’ economic challenges have further increased, including due to the risk of additional negative spillovers on the global economy stemming from the current geopolitical tensions and conflicts.
Keywords:
Poverty Reduction and Growth Trust; PRGT; low-income countries; LICs; General Resources Account (GRA); PRGT resource; PRGT financing strategy; PRGT lending; PRGT access norm; PRGT commitment; Concessional external borrowing; Debt sustainability; Poverty reduction strategy; Balance of payments need; Credit risk; Global
Cover IMF Staff Country Reports
Côte d'Ivoire: First Reviews Under the Extended Arrangement Under the Extended Fund Facility and Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Côte d'Ivoire
International Monetary Fund. African Dept.
This paper presents Côte d’Ivoire’s First Review under the Extended Arrangement under the Extended Fund Facility and Arrangement under the Extended Credit Facility. The Ivorian economy has faced adverse spillovers from the war in Ukraine and global monetary tightening. Indirect and direct subsidies to curb price pressures, higher security spending, and worsening terms-of-trade amid robust domestic demand had led to a widening of macroeconomic imbalances in 2022. Program implementation has been strong so far with all quantitative criteria and structural benchmarks met. Côte d’Ivoire pursues its commitment for a revenue based fiscal consolidation to ensure fiscal and debt sustainability and to create fiscal space and implement its ambitious structural reforms’ agenda. The Ivorian authorities have taken measures to strengthen macroeconomic stability and reverse widening fiscal and external imbalances as the economy has been hit hard by the triple shock of the coronavirus disease 2019 pandemic, global financial tightening, and adverse spillovers from Russia’s war in Ukraine.
Keywords:
government program; Ivorian authorities; EFF arrangement; IMF staff estimate; IMF team; Government debt management; Debt sustainability; Global; West Africa
Cover IMF Working Papers
Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications
Giovanni Borraccia
,
Raphael A Espinoza
,
Vincenzo Guzzo
,
Romain Lafarguette
,
Fuda Jiang
,
Vina Nguyen
,
Miguel A. Segoviano
, and
Philippe Wingender
We develop a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology. We then estimate financial condition indexes (FCIs) across European economies, both at the aggregate and sectoral levels. We decompose the changes in FCs into several factors including credit availability and costs, price of risk, policy stance, and funding constraints. Our results show that FCs loosened during the pandemic thanks to policy support but started to tighten significantly since mid-2021. Using the inverse probability weighting method over the sample period from 2000 to 2023, we find that a shift from a neutral to a tight FCI regime such as the ongoing episode for most European countries will on average lower output and inflation by 2.2 percent and 0.7 percentage points respectively and increase unemployment by 0.3 percentage points over a three-year horizon.
Keywords:
Financial condition index; partial least square; funding constraints; credit availability and costs; price of risk; policy stance; inverse probability weighting; financial conditions in Europe; FCI regime; IMF working paper 2023/209; FCI indicator; measure of financial conditions; Inflation; Asset prices; Monetary tightening; Credit; Financial cycles; Europe; Global