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Income and charges: IMF adds annual net income to its reserves

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 1999
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At the beginning of each financial year, the IMF sets the rate of charge on the use of its resources so as to achieve a target amount of net income. After remunerating its creditor positions and covering its administrative expenses, the IMF adds its net income to its reserves. The rate of charge on the use of IMF resources is linked to the SDR interest rate, which changes weekly, while the rate of remuneration on creditor positions is equal to the SDR interest rate. This mechanism ensures that the IMF’s operational income closely reflects its operational costs and minimizes the likelihood that the rate of charge will need to be increased during the financial year. The IMF also levies surcharges on the use of credit under the Supplemental Reserve Facility (SRF), established in December 1997, and under the Contingent Credit Lines (CCL), established in April 1999 (see box, page 16).

In April 1998, the IMF set the rate of charge on the use of its resources for 1998/99, other than those provided under the SRF, at 107 percent of the SDR interest rate to achieve a net income target of SDR 107 million, or 5 percent of its reserves at the beginning of the financial year. Any income in excess of the targeted amount, excluding income generated from the use of resources under the SRF, would be used retroactively to reduce the rate of charge for the year.

At the end of the financial year, actual income exceeded the target by SDR 2 million, and this amount was returned to members that had paid charges during the year, retroactively reducing the proportion of the rate of charge to the SDR interest rate to 106.9 percent for 1998/99. Net income generated from the use of resources under the SRF during 1998/99, after meeting the expenses of administering the ESAF Trust, amounted to SDR 329 million, which was added to the IMF’s reserves. The IMF’s General Resources Account was not reimbursed for the expenses of administering the ESAF Trust in 1998/99; instead, an equivalent amount was transferred from the ESAF Trust Reserve Account to the ESAF-HIPC Trust.

To strengthen its financial position against the consequences of overdue obligations, the IMF has adopted “burden-sharing” measures to accumulate additional precautionary balances and to distribute the financial burden of overdue obligations between debtor and creditor members. As part of this mechanism, adjustments are made to the rate of charge and the rate of remuneration. The resources so generated are refundable, under certain conditions, to the members that have paid additional charges or received reduced remuneration. For 1998/99, the adjustments under burden sharing resulted in an average rate of charge of 4.22 percent and an average rate of remuneration of 3.67 percent. After the retroactive reduction of the rate of charge, SDR 0.5 billion was added to the IMF’s reserves. Total reserves increased to SDR 2.6 billion as of April 30, 1999, from SDR 2.1 billion a year earlier.

For 1999/2000, the Executive Board agreed to set the proportion of the rate of charge to the SDR interest rate at 113.7 percent to achieve a net income target of SDR 128 million, in addition to the net income generated under the SRF and the CCL. As in 1998/99, any income in excess of the targeted amount would be used retroactively to reduce the rate of charge for the year.

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