New IMF liquidity measure
To give the public a clearer understanding of the amount of its regular financial resources that is available for new lending, the IMF on December 16 announced a new method of measuring its liquidity. The new yardstick—known as the one-year forward commitment capacity or FCC—indicates the amount of the organization’s quota-based and nonconcessional resources on hand for member country needs. As of December 13, the IMF’s one-year FCC amounted to SDR 48.951 billion (about $65.668 billion).
How is this liquidity figure arrived at? The FCC reflects the IMF’s stock of usable resources minus undrawn balances from current lending arrangements, plus projected repayments by IMF borrowers (the repayments that the IMF refers to as “repurchases”) over the coming 12 months. A prudential balance—intended to safeguard the liquidity of creditors’ claims and to take account of any potential erosion of the IMF’s resource base—is also deducted to arrive at the final FCC amount.
The prudential balance represents an indicative level of uncommitted usable resources that the IMF would normally not use to make financial commitments. This balance reflects the judgment of the IMF’s Executive Board, and it is calculated as 20 percent of the quotas of member countries whose currencies are currently used for lending purposes and any amounts activated under borrowing arrangements. The prudential balance is not a rigid minimum; the IMF’s uncommitted resources could, on a strictly temporary basis, fall below this level.
The FCC takes fully into account current IMF lending commitments, including those under precautionary arrangements and any commitments made under Contingent Credit Lines. In assessing IMF liquidity on the basis of the FCC, actual available resources may be larger than the FCC indicates, to the extent that commitments are not fully disbursed.
The new yardstick—known as the one–year forward commitment capacity or FCC—indicates the amount of the organization’s quota-based and nonconcessional resources is on hand for member country needs.
The FCC will be posted on the IMF’s website weekly (Week-at-a-Glance) and monthly (Financial Resources and Liquidity). The Executive Board has decided that the FCC will replace the traditional liquidity ratio, but the IMF will continue to publish the traditional liquidity ratio for the time being.
For the full text of the IMF’s press release, including explanatory notes, see the IMF’s website (www.imf.org).