Appendix IV. Stabex

International Monetary Fund
Published Date:
January 1980
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The compensatory financing scheme (STABEX) administered by the European Community was established under the 1975 Lomé Convention for a five-year period (1975 through 1979) and has been extended for another five years (1980–84) under the 1979 Lomé Convention. The first section of this annex describes the differences between STABEX and the Fund’s compensatory financing facility, while the second section describes the changes in STABEX resulting from the 1979 Lomé Convention.

Difference Between STABEX and Fund Facility

Although STABEX and the Fund’s facility both provide compensatory financing assistance to countries adversely affected by fluctuations in their export earnings, the two schemes differ substantially in scope, objectives, and modes of operation.

(1) STABEX covers only the earnings derived from the exports of specified commodities to the European Community and it is open to the 59 countries of the African, Caribbean, and the Pacific regions (the ACP countries)44 that signed the 1975 Lomé Convention or have acceded to it since 1975, while the Fund facility covers earnings from all merchandise exports to all destinations and is open to a wider group of countries.

(2) The amount transferred to a country under STABEX is the sum of the shortfalls calculated for each of the commodities covered in the scheme, while the amount drawn under the Fund facility cannot exceed the net shortfall in earnings from all merchandise exports. STABEX aims mainly at bringing relief to the sector where the shortfall occurred, while the purpose of the Fund facility is to provide assistance to members with an overall balance of payments deficit arising from the export shortfall.

(3) STABEX shortfalls can relate only to calendar years, while Fund facility shortfalls can relate to any period of 12 consecutive months. The amount of the shortfall is defined in both schemes as the downward deviation from the trend value calculated in nominal terms, but this value is calculated as the average of export earnings in the four years preceding the shortfall year for the purpose of STABEX, while it is calculated as the five-year average centered on the shortfall year-for the purpose of the Fund facility. On the one hand, the calculation of the Fund facility shortfall requires a forecast of export earnings two years ahead, but this forecast would eliminate the effects of inflation on the amount of the calculated shortfall if the rate of inflation remained constant. On the other hand, the calculation of the STABEX shortfall does not require any forecast, but the amount of the shortfall calculated in nominal terms would be always lower than the one calculated in real terms if the rate of inflation was positive.

(4) A member can draw under the Fund facility only if it has a balance of payments need and if it cooperates with the Fund to find solutions to its balance of payments difficulties. In contrast, STABEX transfers are not subject to any balance of payments test.

(5) Under STABEX, there is a limit on the amount that can be transferred to all member countries over a five-year period, but there is no limit applicable to individual countries. Under the Fund facility, the total amount which can be drawn by all members is not subject to an overall limit, but no member can draw more than 100 per cent of its quota in the Fund.

(6) Drawings under the Fund facility are not subject to any thresholds, while STABEX transfers are subject to two types of threshold. First, the commodity must be of sufficient importance to the country applying for a transfer; it must account for at least 2 per cent of the country’s total export earnings in the least developed, landlocked, and island countries, and 6.5 per cent of it in other ACP countries. Second, the commodity shortfall must be sufficiently large; it must exceed 2 per cent of the trend value in the least developed, landlocked, and island countries, and 6.5 per cent of it in other countries.45

(7) Financial assistance is provided with easier terms under STABEX than under the Fund facility. For STABEX, transfers are in the form of grants to the 36 of the 59 ACP states that are classified as least developed countries, and in the form of interest-free loans to the remaining 23 states in this group. Under the Fund facility, rates of charges on purchases are the same as for credit tranche purchases, and they are uniform for all members.

The many differences between STABEX and the Fund facility explain why 12 countries having received SDR 79 million under STABEX did not receive anything under the Fund facility from January 1976 to March 1980, while 8 other countries that are members of the Lomé Convention received SDR 268 million under the Fund facility but nothing under STABEX (Table 24). During the same period, 21 other countries received assistance under both facilities: SDR 226 million under STABEX and SDR 364 million under the Fund facility. Of these 21 countries, assistance was received by 7 for shortfalls in years which did not overlap, by 8 for shortfalls in years which partly overlapped, and by the remaining 6 for shortfalls in the same year. On the one hand, the amounts transferred under STABEX could not be reduced on account of drawings under the Fund facility. On the other, a deduction could have been made from the shortfalls calculated for drawing under the Fund facility. This possibility was considered, but the Fund’s Executive Board decided that it would be sufficient to take into account the amounts of the STABEX transfers in assessing the need for the member to draw under the Fund facility.

Table 24.STABEX Transfers and Purchases Under Fund Facility by Countries Eligible Under STABEX, January 1976–March 1980
Countries Having Received Assistance Under
Nature of AssistanceSTABEX


Fund facility
Fund facility

(Number of countries)
Fund facility21829
(Million SDRs)
Fund facility364268632

For the years 1975 through 1978, 62 per cent of STABEX transfers were in grants and the remaining 38 per cent in interest-free loans. The bulk of transfers (84 per cent) was for groundnuts, iron ore, wood, and cotton, although earnings from these four commodities hardly exceeded one fourth of total earnings for all STABEX commodities (Table 24). In contrast, only 5 per cent of the transfers were for coffee and cocoa, although earnings from these two commodities exceeded 60 per cent of earnings from all STABEX commodities. Transfers for coffee and cocoa were relatively small because the prices of these two commodities remained high during most of the period.46

Changes in Lomé Convention

The spirit of STABEX was not modified by the 1979 Convention, but the scheme was amended in several ways and new arrangements were made for minerals.

STABEX resources were raised from 400 million European units of account (EUA) for the period 1975 through 1979 to EUA 559 million for the period 1980 through 1984.47 The number of commodities covered by STABEX was raised by one fourth, but this had the effect of raising the aggregate value of the exports covered by only 3 per cent (Table 25). The coverage was also expanded by allowing members, subject to approval by the Council of ACP/EEC Ministers, to add their exports to other ACP countries to their exports to the European Economic Community.

Table 25.Shares of STABEX Commodities in Export Earnings and Total Transfers of African, Caribbean, and Pacific Countries, 1977–79(In per cent)
Share of STABEX Commodities

in Relation to
Commodities Covered

by First and Second

Lomé Conventions
Lomé I
Iron ore6.918.2
Palm products1.81.5
Lome II
Other commodities (11)1.8

Aggregate earnings of ACP countries from exports of STABEX commodities to the European Community.

Aggregate earnings of ACP countries from exports of STABEX commodities to the European Community.

Both the dependence and fluctuation thresholds were eased; they were reduced from 2.5 per cent to 2 per cent for least developed, landlocked, and island countries, and from 7.5 per cent to 6.5 per cent for other ACP countries. The dependency threshold was further eased by allowing members to treat some related commodities (i.e., groundnuts and groundnut products) as a single export item.48

A new facility has been established to assist countries largely dependent on mineral exports and facing serious and temporary disruptions which are beyond the control of the ACP member. For this purpose, EUA 280 million has been earmarked for a five-year period. Assistance is to be extended in the form of project or program loans designed to restore production and export capacity.

The commodities covered are copper/cobalt, phosphate, bauxite/alumina, manganese, tin, and iron ore.49 The commodity concerned should account for a substantial share of the country’s total export earnings,50 and the fall in production or export capacity should be substantial (more than 10 per cent). The amount of the loan is to be determined by the Commission on a case-by-case basis. Loans are to be repaid in 40 years with a 10-year grace period and the interest rate is to be 1 per cent a year.

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