Chapter

Appendix 8. Statistical Treatment of Lending to the IMF, Lending to IMF Managed Trusts, and Special Drawing Rights

Author(s):
International Monetary Fund. Statistics Dept.
Published Date:
October 2013
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A8.1 The Appendix aims at clarifying the statistical treatment of lending to the IMF, lending to IMF managed trusts, and Special Drawing Rights (SDRs) in the Reserves Data Template. In these cases, the IMF is actively engaged as a principal, manager, or administrator of positions or transactions.

Background

A8.2 In response to the financial crisis and following a call by the International Monetary and Financial Committee (IMFC) in April 2009, the IMF took a number of actions aimed at substantially increasing its lending resources. In addition, the IMF put in place two new SDR allocations that totaled about $283 billion. Further, the IMF took steps to promote the liquidity of loans to IMF managed trusts that thereby made such loans suitable for classification as reserve assets.

A8.3 While permanent increases in IMF resources have traditionally been achieved through increases in quotas, borrowing has been used to bridge the time gap between seeking and gaining IMF membership approval of a general quota increase. In 2009, the IMF developed Note Purchase Agreements as a new form of borrowing arrangements to augment its lending capacity; and entered into a number of new Bilateral Loan Agreements. In addition, the IMF executive board approved a new concessional financing framework under which a new Poverty Reduction and Growth Trust (PRGT) replaces the PRGF-ESF Trust. The statistical treatment in the Reserves Data Template of the new borrowing through loans and notes with the IMF, of loans to IMF managed trusts including the PRGT, of commitments and drawings under the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB), and of SDRs is discussed below.

Bilateral Loan Agreements with the IMF

A8.4 A Bilateral Loan Agreement (BLA) is an agreement under which an IMF member commits to lending funds, usually in its domestic currency, up to an agreed limit, to the IMF, upon demand by the IMF. The creation of the BLA, by itself, is not a claim, and so it should not be reported in Section I of the Reserves Data Template, but it can give rise to claims that may qualify for reserve asset treatment (see section on Loans under a Bilateral Loan Agreement with the IMF below).

A8.5 As noted, under a BLA, the IMF may require a member to lend domestic currency to the IMF at short notice. In exchange for these funds, the member would obtain a claim on the IMF denominated in SDRs. When the BLA is executed, a contingent claim is created. Similar to the treatment of commitments by countries to the IMF under the GAB and NAB (see paragraph 214 of these Guidelines), this contingent claim should not be reported as a contingent short-term negative net drain (nominal value) in Section III.4 of the Reserves Data Template. This is because Section III.4 of the Reserves Data Template covers contingent decreases in reserve assets resulting from undrawn, unconditional credit lines provided to the IMF (inter alia) and, in contrast, the execution of a BLA may result in an increase in reserve assets, which is not covered in this item.

Loans under a Bilateral Loan Agreement with the IMF

A8.6 In order for a loan that is created under a BLA with the IMF to meet the definition of a reserve asset, the claim must be readily available to meet a balance of payments financing need. This condition would be met if the IMF will repay the loan, or someone stands ready to purchase the original lender’s claim on the IMF, within a very short period, through the existence of a liquid market, such as market makers who stand ready to buy and sell at all times. In addition, all of the preceding transactions must involve (or be capable of involving) a freely usable currency (other than the member’s own currency). In this circumstance, the loan that is created under a BLA should be recorded in item I.A.2 of the Reserves Data Template, Reserve Position in the Fund (RPF).1

A8.7 If the loan can be repaid over a protracted period (some loan agreements might allow repayment up to one year), or does not allow repayment in a reserve asset currency, the loan does not qualify as a reserve asset and there are no entries in the Reserves Data Template.

Note Purchase Agreements with the IMF

A8.8 A Note Purchase Agreement (NPA) is an agreement under which an IMF member commits to purchase an IMF promissory note from the IMF on demand, up to an agreed limit. The creation of the NPA, by itself, is not a claim, and so it should not be reported in Section I of the Reserves Data Template, but it can give rise to claims that may qualify for reserve asset treatment (see Section E below).

A8.9 As noted, under a NPA, a contingent claim is created under which the IMF can require a member to purchase an IMF promissory note at short notice. In exchange for these funds, the member would obtain a claim on the IMF. Similar to the treatment of commitments by countries to the IMF under the GAB and NAB (see paragraph 214 of these Guidelines), this contingent claim should not be reported as a contingent short-term negative net drain (nominal value) in Section III.4. of the Reserves Data Template. This is because Section III.4. of the Reserves Data Template covers contingent decreases in reserve assets resulting from undrawn, unconditional credit lines provided to the IMF (inter alia) and, in contrast, the execution of a NPA may result in an increase in reserve assets, which is not covered in this item.

Series A and Series B Notes

A8.10 Two classes of notes were designed under the NPAs, Series A and Series B. These notes are identical, with the exception that Series A notes are eligible for immediate early repayment if the member country declares that it requires repayment due to a balance of payments financing need (the IMF would give such declarations the overwhelming benefit of doubt). Series A notes meet the liquidity criterion for classification as a reserve asset. Holdings of Series A notes should be recorded in item I.A.2 of the Reserves Data Template, Reserve Position in the Fund (RPF). This classification reflects that these notes are claims on the IMF that meet all criteria for recording as reserve assets.

A8.11 Series B notes are encashable as soon as practicable within 12 months of recognition of a balance of payments need. Holders of these notes therefore are not assured that the notes will be encashed promptly at the time of a balance of payments financing need, and so these notes do not meet the statistical definition of official reserve assets, and are not recorded in the Reserves Data Template.2

Loans to IMF Managed Trust Accounts

A8.12 Lending to IMF managed trust accounts, such as the PRGT, if readily available to meet a balance of payments financing need, should be included in official reserve assets, in item I.A.5 of the Reserves Data Template (other reserve assets). These claims are not classified in item I.A.2, RPF, because claims on IMF managed trusts are not claims on the IMF General Resources Account. Lending to IMF managed trusts that is not readily available to meet a balance of payments financing need does not qualify as an official reserve asset and should not be reported in the Reserves Data Template.

Commitments and Drawings under the General Arrangements to Borrow and under the New Arrangements to Borrow

A8.13 The General Arrangements to Borrow (GAB) are long-standing credit arrangements under which 11 advanced economies stand ready to loan domestic currency to the IMF for the purpose of forestalling or addressing situations that could impair the international monetary system. The New Arrangements to Borrow (NAB) are a set of credit arrangements with selected member countries, which stand ready to lend to the IMF.3

A8.14 A contingent claim results from participation in the NAB or GAB, equal to the undrawn amount of credit. However, consistent with paragraph 214 of these Guidelines, this contingent claim should not be reported as a contingent short-term negative net drain (nominal value) in Section III.4. of the Reserves Data Template. This is because Section III.4. of the Template covers contingent decreases in reserve assets resulting from undrawn, unconditional credit lines provided to the IMF (inter alia) and, in contrast, commitments under the GAB and NAB may result in increases in reserve assets, which are not covered in this item.

A8.15 As noted, the IMF may require a member who participates in the NAB or in the GAB to lend to the IMF at short notice. When funds are lent, the member obtains a claim on the IMF that qualifies as a reserve asset and which should be reported in Section I.A.2 of the Reserves Data Template.

Treatment of SDRs

A8.16 This section clarifies the statistical treatment of Special Drawing Rights (SDRs), as relevant for reporting in the Reserves Data Template. It is consistent with recommendations in BPM6 and 2008 SNA, although the main changes introduced by these new methodological standards do not affect reporting in the Reserves Data Template.4

A8.17 SDR holdings are recorded in official reserve assets in Section I.A. of the Reserves Data Template, and interest on SDR holdings and allocations are recorded in predetermined net drains in Section II.1.

Allocations and Holdings of SDRs

A8.18 Under BPM6 and the 2008 SNA, holdings of SDRs by an IMF member are recorded as claims in official reserve assets, and allocations of SDRs are recorded as long-term debt liabilities.5 For an economy that received SDRs, the claims are on, and the liabilities are owed to, the other participants of the IMF’s SDR Department collectively.

A8.19 Only IMF members as SDR Department participants and other official holders (so-called prescribed holders) can hold SDRs.6 The SDR position of a member is shown in the balance sheet of the monetary authorities. Holdings of SDRs should be recorded in the item “SDRs” in Section I.A.(3), because the Reserves Data Template captures holdings of reserve assets by monetary authorities, and all monetary authority holdings of SDRs are reserve assets. Interest that accrues on SDRs should be reflected in Section II of the Reserves Data Template (see below), but unless a member has a set date to repay the SDR allocation, no predetermined drains are recorded under principal because allocations of SDRs have no fixed maturity date.

Accrual of SDR Interest

A8.20 Interest on SDR holdings and allocations7 accrue on a daily basis and are settled after the end of each financial quarter (on May 1, August 1, November 1, and February 1) through a debit or credit to each member’s SDR account. On these dates, interest that is payable on SDR allocations is netted against interest that is receivable on SDR holdings of the participant in the SDR Department, and the net amount is settled through this debit or credit entry.

A8.21 Under BPM6, interest is reinvested in the same financial instrument in which it accrued, and so it can be argued that the level of SDR holdings in Section I of the Reserves Data Template should increase as interest accrues and is not yet paid.8 However, SDR holdings are reserve assets, and reserve assets are defined to be readily available for meeting balance of payments financing needs. Accrued interest on SDR holdings may not be readily available at the time of a balance of payments financing need, particularly in the circumstance where allocations exceed holdings because, as described above, interest on SDR holdings and allocations is settled only once a quarter, and interest on SDR holdings are netted against interest on SDR allocations at settlement.

A8.22 For this reason, the preferred method of reporting accrued interest in the Reserves Data Template is as follows. Interest that has accrued on SDR holdings may be omitted from Section I of the Template, and in Section II.1, interest, the net amount of interest receivable or payable by an economy in future periods should be recorded, either as a predetermined short-term drain outflow (if negative) or inflow (if positive).9 Alternately, it remains acceptable to include interest that has accrued on SDR holdings up to the Reserves Data Template reporting date in Section I. In this case, the gross amount of future interest payable on SDR allocations should be reported in Section II.1 as outflows of interest. (There is no entry in Section II.1 for future inflows of interest on SDR holdings, because Section II pertains to assets of the authorities not covered in Section I of the Template—see paragraph 140 of these Guidelines.)

A8.23Table A8.1 presents a summary of the recording in the Reserves Data Template of lending to the IMF, lending to IMF managed trusts, and SDRs.

Table A8.1Summary of Recording in the Reserves Data Template
Claim or commitment to lendStatistical treatment
Bilateral Loan Agreements (BLAs; undrawn amounts) for loans that would be readily available to meet balance of payments financing needsDo not report in the Reserves Data Template. (They should not be reported as contingent drains in Section III.4.)
Loans (readily available to meet a BoP financing need) drawn by the IMF under BLAsIncrease in RPF in Section I.A.
BLAs (undrawn amounts) for loans that would not be readily available to meet BoP financing needsDo not report in the Reserves Data Template
Loans (not readily available to meet a BoP financing need) drawn by the IMF under BLAsDo not report in the Reserves Data Template
Note Purchase Agreements for Series A notes (readily available to meet BoP financing needs)Do not report in the Reserves Data Template. (They should not be reported as contingent drains in Section III.4.)
Holdings of Series A Notes (available to meet balance of payments financing needs)Increase in RPF in Section I.A.
Note Purchase Agreements for Series B notes (not readily available to meet balance of payments financing needs)Do not report in the Reserves Data Template
Holdings of Series B NotesDo not report in the Reserves Data Template, because the notes do not qualify as reserve assets
Lending to IMF managed trust accounts (readily available to meet balance of payments financing needs)Include in other reserve assets (item I.A.(5))
Lending to IMF managed trusts (not readily available to meet balance of payments financing needs)Do not report in the Reserves Data Template, because these loans do not qualify as reserve assets
Commitments under the GAB and NABDo not report in the Reserves Data Template
Drawings under the GAB and NABIncrease in RPF in Section I.A.(2).
SDR holdingsReport in Section I.A.(3), SDRs
SDR allocationsDo not report in the Reserves Data Template
SDR accrued interestThe preferred reporting treatment is to omit accrued interest on holdings from Section I.A.(3), and to report the net amount of interest receivable or payable in future periods either as a predetermined outflow (if negative) or inflow (if positive) in Section II.1. Alternately, it is acceptable to include accrued interest on holdings in Section I.A.(3), and to report the gross amount of interest that will be payable in future periods on allocations in Section II.1, as an outflow of interest.

For a statistical definition of the Reserve Position in the Fund, see paragraph 6.85 of BPM6.

At the time of preparing the updated text of the Reserves Data Template Guidelines, no Series B notes were outstanding.

For more information on GAB and NAB, see http://www.imf.org/external/np/exr/facts/gabnab.htm.

More specifically, BPM6 recommends that allocations of SDRs to the IMF member countries be shown in the balance of payments accounts as the incurrence of a liability by the recipient country in Other Investment, SDRs, with a corresponding entry in Reserve Assets, SDRs (see BPM6, paragraph 8.50.)

In regard to the rationale for the treatment of SDR allocations as debt, according to BPM6, paragraph 5.31: “Debt instruments are those instruments that require the payment of principal and/or interest at some point(s) in the future.” SDRs meet this definition because

they incur interest (at the SDR interest rate). Also, interest arrears accrue if not paid when due. The liability is fixed in amount. SDRs do not meet the definition of equity, because they do not provide for participation in the distribution of the residual value of the issuer on dissolution (see BPM6, paragraph 5.21).

Prescribed holders are member countries that are not SDR Department participants, institutions that perform the functions of a central bank for more than one member, and other official entities that have been designated by the IMF as eligible for acquiring and using SDRs in transactions, by agreement, in operations with participants and other holders.

For IMF administrative purposes, interest payments on SDR allocations are referred to as “charges.”

See BPM6, paragraphs 11.48–11.49.

As the rate of interest earned by economies holding SDRs is the same as the rate of interest owed by those with SDR allocations, if the levels of holdings and allocations are equal for an economy, no settlement payment is made.

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