Fourteenth General Review of Quotas—Possible Elements of a Compromise—Additional Simulations
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The IMFC in its April 2010 Communiqué pledged to complete the 14th Quota Review before January 2011 in line with the parameters agreed in Istanbul.

Abstract

The IMFC in its April 2010 Communiqué pledged to complete the 14th Quota Review before January 2011 in line with the parameters agreed in Istanbul.

I. Introduction

1. This supplement presents additional illustrative simulations. While Directors’ views at the Committee of the Whole meeting on October 6 were highly preliminary, some suggested possible modifications that could help garner wider support. This supplement focuses on several suggested changes that would broadly maintain the approach set out in Fourteenth General Review of Quotas—Possible Elements of a Compromise (10/5/10). It is hoped that the additional simulations presented below could help in on-going efforts to reach a compromise on the 14th Quota Review.

II. Additional Simulations

2. The simulations take Simulation 5 from Fourteenth General Review of Quotas—Possible Elements of a Compromise (10/5/10) as a starting point. This simulation included the following elements:

  • A doubling of quotas, with 60 percent distributed to all members on a selective basis using the quota formula, and 40 percent distributed on an ad hoc basis to a sub-set of members, primarily those under-represented using the compressed GDP blend variable.

  • Under-represented advanced countries that are also under-represented using the GDP blend variable were included in the ad hoc increase but received a smaller reduction in out-of-lineness (one third of the size) than eligible EMDCs.1 Over-represented advanced countries that are under-represented under the GDP blend also participated in the ad hoc increase but were capped at their post-second round quota share.

  • Part of the ad hoc increase was allocated to protect: (i) all countries that are under-represented using the formula but not under the GDP blend variable at their post selective quota share; (ii) all over-represented countries from becoming under-represented; and (iii) all PCDR-eligible members at their post-second round quota share.

  • To increase the scope for providing sizable increases for other EMDCs, a maximum of 220 percent was set on the largest individual quota increase. This maximum could be considered in the context of voluntary foregoing by eligible members.

3. The above approach is reproduced in Simulation 7 below. The only change is the inclusion of three additional countries (Lesotho, Solomon Islands, and Zimbabwe) in the list of members that could qualify for protection based on the IDA per capita income threshold.2 While there is no formal PCDR-eligibility list (unlike the PRGT-eligibility list), eligibility is limited to PRGT-eligible countries with annual per capita income below the prevailing operational IDA cut-off (US$1,135 in 2008) or below twice IDA’s cut-off for countries meeting the definition of a ―small country‖ under the PRGT eligibility criteria. A review of the countries qualifying under these criteria confirms that two countries should also have been included: Lesotho, whose 2008 per capita income was below the US$1,135 cut-off, and Solomon Islands, whose per capita income was below the higher cut-off applying to small countries. Zimbabwe is not PRGT-eligible because of its removal from the PRGT-eligibility list by the Executive Board in connection with its arrears to the Trust. However, its estimated per capita income was below US$1,135 in 2008 and it lacked market access. Thus, it is likely that Zimbabwe would become PRGT-eligible once it has cleared its arrears to the PRGT Trust and the associated remedial measures are lifted.3 While its treatment for the purposes of this element of protection is still to be considered by the COW, it was thought prudent to add Zimbabwe to the list in the illustrative simulations presented below. For symmetry, Zimbabwe has also been added to the list of countries receiving individual quota share protection using the longer PRGT-eligible list.

4. Taking Simulation 7 as the starting point, the following additional suggestions are illustrated in this supplement:

  • Simulation 8—Full participation of advanced countries in the ad hoc increase. It was suggested that all eligible countries should participate fully in the ad hoc increases if they meet the criteria of being under-represented using both the formula and the GDP blend. Relative to Simulation 1, three advanced countries (Australia, Greece, and Spain) would be eligible for larger increases under this approach.

  • Simulation 9—Dual protection at the higher of calculated quota share or GDP blend share. It was suggested that, to be consistent with the approach of giving greater weight to the GDP blend in the ad hoc increases, protection for over-represented members should be provided at the higher of their share in the GDP blend or their calculated quota share, rather than solely the latter. Relative to Simulation 1, five countries would be covered by the double backstop, including two advanced countries (Canada and France) and three EMDCs (Argentina, Morocco, and South Africa).

  • Simulation 10—Floor on the maximum decline in quota share. It was noted that, in the previous simulations, the quota shares of a number of over-represented countries, mainly EMDCs, would decline substantially. This simulation introduces a floor of 30 percent on the maximum decline in an individual country’s quota share relative to its post second round quota share. The protection would benefit 35 countries, all EMDCs. When protection for the poorest is applied to all PRGT-eligible countries (Simulations 13–18), 23 countries would benefit from the floor (again, all EMDCs).

5. Different combinations of the above elements could be considered. For illustrative purposes, Simulation 11 combines all elements of Simulations 8–10. As such, it allows for full participation of eligible advanced countries in the ad hoc increase, protects countries at the higher of their calculated quota or GDP blend share, and introduces a floor for the maximum decline in quota share.

6. The previous elements could also be combined with voluntary foregoing by all advanced countries, building on the approach in Fourteenth General Review of Quota—Possible Elements of a Compromise (10/5/10). In that paper, staff presented an illustrative simulation showing a 1 percent haircut in the quota shares of all advanced countries. Views were expressed on both sides, and it was also stressed that any such foregoing should be voluntary. Different combinations with elements of the above simulations could be considered. For illustrative purposes, Simulation 12 takes Simulation 11 as the base and combines it, compared with the previous paper, with a slightly higher level of voluntary foregoing by all advanced countries, at 1.64 percent. This would broadly cover the cost of protection for the poorest based on the above income cutoff (it would fall short of the cost of protection using the PRGT list)4 and leave the US quota share unchanged from its pre- Singapore level.

Table 1.

Illustrative Quota Simulations--100 Percent Increase, 0/60/40 Allocation, Protection of the Poorest Based on IDA Thresholds 1/

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Source: Finance Department.

Eligibility is limited to PRGT-eligible countries with annual per capita income below the prevailing operational IDA cut-off (US$1,135 in 2008) or below twice IDA’s cut-off for countries meeting the definition of a “small country” under the PRGT eligibility criteria. Zimbabwe is included (see text for details).

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo and Tuvalu which became members on June 29, 2009 and June 24, 2010, respectively. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

Equivalent to simulation 5 in Table 1 of Fourteenth General Review of Quotas-Possible Elements of a Compromise (10/5/10) except for the addition of Lesotho, Solomon Islands, and Zimbabwe to the list of the poorest members (see text for details).

Eligible advanced countries that are under-represented under both the formula and the GDP blend receive the same reduction in out-of-lineness as EMDCs.

Countries that are over-represented with respect to the formula or the GDP blend share that would become under-represented as a result of the overall quota increase are protected at their calculated quota share or their GDP blend share, whichever is greater.

A country’s quota share cannot fall below 70 percent of its post second round quota share.

All advanced countries are assumed to accept a voluntary 1.64 percent reduction in their final quota shares.

Including Korea and Singapore.

Zimbabwe is included (see text for details).

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between GDP blend (see footnote 3) and post-selective quota share.

7. The results of the above simulations are summarized in Table 1. Comparable simulations based on protection for all PRGT-eligible countries are summarized in Table 2.5 All these simulations meet the IMFC objectives of a shift of at least 5 percent in quota shares to dynamic EMDCs and from over- to under-represented countries, except for Simulation 17 (which combines all the above elements except voluntary foregoing by advanced countries, with use of the PRGT-eligible list for protection of the poorest). The shifts from over- to under-represented countries range from 5.6–6.6 percent, while the shifts to dynamic EMDCs range from 4.9–6.1 percent. The net shifts to EMDCs as a group range from 1.8–2.8 percent.

Table 2.

Illustrative Quota Simulations--100 Percent Increase, 0/60/40 Allocation, PRGT Protection 1/

(In percent)

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Source: Finance Department.

Zimbabwe is included (see text for details).

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo and Tuvalu which became members on June 29, 2009 and June 24, 2010, respectively. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

Equivalent to simulation 2 in Table 1 of Fourteenth General Review of Quotas-Possible Elements of a Compromise (10/5/10) except that Zimbabwe is added to the list of the poorest members (see text for details).

Eligible advanced countries that are under-represented under both the formula and the GDP blend receive the same reduction in out-of-lineness as EMDCs.

Countries that are over-represented with respect to the formula or the GDP blend share that would become under-represented as a result of the overall quota increase are protected at their calculated quota share or their GDP blend share, whichever is greater.

A country’s quota share cannot fall below 70 percent of its post second round quota share.

All advanced countries are assumed to accept a voluntary 1.64 percent reduction in their final quota shares.

Including Korea and Singapore.

PRGT-eligible countries with annual per capita income below the prevailing operational IDA cut-off (US$1,135 in 2008) or below twice IDA’s cut-off for countries meeting the definition of a “small country” under the PRGT eligibility criteria. Zimbabwe is included (see text for details).

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between GDP blend (see footnote 3) and post-selective quota share.

Table A1.

Illustrative Quota Simulations—100 Percent Increase, 0/60/40 Allocation, Protection of the Poorest Based on IDA Thresholds—By Member 1/

(In percent)

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Source: Finance Department.

Eligibility is limited to PRGT-eligible countries with annual per capita income below the prevailing operational IDA cut-off (US$1,135 in 2008) or below twice IDA’s cut-off for countries meeting the definition of a “small country “under the PRGT eligibility criteria. Zimbabwe is included (see text for details).

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo and Tuvalu which became members on June 29, 2009 and June 24, 2010, respectively. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

Equivalent to simulation 5 in Table 1 of Fourteenth General Review of Quotas-Possible Elements of a Compromise (10/5/10) except for the addition of Lesotho, Solomon Islands and Zimbabwe to the list of the poorest members (see text for details).

Eligible advanced countries that are under-represented under both the formula and the GDP blend receive the same reduction in out-of-lineness as EMDCs.

Countries that are over-represented with respect to the formula or the GDP blend share that would become under-represented as a result of the overall quota increase are protected at their calculated quota share or their GDP blend share, whichever is greater.

A country’s quota share cannot fall below 70 percent of its post second round quota share.

All advanced countries are assumed to accept a voluntary 1.64 percent reduction in their final quota shares.

Includes China, P.R., Hong Kong SAR, and Macao SAR.

Table A2.

Illustrative Quota Simulations—100 Percent Increase, 0/60/40 Allocation, PRGT Protection—By Member 1/

(In percent)

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Source: Finance Department.

Zimbabwe is included (see text for details).

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo and Tuvalu which became members on June 29, 2009 and June 24, 2010, respectively. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

Equivalent to simulation 2 in Table 1 of Fourteenth General Review of Quotas-Possible Elements of a Compromise (10/5/10) except that Zimbabwe is added to the list of the poorest members (see text for details).

Eligible advanced countries that are under-represented under both the formula and the GDP blend receive the same reduction in out-of-lineness as EMDCs.

Countries that are over-represented with respect to the formula or the GDP blend share that would become under-represented as a result of the overall quota increase are protected at their calculated quota share or their GDP blend share, whichever is greater.

A country’s quota share cannot fall below 70 percent of its post second round quota share.

All advanced countries are assumed to accept a voluntary 1.64 percent reduction in their final quota shares.

All advanced countries receive a 1.64 percent reduction in their final quota shares.

Includes China, P.R., Hong Kong SAR, and Macao SAR.

1

The ad hoc increases are allocated on the basis of a uniform reduction factor so that each eligible member’s out-of-lineness—in this case relative to their share in the compressed GDP blend variable—is reduced by proportionately the same amount. Under this approach, the eligible advanced countries would receive one third of the uniform reduction factor applying to eligible EMDCs.

2

With a view to clarifying the role of the IDA income threshold, the tables below refer to this criterion (rather than the PCDR) when it is used to protect the voting share of the poorest members.

3

The Board paper on PRGT eligibility noted that Zimbabwe’s per capita GNI was estimated to be well below the IDA operational cutoff and the country does not have market access; see Eligibility to Use the Fund’s Facilities for Concessional Financing (1/11/10).

4

Under this simulation, the aggregate ―cost‖ of protection for the poorest countries is about 0.91 percentage points in terms of total quota share (1.29 percentage points for the PRGT list). The voluntary foregoing would free up about 0.96 percentage points.

5

Results for individual member countries are presented in Tables A1 and A2.

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