Flexible Credit Line—Guidance on Operational Issues1
Prepared by a team comprising Gustavo Adler, Manuela Goretti, Toshiyuki Miyoshi, Nathan Porter, Manrique Saenz, Alison Stuart, and Mercedes Vera Martin (all SPR), Ceda Ogada, Katharine Christopherson, Yan Liu, Damien Eastman, Kyung Kwak, Gabriela Rosenberg (LEG) and Marco Rossi (FIN), under the guidance of Lorenzo Giorgianni and James Roaf (SPR) and Rhoda Weeks-Brown (LEG). This note updates an earlier version published on November 2, 2009.
Some terminology: established as a window in the Fund’s credit tranches, the FCL is a financing instrument, and not a stand-alone facility (e.g., the EFF). Access to Fund resources is provided under an FCL arrangement. The text of a standard FCL arrangement can be found in Annex IV. Table 1 in Fund’s Financing Role: Reform Proposals on Liquidity and Emergency Assistance presents a comparison of existing financing instruments.
Successive FCL arrangements may be approved, provided the member continues to meet qualification criteria.
All references to the FCL decision refer to Decision No. 14283-(09/29), adopted March 24, 2009, as amended by Decision No. 14714-(10/83), and adopted August 30, 2010.
As is standard under Fund facilities, while the Fund would not challenge the ex ante representation of a BoP need by a member for a purchase requested under an FCL arrangement (nor in practice has it done so ex post), the member’s drawings would have to be commensurate with its actual BoP need at the time of a purchase, notwithstanding the available amount of approved access. The concept of BoP need relates to the existence of an above-the-line BoP deficit or an inadequate level of reserves (see Article V, Section 3(b)).
In the Public Information Notice to the Review of the Flexible Credit Line and Precautionary Credit Line (PIN/11/152), Directors noted that access under the FCL instrument is a temporary supplement to reserves during periods of heightened risks. They reaffirmed the normal expectation of reduced access under successor FCL arrangements as set forth in PIN/10/124 (see also below). The Board viewed that discussing the country’s external risks and exit expectations in staff reports requesting FCL arrangements should help promote timely exit.
In the Public Information Notice to The Fund’s Mandate—The Future Financing Role—Reform Proposals, Directors agreed that, in addition to other relevant factors justifying lower access, access under the FCL would normally be expected to decline in successor arrangements whenever improvements in official and private financing prospects have reduced the member’s potential or actual balance of payments needs in a sustained manner.
The marginal commitment fee is equal to 15 basis points for access up to 200 percent of quota, 30 basis points for access between 200 and 1000 percent of quota, and 60 basis points for access above 1000 percent of quota. By way of example, the average commitment fee levied on a 500 (1000) percent of quota arrangement is 24 (27) basis points. The commitment fee is levied upon approval of the arrangement and refunded on a pro rata basis if drawings are made under the arrangement or if the arrangement is cancelled without being drawn in full.
In general, IMF arrangements are conditional lines of credit and thus should not be included in Section III of the Reserves Data Template. The FCL has conditions for access which include qualification criteria that must be met before the credit line is approved. In FCL arrangements with a one-year duration, once the qualification criteria are met, the member can draw down funds throughout the entire one year period of the arrangement. In two-year FCL arrangements however, continued access to resources during the second year is also subject to completion of a review. In light of the above, the undrawn amounts under one year FCL arrangements should be included in Section III from approval to the maturity of the FCL arrangement. Undrawn amounts under two year FCL arrangements should be included in Section III from approval up until the scheduled review date under the FCL. See International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template.
In case of a leak concerning an expression of interest by a member, staff would normally refrain from any comment, as per current Fund practice on press leaks. EXR guidance should be sought as needed.
In the case of financing support by multilateral creditors (e.g., for members of a currency area and/or Regional Financing Arrangement), staff should coordinate with the requesting member and the relevant multilaterals to ensure that these creditors’ own internal rules and procedures, as applicable, do not conflict with the Fund’s policies on the financial assistance request and communication strategy. In any case, these considerations should in no way delay prompt communications to the Board or prejudge its assessment of the member’s request.
FIN Operational Guidelines for Safeguards Assessments are being updated and will include a discussion on safeguards procedures applicable for FCL.
Since the FCL Decision (see example Annex IV) provides for its own expedited procedures, the provisions of Emergency Financing Mechanism procedures do not apply to requests for an FCL arrangement.
If a staff visit precedes the mid-term review, standard review procedures for the briefing paper apply (i.e., it should be circulated for comments to SPR, LEG, and FIN, and sent to Management for approval if there is a change in policy line or economic circumstances. If the area department and SPR agree there is no change, a one-page brief is adequate and should be circulated for information only.) According to the 2010 Decision on Consultation Cycles (Decision No. 14747-(10/96)) when an FCL arrangement is approved for a member, that member shall be automatically placed on a 12-month consultation cycle subject to the procedures specified in paragraph 3 of such decision.
This is because the FCL decision (paragraph 6(a)(iv)(I)) requires a written communication from the member at the time of the initial request outlining its policy goals and strategies for “at least the duration of the arrangement.” Thus, should the member’s policy goals and strategies evolve during the arrangement, a new letter clarifying such new policies and strategies will be required to complete the mid-term review.
A purchase can only be made in the GRA by a member if it represents that it has to make the purchase to meet a BoP need—i.e., “because of its balance of payments or its reserve position or developments in its reserves. “ (Article V, Section 3 (b)).
From the Articles of Agreement, Article I stipulates that one of the purposes of the Fund is “To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.”
See PIN/06/104, 9/13/06 and PIN/07/40, 3/23/07.
For members of a reserve currency area, standard reserves adequacy assessments could be usefully complemented by an analysis of the members’ cash flow position in domestic currency and the available buffers to cover actual and/or potential private and fiscal balance of payments needs (including any bank restructuring costs expected to generate external financing needs). Availability of Central Banks swap lines, instead of reserves, might also be considered in assessing coverage against risks arising from currency mismatches and funding shortages in other reserves currencies.
An example of this supplement is Mexico—Assessment of the Impact of the Proposed Flexible Credit Line Arrangement on the Fund’s Finances and Liquidity Position (IMF Country Report No. 09/126). FIN staff will contact the mission team concerning data requirements.
This would be parallel to the EA policy (guidance note, paragraph 15) which highlights that “public statements by members, staff, and management should take special care not to prejudge the Board’s exercise of its responsibility to take the final decision. Management will consult with the Board specifically before concluding discussions on a program and before any public statement on a proposed level of access.” It would also be in line with past practice, whereby statements by management followed ad referendum agreement with the authorities.
Based on Technical Note on Synchronized Approval of Flexible Credit Lines for Multiple Countries; IMF Policy Paper; November 12, 2010.
The FCL Decision (¶6(a)(v)) states that the minimum periods applicable to the circulation of staff reports to the Executive Board shall apply to FCL arrangement requests, provided that the Executive Board will generally be prepared to consider a request within 48 to 72 hours after the circulation of the documentation in exceptional circumstances, such as an urgent actual balance of payments need.