Update on the Financing of the Fund's Concessional Assistance and Proposed Amendments to the PRGT Instrument

New commitments under PRGT-supported programs amounted to SDR 0.15 billion in 2013, while disbursements on existing arrangements amounted to about SDR 0.8 billion. However, this lower demand is expected to be temporary. New commitments are projected to rebound to about SDR 1.5 billion in 2014, similar to the level observed in 2012. These projections are subject to considerable uncertainty regarding progress on ongoing program negotiations.

Abstract

New commitments under PRGT-supported programs amounted to SDR 0.15 billion in 2013, while disbursements on existing arrangements amounted to about SDR 0.8 billion. However, this lower demand is expected to be temporary. New commitments are projected to rebound to about SDR 1.5 billion in 2014, similar to the level observed in 2012. These projections are subject to considerable uncertainty regarding progress on ongoing program negotiations.

Introduction

1. This paper reviews recent developments in the financing of the Fund’s concessional lending and debt relief. It reports the latest available data including the pledges and contributions to the PRGT subsidy accounts resulting from the gold-profits-related distributions of reserves that became effective in October 2012 and October 2013. The PRGT’s potential self-sustained capacity is discussed in the context of longer-term projections of the demand for concessional lending.1 The paper also proposes decisions necessary to implement the self-sustained PRGT strategy and to allow the staff to negotiate new or amended borrowing agreements with PRGT lenders for new commitments beyond 2015.

2. The paper is organized as follows. Section II provides an overview of the Fund’s concessional lending instruments and the associated financing framework as well as the developments since the September 2013 Update. Section III reviews the sources of financing for PRGT operations and discusses developments in the PRGT framework. Section IV reviews the use of PRGT resources and assesses the Trust’s estimated self-sustained capacity in light of the demand projections. Section V discusses the amendments to the PRGT and other Board decisions required to implement the proposals in this paper for PRGT commitments beyond 2015, including those required to implement the self-sustained PRGT, endorsed by the Board in September 2012.2 Section VI discusses the termination of the accounts used to subsidize emergency assistance provided through the GRA, while Section VII presents the developments on the financing of debt relief under the HIPC, MDRI, and PCDR Trusts. The paper concludes with the proposed decisions.3

Concessional Financing and PRGT

3. Fund facilities for concessional financing of LICs have been reviewed regularly to take account of the changing needs of these countries. Lending facilities were reformed in 2009, and additional amendments were adopted in April 2013 as part of the LIC facilities review. Since 2010, lending by the PRGT has been conducted under three facilities depending on the nature of the country’s need and capacity: the Extended Credit Facility (ECF), the Standby Credit Facility (SCF), and the Rapid Credit Facility (RCF).

4. The concessional financing framework under the PRGT consists of three main types of accounts: Loan Accounts, Subsidy Accounts, and Reserve Account. Resources in these accounts ensure both the Trust’s lending capacity and its financial strength (Box 1).

PRGT Concessional Financing Framework

The operations of the PRGT are conducted through four Loan Accounts, four Subsidy Accounts, and the Reserve Account. The balances accumulated in these accounts ensure the PRGT’s ability to provide concessional assistance, its lending capacity, and financial strength.

uA01fig01

Concessional Financing Framework

Citation: Policy Papers 2014, 063; 10.5089/9781498343503.007.A001

1/ Transfers may be made from the General Subsidy Account for subsidizing ENDA/EPCA credit on an “as needed” basis.

Loan Accounts contain resources borrowed at market interest rates from official creditors and on-lent on a pass-through basis to eligible low-income-countries (LICs). There are loan accounts dedicated to finance each PRGT facility: Rapid Credit Facility (RCF), Stand-by Credit Facility (SCF), and Extended Credit Facility (ECF) loan account, in addition to the General Loan Account (GLA) that may finance any of the facilities.

Subsidy Accounts (SAs) contain bilateral contributions from members and from the Fund’s own resources. The PRGT extends loans to eligible members at below-market-interest-rates but it acquires its loan resources and pays back to its lenders a market-interest rate. The difference between these borrowing and lending rates is covered from resources held by the SAs. There are subsidy accounts dedicated to subsidize interest payments for each PRGT facility: RCF, SCF, and ECF in addition to the General Subsidy Account (GSA) that may subsidize any of the facilities. The dedicated subsidy accounts were established to allow the PRGT creditors and donors to earmark their contributions for use by specific facilities.

Reserve Account (RA) contains resources that would be called upon to meet the PRGT’s obligations vis-à-vis its creditors in the event of delayed payments by the PRGT borrowers. The account may also be used to meet the Fund’s cost of administering PRGT operations. The RA is financed from the profits on gold sales by the IMF in 1970s, and investment income from the investment of these resources. Under the self-sustained PRGT, the income earned on the balances in the account will be used to subsidize PRGT lending. The necessary amendments to the PRGT Instrument to authorize the use of RA resources for subsidy purposes are discussed in Section V of this paper.

5. The LIC financing package, approved in July 2009 as part of the LIC reforms, has been critical in supporting higher PRGT lending during the global financial crisis.4 This package included subsidy resources provided for by the first distribution of SDR 0.7 billion of the Fund’s general reserves attributed to the windfall gold sales profits.

6. In September 2012, the Executive Board approved a strategy to make the PRGT self-sustaining in the longer term.5 This strategy rests on three pillars: (i) a base average annual lending capacity of about SDR 1¼ billion; (ii) contingent measures which can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period; and (iii) the expectation that all future modifications to LIC facilities would be designed in a manner that is consistent with maintaining self-sustainability (Box 2). Additional subsidy resources to support this lending capacity were to be provided by a second distribution of the Fund’s general reserves (SDR 1.75 billion) attributed to the remaining windfall gold sales profits. Under the terms of the decision, this distribution was effected only after members had provided satisfactory assurances that new amounts equivalent to at least 90 percent of the amount to be distributed would be transferred or otherwise provided to the PRGT. The required threshold was reached, and the distribution took place, in October 2013.

Strategy to Make the PRGT Sustainable

The three-pillar strategy to ensure the PRGT has the resources to meet projected demand for IMF concessional lending over longer term, set out in Proposal to Distribute Remaining Windfall Gold Sales Profits and Strategy to Make the Poverty Reduction and Growth Trust Sustainable (September 17, 2012), is as follows:

  • A base envelope of about SDR 1¼ billion in annual lending capacity, which is expected to cover concessional lending needs over normal periods. While financing commitments can vary substantially from year to year, the self-sustaining PRGT can build up capacity in years with low levels of new lending commitments and draw down capacity in years with higher demand. This implies that the base envelope could cover periods where demand in individual years could be much higher, as long as fluctuations average out over a number of years.

  • Contingent measures that can be put in place when average financing needs exceed the base envelope by a substantial margin for an extended period. If the Board considers that the self-sustaining capacity would decline substantially below SDR 1¼ billion, it could decide to activate a range of contingent measures including (i) reaching additional understandings on bilateral fund-raising efforts to be supported by a broad range of the membership; (ii) the suspension for a limited period of the reimbursement of the GRA for PRGT administrative expenses; and (iii) modifications of access, blending, and interest rate and eligibility policies to reduce the need for subsidy resources.

  • A principle of self-sustainability under which future modifications to LIC facilities would be expected to ensure that the demand for IMF concessional lending can be met with the resources available under the first and second pillars under a plausible range of scenarios. It was noted, in particular, that the review of PRGT eligibility and the second stage of the review of facilities—completed in April 2013—should ensure that all modifications, taken together, would, over the longer term, keep demand consistent with available resources.

The estimate of a self-sustained capacity of SDR 1¼ billion is based on the projected annual returns on the balances in the four PRGT subsidy accounts—including those that have been recently added through the two gold distributions—and in the Reserve Account (RA) in the steady state.

7. In December 2012, taking account of the ongoing global economic crisis, the Executive Board approved a two-year extension of the temporary interest waiver on PRGT loans through end-2014.6 In view of the modest additional cost to the PRGT, the extension of the temporary waiver was considered to be consistent with the three-pillar strategy to establish a self-sustaining PRGT, but it remains important for the integrity of the agreed financing framework that the interest rate mechanism be allowed to function as was originally envisaged, once conditions return to normal.7

8. The second stage of the review of facilities for low-income countries and the 2013 review of PRGT eligibility was discussed by the Executive Board in April 2013.8 The adopted modifications are expected to keep demand consistent with the available resources over the longer term, under a wide range of scenarios.

Sources of Financing for the PRGT

9. The 2009 LIC financing package, approved in July 2009 as part of the LIC reforms, allowed for the provision of enhanced financial support to LICs, which had been severely affected by the global economic crisis. The financing package, which sought to increase the Fund’s concessional lending capacity to SDR 11.3 billion for 2009–14, required the mobilization of new loan resources of SDR 10.8 billion (including a liquidity buffer of SDR 1.8 billion to enable a voluntary encashment regime) and new subsidy resources of SDR 1.5 billion (end-2008 NPV terms).9 Most of the additional subsidies were to be financed from the Fund’s internal resources—including transfers from the PRGT Reserve Account, delaying until FY 2013 the resumption of reimbursement of the GRA for PRGT administrative costs, and use of resources linked to gold sales profits as a means to facilitate new subsidy resources. Bilateral subsidy contributions of SDR 200–400 million (end-2008 NPV terms) were also important to complete the financing package. The Managing Director approached a wide spectrum of the membership in 2009 to mobilize the required loan and subsidy resources.

10. The 2009 financing package is now complete, and attention has shifted to the resources required for concessional lending beyond 2015. As of end February 2014, pledges for new bilateral subsidy resources exceeded the lower end of the targeted range of SDR 0.2-0.4 billion. While additional commitments of SDR 1 billion would have been required to meet the original target for loan resources, existing capacity is sufficient for projected needs through 2015 given that demand for new commitments from 2009–13 was lower than projected at the time of the 2009 reforms. Staff considers that efforts should now focus on finalizing the framework for self-sustained PRGT lending and ensuring its successful operations over the longer term. With the effectiveness of the two gold-related distributions of reserves, the subsidy resources required to finance the self-sustained PRGT have largely been secured. In this context, as discussed in detail in Section V, it is now desirable for the Executive Board to take the formal decisions required to establish the self-sustained PRGT mechanism, and also to allow staff to seek new loan resources from the membership to support the Trust’s lending capacity beyond 2015 through to end-2020.

A. Loan Resources

11. As of end-February 2014, new loan resources of SDR 9.8 billion have been provided by fourteen members (Table 1). No new loan pledges or contributions have been made since the September 2013 Update. Two-thirds of the secured resources (SDR 6.2 billion) have been made available to the General Loan Account (GLA), about 31 percent to the ECF Loan Account (SDR 2.9 billion), and the remainder (SDR 0.3 billion) to the SCF and RCF Loan Accounts.

Table 1.

New Commitments of Loan Resources to the PRGT 1/

(In millions of SDRs; end-February 2014)

article image

Germany (KfW) made a pledge of SDR 1.53 billion. As mutually acceptable lending terms could not be agreed, it is excluded from the total.

12. Lenders to the PRGT have made use of all of the elements under the enhanced framework for mobilizing bilateral loan resources agreed in 2010.10 Loan resources have been provided through both traditional Loan Agreements and Note Purchase Agreements (NPAs), and seven members have included in their borrowing agreements participation in the encashment regime of the PRGT.11 Five of the borrowing agreements also have shorter initial maturities than in the case of traditional loan agreements.12 Eight of the new borrowing agreements provide loans to the PRGT in SDRs; all these contributors also have in place voluntary SDR trading arrangements.13 Since the start of the sales of SDRs under these arrangements in June 2011 through end-December 2013, drawings amounting to SDR 1,818 million have been made under the new SDR borrowing agreements. Sales of SDRs related to these drawings amounted to SDR 1,092 million. The difference reflects the borrowing members’ acquisition of SDRs to replenish their SDR holdings. These sales were conducted through the voluntary SDR trading arrangements.

13. Uncommitted PRGT loan resources amounted to SDR 6.7 billion at end-December 2013. The bulk of these uncommitted loan resources were in the GLA, amounting to SDR 5.9 billion. Resources available in the Special Loan Account (SLA) for the ECF amounted to SDR 0.8 billion, while resources in the SLA for the SCF and RCF have been fully committed. 14,15

B. Subsidy Resources

14. Total balances in the PRGT Subsidy Accounts at end-December 2013 amounted to SDR 3.1 billion. This amount includes all contributions pledged during the 2005 ESF fund-raising exercise, including those that are still expected to be received (Table 2). However, it excludes SDR 25.9 million pledged during earlier fundraising that donors have not yet provided (Table 3). In addition to the balances in the PRGT Subsidy Accounts, SDR 0.2 billion is assumed to be available from PRG-HIPC Trust.16

Table 2.

ESF Subsidy Contributions

(In millions of currency units; end-December 2013)

article image

To be generated from the concessional loan as an implicit subsidy.

Reflecting net investment income (in end-2005 NPV terms) to be generated from deposit/investment agreements.

Table 3.

PRG-HIPC Trust—Pending Contributions

In millions of SDRs “as needed”; end-February 2014)

article image

Remaining balances.

15. Pledges of bilateral subsidy resources under the 2009 LIC financing package for the PRGT stand slightly above the lower end of the target range of SDR 0.2–0.4 billion (end-2008 NPV terms). As of end-February 2014, a total of twenty-six members have committed SDR 214 million in additional subsidies. Staff will continue to seek additional bilateral subsidy resources which will help make the self-sustained PRGT more robust over a wide range of demand scenarios. Of the amounts pledged, SDR 156.4 million has so far been received (Table 4).

Table 4.

Pledges of Bilateral Subsidy Resources under the 2009 LIC Financing Package for the PRGT

(In millions of currency units; end-January 2014)

article image

Reflecting net investment income (in end-2008 NPV terms) to be generated from investment agreements.

Reflecting end-December 2013 net income earned on the investment (in end-2008 NPV terms).

Initial pledge of SDR 9.5 million has been changed to SDR 10.33 million to be paid in 8 tranches by January 2018.

A pledge of SDR 16,709,643 is to be received following expiry of existing investment agreement with the PRGT on 12/31/2021; estimated as SDR 11 million in end 2008 NPV terms at the time when the pledge was made.

Calculated using the exchange rates as of January 31, 2014.

16. The PRGT’s subsidy resources are being augmented substantially by the successful distribution of windfall gold sale profits. The first partial distribution of SDR 0.7 billion of the Fund’s general reserves attributed to the windfall gold sales profits became effective in October 2012. As of end-March 2014, a total of 143 countries representing 94.25 percent of the distribution had pledged to contribute PRGT subsidies and 126 members had effected their payments (82.97 percent of the total distribution). The second partial distribution became effective roughly a year after the first—in October 2013. As of end-March 2014, a total of 154 countries had pledged 94.26 percent of the distribution and 124 members had effected their payments (72.84 percent of the total distribution). Additional contributions linked to these distributions are still expected from members (Appendix Table 7).

Appendix Table 7.

Distribution of the General Reserve Associated with Gold Windfall Profits 1/ (concluded)

(As of March 31, 2014)

article image
article image
article image
article image

Madagascar was not approached with the request for contributing under either distribution; Sudan’s and Somalia’s shares were applied against their arrears.

The distribution became effective on October 12, 2012 and was implemented on October 23, 2012. The amount distributed to members was based on the quota shares in place on the day the distribution was effected. Payments also include interest earned in Interim Administered Account on originally pledged amount, where applicable.

The distribution became effective on October 10, 2013 and was implemented on October 22, 2013. The amount distributed to members was based on the quota shares in place on the day the distribution was effected. Payments also include interest earned in Interim Administered Account on originally pledged amount, where applicable.

Member’s actual contribution differs from initial pledge on account of foreign exchange rates on value date of payment.

The actual contribution includes interest earned in the Interim Administered Account.

Switzerland pledged to contributed its shares under both distributions in five equal annual installments. The payment amount represents the first installment.

17. The successful distributions of gold windfall profits were a key step toward making the PRGT sustainable over the medium and longer term. As a result of the additional subsidy resources pledged, the PRGT now has sufficient capacity to accommodate annual lending of about SDR 1.3 billion on average on an ongoing basis.

C. Reserve Account

18. The PRGT Reserve Account continues to provide adequate security to PRGT lenders and note purchasers. The Account was originally financed by reflows of Trust Fund and Structural Adjustment Facility (SAF) repayments, as well as investment returns on balances held in the Account. The PRGT can tap these resources temporarily to meet its obligations in the event of a delayed payment by a borrower to any loan account of the Trust. The balance in the Reserve Account amounted to SDR 3.9 billion at end-December 2013, representing a substantial multiple of the projected PRGT repayments falling due over the next twelve months and about 66 percent of total PRGT obligations (Appendix Table 4).

Appendix Table 4.

PRGT Reserve Account Coverage

(In millions of SDRs; end-period)

article image

The decline in total PRGT credit outstanding by about 40 percent from 2005 reflects early repayments arising from the delivery of HIPC and MDRI debt relief.

Demand for PRGT Concessional Lending

19. During 2009–13, average annual lending commitments were about SDR 1.3 billion, peaking in 2009 at SDR 2.5 billion with 18 new arrangements. Average commitments during this period were significantly higher than the average annual PRGT commitments of SDR 0.9 billion during 1988–2007, but some SDR 600 million per year below the level that could have been accommodated by the 2009 financing package. From January 2010, when the new structure of LIC facilities became effective, through end-2013, total commitments under the ECF, including augmentations, amounted to SDR 3.4 billion, while commitments under the SCF and RCF amounted to SDR 0.36 billion and SDR 0.23 million, respectively.17

20. Demand for PRGT resources was unusually low in 2013 but is expected to rebound in 2014. Commitments under new PRGT arrangements were about SDR 0.15 billion in 2013 (Table 5), well below the SDR 1.5 billion committed in 2012 or SDR 1.2 billion committed in 2010 and 2011 (Figure 1), as program negotiations were delayed on a number of potentially large arrangements. PRGT demand, including under some large arrangements initially expected in 2013, is projected to rebound in 2014 to about SDR 1.5 billion.18 This level of commitments in 2014 would be consistent with the PRGT’s average annual self-sustained capacity. Disbursements in 2013 amounted to about SDR 0.8 billion (Figure 2) broadly in line with the levels observed during 2010-12.

Table 5.

New PRGT Commitments to LICs in 2013

(In millions of SDRs; end-December 2013)

article image
Figure 1.
Figure 1.

PRGT Commitments to LICs, 1988–2013

(In millions of SDRs; as of end-December 2013)

Citation: Policy Papers 2014, 063; 10.5089/9781498343503.007.A001

Figure 2.
Figure 2.

Disbursements to PRGT-Eligible Countries, 1988–2013 1/

(In millions of SDRs; end-December 2013)

Citation: Policy Papers 2014, 063; 10.5089/9781498343503.007.A001

Source: Finance Department.1/ In April 2010, Albania, Angola, Azerbaijan, India, Pakistan, and Sri Lanka graduated from the PRGT; Armenia graduated in July 2013.

21. Updated staff projections indicate that longer-term demand for the Fund’s concessional lending could be in the range of about SDR 1.0–1.7 billion annually up to 2036 (Table 6). These projections are similar to those presented in the last Update and are consistent with expectations following the adoption of a moderate expansion of blending rules, graduation of two members, and entry of new PRGT-eligible members as approved in April 2013.19 In the context of the recently approved framework for concessional lending on a self-sustained basis, this level of demand compares to the PRGT’s basic annual capacity to support concessional lending of about SDR 1¼ billion.

Table 6.

Projected Demand for PRGT Resources Under Alternative Scenarios 1/

(In billions of SDRs)

article image

The low-case scenario assumes that about 30 percent of PRGT-eligible countries would resort to Fund financing in any given year, while the high-case scenario assumes that some 50 percent of LICs request some form of Fund financial support in any given year.

All the demand projections take into account that Georgia will graduate from PRGT eligibility upon expiration of the SCF (expected in April 2014).

Based on 50 percent reduction in access norms and limits (in percent of quota) when the quota increase under the Fourteenth General Review of Quotas goes into effect in 2014, followed by increases in access in nominal SDR terms of 24.2 percent at three-year intervals, starting in 2016. The baseline also incorporates other methodological issues such as (i) applying the vulnerability criterion to the graduation and blending assumptions; and (ii) aligning the graduation assumptions with the two-year PRGT-eligibility review cycle.

For PRGT-eligible countries that are presumed to blend, half of access to Fund resources is from the PRGT.

22. The framework for self-sustained lending under the PRGT is robust under a number of demand scenarios. Lower commitments in 2013 have had only a modest impact on the estimated self-sustained capacity from 2014. The framework can accommodate demand at a higher level than the estimated self-sustained long-term capacity for a period of time as indicated below (Table 7).20 However, estimates of the PRGT’s self-sustained capacity would be significantly affected if demand were to remain elevated for extended periods, or exceeded the estimated self-sustained lending capacity by significant margins. Under these circumstances, new subsidy resources or other contingent measures considered consistent with the three-pillar strategy would have to be sought to bring the Trust back to a self-sustained lending capacity of SDR 1¼ billion.

Table 7.

Self-Sustainable PRGT Capacity Under Elevated Demand Scenarios 1/

(In billions of SDRs)

article image

Tested for elevated demand during first years of PRGT self-sustainable operations (3,5,7 years) with resulting annual capacity following thereafter.

Amount of additional subsidies needed after the time of elevated demand (for 3,5,7 years) to return to SDR 1.25 billion annual capacity.

SDR 1.43 billion reflects average commitments during 2008–12.

Sustaining PRGT Lending Beyond 2015

23. In September 2012, the Executive Board authorized a second distribution of Fund reserves linked to windfall gold profits as part of a strategy to ensure the Fund’s capacity to provide concessional resources on a sustained basis over the longer term. As described earlier, under this three-pillar strategy the Board would take decisions to ensure the adequacy of subsidy resources. The effectiveness of the second distribution in October 2013, following the effectiveness of the first distribution a year earlier, has provided the subsidy resources needed for self-sustained PRGT lending at a level consistent with a range of demand projections for concessional lending. Self-sustained PRGT operations require the use of Reserve Account investment income for the subsidization of PRGT loans once the subsidy resources in the general and special subsidy accounts of the PRGT have been exhausted. This section describes the amendments to the PRGT Instrument to authorize (i) the use of Reserve Account investment income for PRGT subsidy operations and (ii) PRGT commitments in the period 2016–20, as well as the measures needed to mobilize additional loan resources for the PRGT.

A. Establishing the Self-Sustained PRGT

24. The self-sustained PRGT is premised on the eventual use of investment income from the Reserve Account to subsidize PRGT lending. Under the framework endorsed by the Executive Board in September 2012, new concessional lending will initially be subsidized by using and gradually drawing down the available balances in the PRGT subsidy accounts, including the investment returns on these accounts. During this period, projected to extend over at least a decade, the balance in the Reserve Account will increase by the amount of investment returns on the Reserve Account balances. By the time the resources in the subsidy accounts have been exhausted, the size of the Reserve Account will have increased to a level such that the net earnings in the Reserve Account are equal to the subsidy needs for annual PRGT lending of SDR 1¼ billion and the projected administrative cost of the PRGT.

25. The Reserve Account continues to provide a high level of security to PRGT lenders. Under the self-sustained framework, the Reserve Account is projected to stabilize at a level that provides the necessary subsidy resources indefinitely without jeopardizing its primary purpose of providing security to PRGT lenders and note purchasers. Currently, the Reserve Account contains balances equal to approximately 66 percent of outstanding PRGT lending-well above the historical average of about 40 percent. Staff estimate that if demand for concessional lending were to be maintained at the self-sustained capacity of SDR 1¼ billion annually, the reserve ratio would remain well above the 40 percent historical average, and rise substantially over the medium and longer terms. A period of sustained high demand early in the projection period, which raises outstanding credit at a time when the Reserve Account has not yet grown significantly from the reinvestment of investment returns, could temporarily lower the reserve coverage ratio below the historical average. However, even in this extreme scenario—which would warrant decisions under the three-pillar strategy to safeguard the sustainability of the PRGT—the coverage ratio would be projected to remain above historical levels witnessed in the 1990s and rises well above the 40 percent threshold thereafter.

Figure 3.
Figure 3.

Reserve Coverage Ratio under Different Demand Scenarios, 2014-40

Citation: Policy Papers 2014, 063; 10.5089/9781498343503.007.A001

26. The establishment of the self-sustained PRGT requires an amendment to the PRGT Instrument. This amendment will authorize the Fund, as Trustee, to use investment income from the Reserve Account to subsidize PRGT lending with due regard to the primary purpose of the Reserve Account to provide protection to the lenders of the PRGT loan accounts. The proposed amendment authorizes transfers of investment income from the Reserve Account to the General Subsidy Account when the existing balances in the general and special subsidy accounts are inadequate to subsidize the outstanding stock and projected new commitments of PRGT lending.21 The proposed amendment requires that the Managing Director consult with lenders to the PRGT loan account on the adequacy of the Reserve Account coverage prior to making a proposal to the Executive Board on the transfer of investment income from the Reserve Account to the General Subsidy Account of the PRGT.22 While there is no limit, staff expects that a decision would not be proposed unless the ratio of the Reserve Account to outstanding PRGT credit is projected to remain over the medium term at levels well in excess of the historical average of about 40 percent. Given the general authority that would be established to transfer Reserve Account investment income to the General Subsidy Account for the purposes of implementing the self-sustained PRGT, staff is proposing the elimination from the PRGT Instrument of a specific authorization approved in 2009 for the transfer of up to SDR 620 million from the Reserve Account to the General Subsidy Account.23

27. Staff considers it appropriate to take the necessary legal steps to establish the self-sustained PRGT now to complement the successful mobilization of subsidy resources following the second gold windfall profits distribution last October. While it is not expected that transfers of investment income from the Reserve Account for PRGT subsidy operations will be needed in the foreseeable future, the proposed amendment to the PRGT Instrument represents the final step required to establish the legal framework for the self-sustained PRGT.

B. PRGT lending operations beyond 2015

28. The surge in demand for concessional financing associated with the global financial crisis prompted a major effort to secure sufficient PRGT loan resource capacity. These efforts were accompanied by a number of initiatives to strengthen the flexibility of the framework for PRGT borrowing and its responsiveness to the requirements of lenders. As discussed above, these efforts have been successful in mobilizing the resources needed by the Fund to provide concessional financing to its low-income members. Uncommitted loan resources of SDR 6.7 billion (end-December 2013) are expected to be sufficient to meet projected PRGT commitments through end-2015. As part of the 2009 reform, the commitment period for PRGT loans was extended until end-2015, with normal drawdown periods under borrowing agreements until end-2018, which can be extended by mutual agreement between the Managing Director and the lender.

29. PRGT operations beyond 2015 will require an amendment to the PRGT Instrument to extend the commitment period for PRGT loans and also the mobilization of new loan resources and/or changes to the terms of current borrowing agreements. The PRGT Instrument currently authorizes the making of PRGT loan commitments until end-2015. For the approval of new PRGT loans after this date, an amendment of the PRGT Trust is required. Staff proposes to extend the commitment period for PRGT lending by 5 years to end-2020, and to establish end-December 2024 as the normal drawdown period for new borrowing, to correspond to the longest initial PRGT arrangement period under current policies. Estimates by the staff indicate that, in addition to retaining access to uncommitted loan resources under existing agreements, new borrowing capacity of no less than SDR 11 billion would be required to ensure that the Fund could, if necessary, meet a temporarily high level of demand for financing from low-income members of up to SDR 2 billion per annum through 2020.24 Such resources could be obtained under new borrowing agreements or through the augmentation of existing borrowing agreements. As current borrowing agreements provide for drawdown periods until end-2018, these drawdown periods would need to be extended to secure use of any undrawn balances under these agreements for drawings after that date. A critical mass of such extended agreements would need to be in place by end-2014 to have funding assurances for PRGT disbursement under ECF arrangements approved after December 31, 2014 that would take place after end-December 2018. Consistent with the PRGT Instrument, loan agreements would be drawn on proportionally, provided that existing loan agreements are drawn first fully before drawings are made under new borrowing agreements (which would include augmentations under existing agreements).

C. Increasing the Cumulative Borrowing Limit Under the PRGT

30. The cumulative borrowing limit under the PRGT needs to be raised to accommodate the proposed new borrowing capacity of SDR 11 billion for PRGT lending through 2024. Since 1989, borrowing limits have been in place for the PRGT to ensure that new PRGT borrowing would not take place without prior consultation with loan account creditors regarding the justification for such borrowing and the adequacy of the PRGT Reserve Account. In 2009, the Executive Board endorsed, and PRGT creditors in subsequent consultations agreed, to raise the borrowing limit to SDR 30 billion.25 As of December 31, 2013, cumulative borrowing capacity under signed agreements with lenders had reached SDR 26.2 billion. An increase, therefore, to SDR 37 billion would be necessary to accommodate the new loan commitments of SDR 11 billion to be sought from lenders for the period through 2024. Staff has consulted with all lenders through Executive Directors’ offices regarding the proposal to raise the borrowing limit, and there was broad support to increase the borrowing limit to SDR 37 billion.

D. Implementation

31. Implementation of the proposed measures requires Executive Board approval of the increase in the borrowing limit as well as of the amendments to the PRGT Instrument, some of which also require the consent of lenders to the PRGT Loan Accounts.

Subsidization of Emergency Assistance

32. The EPCA/ENDA Administered Subsidy Account has been terminated. The reform of facilities for Low-Income Countries (LICs), which became effective in January 2010, established the Rapid Credit Facility (RCF). The RCF provides concessional financial assistance to LICs facing an urgent balance of payments need, and thus replaced the subsidized use of emergency assistance, previously provided under the GRA to PRGT eligible countries. The EPCA/ENDA Administered Subsidy Account was maintained on an interim basis for the subsidization of EPCA/ENDA credits outstanding in January 2010. Since there were no longer any outstanding EPCA or ENDA credits to PRGT-eligible countries, the account was terminated on February 1, 2014. Upon termination, the remaining resources in the account amounted to SDR 10.6 million, which had been provided by nineteen contributors. Contributors were encouraged to transfer their share in the remaining balance to the Rapid Credit Facility (RCF) Subsidy Account, or any of the other PRGT subsidy accounts. Eleven contributors transferred their contribution to the PRGT (amounting to SDR 7.1 million; Table 8), while three contributors have transferred their shares to an Interim Administered Account (IAA), pending further instructions as to their subsequent dispositions. Two contributors requested their shares be transferred to administered accounts to support IMF technical assistance activities, while three contributors’ shares were returned.26

Table 8.

PRGT Contributions from the EPCA/ENDA Administered Subsidy Account

(In millions of SDRs; as of February 1, 2014)

article image

Financing of Debt Relief

33. As of end-December 2013, the Fund had provided a total of SDR 5.2 billion of debt relief to eligible countries. This includes HIPC assistance of SDR 2.6 billion to 36 countries (Appendix Table 5), MDRI debt relief of SDR 2.3 billion to 30 countries, “beyond-HIPC” debt relief to Liberia (Appendix Table 6), and PCDR debt relief to Haiti.27 Chad is the only remaining decision point country, which at end-December 2013 had received HIPC interim assistance of about SDR 9 million from the Fund. No debt relief has been provided through the PCDR Trust since the last update, and the balance in the PCDR Trust was SDR 0.1 billion at end-December 2013.

Appendix Table 5.

Implementation of the HIPC Initiative

(In millions of SDRs; end-December 2013)

article image

Includes the commitment made in NPV terms plus interest earned on that commitment.

At the time of its decision point, Afghanistan did not have any outstanding eligible debt.

Includes commitment under the original HIPC Initiative.

Côte d’Ivoire reached its decision point under the original HIPC Initiative in 1998, but did not reach its completion point under the original HIPC Initiative. Debt relief of SDR 17 million, committed to Côte d’Ivoire under the original HIPC Initiative, was therefore not delivered.

Appendix Table 6.

Debt Relief Following Implementation of the MDRI

(In millions of SDRs; end-December 2013)

article image

Amount outstanding at the completion point (net of repayments between January 1, 2005 to the completion point date).

Balances available at the time of MDRI debt relief.

Afghanistan, Comoros, Haiti, and Togo did not have MDRI-eligible credit and did not receive MDRI debt relief. Côte d’Ivoire and Guinea had fully repaid MDRI-eligible debt by completion point date.

Non-HIPCs but qualified for MDRI debt relief with a per capita income below the US$380 threshold.

Liberia received “MDRI-like” (beyond-HIPC) debt relief at end-June 2010, which was financed from the Liberia Administered Account. Its eligible credit outstanding corresponds to the amount of arrears clearance to the IMF in March 2008.

Including Liberia’s beyond HIPC debt-relief.