Annex I. FCL and PLL Qualification Assessment
This annex provides the key considerations for establishing the qualification framework to access financing under the FCL and PLL, with a view to promoting a predictable and evenhanded qualification process. The qualification criteria for the FCL and PLL are drawn from those already established by the Executive Board for the Short-Term Liquidity Facility, as well as the qualification criteria discussed by the Board in the context of the Reserve Augmentation Line (RAL).1
The core of the qualification framework for the FCL is an assessment that the members’ economic fundamentals, institutional policy framework, and policies are very strong. These qualification criteria, together with a sustained track record of very strong policy implementation, would give markets and the Fund confidence that the member would take appropriate corrective policy measures when facing an adverse shock, consistent with addressing the BOP problems it may be facing and with repaying the Fund. Member’s policies must have been assessed very positively by the Executive Board in the context of the most recent Article IV consultations. As FCL resources can be used for any BOP problem and an FCL arrangement can be approved in the face of an actual or potential financing need, qualification for the FCL would not preclude circumstances where the member would need or plan to undertake policy adjustments.
The core qualification for the PLL is an assessment that the member’s economic fundamentals, institutional policy framework, and policies are generally sound. Those, together with a track record of sound policy implementation, would give markets and the Fund confidence that the member will take the policy measures needed to reduce any remaining vulnerabilities and respond appropriately to any BoP problem it is encountering or might encounter, consistent with repaying the Fund. As a member qualifying under a PLL arrangement may still face remaining vulnerabilities (although not substantial) in few areas, the qualification assessment for the PLL will be a crucial tool in identifying areas for prior actions and/or ex post policy conditionality, as applicable under the PLL decision. The member’s policies must have been assessed as generally positive by the Executive Board in the context of the most recent Article IV consultation.
Qualifications for the FCL and PLL are based on nine specific qualification criteria as set forth below. In respect of the PLL, the member’s performance under the nine qualification criteria will be assessed based on five broad qualification areas. Any assessment of qualification involves a degree of judgment. The assessment of the qualification criteria, noted below, will need to take into account the great variety of the member’s circumstances and the uncertainties that attend economic projections. For the FCL, very strong performance against all relevant criteria noted below would not be necessary to secure qualification. However, significant shortcomings on one or more of these criteria—unless there are compensating factors, including corrective policy measures underway—could generally signal that the member is not among the very strong performers for whom the FCL is intended. For the PLL the qualification standard is based on strong performance in most of the five qualification areas (i.e., three of five areas) noted below. Substantial underperformance in any area signals that the member does not qualify for a PLL. In addition, a member would not be qualified to use the PLL if any of the following circumstances apply: (i) sustained inability to access international capital markets, (ii) the need to undertake large macroeconomic or structural policy adjustments (unless such adjustment has already set credibly in train before approval), (iii) a public debt position that is not sustainable in the medium term with a high probability, and (iv) widespread bank insolvencies.
Annex II. Nature of Short-Term BoP Need
Under the PLL decision, a member can request a six-month arrangement, provided it is encountering or might encounter a short-term BoP need. This is considered one such that the member would be generally expected to make credible progress in addressing its vulnerabilities during the six-month duration of the arrangement.
In rare and exceptional circumstances, short-term BoP needs may arise in connection with exogenous shocks, including due to the impact of heightened stress in regional or global conditions.1 As with all access determinations, a PLL request in the context of these exceptional circumstances would entail a substantial element of judgment by the Executive Board in the approval process. Nevertheless, the following non-exhaustive considerations can help guide staff’s preliminary assessment:
Generally, an exogenous shock can be defined as an event beyond the control of the authorities, with a significant negative impact on the economy, and can include, inter alia, terms of-trade shocks, shocks to demand for exports, financial spillovers, natural disasters, or conflict or crisis in neighboring countries that has adverse BoP effects.
The detection of heightened regional or global stress events and the assessment of the resulting impact on the member requesting the PLL would likely require additional analysis by staff in terms of (i) global and/or regional economic and financial conditions—as also informed by the Fund’s multilateral and regional surveillance products and internal risk analyses;2 (ii) the member’s specific contagion risks, assessed on the basis of its trade and financial linkages but possibly of other factors3 driven by the specific nature of the shock/s.
Access decisions in presence of exogenous shocks should take into account forward-looking considerations. There are situations where risk indicators for individual countries or a group of countries (e.g., emerging markets) may not reveal stressed market conditions, although a broader assessment of contagion risks taking into account financial and real economy linkages may indicate the potential for a future deterioration in market conditions. Therefore, it will be important when proposing access levels in individual country cases to take into account the totality of the member’s circumstances, including the potential for contagion to exacerbate funding strain
Annex III. Staff Documents Prepared for the Executive Board in Connection With Request for Use of PLL Resources
See The IMF’s Mandate—The Future Financing Role: Reform Proposals and Revised Reform Proposals, the 2011 Review of the Flexible Credit Line and Precautionary Credit Line, the 2014 Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument and the 2014 Specific Proposals paper
See Table 1 in Fund’s Financing Role: Reform Proposals on Liquidity and Emergency Assistance for a comparison of existing financing instruments.
With respect to a reduction in access, a member’s request for reduction in access can be made at any time during the period of the arrangement and is not limited to six-monthly or ad hoc reviews. Further the reduction in access will be subject to Board approval.
Standard PCs are continuous performance criteria related to trade and exchange restrictions, bilateral payment agreements, multiple currency practices, and non-accumulation of external payment arrears.
For example, the materialization of a larger BoP need than originally envisaged might require the augmentation of a six-month PLL arrangement from its initially approved access of say 100 percent of quota to say 150 percent of quota.
A memo to management with the attached concise note prepared by staff would be normally used to inform management of staff’s preliminary assessment of qualification of a member. The memo and the concise note would be subject to the standard inter-departmental review process.
Decision No. 14064-(08/18), adopted February 22, 2008, as amended.
See footnote 20 noting the Executive Board view that discussing the member’s external risks and exit expectations in staff reports on a request for a PLL arrangement should help promote timely exit.
FIN Operational Guidelines for Safeguards Assessments are being updated and will include a discussion of safeguards requirements under the PLL.
See Transparency Policy Decision No. 15420-(13/61), June 24, 2013, paragraph 4b.
When support from other creditors is likely to be important in helping a member address its BoP difficulties, notably in presence of an actual need, staff would be expected to consult with key creditors (official or private sector) as appropriate. Country authorities should be informed (in advance) of such planned contacts. 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.
This framework includes the external stress index endorsed by the Board in the 2014 Review as well as various metrics of reserve levels as set forth in Annexes III and IV.
As is standard for the use of Fund resources, while the Fund would not challenge the ex ante representation of a BoP need by a member (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.
An ad hoc review (as discussed in Section VII) might be required in case the emerging actual BoP need calls for an augmentation and/or rephasing of access under the PLL arrangements, as applicable under the PLL decision.
The marginal commitment fee is equal to 15 basis points for annual access of 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. The last one does not apply to PLL arrangements in view of the overall cumulative access limit.
In PIN/14/84, Directors concurred that one way to address concerns about exit stigma is by clearly articulating exit strategies in staff reports, laying out the authorities’ specific measures to strengthen resilience together with a communications plan.
A discussion of the exit strategy for six-month arrangements would not be necessary in view of the specific duration and renewal rules envisaged under the PLL decision. Specifically, only one additional six-month PLL arrangement can be approved before the expiration of the two-year cooling off period discussed above and provided that the member’s BoP need is longer than originally anticipated due to the impact of exogenous shocks, including heightened regional or global stress conditions.
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 by the time the successor arrangement is requested. See also the Public Information Notice on the Review of the Flexible Credit Line and Precautionary Credit Line,
In general, IMF arrangements are conditional lines of credit and thus should not be included in Section III of the Reserves Data Template (See International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template, paragraphs 206–207).
On May 21, 2014, the Board approved a change in the seventh qualification criterion from “the absence of bank solvency problems that pose an immediate threat of a systemic banking crisis” to “sound financial system and the absence of solvency problems that may threaten systemic stability.” This change applies to arrangements approved after May 21, 2014. Decision No. 15593-(14/46).
Judgment on whether an adjustment is large would be informed by the member’s own experience and that of similarly-situated members. The same degree of judgment would be required to assess the credibility and effectiveness of the measures set in train by the authorities to achieve the required adjustment.
Accordingly, in its assessment of this approval criterion, staff would take into account macro-critical policy measures already set credibly in train by the member before approval of the arrangement to lower vulnerabilities (PLL decision, paragraph 2(c)). These measures being credibly implemented by the member upon its own initiative should not be confused with possible prior actions set by staff for approval of the PLL arrangement or of a scheduled review, which would be part of program conditionality and should not have a bearing on staff’s assessment of qualification.
While compliance with the exceptional access criteria remains binding throughout the arrangement for a member’s access to Fund resources above the normal GRA limits, a formal assessment would be normally included in the Staff Report only upon approval or in the event of an augmentation that brings access beyond the normal access limits. Nevertheless, changes in the member’s circumstances might warrant a thorough discussion of the member’s continued adherence to the exceptional access criteria also in the context of the semi-annual reviews.
At the 2014 Review of the Flexible Credit Line, Precautionary and Liquidity Line and Rapid Financing Instrument, Directors saw scope for greater use of targeted ex post conditionality to address remaining vulnerabilities of PLL users, in accordance with the Guidelines on Conditionality.
Decision No. 12864-(02/102), as amended.
Decision No. 13454-(05/26), as amended.
See Ex Post Evaluations of Exceptional Access Arrangements Revised Guidance Note and Ex Post Assessments of Members with Longer-Term Program Engagement-Revised Guidance Note.
In cases where a scheduled PLL review is delayed by more than six-months (that is one year has passed since the approval of the PLL arrangement), an Article IV consultation would be expected to take place after the PLL request and before completion of the delayed review—in accordance with the decision on Article IV consultation cycles for members with PLL arrangements. This would help inform the team’s qualification assessment and provide additional assurances that the delay in the review is not due to new emerging vulnerabilities.
A review cannot be completed if the member does not meet the PLL qualification requirements. In those circumstances, a more appropriate financing instrument to address the member’s newly emerged vulnerabilities (e.g. a SBA) might be considered. The approval criteria mentioned in the fourth bullet of paragraph 12 above are assessed only at the time of approval of PLL arrangements.
See Public Information Notice/06/104, 9/13/06 and PIN/07/40, 3/23/07.
In these circumstances, short-term BoP needs will allow approval, on a case-by-case basis, of a higher access limit of 500 percent of quota under a six-month PLL arrangement as described in the first bullet of Section II.B. above. These short-term needs are actual or potential needs that exceed the normal 250 percent of quota access for six-month PLL arrangements, and arise due to the impact of exogenous shocks, including heightened regional or global stress conditions. See PLL Decision, paragraph 4(c)(ii) and also PIN/11/152 which provides that the occurrence of heightened regional or global stress conditions is expected to be rare.
See also Analytics of Systemic Crises and the Role of Global Financial Safety Nets for further discussion of events of heightened and widespread stress and possible quantitative and qualitative indicators to determine and monitor such events.
A large shock can lead international investors to reappraise risks in similarly-situated, but not directly connected, countries. Latvia is a case in point: despite relatively limited macro-financial linkages, its 2008/09 crisis raised important market concerns about potential spillovers to many similarly-situated emerging markets in Eastern Europe.
Specifically, according to the exceptional access policy, once management decides that new or augmented exceptional access to Fund resources may be appropriate, it will consult with the Board promptly in an informal meeting. Directors will be provided with a concise note that sets out the following as fully as possible: (i) a tentative diagnosis of the problem; (ii) the outlines of the needed policy measures; (iii) the basis for a judgment that exceptional access may be necessary and appropriate, with a preliminary evaluation of the four substantive criteria, and including a preliminary analysis of debt sustainability; and (iv) the likely timetable for discussions.
Specifically, the staff report for an arrangement proposing exceptional access will include: a consideration of each of the four substantive criteria for exceptional access (including a rigorous analysis of debt sustainability); a thorough discussion of need and the proposed level of access; an assessment of the risks to the Fund arising from the exposure and its effect on liquidity; and systematic and comprehensive information on the member’s capacity to repay the Fund.