Scope and strategy: This paper reviews access limits and surcharge policies in the Fund's General Resources Account (GRA).

Abstract

Scope and strategy: This paper reviews access limits and surcharge policies in the Fund's General Resources Account (GRA).

Introduction

1. Quota increases under the 14th General Review are expected to become effective early in 2016.1 Overall Fund quotas would then double to SDR 477 billion with the increase in individual members’ quotas ranging from 39 to 220 percent. Based on the current quota-based thresholds, this would double the resources in absolute (SDR) terms available to the average member under current normal access (i.e., without triggering the risk management framework under the exceptional access policy), and reduce or eliminate surcharges and commitment fees for the same level of nominal access, which would, absent any offsetting changes, erode critical elements of the Fund risk management framework. The paper therefore proposes changes in access limits, surcharge thresholds, and commitment fee thresholds, as well as the threshold for Article IV consultation cycles and Post-Program Monitoring, to take into account the 14th Review quota increases.2

2. This paper follows up on the May 2014 Executive Board meeting to review overall access by members to the Fund’s general resources and surcharges policies.3 At the meeting, most Directors accepted that a moderate increase (25 percent in SDR terms) in annual and cumulative access limits would be needed to restore the size of normal Fund support (as a share of global GDP, trade, external liabilities, and gross external financing) to levels considered acceptable at the time of the 2009 Review.4 It was therefore proposed that annual and cumulative access limits could be set at 125 and 375 percent of quota, respectively, when the general conditions for the effectiveness of the 14th Review quota increases were met. With respect to surcharges, most Directors saw merit in adjusting the surcharge threshold to allow for a moderate increase in SDR value of the credit not subject to surcharges, in line with the proposed increase in access. Similarly, most Directors could go along with a moderate increase in the SDR value of commitment fee thresholds in line with the proposals for access and surcharges. This paper revisits the adequacy of these proposals in light of economic and financial developments in the intervening period. This paper also reviews the quota-based threshold relevant for Article IV Consultation cycles and PPM.

3. The paper is structured as follows. Section I of the paper discusses trends in actual access levels under General Resources Account (GRA) facilities, and the evolution of normal access limits with respect to relevant economic indicators. Sections II of the paper discusses surcharge policies. Section III discusses commitments fees, the threshold for the outstanding Fund credit above which a member may not be placed on an extended Article IV consultation cycle, and the threshold for determining expectation of members’ participation in Post-Program Monitoring (PPM). Section IV describes the proposed decisions. Proposed decisions are attached.

Review of Access Limits

4. After peaking at the onset of the global financial crisis, the use of Fund’s non-concessional resources has moderated somewhat. Members’ efforts to correct macro policies and enhance fundamentals, together with a gradual recovery in global demand, have helped to ease the demand for GRA resources. An analysis of prospective demand for Fund resources is outside the scope of this paper, but there are evident risks related to structurally weak growth in key advanced and emerging economies, persistently lower commodities prices, tighter or more volatile global financial conditions, a sharp rise in migrant flows, and increased political and security risks.

A. Trends in the Use of GRA Resources

5. The number of active GRA arrangements has declined from its post-crisis peak, but remains well above pre-crisis levels. The onset of the global financial crisis in 2008, combined with the 2009–11 facilities reform, resulted in an increase in requests for new Fund arrangements. As a result, there were a total of 28 active GRA arrangements during 2010–12. Since 2012, this number has dropped to 25, still well above the average of 16 active arrangements in the 3-year period preceding the crisis (Figure 1). Meanwhile, the number of new arrangements has declined gradually towards pre-crisis levels, with an average of seven new arrangements per year during 2013–15 (Appendix Tables 12).

6. Access levels under Fund arrangements rose substantially in the aftermath of the global financial crisis. Deep-rooted external imbalances in some euro area members required an unprecedented scale of Fund support. The median access of the four largest euro area programs approved during 2010–12—namely, Greece (SBA in 2010; EFF in 2012); Ireland (EFF in 2010); and Portugal (EFF in 2011)—reached about 2,300 percent quota (SDR 23.7 billion), reflecting the size of their balance of payments needs in circumstances involving high fiscal financing requirements, structural imbalances, and relatively deep financial markets. Non-Euro area members have also requested larger arrangements, resulting in an overall rise in the median access from 50 percent of quota during 1995–2007 to 300 percent of quota during the post-crisis years. Taking all SBA and extended arrangements together, average access levels rose from around 125 percent of quota during 1995–2007 to around 540 percent of quota in 2008–15 (Figure 2). The increase in the incidence of arrangements with high access reflects not only higher financing needs in absolute terms but also the erosion of quotas relative to a country’s output, trade and financial flows.

7. The length of GRA-supported programs has also increased. The median duration of SBAs rose from 15 months during 1995–2007 to 24 months in 2008–15. The proportion of extended arrangements approved under the Extended Fund Facility (EFF), relative to all arrangements, increased from about 8 percent during 2000–09 to 35 percent during 2010–15.

8. GRA credit outstanding in SDR terms has declined from a post-crisis peak, reflecting early repurchases and delayed purchases by large borrowers, yet credit remains highly concentrated. After peaking at around SDR 94 billion in 2012, Fund credit outstanding had dropped to an SDR 51 billion by end-2015. The bulk of this decline consists of early repurchases, mainly by Ireland and Portugal, while delayed purchases, mainly by Greece and Ukraine, have increased members’ credit outstanding by less than projected.5 Credit concentration remains very high, with the five largest borrowers holding nearly 90 percent of the Fund’s total GRA credit outstanding, and the single largest borrower holding more than 30 percent of it (Figure 1).

9. Average access levels are higher when FCL and PLL arrangements are taken into consideration. These instruments are designed to provide stronger-performing members (under relevant qualification requirements) with high levels of access and, hence, assurance of sufficient foreign exchange liquidity in the event of a downside shock. The current four arrangements under the FCL/PLL instruments have average access around 820 percent of quota, representing a potential call on Fund resources close to SDR 70 billion (22 percent of the Fund’s forward commitment capacity). Taking these into account, access levels in the GRA during 2010–15 averaged 675 percent of quota.

B. Evolution of Access Metrics

10. Access limits provide confidence to the membership regarding the availability of financing and represent an important credit and liquidity risk management tool for the Fund. As discussed in Boxes 1 and 2, access limits are intended to balance the need to provide members and markets with confidence regarding the scale of possible Fund financing with the need to preserve Fund liquidity and the revolving character of Fund resources. Reforms of access limits since the late 1990s have sought to correct the erosion of these limits relative to evolution of global GDP, trade and capital flows, while taking into account changes in overall Fund quotas.

11. In 2009, the IMFC called for the Fund to examine the appropriate size and composition of its resources needed to safeguard its long-term ability to meet members’ needs, consistent with the Fund’s status as a quota-based institution. In April 2009, the IMFC agreed that the Fund’s lending capacity needed to be raised through immediate bilateral borrowing from members in the amount of US$250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow (NAB).6 Recognizing that the IMF is, and should, remain a quota-based organization, the IMFC also called for the completion of the 14th Review by January 2011. The latter, once effective, would double Fund quotas, and would be combined with a roll-back of the NAB. In 2012, it was agreed that the Fund’s lending capacity should be further expanded through the 2012 Borrowing Agreements, which provide a second line of defense to quota and NAB resources in a tail event. At end-2015, 33 of these borrowing agreements for a total of about US$376 billion were effective.

12. The 2009 reforms also entailed a doubling of normal access limits in the GRA, which helped to restore the ratio of access limits to relevant global economic indicators. The 2009 decision to double normal access limits was undertaken in the context of the global financial crisis, and in anticipation of significant quota increases under the 14th General Review of Quotas. The doubling of access limits helped considerably to shift access levels—defined as the access limit multiplied by total Fund quota—closer to 1998 levels, particularly with respect to global trade, while more than compensating for global GDP growth and less than compensating for the evolution of non-FDI liabilities (Figure 4). Access limits and norms under the PRGT were also doubled in 2009.

13. Since the doubling of access limits in 2009, the ratios of access limits to relevant global economic indicators have deteriorated significantly. Through end 2015, normal access limits are estimated to have declined since 2009 by 26 percent relative to world GDP, 32 percent vis-à-vis global trade (measured as the sum of exports plus imports), by 27 percent in relation to non-FDI external liabilities, and by 23 percent with respect to gross financing needs (Table 1)7 Access limits relative to trade, external liabilities and gross financing needs are currently much lower than

1998 levels—the benchmark used in earlier reviews, since the 1998 review restored access limits to the 1980s’ levels—while the ratio of access limits to global GDP is roughly at that benchmark. The erosion of access limits relative to these economic metrics has been more pronounced for EMDEs, reflecting the fact that their share in global GDP continues to rise, and that their trade and financial ties with the rest of the world have deepened substantially since then. More precisely, since 2009 EMDEs’ access limits have declined by roughly 40 percent relative to their GDP, total trade, and non-FDI external liabilities. It is worth noting, however, that absolute access levels in relation to GDP remain higher for the median EMDE than for the median advanced economy (Figure 5).

C. Proposal for Modifying Access Limits

14. In assessing the appropriateness of access limits, several considerations should be taken into account.

  • Size of Fund financial support. Access limits should provide general guidance to members about the degree of financial support the Fund is normally prepared to provide in support of their policy adjustment efforts and financing available by other official and market sources. As a general principle, access levels in individual cases should continue to be guided by case-specific considerations related to the member’s balance of payments needs, capacity to repay, outstanding use of Fund resources, and record of such use in the past To the extent that actual access levels by member countries rise over time in relation to established limits, this may be taken as indicative of larger balance of payments needs of members and, hence, may signal that an increase in the limits is warranted.

  • Exceptional access framework. For risk management reasons (see Box 2), access limits should continue to ensure that the heightened safeguards under the exceptional access framework are applied at appropriate levels.

  • Liquidity. Access limits are also a means of balancing demand for Fund resources with the available supply, to reduce the risk that Fund resources would be exhausted and ensure that members are not treated on a first-come-first-served basis. Once the 14th Review quota increases become effective, the NAB will be rolled back, keeping the Fund’s resource envelope broadly unchanged, although less reliant on temporary resources.8

15. Staff considers that a 40 percent increase in access limits in the GRA (in SDR terms) is warranted upon effectiveness of the general conditions for the 14th Review quota increases. A 40 percent increase in the annual and cumulative access limits, in SDR terms, would broadly restore the value of normal Fund support to 2009 levels in relation to the average of global GDP, trade and non-FDI external liabilities (Table 1). Annual access limits would be established at 140 percent of quota, and cumulative limits at 420 percent of quota (net of scheduled repurchases).9 This is broadly consistent with the increase staff proposed in May 2014 (25 percent upon effectiveness of the 14th Review quota increases), since it takes into account two additional years of erosion of access limits relative to the relevant metrics. An increase of this magnitude would restore access limits relative to GDP (a proxy of capacity to repay) for EMDEs (after excluding China and India). It would also balance the need to provide appropriate comfort to members regarding the availability of Fund resources (in the context of continuing global trade and financial deepening, along with the risk of capital account reversal during the transition to tighter external financing conditions) against the need to safeguard Fund resources and risk management considerations. Under the revised limits, the Fund’s exposure to credit risk from arrangements approved would remain around levels that were considered acceptable at the time of the 2009 access review. The revised access limits would maintain broadly at the 2009 levels the high scrutiny under the exceptional access framework when Fund credit is above the normal access limits. Table 1 and Figure 6 show the extent to which the proposals would restore the erosion in absolute access levels (defined as annual limits multiplied by the Fund quota) relative to GDP, trade, non-FDI external liabilities, and gross financing needs that has occurred since 2009.

16. A limited grandfathering is proposed for existing non-exceptional access cases. The new access limits would apply to all members when the general conditions for the effectiveness of the quota increases under the 14th Review have been met, i.e., irrespective of whether or not the quota increase under the 14th Review for a specific member has become effective. Members who were not subject to the exceptional access framework prior to the entrance into effect of the proposed modifications to overall access limits would be grandfathered. This means that if the change in access limits were to result in a member’s access to Fund resources in the GRA exceeding the proposed new normal access limits, the exceptional access framework would not apply for the remainder of an existing arrangement (including in the event of a rephasing). However, additional access to Fund resources in the GRA under a new arrangement, or through an augmentation of access under an existing arrangement or an outright purchase under the RFI in an amount that exceeds the proposed new access limits would trigger the application of the exceptional access framework.10

17. Staff proposes to keep the average SDR value of PLL-specific access limits unchanged. Staff continues to consider that current PLL-specific access levels remain adequate to meet members’ demand, as approved PLLs have been well below current access limits. Consistent with the May 2014 proposal, staff proposes halving the PLL-specific access limits (in percent of quota) once the 14th Review quota increases become effective. Accordingly, staff proposes that the specific cumulative limit for all access under the PLL by a member be adjusted from 1000 percent of quota to 500 percent of quota, net of scheduled repurchases. For PLL arrangements with a duration of one or two years, the annual access limit applicable at the time of approval of such arrangements will be reduced to 250 percent of quota (net of scheduled repurchases), and total access to 500 percent of quota (net of scheduled repurchases), subject to the additional consideration that PLL arrangements with a duration of one to two years for members without an actual balance of payment need at the time of approval will be phased with an initial amount not in excess of 250 percent of quota being available upon approval. Six-month PLL arrangements will normally be subject to a per arrangement limit of 125 percent of quota, net of scheduled repurchases, although a limit of 250 percent of quota, net of scheduled repurchases, shall apply to six-month PLL arrangements in exceptional circumstances where a member is experiencing or has the potential to experience short-term balance of payments needs that exceed the 125 percent of quota limit due to the impact of exogenous shocks (with total access under all six-month PLL arrangements in no event exceeding a cumulative access limit of 250 percent).

18. In the case of the RFI, the Executive Board already acted. On July 1, 2015, it agreed to increase the annual and cumulative limits by 50 percent (Decision No. 15820 (15/66)), and to halve the new limits once the general conditions for the 14th Review quota increases are met (Decision No. 15821 (15/66))—thereby maintaining the 50 percent increase in SDR terms. Accordingly, following effectiveness of the 14th quota increase, the RFI would be subject to an annual access limit of 37.5 percent of quota, and to a cumulative access limit of 75 percent of the new quotas.

19. Access limits under the PRGT were increased by 50 percent in July 2015.11 In the context of the Financing for Development Initiative, the Board on July 1, 2015 decided to raise access limits by 50 percent across all concessional facilities for all PRGT-eligible countries, and rebalanced the funding mix of concessional to non-concessional resources provided to blended arrangements. The Board also took the decision that those limits would be halved upon effectiveness of the 14th General Review of Quotas, thereby safeguarding the self-financing nature of the Fund’s concessional lending over the long-term. Table 2 summarizes the access limits for GRA and PRGT facilities before and after the 14th Review quota increases become effective.

20. Staff proposes that overall access limits to the Fund’s general resources be reviewed again in early 2021. The proposal is consistent with the standard 5-year review period, although consideration could be given to an earlier review following the effectiveness of the 15th General Review of Quotas.

History of Access Limits

During the Fund’s first three decades, access limits were maintained at levels originally set under the Articles (25 percent of quota on an annual basis and 100 percent on a cumulative basis), while the expansion of members’ quotas did not keep pace with growth of the global economy. As a result, “absolute access limits,” or the amount in SDRs/dollars that a member could purchase under the access limits, fell substantially relative to the scale of the global economy. In the mid-1970s, the structure of access limits was adjusted and the level increased, but the limits continued to be exceeded in practice.

Quotas were increased substantially under two general reviews beginning in the 1980s, while both annual and cumulative access limits were gradually reduced to keep absolute access limits in SDR terms from increasing too sharply (Figure 1). Quotas were again increased in 1992, and annual access limits were raised temporarily in 1994 to partly correct for the erosion in absolute access limits relative to global GDP and trade.

In 1998, quotas were increased by 45 percent under the 11th General Review. Access limits were maintained at their existing levels, thereby providing for a parallel increase in absolute access limits. As a result, annual absolute access limits were restored to levels roughly in line with those in the early 1980s relative to global GDP and global trade. From 1994 to 2008, annual (cumulative) access limits remained constant at 100 (300) percent of quota, while quota increases did not keep pace with global growth and increased trade and financial integration.

Together with the 2006 ad hoc adjustments, the 2008 decision on ad hoc quota increases for 54 members raised nominal quotas by 11.5 percent in total, with an equivalent increase in the scale of absolute access limits. These ad hoc increases tended to benefit EMDEs, which received nominal increases ranging from 12 and 106 percent. While absolute access limits for EMDEs rose relative to key economic metrics, the ratio of quotas to these metrics remained well below 1998 levels.

The 2009 review of access increased the annual limits from 100 to 200 percent of quota and the cumulative limit from 300 to 600 percent of quota (net of scheduled repurchases). The 2009 reforms were proposed to restore limits to 1998 in relation to global trade and capital flows, while more than compensating for global GDP growth.

uA01fig01

Fund Size and Annual Access Limits, 1981–2014

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

1/ Effective size of the Fund excludes bilateral borrowing arrangements in place during 2010–13.Source: IFS and IMF staff calculations

The Risk Management Role of Access Limits

Access limits are a key element of the Fund’s risk management framework. They are intended to balance the need to provide members and markets with confidence regarding the scale of possible Fund financing with the need to preserve Fund liquidity and the revolving character of Fund resources. Limits on annual access are intended to give confidence to members about the degree of financial support the Fund is normally prepared to provide over a 12-month period, while ensuring that members do not rely excessively on the Fund but also draw on other sources of financing and adopt appropriate adjustment measures. Annual limits are designed to reduce the risk that members exhaust their potential access to the Fund more rapidly than would be warranted by the nature and size of balance of payments needs. Cumulative access limits help to ensure that the Fund’s resources are not exhausted, so that borrowers need not be treated on a “first-come-first-served” basis. Access limits also reduce the risk that members become unable to repay the Fund, thereby safeguarding Fund resources.

Access limits set the threshold for triggering the application of exceptional access policies. Access to GRA resources under Fund arrangements are generally determined by the member’s actual, prospective or potential balance of payments needs, its capacity to repay the Fund, the strength of the member’s adjustment effort, the amount of its outstanding use of Fund resources, and its record of such use in the past.1 Thus, access limits do not set a ceiling on how much a member can obtain as financing from the Fund, but rather serve as a threshold beyond which a set of substantive and procedural requirements are triggered under the exceptional access policy. These requirements include early Board involvement on program discussions, assessment of four substantive criteria, higher requirements for program documentation, an assessment of financial risks to the Fund arising from the proposed access, an ex post evaluation within one year of the end of the program, explicit discussions of exit strategies and discussions of alternative forecast scenarios. The closer scrutiny by the Board under the exceptional access procedural framework reflects the consequential nature of these decisions for the member, the international financial system and the Fund. Limits also guide when a member’s credit outstanding is deemed to be substantially high such that post program monitoring is warranted after an arrangement expires.

1 additional considerations apply to decisions on access under specific GRA financing instruments, such as caps or hard limits on access. While there is no cap on access to GRA resources, certain instruments in the Fund’s lending toolkit are designed with access caps. For instance, access under the Precautionary and Liquidity Line (PLL) is currently capped at 1000 percent of quota applicable cumulatively to all access under the PLL instrument. Access under the Rapid Financing Instrument (RFI) is currently limited to 75 percent of quota per year and 150 percent of quota on a cumulative basis.
Table 1.

Access Limits and Economic Indicators, 2009–16

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Source: WEO and IM F staff calculations

New access limits apply to the 14th Review quotas.

Excludes China and India.

Table 2.

GRA and PRGT: Annual and Cumulative Normal Access Limits by Facility

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Date of last Board Discussion of access limits.

On July 2015, the Board approved a 50% in PRGT access norms (ECF, RCF, SCF) and a similar increase in limits for RFI. It also approved halving these limits once the 14th quota increase went into effect.

Arrangements with duration of 1–2 years. For 6-month arrangements, the annual and cumulative limits are 250 and 500 percent of quota.

Figure 1.
Figure 1.

Evolution of GRA Arrangements, 1995–2015

The number of Fund-supported programs and outstanding Fund credit both peaked in the aftermath of the GFC. Over the past five years, the access level and duration of Fund programs have been well above those found in the pre-GFC period. However, the need for Fund assistance has been gradually declining since 2010–11.

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Figure 2.
Figure 2.

Access Under SBAs and Extended Arrangements, 1980–2015

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

1/ Dotted lines are average and median access levels (correspondingly) for period 1980–1994, 1995–2007 and 2008–2015.Source: IFS and IMF staff calculations
Figure 3.
Figure 3.

Access Distribution Under SBAs and Extended Arrangements, Pre and Post GFC

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Source: IFS, Fund Arrangement Database and IMF staff calculations
Figure 4.
Figure 4.

Access in Absolute Terms in Relation to Economic Indicators, 1998–2015

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Source: IFS, WEO and IMF staff calculations
Figure 5.
Figure 5.

Absolute Access in Relation to GDP: World, EMDEs and AMs, 1998–2015

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Source: IFS, WEO and IMF staff calculations1/ Shaded areas represent percentile range
Figure 6.
Figure 6.

Absolute Access Trends: Reform Options

(assumes 14th Review becomes effective in 2016)

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Source: IFS, WEO and IMF staff calculations

Review of Surcharge Policies

21. Surcharges are an important element of the Fund’s broad risk management framework intended to safeguard the revolving nature of Fund resources and help mitigate credit risk. The current policy on level and time-based surcharges was introduced in 2009, and replaced the previous Time Based Repurchases Expectation Policy (TBRE) (see Box 3 for additional background on surcharge policy). A core objective of the 2009 reforms was to simplify the complex system of surcharges that varied across facilities and to provide stronger incentives for early repurchase. The current surcharge is set at 200 basis points on credit outstanding over 300 percent of quota, rising to 300 basis points when credit exceeds that threshold for more than three years. These level and time-based surcharges are intended to help mitigate credit risk by providing members with incentives to limit their demand for Fund assistance and encourage timely repurchases while at the same time generating income for the Fund to accumulate precautionary balances. Taken together, level- and time-based surcharges are calibrated to be broadly aligned with the market costs of borrowing for members emerging from balance of payments difficulties.

22. Surcharges have become more prevalent following the global financial crisis—as a result of the overall expansion in lending but also higher average access. As of November 30, 2015, more than a quarter of all members with GRA credit outstanding were subject to surcharges, down from close to 50 percent in FY 2013. Roughly 90 percent of credit outstanding has been subject to surcharges since 2009, reflecting the predominance of high and exceptional access arrangements. As a result, income from surcharges has increased substantially over the last five years—and amounted to around SDR 1.5 billion in FY2015 (see Table 3). This is broadly consistent with the target and assumed pace of accumulation of precautionary balances endorsed by the Executive Board in 2012 (with the target confirmed in 2014).12 However, due to large early repurchases and delayed purchases, surcharge income is projected to decline substantially going forward even under current policies and quotas, constraining the Fund’s capacity to maintain the pace of accumulation of precautionary balances. As the Fund’s lending capacity is finite, incentives to limit the size of arrangements and encourage members to make repurchases when they face favorable spreads and have access to private capital markets play a crucial role in preserving the revolving nature of Fund resources.

23. The current system of price-based incentives appears to have broadly achieved its objectives.

  • Since 2008, five members with high levels of credit outstanding under the credit tranches— Iceland, Latvia, Hungary, Ireland and Portugal—have made large early repurchases (Box 4).13 Purchases under then-existing arrangements for two of these members—Iceland and Latvia-were grandfathered under the old policy on surcharges, and hence were not subject to the time-based element, while credit outstanding by Hungary, Ireland and Portugal were subject to the current system of surcharges. Early repurchases appear to coincide with regained market access and a reduction in the cost of market borrowing. Expectation of a boost to market confidence and domestic political considerations likely also contributed to early repurchases. Ireland made early repurchases that reduced its outstanding credit to just below the surcharge threshold as market access became relatively cheaper, suggesting that eliminating the surcharge was a motivation for making the early repurchases.

  • Surcharges have allowed the Fund to build precautionary balances. These balances have increased from SDR 12.7 billion at end of FY 2014 to SDR 14.2 billion by the end of FY 2015. This level is below the current indicative target of SDR 20 billion and the current pace will not allow the indicative target to be reached over the medium-term.14

Table 3.

Basic Information on Level and Time-Based Surcharges

(as of the end of the fiscal year—April 30)

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In FY2010 the new surcharges policy became effective. Iceland and Latvia elected to be grandfathered under the old surcharges policy.

Comprises purchases/disbursements made after November 28, 2000.

Evolution of Surcharges

Surcharges were introduced in 1997 with the establishment of the Supplemental Reserve Facility (SRF).1,2 Applying only to the SRF, a time-based structure of surcharges and short-term maturities was designed to incentivize early repayment by members with exceptional access that were experiencing capital account crises. In 2000, level-based surcharges were introduced on purchases in the credit tranches and under extended arrangements, starting at 200 percent of quota to discourage unduly high access. Considerations were given to thresholds of 300 percent, consistent with the upper limit of “normal” access, and 100 percent to capture more prolonged users of Fund resources and allow for a more graduated charge.3 In the end, the Board adopted a threshold starting at 200 percent of quota with a two-step increase in the rate. At the same time a schedule of repurchase expectations was introduced, from which, however, a member could request an extension to the maximum allowed under the repurchase obligation schedule. This resulted in a complicated system of surcharges and maturities (see figure and table below).

uA01fig02

Surcharge Structure Prior to 2009

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Repurchase Expectations Policy

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For the credit tranches and the EFF, a member whose external position has not improved sufficiently to meet the expectations schedule without undue hardship or risk could request an extension.

For the SRF, extensions provided if: (i) the member is unable to meet the repurchase expectation without undue hardship; and (ii) the member is taking actions to strengthen its balance of payments.

In 2009, surcharges were streamlined and aligned across all GRA facilities to simplify the structure of charges and to eliminate sources of misalignment of terms across facilities.4 At the same time, the time-based repurchase expectation policy was eliminated and replaced by applying time-based surcharges on credit outstanding under all GRA facilities, which was deemed more effective and transparent. In conjunction with a new time-based surcharge, the new single level-based threshold was set at the previous upper step of 300 percent of quota. Meanwhile, the level-based surcharge was established at 200 basis points, rising to 300 basis points when outstanding credit exceeds the threshold for more than three years. The reform also eliminated the SRF, on which time-based surcharges had previously been exclusively levied. Tailored time-based surcharges for EFF credit, consistent with EFF arrangements’ longer expected adjustment duration, were not proposed and the Executive Board agreed that high access was not normally expected under the EFF, and that future use under the EFF would likely be focused on low-income members.

1 See Annex I of Review of Charges and Maturities—Policies Supporting the Revolving Nature of Fund Resources (5/24/2005).2 Prior to 1981 when a flat rate of charge for all Fund credit financed with ordinary resources was introduced, the Fund operated a graduated structure of charges based on the level and duration of credit outstanding. Different rates of charge continued to apply on financing from borrowed resources until 1993.3Review of Fund Facilities—Further Considerations (07/10/2000) Review of Fund Facilities—Follow Up (08/31/2000).4 See GRA Lending Toolkit and Conditionality—Reform Proposals (03/13/2009) and Charges and Maturities – Proposals for Reform (12/12/2008).

Recent Experience with Early Repurchases—Iceland, Latvia, Hungary, Ireland, and Portugal

The figures below illustrate five post-GFC cases where early repurchases have typically coincided with regained market access and a reduction in the cost of market borrowing, although the experience across members is not uniform.1 In some cases the positive market signal from repaying the Fund and domestic political considerations were also likely contributing factors, whereas in euro area cases uncertainty surrounding the fragile recovery may have motivated maintaining outstanding Fund credit for longer. In Iceland market confidence started improving ahead of the net repurchase period and the subsequent sizeable early repurchases appear to have reinforced the decline in market borrowing costs. In turn, the more recent second phase of early repurchases followed convergence of market and Fund borrowing costs. In Latvia access to comparably priced market financing following the economic adjustment coincided closely with the member fully clearing its credit outstanding with the Fund. In Hungary, the reduction in market borrowing costs closely trailed declining Fund credit at the start of the net repurchase period, but was cut short by domestic political uncertainty in early 2013. The subsequent early repurchases despite the higher cost of market financing may have reflected political considerations as well as the perceived stigma associated with Fund financing. In Ireland and Portugal market borrowing costs fell below the cost of Fund financing before the peak of credit outstanding and diverged further at the onset of the time-based surcharges, reflecting economic adjustment efforts and, in part, strengthening of European crisis management institutions. Access to cheaper market financing appears to have been a motivating factor for the early repurchases by these members. As a result of recent early repurchases, Ireland has reduced its credit outstanding to the surcharge threshold of 300 percent of quota.

uA01fig03
Source: Bloomberg, Finance Department1/ The effective Fund interest rate includes the basic rate of charge and level and time-based surcharges, where applicable.2/ The market cost of financing for Iceland and Latvia is the sovereign US dollar bond with residual maturity closest to five years due to limited issuances and secondary market pricing. The market cost of financing for Hungary is the 5-year EMBIG yield. The market cost of financing for Ireland and Portugal are 5-year sovereign euro bond yields.
1 Both Latvia and Iceland were grandfathered under the previous surcharge regime when the current regime was introduced in early 2009. Hence, they were not subject to time-based surcharges.

A. Surcharge Level

24. The current surcharge level appears to remain appropriate in light of market developments. Accordingly, no changes are proposed for the magnitude of the 200 basis points surcharge level and the additional time-based surcharge of 100 basis points.

  • Incentives to seek timely assistance: The cost of Fund credit has remained well below market rates for most users of Fund resources since the global financial crisis (Figure 7).15 This suggests that the current level-based surcharge of 200 basis points has not represented a disincentive to seek assistance from the Fund and remains consistent with the cooperative nature of the institution. Market financing costs for emerging markets (measured here by the EMBI Global index yields netted for the basic rate of charge) dipped below the adjusted cost of Fund financing during 2005–08 in the context of unusually benign market conditions, but reversed sharply thereafter. The median market financing costs for a sample of current or recent high-access users of Fund resources (over 300 percent of quota) has similarly remained above the surcharge level, although in Ireland and Portugal market borrowing costs fell below cost of Fund financing before the expiration of their Fund-supported programs. At the Board discussion in 2014, Directors generally considered the surcharge level as appropriate in light of market developments.

  • Incentives for early repayment: At the inception of high-access programs, the premium charged by markets is usually much higher than the level of Fund surcharges. This premium typically narrows significantly over the duration of a program, yet in most instances remains above level-based surcharges. The time-based surcharges of 100 basis points, coinciding roughly with the start of regular repurchases under an SBA (3¼ years after the first purchase), encourage early repurchases by further reducing the spread between market and Fund financing costs. Figure 8 illustrates this, based on a sample of countries for which high-access Fund arrangements were approved since 1997. For the median high-access user of Fund resources during 1995–2007 (Panel A), the spread between the cost of borrowing from the market and financing from the Fund approaches and ultimately falls below the level of time-based surcharges some months after the start of scheduled repurchases. For the high-access members since 2008 (Panel B) the spread tends to narrow from pre-program peaks, but, apart from few exceptions (including Ireland and Portugal), market borrowing costs have remained above the level and time-based surcharges. This partially reflects longer post-crisis adjustment periods, longer lags before members regain market access, and the recent increase in the cost of market financing for many EMDCs.

  • As discussed above, the pricing of Fund credit is intended both to help manage the Fund’s liquidity and thereby preserve the revolving character of Fund resources, and to allow the Fund’s precautionary balances to be built. It is recognized that other members/organizations of the international community that provide additional financing to members implementing Fund- supported programs may face different constraints and have somewhat different objectives. For these reasons, financing from such sources may involve some combination of longer maturities and lower costs than those associated with Fund credit (indeed, in some cases such support is provided in the form of grants).

Figure 7.
Figure 7.

Spread Between Market Rates and Cost of Fund Borrowing

(In basis points) 1,2/

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Sources: Bloomberg and Finance Department1/ The adjusted Emerging Market Bond Index Global (EMBIG) is defined as the index yield net of the rate of charge.2/ For simplicity, the sample includes yields for members whose credit outstanding exceeded 300 percent of quota in the previous 12 months (the higher level-based surcharge threshold before the 2009 reform). Adjusted yields for emerging market countries are calculated using country-specific EMBIG yields net of the rate of charge, subject to data availability. The adjusted yields for Greece, Ireland and Portugal are calculated using sovereign five-year euro bond yields. The sample size is limited by data availability in periods of low number of high access arrangements, including a break in the data in the last four months of 2000.
Figure 8.
Figure 8.

Event Analysis: Spread Between Market Borrowing and the Structure of Surcharges

(In basis points) 1,2/

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

Sources: Bloomberg, and Finance Department1/ High access arrangements are defined as those with access in excess of 300 percent of quota. In cases of successor Fund arrangements only the most recent arrangement is considered. The adjusted yields are defined as the Emerging Market Bond Index Global (EMBIG) yields net of the adjusted rate of charge. The adjusted yields for Greece, Ireland and Portugal are calculated using sovereign five-year euro bond yields. The medians for the indicated time-periods are calculated based on all non-precautionary high access cases (including under the SRF), subject to data availability.2/ Events refer to the dates when there were high access programs approved by the Fund. In the event window, t corresponds to the month when access was granted. The window shows 24 months (2 years) prior to each event and 60 months (5 years) after.

B. Surcharge Threshold

25. Adjusting the level-based surcharge threshold would be appropriate once the 14th Review quota increases become effective. In the absence of a reduction in the threshold in relation to quota, surcharges would apply only at much higher SDR amounts of credit outstanding. This would undermine an important element of the Fund’s risk mitigation framework, discourage timely repurchases, and have an adverse impact on the Fund’s income and its capacity to accumulate precautionary balances. By way of illustration, if the general effectiveness conditions for the 14th Review are met on February 1, 2016, an unchanged surcharge threshold would lower overall expected surcharge income over the period FY2016–25 by about SDR 1.7 billion as compared to unchanged thresholds and quotas (see Table 4).

26. At the preliminary discussion in 2014, the Board considered options for adjusting the surcharge threshold once the 14th Review quotas became effective. At the time, most Directors saw merit in adjusting the surcharge threshold to allow for a moderate increase in the SDR value of the credit not subject to surcharges. A few Directors, noting the expectations of borrowing countries for greater savings in the cost of Fund financing following the quota increases under the 14th Review, favored keeping the surcharge threshold at 300 percent of quota. Some other Directors preferred maintaining the current incentive structure by halving the surcharge threshold to 150 percent of quota, which would on average leave the surcharge thresholds unchanged in SDR terms.

27. While circumstances have changed somewhat since the 2014 preliminary discussion, the options considered at that time remain relevant. On the one hand, downward revisions to projections of the Fund’s income and pace of accumulation of precautionary balances in the context of still elevated risks to the Fund would support setting a threshold that would limit the loss of income.16 A lower threshold could also help to support the revolving nature of the Fund’s general resources against the backdrop of Fund’s resource envelope remaining broadly unchanged after the 14th Review quotas and the rollback of the NAB come into effect. On the other hand, the economic metrics that are relevant for access limits point to a further increase in members’ average capacity to repay the Fund, and so could support a somewhat higher increase in the threshold that would allow the changes in the access and surcharge thresholds to be aligned.

28. At the 2014 discussion, most Directors saw merit in a moderate increase of the threshold in SDR terms. Assuming effectiveness of 14th Review quotas on February 1, halving the surcharge threshold to 150 percent of quota (which would broadly maintain the SDR value of surcharges) would lead to a reduction in the Fund’s income of about SDR 61 million in FY 2016–25, because of differences in the size of the quota increases of members with outstanding credit. Two options of a moderate increase in the thresholds in SDR terms, in line with Directors’ views, are considered:

  • One option would be to set the new threshold at 175 percent of quota. This would increase the threshold moderately in SDR terms, as supported by most Directors in 2014, by about 15 percent relative to the current threshold. Fund income would decline modestly relative to halving the threshold to 150 percent of quota, by SDR 259 million over FY2016–25 (Table 4), while incentives for early repurchases would be broadly preserved in the wake of the effectiveness of the 14th General Review quotas.17

  • A second option would be to set the threshold at 200 percent of quota. This would be in line with lowest historical surcharge thresholds, and, while conceptually separate from access limits, would broadly align the two policies (increasing the threshold in SDR terms by about 35 percent relative to the current threshold). Changing the threshold to 200 percent of quota would give greater savings to large borrowers. On the other hand, it would result in an additional reduction in the Fund’s projected income over the period FY2016–25 of about SDR 238 million (SDR 497 million relative to halving the threshold to 150 percent of quota), further slowing the accumulation of precautionary balances.18 It would also lead to a further increase in the level of outstanding credit at which surcharges start to provide incentives for early repurchases.

Table 4.

Projected Fund Income from Surcharges under Various Thresholds 1/

(In millions of SDRs; FY 2016 to FY 2025)

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Includes actual surcharge income for the first six months of FY 2016.

Members that are subject to higher surcharges following the quota increases and adjustment of thresholds are assumed to be grandfathered under current quotas and thresholds.

Baseline projections are based on existing active GRA arrangements, current quotas, and the current surcharges policy. It is assumed that Portugal makes advance repurchases of SDR 4.9 billion in March 2016 and that no further disbursements will be made under Greece’s current EFF arrangement.

Reduction of surcharge income relative to halving the thresholds (150% of quota) as a result of the changes in the thresholds and the time-based trigger for EFF arrangement following the quota increase.

29. While a number of tradeoffs must be considered, on balance staff recommends a more modest increase in the surcharge threshold to 175 percent. This approach would be more consistent with the Fund’s broadly unchanged resource envelope, which suggests that the price-based incentive structure should not be weakened. It would support the pace of accumulating precautionary balances. At the same time, the alternative of 200 percent could be considered as a compromise, balancing a slower pace of reserve accumulation against increased savings for the Fund’s largest borrowers.

30. It is proposed that the surcharge threshold be effective for each individual member, when the member pays its quota increase, or at the end of the 30 days after the general conditions for the effectiveness of the 14th Review quota increases, have been met (“Quota Payment Period”), whichever is earlier.19 By the end of the Quota Payment Period, the new thresholds would apply to all members, except those with existing arrangements who could be grandfathered (see below), regardless of whether they have consented to or paid for their respective quota increases under the 14th Review. The proposed rolling effectiveness of the new surcharge threshold for individual members is designed to avoid disadvantages for members and limit the negative impact on Fund income. Specifically, if the new surcharge threshold was to become effective immediately upon the effectiveness of the general conditions for the 14th Review quota increases, members may not have sufficient time to make quota increase payments, and the new threshold applied to members’ old quota would result in higher surcharges on their outstanding Fund credit. If the new surcharge threshold was to enter into effect for all members at the end of the Quota Payment Period, members completing their quota increase payments before that would have their new, higher quotas while continuing to be subject to the old threshold, which would result in lower surcharges and thus a higher reduction of income for the Fund.

31. Staff proposes that a grandfathering regime be put in place for members with credit outstanding and/or undrawn balances under existing arrangements at the time that the new threshold is adopted. Under the new surcharge regime, some members might be subject to higher surcharges, depending on the relative size of their quota increase and their credit outstanding at that time and going forward. Staff proposes a grandfathering regime under which members with credit outstanding or undrawn balances would be given the option to choose whether to pay surcharges based on their old quota/old threshold or new quota/new threshold.20 This proposal—which is in line with views expressed by many Directors at the May 2014 Executive Board meeting—would ensure that current debtor members are not worse off in terms of surcharge cost for existing credit outstanding and undisbursed commitments compared to the current quota/current threshold.21 Grandfathering for a member would end when a new request for use of Fund resources for the member is approved (e.g., augmentation of an existing arrangement, or upon approval of new instrument or arrangement) after the new surcharge thresholds come into effect. Applying the new surcharge regime to all other cases at the end of the Quota Payment Period would ensure that the Fund’s credit exposure to each member is subject to a single system of surcharges to mitigate the credit risk.22 As such, staff would not favor an enhanced grandfathering option based on new quota/old threshold, as a number of Directors had suggested at the May 2014 Board meeting.

C. Time Based Surcharges Under Extended Arrangements

32. Time-based surcharges were designed to reflect repurchase schedules of high access credit tranche arrangements (e.g., SBA). When the current structure of surcharges was adopted in 2009, it was expected that arrangements involving high access would normally be in the credit tranches. At that time, the Board acknowledged that high access would not normally be expected under extended arrangements, which were viewed as particularly useful for providing blended support (with the ECF) to low income countries.23 These countries typically require more comprehensive structural reforms, and therefore a longer period to achieve the needed balance of payments adjustment. In addition, these members were thought to face lower financing needs, given their relatively less developed financial markets and lower degree of financial integration with the rest of the world. Accordingly, high access and surcharges were viewed as relevant primarily for credit tranche financing, and time-based surcharges were expected to start around the same timeframe as repurchases under the credit tranches (e.g., at 36 months for time-based surcharges as compared with 39 months for credit tranche repurchases) in all high access cases.24

33. The use of extended arrangements, which have longer repayment schedules, with high access, calls for revisiting the design of the time-based surcharges, as originally conceived. A number of high access extended arrangements that are subject to surcharges were approved following the 2009 reform. Thirteen extended arrangements have been approved since 2009, including seven extended arrangements with access high enough to incur surcharges; these include the four members with the largest outstanding credit as a percentage of quota at this point. Under extended arrangements, repurchases are scheduled in twelve equal semiannual installments starting 4½ years from the date of each purchase, reflecting the relatively modest pace at which these members’ balance of payments position is expected to strengthen. This could lead to a member receiving front-loaded financing from the Fund being subject to a time-based surcharge 1½ years before its repurchase schedule begins.

34. The time-based surcharge trigger could be extended for arrangements under the EFF to align it better with the expected time for improvement of members’ balance of payments.25 Taking market access as an indicator for improvement in members’ balance of payments, an analysis of past arrangements suggests that it has generally taken members with extended arrangements longer to access markets after the arrangement began than members with SBAs; 31 vs. 13 months on average, respectively (Box 5). Extending the time-based surcharge trigger for EFFs to 51 months while keeping it at 36 months for credit tranche purchases would have the time-based surcharge start applying 3 months before repayments fall due under each type of arrangement. In other words, the time-based surcharge trigger would be aligned across facilities in relation to the time when repurchases start.

35. While the choice of facilities should depend on the nature of members’ balance of payments needs, such an extension would change the incentive structure between facilities. The longer repurchase periods already provide an incentive for members to request extended arrangements even when an arrangement in the credit tranches (specifically an SBA) would be more appropriate for addressing their balance of payments needs. Delaying the trigger-period for time-based surcharges under extended arrangements would further strengthen this incentive. This concern, however, is mitigated by the need to meet the qualification criteria for the relevant facility, irrespective of the member’s intention, although determining the nature and duration of the member’s financing needs may be difficult to ascertain in practice. Differentiating surcharges across facilities would also add complexity to the surcharge policy, going against a central goal of the 2009 reform.

36. Precautionary balances would accumulate at a marginally slower pace if such a change were to take place. The Fund’s income from surcharges on outstanding credit and scheduled purchases under current arrangements would be reduced in aggregate by up to about SDR 75 million over FY2016–25, depending on the surcharge threshold selected, if the time-based trigger for extended arrangements were moved to 51 months as of February 1, 2016 (Table 4, second column of each scenario). Of the current group of members with credit outstanding, any savings would accrue mainly to Ukraine as other members having high access EFF arrangements have either made early repurchases or have maintained credit outstanding in excess of the threshold for periods beyond 51 months as of February 1, 2016.26 All else unchanged, this would have a minor negative impact on precautionary balances which would remain below indicative target of SDR 20 billion over the medium term.27

37. The Board did not reach a consensus view on extending the time-based surcharge trigger for EFF arrangements at its discussion in 2014. At that time, many Directors saw merit in lengthening it to 51 months, while maintaining the 36-month trigger for time-based surcharges on credit under the credit tranches. However, many other Directors were not in favor of the extension, pointing to the risks of creating perverse incentives for longer-term use of Fund resources, weakening the role of the SBA as the Fund’s primary lending instrument, and slowing the pace of building up precautionary balances.

Market Access Following SBAs and Arrangements Under the EFF

Members with an extended arrangement under the EFF in general need more time to correct their balance of payments problems. Extended arrangements are designed to provide medium-term financing to members that are experiencing deep payments imbalances because of structural impediments or that are characterized by slow growth and an inherently weak balance of payments position. Given these characteristics, it is expected that improving the balance of payments of these members will take more time compared to members that are supported under an SBA to correct short-term external imbalances.

As a result, countries with extended arrangements are likely to take longer to access markets after the program is initiated. Taking market access as an indication of improving balance of payments, this hypothesis is generally confirmed by data from recent SBAs and extended arrangements (see text Table). Since 1998, members under extended arrangements accessed the market on average 31 months from the onset of their arrangements while members under SBAs accessed the market on average 13 months after the onset of their respective arrangements.

However, within both of these groups of arrangements, there is notable variation in the duration of members regaining market access. Some caution is also needed in interpreting these figures as, in several cases, a rapid return to the market was preceded by a prolonged Fund financing engagement. Calculating the time from the onset of the Fund financing engagement (rather than from the onset of the last arrangement) increases the duration of regaining market access for both types of arrangements, but the duration remains longer for members under extended arrangements. Another caveat with the analysis is that absence from the markets could in some cases reflect the preference of countries with market access for alternative financing sources.

Text Table

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Source: IMF; Dealogic. Cbonds.Based on the information available as of December 10, 2015 for countries with Fund programs approved during August 1998 to November 2015, subject to the availability of market access information.

An (*) indicates prolonged Fund program engagement and this is signaled in the last Fund arrangement.

Regaining market access is estimated from IMF country reports, and is proxied by the countries’ first sovereign bond issuance on the international capital markets when no information is available in country reports.

Facilitated by a US government guarantee.

Facilitated by a Japanese government guarantee

38. Staff continues to support extending the trigger-period for time-based surcharges on credit under extended arrangements to 51 months, as in 2014, although an extension is not without drawbacks. Such an extension would align different time-based triggers with the maturity profiles of Fund credit under the respective financing facilities, benefiting members with longer-term balance of payments needs by providing a longer period before time-based surcharges are levied. At the same time, differentiating surcharges across facilities would add complexity and members would also have an additional incentive to request an extended arrangement, as opposed to an SBA. The latter risk should be mitigated by the fact that the choice between facilities in individual cases must be based on an analysis of the nature of members’ balance of payments problems, and whether they qualify for assistance under an extended arrangement.

39. It is proposed that this change be made effective immediately, i.e. upon adoption of the relevant Board decision. This decoupling from the effectiveness of level-based surcharge thresholds, as recommended in 2014, recognizes that this change reflects the characteristics of extended arrangements rather than the impact of the 14th Review quotas. Under this proposal, the calculation of time-based surcharges would need to distinguish between the two different sources for members whose credit outstanding originates from both purchases under the credit tranches and extended arrangements (see Box 6). Concerning outstanding credit in the credit tranche, staff considers that the current trigger-period for time-based surcharges of 36 months remains appropriate.

40. Staff proposes that surcharge policies be reviewed again in early 2021, if needed. Consideration could be given to an earlier review following the finalization of the 15th General Review of Quotas.

Calculation of Time-Based Surcharges

Under current policies, time-based surcharges are levied when Fund credit outstanding in the GRA has been in excess of 300 percent of quota for more than 36 months. If the time-based trigger were lengthened to, say, 51 months for credit outstanding under an extended arrangement, it would become necessary to distinguish between credit outstanding under different types of GRA facilities and instruments. During the period from 36 to 51 months, only credit outstanding that originates from purchases in the credit tranches (including under SBAs) would be subject to time-based surcharges. Starting at 51 months, credit outstanding that originates from purchases under extended arrangements would also become subject to surcharges.

The proposed change in policy would only affect the period from 36 to 51 months, during which only credit outstanding on credit originating from purchases in the credit tranches would be subject to time-based surcharges. Specifically, time-based surcharges would be charged on that portion of total credit outstanding above the threshold that corresponds to the portion of credit outstanding in the credit tranches to total credit outstanding as illustrated below:.

  • Most aspects of the current surcharge policy would be unchanged: The “clock” for assessing the start of time based surcharges would be started when a member’s total GRA credit outstanding (regardless of whether it originated from purchases under the credit tranches or under extended arrangements) has exceeded the proposed new level-based threshold of 175/200 percent of quota.

  • Time-based surcharges will continue to be levied until a member’s total outstanding use of Fund credit drops below 175/200 percent of quota. 1

Modified Calculation of Surcharges (36–51 months)

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1 If a member chooses to take advantage of the grandfathering on the level-based surcharges, and thus to pay the level-based surcharges based on its old quota/old threshold, that member’s time-based surcharges will continue to be levied based on its old quota and the 300 percent quota threshold.

Review of Other Quota-Related Policies

A. Commitment Fee Thresholds

41. The current commitment fee structure was introduced in 2009 to help mitigate liquidity risks. The original rationale for charging a commitment fee for access under Fund arrangements is to compensate the Fund for the cost of establishing and monitoring arrangements and for setting aside resources to be used if a purchase were to be made. Subsequently, the current upwardly-sloping fee structure was introduced as part of the broader reforms in 2009, including the creation of the FCL, with the aim of discouraging unnecessarily high precautionary access and thereby helping to contain risks to the Fund’s liquidity (see Box 7).

42. The Executive Board discussed commitment fees in 2014 on two occasions. In the preliminary discussion of the access limit and surcharge policy review, most Directors favored a modest increase in the threshold in SDR terms, thus effectively lowering commitment fees. However, in the 2014 FCL/PLL review a few weeks later, some Directors called for an increase, rather than a reduction, in the commitment fee (in basis points, not the threshold) to discourage prolonged large precautionary arrangements. In fact, options to increase the cost of commitment fees and better encourage exit from FCLs were discussed, but were ultimately considered premature pending more experience with FCLs.28

43. Following the view of most Directors in the preliminary discussions in 2014, staff proposes a moderate increase in the SDR value of commitment fee thresholds. The commitment fee (in basis points) is also relevant for the incentive to exit FCL/PLL, and is covered in the regular reviews of these facilities (see below). Following the doubling of Fund quotas under the 14th Review, the current incentive structure would be broadly preserved by halving commitment fee thresholds, to 100 and 500 percent of quota, from 200 and 1,000 percent of quota currently. Applying the same moderate increase proposed for surcharge thresholds (in the 15 to 35 percent range), the commitment fee thresholds could be raised to between 115 and 135 percent of 14th Review quotas for the lower threshold and between 575 and 675 percent of quota for the higher threshold (see Figure 9). On balance, and in line with the surcharge threshold proposal, staff proposes to adopt new thresholds of 115/575 percent of quota to minimize the erosion of the incentive structure in view of recent Board discussions reviewing the FCL. These new thresholds would be effective for each member, once the member pays its quota increase under the 14th Review or at the end of the Quota Payment Period, whichever comes earlier.29 The new commitment fee thresholds would apply to all members by the end of the Quota Payment Period (except those with existing arrangements who could be grandfathered, see below), regardless of whether they have consented to or paid for their respective quota increases under the 14th Review.

44. The proposal represents a limited reduction of the risk mitigation elements of commitment fees:

  • Liquidity risks: The marginal increase in commitment fee thresholds would not have a meaningful impact on liquidity risks facing the Fund. Concerns regarding FCL exit were addressed at least partly at the past FCL/PLL review by standardizing the access and approval process and including a well-articulated exit strategy in staff reports, although the increase in thresholds would run counter to the views expressed by some Directors that such fees should be increased, rather than lowered. Pending more experience, commitment fees, including the level of the fee, can be reviewed in the context of future FCL reviews.

  • Income and credit risks: The impact on the Fund’s income from the proposed changes in the thresholds for commitment fees would be manageable, resulting in a small reduction in the pace of accumulation of precautionary balances. If the policy changes become effective on February 1, 2016, projected income from commitment fees would be reduced by about SDR 30–35 million, equivalent to a portion of the already received commitment fees from current precautionary arrangements that would need to be refunded.

45. Staff proposes that any change in commitment fee thresholds become effective subject to a grandfathering regime for members with arrangements in effect at the time when the new commitment fee thresholds are adopted. Members with existing arrangements would be given the option to choose whether the commitment fee for any remaining balances should be calculated based on the old thresholds/old quota or the new thresholds/new quota.30 Grandfathering for a member would end after a request for augmentation of an existing arrangement. Additionally, any new GRA arrangement approved after the Board adopts the new commitment fee thresholds will be subject to the new threshold.

Commitment Fees (1952–2009)

Commitment fees were originally put in place to help manage incentives and compensate the Fund for cases in which commitments were not drawn. They were first introduced in conjunction with the establishment of the Stand-by Arrangement in 1952. Directors emphasized that while the charge should not discourage countries with need, it would serve as a deterrent to those who had no real reason to request Fund assistance. It was decided that a commitment charge of 25 basis points per year would be levied and if a member draws under the SBA, this charge would be credited against the service charge on a pro rata basis. In the context of the review of Fund facilities in 2000, a two-tier commitment fee schedule was adopted under which the fee remained at 25 basis points per annum for commitments up to 100 percent of quota and a lower 10 basis point fee was levied on amounts in excess of 100 percent of quota that could be purchased over the same period.1 The lower 10 basis point fee for access above 100 percent of quota was adopted mainly to encourage the use of the then-existing Contingent Credit Line (CCL) and the declining schedule was motivated by the lower probability of drawing under the CCL which made refunds less likely. The argument is consistent with the prevailing view at the time that the basic rationale for charging commitment fees for contingent credits was to cover the cost of establishing and monitoring Fund arrangements.

uA01fig04

Past Commitment Fee Structures

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

The current commitment fee schedule stems from the 2009 GRA lending toolkit reform, and reflects an expanded role for liquidity risks management.2 Staff stressed the need to contain risks to the Fund liquidity associated with the FCL and expected greater use of HAPAs and proposed to revise the existing regressive schedule as it did not provide disincentives for excessive precautionary access. It was reiterated that large commitments have costs associated with the finite availability of Fund resources and such costs are likely to increase at the margin as resources available for other lending decline. In order to address these issues, the proposed new schedule increased progressively with access. Staff argued that such a commitment fee structure would generally increase incentives against unnecessarily high precautionary access and would also provide income to the Fund to help offset the cost of setting aside substantial financial resources. This role was further underscored at recent reviews of the FCL and PLL. At the same time, commitment fees would not be set so high as to discourage members from seeking precautionary arrangements.

1/ See Review of Fund Facilities—Proposed Decisions and Implementation Guidelines (11/03/00).2/ See GRA Lending Toolkit and Conditionality—Reform Proposals (03/13/2009).
Figure 9.
Figure 9.

Commitment Fee Structure Under Different Scenarios

(In percent)

Citation: Policy Papers 2016, 006; 10.5089/9781498346085.007.A001

1/ The effective rate is the total commitment fee payable relative to total access available for purchase over a 12-month period.

B. The Threshold for Article IV Consultation Cycle and Post-Program Monitoring

46. Staff proposes to change the Article IV consultation cycle threshold in line with the proposed increase in access limits. In line with the general improvement in members repayment capacity, the threshold on outstanding Fund credit above which a member may not be placed on an extended Article IV consultation cycle would be raised 40 percent in SDR terms, consistent with staff’s proposal on access limits, from 200 percent of the current quota to 140 percent of quota. The policy would continue to ensure proper monitoring of circumstances and policies of members that have substantial Fund credit outstanding following the expiration of their arrangements. Appendix Table 4 compares Staff’s current proposals and options with those proposed in May 2014.

47. Staff also proposes to halve the current threshold for determining expectations of member’s participation in post-program monitoring (PPM) to 100 percent of quota. This is a transitory measure ahead of Board consideration of a separate forthcoming paper that will propose further changes in the Post-Program Monitoring framework, including quota-based thresholds on credit outstanding.

Summary of Proposed Decisions

48. The adoption of the following proposed decisions would be required to give effect to staffs reform proposals made in the paper. Six decisions are proposed for adoption by the Board, as follows:

  • Decision I on Access Limits: Decision I modifies the annual and cumulative GRA access limits in line with staff’s proposal, once the general effectiveness conditions for the entry into force of the 14th General Review are met A limited grandfathering regime is provided for;

  • Decision II on PLL-Specific Access Limits: Decision II halves the access limits applicable to PLL arrangements, once the general effectiveness conditions for the entry into force of the 14th General Review are met;

  • Decision III on Surcharge Policies: Decision III modifies the Fund’s surcharge policies: (i) with immediate effect, to extend the trigger for the time-based surcharge for outstanding purchases under the EFF to 51 months, and (ii) to modify the threshold for the level-based threshold to 175 percent of quota on the rolling effectiveness basis set out in the paper. A grandfathering regime is provided for credit outstanding and available under arrangements in force as of the date on which the Board adopts the new level-based threshold;

  • Decision IV on Commitment Fees: Decision IV modifies the commitment fee thresholds to 115 and 575 percent of quota, respectively, on the same rolling effectiveness basis as is proposed in respect of the changes to the level-based surcharge. A limited grandfathering regime is included;

  • Decision V on Article IV Consultation Cycles: Decision V modifies the quota-based threshold above which a member may not be placed on an extended Article IV consultation cycle from the current threshold of 200 percent of quota to 140 percent of quota; and

  • Decision VI on Post-Program Monitoring: Decision VI halves the quota-based threshold on credit outstanding that triggers the expectation of PPM engagement from 200 percent of quota to 100 percent of quota.

The decisions on access, PLL-specific access limits, Article IV consultation cycles, and Post-Program Monitoring (Decisions I, II, V and VI) each may be approved with a majority of votes cast by the Executive Board. The decisions on surcharges and commitment fees (Decisions III and IV) each would require a majority carried by seventy percent of the total voting power, pursuant to the requirements of Article V, Section 8(d).31 Redline decisions showing the changes that are proposed to existing decisions are annexed and will be removed prior to publication.

Proposed Decisions

Accordingly, the following decisions are proposed for adoption by the Executive Board. Decisions I, II, V and VI each may be adopted by a majority of the votes cast, and decisions III and IV each may be adopted by a 70 percent majority of the total voting power.

Decision I: Access Policy and Limits in the Credit Tranches and Under the Extended Fund Facility and on Overall Access to the Fund’s General Resources, and Exceptional Access Policy – Review and Modification

1. In Decision No. 14064-(08/18), adopted February 22, 2008, as amended, paragraphs 2, 4 and 6 shall be amended as follows:

  • a. Paragraph 2 shall be amended to read as follows:

  • “2. The overall access by members to the Fund’s general resources shall be subject to (i) an annual limit of 140 percent of quota; and (ii) a cumulative limit of 420 percent of quota, net of scheduled repurchases; provided that these limits will not apply in cases where a member requests a Flexible Credit Line arrangement in the credit tranches, although outstanding holdings of a member’s currency arising under such arrangements will be taken into account when applying these limits in cases involving requests for access under other Fund facilities.”

  • b. Paragraph 4 shall be amended to read as follows:

  • “4. When exceptional access is approved under a PLL arrangement pursuant to paragraph 3, such access, combined with the member’s access to the Fund’s resources under other PLL arrangements, shall in no event exceed a cumulative limit of 500 percent of quota, net of scheduled repurchases.”

  • c. Paragraph 6 shall be amended to read as follows:

  • “6. The guidelines for access, the access limits set forth in this Decision, and the experience with access in amounts exceeding these limits shall be reviewed no later than [February 1, 2021], on the basis of all relevant factors, including the magnitude of members’ balance of payments problems and developments in the Fund’s liquidity.”

2. The modification of overall access limits set forth under this decision shall not cause members to be subject to the exceptional access policy if they were not subject to the said policy prior to the entrance into effect of this Decision, unless following the entrance into effect of this Decision the Executive Board approves access to the Fund’s general resources account under a new arrangement, or through an augmentation of access under an arrangement that was in place prior to the entrance into effect of this Decision, or through an outright purchase under the RFI, in an amount that would cause the member to exceed the overall annual or cumulative access limits set forth under this decision.

Decision II: The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency Assistance--Precautionary and Liquidity Line (PLL) Arrangements

In Decision No. 15017-(11/112), adopted November 21, 2011, as amended, paragraph 4 shall be amended as follows:

  • 1. Paragraph 4(a) shall be amended to replace “1000 percent of quota” with “500 percent of quota”.

  • 2. Paragraph 4(b) and 4(b)(i) shall be amended to replace “500 percent of quota” with “250 percent of quota”.

  • 3. Paragraph 4(c)(i) shall be amended to replace “250 percent of quota” with “125 percent of quota”.

  • 4. Paragraph 4(c)(ii) shall be amended to replace “500 percent of quota” with “250 percent of quota” and to replace “250 percent of quota” with “125 percent of quota”.

  • 5. Paragraph 4(c)(iii) shall be amended to replace “500 percent of quota” with “250 percent of quota”.

Decision III: Surcharges on Purchases in the Credit Tranches and Under the Extended Fund Facility

Decision No. 12346-(00/117), November 28, 2000, as amended, shall be further amended to read as follows:

“1. The rate of charge under Article V, Section 8(b) on the Fund’s combined holdings of a member’s currency in excess of 175 percent of the member’s quota in the Fund resulting from purchases in the credit tranches and under the Extended Fund Facility shall be 200 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing; provided that the rate of charge shall include an additional 100 basis points per annum above the rate of charge referred to in Rule I-6(4), as adjusted for purposes of burden sharing, on such holdings in excess of the 175 percent threshold that have been outstanding for more than 36 months in the case of purchases in the credit tranches or that have been outstanding for more than 51 months in the case of purchases under the Extended Fund Facility.

2. Instead of the threshold of 175 percent referred to in paragraph 1 above, a threshold of 300 percent shall be used in computing the rate of charge under Article V, Section 8(b) on the Fund’s combined holdings of a member’s currency, prior to the effectiveness of the quota increase under the 14th General Review of Quotas for that member or prior to the end of the 30-day period for the payment of quota increases under the 14th General Review after the Fund notifies the membership that the general effectiveness conditions for quota increases under the 14th General Review of Quotas have been met (the “Quota Payment Period”), whichever is earlier.

3. A member with credit outstanding in the credit tranches or under the Extended Fund Facility, or with an arrangement in effect on [February 1, 2016], may notify the Fund by the end of the Quota Payment Period that it elects to have the rate of charge on such existing holdings of the member’s currency, and on holdings of the member’s currency arising from future purchases under such an effective arrangement, to be based on the threshold of 300 percent, instead of the threshold of 175 percent under paragraph 1 above, provided that the threshold of 300 percent would be applied to the member’s quota in effect prior to its quota increase under the 14th General Review of Quotas. Absent such notification, the rate of charge shall be computed pursuant to paragraph 1 above. If a member has made an election under this paragraph 3, such election shall cease to apply as of the date of the Fund’s approval of any new access to the Fund’s general resources for that member, including an augmentation of an arrangement in effect on [February 1, 2016], and the rate of charge under this Decision shall be computed for all holdings of the member’s currency in the credit tranches or under the Extended Fund Facility pursuant to paragraph 1 above.”

Decision IV: Commitment Fees

Rule I-8 shall be amended to read as follows:

“The following provisions shall apply to all GRA arrangements:

  • (a) A charge shall be payable at the beginning of each twelve-month period ("the relevant period") of an arrangement as follows:

    • (i) 15/100 of 1 percent per annum on amounts of up to 115 percent of the member’s quota that could be purchased during the relevant period; and

    • (ii) 3/10 of 1 percent per annum on amounts in excess of 115 percent and up to 575 percent of the member’s quota that could be purchased during the relevant period; and

    • (iii) 3/5 of 1 percent per annum on amounts in excess of 575 percent of the member’s quota that could be purchased during the relevant period.

  • (b) When a purchase is made under an arrangement, the amount of the charge paid under subparagraph (a) above shall be reduced, and a refund equal to the reduction shall be made, as follows:

    • (i) to the extent that purchases during the relevant period do not exceed 115 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(i) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement not exceeding 115 percent of the member’s quota that could be purchased during the relevant period;

    • (ii) to the extent that purchases during the relevant period exceed 115 percent but do not exceed 575 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(ii) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement exceeding 115 percent but not exceeding 575 percent of the member’s quota that could be purchased during the relevant period; and

    • (iii) to the extent that purchases during the relevant period exceeds 575 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(iii) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement exceeding 575 percent of the member’s quota that could be purchased during the relevant period.

  • (c) If a member notifies the Fund that it wishes to cancel an arrangement, the Fund shall repay to the member a portion of the charge. The portion repaid shall represent the charge for the period remaining unexpired at the date of cancellation for the amount that could still be purchased under the arrangement at the date of cancellation for which the member has paid a charge.

  • (d) Refunds for reductions under subparagraph (b) above and repayments under subparagraph (c) above of a charge paid for an arrangement shall be made in the media selected by the Fund.

  • (e) Instead of the thresholds of 115 percent and 575 percent referred to in subparagraphs (a) and (b) above, the thresholds of 200 percent and 1000 percent, respectively, shall be used in computing charges and refunds for a member prior to the effective date of that member’s quota increase under the 14th General Review of Quotas, or prior to the end of the 30-day period for the payment of quota increases under the 14th General Review after the Fund notifies the membership that the general effectiveness conditions for quota increases under the 14th General Review of Quotas have been met (the “Quota Payment Period”), whichever is earlier.

  • (f) A member with an arrangement in effect on [February 1, 2016] may notify the Fund by the end of the Quota Payment Period that it elects to have the charges and refunds applicable to such arrangement to be based on the thresholds of 200 percent and 1000 percent of the member’s quota in effect prior to the effectiveness of the quota increase for that member under the 14th General Review of Quotas, instead of the thresholds of 115 percent and 575 percent, respectively, under subparagraphs (a) and (b) above. Absent such notification, the relevant charges and refunds shall be determined under subparagraphs (a), (b), (c) and (d) above. If a member has made an election under this subparagraph (f), such election shall cease to apply as of the date of the Fund’s approval of any augmentation of an arrangement in effect for that member prior to [February 1, 2016]. The member shall then be subject to the relevant charges and refunds as determined under subparagraphs (a), (b), (c) and (d). New arrangements approved by the Fund after [February 1, 2016] are not eligible for the election under this subparagraph (f).”

Decision V: Article IV Consultation Cycles

In Decision No. 14747-(10/96), as amended, paragraph 1(c) shall be amended to read as follows:

  • “1(c) the member has outstanding credit to the Fund under all facilities above one hundred and forty percent (140%) of the member’s quota.”

Decision VI: Post-Program Monitoring

In Decision No. 13454-(05/26), as amended, the references to “200 percent of quota” shall be replaced with “100 percent of quota”.

Annex I Redline Version: Proposed Modification to Existing Decisions

Decision I. Access Policy and Limits in the Credit Tranches and Under the Extended Fund Facility and on Overall Access to the Fund’s General Resources, and Exceptional Access Policy – Review and Modification

  • 2. The overall access by members to the Fund’s general resources shall be subject to (i) an annual limit of 140 percent of quota; and (ii) a cumulative limit of 420 percent of quota, net of scheduled repurchases; provided that these limits will not apply in cases where a member requests a Flexible Credit Line arrangement in the credit tranches, although outstanding holdings of a member’s currency arising under such arrangements will be taken into account when applying these limits in cases involving requests for access under other Fund facilities.

  • 3. When exceptional access is approved under a PLL arrangement pursuant to paragraph 3, such access, combined with the member’s access to the Fund’s resources under other PLL arrangements, shall in no event exceed a cumulative limit of 500 percent of quota, net of scheduled repurchases.

  • 6. The guidelines for access, the access limits set forth in this Decision, and the experience with access in amounts exceeding these limits shall be reviewed no later than [February 1st, 2021], on the basis of all relevant factors, including the magnitude of members’ balance of payments problems and developments in the Fund’s liquidity.

Decision II. The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency

Assistance--Precautionary and Liquidity Line (PLL) Arrangements

  • 4.(a) Subject to paragraphs 4(b) and 4(c) of this Decision, access to Fund resources under the PLL instrument shall be subject to a cumulative cap of 500 percent of quota, net of scheduled repurchases, which shall apply to all PLL arrangements regardless of duration.

  • 4.(b) In addition to the PLL instrument access cap specified in paragraph 4(a) above, access under PLL arrangements with a duration of one to two years shall be subject to an annual access limit of 250 percent of quota (net of scheduled repurchases) applicable at the time of approval of such arrangements, and shall be subject to the following additional considerations.

    • (i) For one-year PLL arrangements approved for members not having an actual balance of payment need at the time of approval of the arrangement, the entire amount of approved access shall be available upon approval of the arrangement and shall remain available throughout the arrangement period, subject to completion of a six-monthly review as specified in paragraph 3(b) of this Decision. For PLL arrangements with a duration of one to two years approved for members not having an actual balance of payment need at the time of approval of the arrangement, purchases shall be phased, with an initial amount not in excess of 250 percent of quota being available upon approval of the arrangement and the remaining amount being made available at the beginning of the second year of arrangement, subject to completion of the relevant six-monthly reviews specified in paragraph 3(b) of this Decision.

  • 4.(c) In addition to the PLL instrument access cap specified in paragraph 4(a) above, the following access limits and additional considerations shall apply to six-month PLL arrangements:

    • (i) A per arrangement limit of 125 percent of quota, net of scheduled repurchases, shall normally apply to six-month PLL arrangements, with the entire amount of approved access being available to the member upon approval of the arrangement and remaining available throughout the arrangement period.

    • (ii) A per arrangement limit of 250 percent of quota, net of scheduled repurchases, shall apply to six-month PLL arrangements in exceptional circumstances where a member is experiencing or has the potential to experience short-term balance of payments needs that exceed the 125 percent of quota limit specified in paragraph 4(c)(i) above due to the impact of exogenous shocks, including heightened regional or global stress conditions. Accordingly, the Fund may in these circumstances, and on a case-by-case basis, approve a new six-month PLL arrangement or augment access under an existing six-month PLL arrangement up to this higher limit, with the entire amount of approved access being available to the member upon approval of the arrangement or, in the case of augmentations, upon completion of an ad hoc review under paragraph 4(d) below, and remaining available throughout the arrangement period.

    • (iii) Total access to Fund resources under all six-month PLL arrangements shall in no event exceed a cumulative six-month PLL arrangement access limit of 250 percent of quota, net of scheduled repurchases.

Decision III. Surcharges on Purchases in the Credit Tranches and Under the Extended Fund Facility

  • 1. The rate of charge under Article V, Section 8(b) on the Fund’s combined holdings of a member’s currency in excess of 175 percent of the member’s quota in the Fund resulting from purchases in the credit tranches and under the Extended Fund Facility shall be 200 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing; provided that the rate of charge shall include an additional 100 basis points per annum above the rate of charge referred to in Rule I-6(4), as adjusted for purposes of burden sharing, on such holdings in excess of the 175 percent threshold that have been outstanding for more than 36 months in the case of purchases in the credit tranches or that have been outstanding for more than 51 months in the case of purchases under the Extended Fund Facility.

  • 2. Instead of the threshold of 175 percent referred to in paragraph 1 above, a threshold of 300 percent shall be used in computing the rate of charge under Article V, Section 8(b) on the Fund’s combined holdings of a member’s currency, prior to the effectiveness of the quota increase under the 14th General Review of Quota’s for that member or prior to the end of the 30-day period for the payment of quota increases under the 14th General Review after the Fund notifies the membership that the general effectiveness conditions for quota increases under the 14th General Review of Quotas have been met (the “Quota Payment Period”), whichever is earlier.

  • 3. A member with credit outstanding in the credit tranches or under the Extended Fund Facility, or with an arrangement in effect on [February 1, 2016], may notify the Fund by the end of the Quota Payment Period that it elects to have the rate of charge on such existing holdings of the member’s currency, and on holdings of the member’s currency arising from future purchases under such an effective arrangement, to be based on the threshold of 300 percent, instead of the threshold of 175 percent under paragraph 1 above, provided that the threshold of 300 percent would be applied to the member’s quota in effect prior to its quota increase under the 14th General Review of Quotas. Absent such notification, the rate of charge shall be computed pursuant to paragraph 1 above. If a member has made an election under this paragraph such election shall cease to apply as of the date of the Fund’s approval of any new access to the Fund’s general resources for that member, including an augmentation of an arrangement in effect on [February 1, 2016], and the rate of charge under this Decision shall be computed for all holdings of the member’s currency in the credit tranches or under the Extended Fund Facility pursuant to paragraph 1 above.

Decision IV. Commitment Fees

The following provisions shall apply to all GRA arrangements:

(a) A charge shall be payable at the beginning of each twelve-month period ("the relevant period") of an arrangement as follows:

  • (i) 15/100 of 1 percent per annum on amounts of up to 115 percent of the member’s quota that could be purchased during the relevant period; and

  • (ii) 3/10 of 1 percent per annum on amounts in excess of 115 percent and up to 575 percent of the member’s quota that could be purchased during the relevant period; and (iii) 3/5 of 1 percent per annum on amounts in excess of 575 percent of the member’s quota that could be purchased during the relevant period.

(b) When a purchase is made under an arrangement, the amount of the charge paid under subparagraph (a) above shall be reduced, and a refund equal to the reduction shall be made, as follows:

  • (i) to the extent that purchases during the relevant period do not exceed 115 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(i) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement not exceeding 115 percent of the member’s quota that could be purchased during the relevant period;

  • (ii) to the extent that purchases during the relevant period exceed 115 percent but do not exceed 575 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(ii) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement exceeding 115 percent but not exceeding 575 percent of the member’s quota that could be purchased during the relevant period; and

  • (iii) to the extent that purchases during the relevant period exceeds 575 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(iii) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement exceeding 575 percent of the member’s quota that could be purchased during the relevant period.

(c) If a member notifies the Fund that it wishes to cancel an arrangement, the Fund shall repay to the member a portion of the charge. The portion repaid shall represent the charge for the period remaining unexpired at the date of cancellation for the amount that could still be purchasedunder the arrangement at the date of cancellation for which the member has paid a charge.

(d) Refunds for reductions under subparagraph (b) above and repayments under subparagraph (c) above of a charge paid for an arrangement shall be made in the media selected by the Fund.

(e) Instead of the thresholds of 115 percent and 575 percent referred to in subparagraphs (a) and (b) above, the thresholds of 200 percent and 1000 percent, respectively, shall be used in computing charges and refunds for a member prior to the effective date of that member’s quota increase under the 14th General Review of Quotas, or prior to the end of the 30-day period for the payment of quota increases under the 14th General Review after the Fund notifies the membership that the general effectiveness conditions for quota increases under the 14th General Review of Quotas have been met (the “Quota Payment Period”), whichever is earlier.

(f) A member with an arrangement in effect on [February 1, 2016] may notify the Fund by the end of the Quota Payment Period that it elects to have the charges and refunds applicable to such arrangement to be based on the thresholds of 200 percent and 1000 percent of the member’s quota in effect prior to the effectiveness of the quota increase for that member under the 14th General Review of Quotas, instead of the thresholds of 115 percent and 575 percent, respectively, under subparagraphs (a) and (b) above. Absent such notification, the relevant charges and refunds shall be determined under subparagraphs (a), (b), (c) and (d) above. If a member has made an election under this subparagraph (f), such election shall cease to apply as of the date of the Fund’s approval of any augmentation of an arrangement in effect for that member prior to [February 1, 2016]. The member shall then be subject to the relevant charges and refunds as determined under subparagraphs (a), (b), (c) and (d). New arrangements approved by the Fund after [February 1, 2016] are not eligible for the election under this subparagraph (f).

Decision V. Article IV Consultation Cycles

(c) the member has outstanding credit to the Fund under all facilities above one hundred and forty percent (140%) of the member’s quota.

Decision VI. Post-Program Monitoring

  • 1. If outstanding credit to a member from the Fund’s General Resources Account (GRA), or from the Fund as Trustee of the Poverty Reduction and Growth Facility Trust (PRGF Trust), or a combination thereof, exceeds a threshold of 100 percent of quota, and the member does not have a program supported by a Fund arrangement or is not implementing a staff monitored program with reports issued to the Executive Board, or the member does not have a program supported by a Policy Support Instrument (“PSI”), the member will be expected to engage in Post-Program Monitoring (PPM) with the Fund of its economic developments and policies upon the recommendation of the Managing Director. Where the above criteria are met, the Managing Director shall recommend PPM to the Executive Board, unless, in the view of the Managing Director, the member’s circumstances (in particular, the strength of the member’s policies, its external position, or the fact that a successor arrangement or a staff monitored program is expected to be in place within the next six months) are such that the process is unwarranted. PPM will normally cease when the member’s outstanding credit falls below the threshold of 100 percent of quota.

Appendix Table 1.

Access Under Fund GRA Arrangements Approved During 2008–15 1/

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Source: Executive Board documents, and IMF staff calculations.

Reflects amounts and duration agreed at the time the arrangements were initially approved; excludes potential access under external contingency mechanisms and other augmentations.

Appendix Table 2.

Trends in GRA-Supported Programs, 2003–15 1/

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Reflects amounts and duration agreed at the time the arrangements were initialy approved; excludes external contingency mechanism and augmentations.