Abstract
in the Fund's work stream on the Adequacy of the Global Financial Safety Net (GFSN).
Introduction
1. This paper is the latest in the Fund’s work stream on the Adequacy of the Global Financial Safety Net (GFSN). The paper follows the Executive Board’s discussion of the Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform on June 30, 2017 (the “June paper”),1 and presents revised reform proposals in light of Directors’ views. In the absence of sufficient Executive Board support for a new liquidity facility, the paper proposes to retain the Precautionary and Liquidity Line (PLL). It also proposes to introduce a Time-Based Commitment Fee (TBCF) in light of many Directors’ support for this feature.
2. This work is part of the Fund’s broader work stream to strengthen the GFSN. As such, it complements the new non-financing Policy Coordination Instrument and operational principles and framework for future Fund engagement with Regional Financing Arrangements.2
3. The paper is organized as follows. Section II lays out the revised set of reform proposals. Section III sets forth issues for discussion, and proposes decisions to (i) complete the review of the Flexible Credit Line (FCL) and the PLL; and (ii) introduce a TBCF. The paper also includes an Annex that describes a planned revision to the presentation of the Fund’s Forward Commitment Capacity (FCC) to provide a breakdown between precautionary and other Fund commitments.
Revised Proposals
A. Short-term Liquidity Swap (SLS)
4. It was evident from the last Board discussion that there is insufficient support to establish the SLS at the current juncture. Most Directors supported the proposal to create the SLS for potential short-term, frequent, and moderate balance of payments needs. There was a general consensus that this type of facility could be a valuable addition to the GFSN, and broad agreement on its key design features. However, Board support fell short of the 85 percent majority of the total voting power required to establish the SLS. The failure to address a key gap in the GFSN for such a liquidity facility is regrettable, particularly given the protracted heightened global uncertainty and ongoing geopolitical risks. Nevertheless, the SLS proposal could still act as a blueprint for a new liquidity facility, should there be renewed appetite from the membership in the future.
B. Precautionary and Liquidity Line (PLL)
5. In the absence of a new SLS facility, the paper proposes to retain the PLL. Directors generally supported the elimination of the PLL, recognizing its low usage and tiering vis-a-vis the FCL. However, the primary Board concern was instrument proliferation in the context of a reform package that envisaged the creation of a new instrument. Given that establishing the SLS is not currently envisaged, and that some Directors were concerned that the elimination of the PLL might open a new gap in the toolkit, staff does not see a compelling case for elimination at this time.
6. In light of the proposed retention of the PLL, staff suggests that the recommended enhancements to the qualification framework for the FCL be extended to the PLL. In discussing the June paper, the Executive Board endorsed an enhanced qualification framework for the FCL that includes new core indicators with specified thresholds for the assessment of economic fundamentals and policies, as well as the policy track record.3 The objective of this new framework is to improve predictability and transparency of the qualification process, while maintaining the existing qualification standard. Given the parallel qualification criteria for the PLL and the FCL, staff proposes to extend the core set of indicators with thresholds to the PLL qualification (Box 1). This will not change the overall strength of the PLL qualification standard, which would continue to be based on strong performance in most of the five qualification areas (i.e., three of five areas) assessed on the basis of the nine qualification criteria, as guided by the relevant indicators, which now include the proposed core indicators with thresholds. The mapping of the nine qualification criteria into the five qualification areas for the PLL would remain unchanged from the 2014 review of the FCL and the PLL (Table 1), and there would continue to be no precise “scoring” of the nine qualification criteria.4 As with the FCL, the bottom-line assessment on each criterion will remain a judgment, guided by the relevant indicator.
Mapping Between PLL Qualification Areas and Qualification Criteria
Mapping Between PLL Qualification Areas and Qualification Criteria
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Mapping Between PLL Qualification Areas and Qualification Criteria
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7. The guidance notes for both the FCL and the PLL would be revised accordingly. They would include the proposed core set of indicators, as well as the other operational considerations—strengthening the implementation of the external economic stress index (ESI) and the assessment of the impact on access levels of additional reserve drawdown—discussed in the June paper.
Qualification Criteria and Proposed Core Indicators
This box discusses the core indicators and thresholds proposed to underpin the overall assessment of the nine qualification criteria under the five broad qualification areas for the PLL. The proposed indicators and thresholds are the same as for the FCL. As with the FCL, the bottom-line assessments on each criterion will be informed by other sources of information deemed relevant, some but not all of which are listed here.1 The rest of the box is identical to Box 3 in the June paper.
1. A sustainable external position. Requires the member’s external position to have been assessed, in the most recent Board document (Article IV or ESR), as “broadly consistent”, “moderately stronger (weaker)”, “stronger”, or “substantially stronger” than implied by fundamentals and desirable policies.2 This assessment implies that members with “weaker” or “substantially weaker external positions” would not meet the criterion. The asymmetry in the assessment follows the reasoning that “weaker” or “substantially weaker” external positions (e.g., high current account deficit or net foreign liabilities, overvalued exchange rate, etc.) constitute early warning indicators for impending BOP crises.
2. A capital account position dominated by private flows. Requires public flows to account for less than half of a member’s direct, portfolio, and other asset and liability flows, on average in the past three years.3
3. A track record of steady sovereign access to capital markets at favorable terms. Requires public sector issuance or guaranteeing of external bonds or disbursements of public and publicly-guaranteed external commercial loans in international markets during at least three of the last five years for which data are available, in a cumulative amount over that period equivalent to at least 50 percent of the country’s Fund quota at the time of the assessment.4 The indicator also requires that the member did not, in staff’s assessment, lose market access at any point in the last 12 months. Following the Fund’s framework for loss of market access, deteriorating funding conditions and adverse changes in issuance patterns (volume, maturity, and frequency of issuance) that cannot be explained by funding needs would be indications that the member has indeed lost market access.5
4. When the arrangement is requested on a precautionary basis, a reserve position which—notwithstanding potential BOP pressures that justify Fund assistance—remains relatively comfortable. Requires reserves to have been greater than 100 percent of the ARA metric on average over three (the current and the two previous) years, and not below 80 percent in any of these three years. By including a lower—but not an upper—threshold for reserves, the assessment follows the reasoning that excess reserve holdings, while possibly undesirable from a systemic perspective, do not constitute a vulnerability for the member.6
5. Sound public finances, including a sustainable public debt position. Requires the member’s public debt to be assessed as sustainable with a high probability. The high probability assessment would explicitly take into account risks to public finances not immediately visible in current public debt projections.
6. Low and stable inflation, in the context of a sound monetary and exchange rate policy framework. Requires the member to have maintained single-digit inflation over the past five years. The bottom-line assessment would consider if the member’s performance is seen to reflect favorable external conditions and there are grounds to question the ability of its policy framework to maintain low inflation under normal circumstances. It would also consider persistent deviations from stated inflation targets, as well as sustained deflation, to the extent that it reflects deficiencies in the monetary policy framework.
7. Sound financial system and the absence of solvency problems that may threaten systemic stability. Requires the average capital adequacy ratio for the banking sector to be above regulatory thresholds, and that the most recent Article IV did not highlight significant solvency risks or recapitalization needs. The bottom-line assessment would consider other financial soundness indicators, as well as any relevant stress tests conducted by staff, to provide a forward-looking perspective. It would also reflect potential problems in large and systemic banks that may be masked by system-wide averages.
8. Effective financial sector supervision. Requires that the most recent FSAP or Article IV report did not raise substantial concerns regarding the supervisory framework. The bottom-line assessment would consider any significant changes in conditions since the latest FSAP.
9. Data transparency and integrity. Requires that the member is an SDDS subscriber or has made satisfactory progress toward meeting the SDDS requirements.
1 While judgment is important for all nine criteria, it is particularly important for criteria 6, 7, and 8.2 The assessment of a member’s external position as per the mandatory external sector assessment in surveillance takes into account the following five key areas: current account (CA), real exchange rate, foreign exchange intervention and reserves, foreign assets and liabilities, and capital and financial account. The bottom line assessment of a member’s external position falls into one the following seven categories, guided by the corresponding indicative ranges for the staff-assessed CA gaps (in percent of GDP) with considerations of all other areas: (i) substantially stronger (CA gaps more than 4 percent); (ii) stronger (CA gaps between 2 and 4 percent); (iii) moderately stronger (CA gaps between 1 and 2 percent); (iv) broadly consistent (CA gaps between -1 and 1 percent); (v) moderately weaker (CA gaps between -2 and -1 percent); (vi) weaker (CA gaps between -4 and -2 percent); and (vii) substantially weaker (CA gaps less than -4 percent).3 Public flows are flows to and from the domestic public sector, and are defined as the sum of the absolute values of reserve assets flows, and general government and central bank portfolio and other debt liability flows. In the absence of data for a large sample of countries, other official asset and liability flows of the public sector are assumed to be zero.4 This indicator assessment broadly follows the market access criterion for (graduation from) PRGT eligibility. The bottom-line assessment will consider if there is convincing evidence that the sovereign could have tapped international markets on a durable and substantial basis, even though the scale or duration of actual public sector borrowing fell short of the specified thresholds. This would be a case-specific assessment, informed by factors such as the volume and terms of recent actual borrowing in international markets and the sovereign credit rating.5 A methodology for making this assessment was articulated in “The Fund’s Lending Framework and Sovereign Debt—Further Considerations”, IMF Policy Paper, April 2015.6 See Annex IV in the June paper for an empirical justification of the 80 percent threshold. The overall assessment could consider other reserve metrics if the ARA metric is deemed inadequate for judging the member’s reserve position. This assessment should generally be reflected in recent Article IV reports.C. Time-Based Commitment Fee (TBCF)
8. Notwithstanding differing views, many Directors supported introducing a TBCF. Directors broadly concurred that the FCL has provided effective precautionary support against external tail risks, and that successor arrangements and access levels have been consistent with the assessment of external risks and potential balance of payment needs. Nevertheless, most Directors remained concerned about the prolonged use of high access precautionary arrangements and thus saw scope for strengthening price-based incentives. Many of them saw merit in introducing a TBCF, some favored steeping the commitment fee schedule at high access levels, and a few saw scope for a combination of both options. Directors who did not support a TBCF considered that exit from precautionary Fund financial support should be state-dependent.
9. Against this backdrop, a proposed decision, which would establish a TBCF to be applied to commitments in the credit tranches that remain very high for an extended period, is included in the paper for consideration by the Executive Board.5 The proposal aims to strike a balance between raising the cost of prolonged use of precautionary arrangements and mitigating the concern that a member could be penalized unduly at a time when it faces risks that justify continued high access.*
10. Key design elements of the TBCF proposal are the same as in the June paper and are listed below. Box 2 provides an illustrative scenario that explains how the policy would be applied in practice.
Application of policy. An arrangement in the credit tranches would become subject to the TBCF when the level of undrawn credit in the credit tranches has remained above the threshold for a defined period (“duration trigger”). The level of undrawn credit, as per Rule I-8, is the amount that could be purchased during the relevant period (12 months or the period left under the arrangement, if shorter).6
Threshold. Setting the threshold for the TBCF at 575 percent of quota would help encourage exit from prolonged commitments under arrangements with very high access, which are typically precautionary FCL arrangements, while limiting the risk of the fee applying to high-access non-precautionary arrangements in the credit tranches.
Duration trigger. The fee would become payable when the level of undrawn credit has remained above the threshold for a cumulative 4-year period, so as to align the trigger with the typical length of a severe shock and two 2-year FCL arrangements.7
Start of the clock. The count toward the 4-year duration trigger could start with the adoption of the TBCF Decision. This is the “middle” option presented in the June paper and its Supplement. It would imply that, upon adoption of the decision, the clock towards the 4 year-period would start for current arrangements that have undrawn credit above the threshold.8
Cooling-off period. A cooling-off of a continuous 12-month period appears to strike the right balance between promoting durable exit and not penalizing members who could face new risks after an arrangement. Once undrawn credit exceeds the threshold and the clock toward meeting the 4-year duration trigger has started, the clock would be paused when undrawn balances fall to or below the threshold. If undrawn credit remains at or below the threshold for 12 consecutive months, the clock would be reset and the current or successor arrangements would not become subject to a fee unless undrawn credit again exceeds and remains above the threshold for another 4 years. If, however, undrawn credit rises above the threshold again during those 12 months (i.e., before the cool-off period is over), the clock would continue to count towards the 4-year duration trigger mark from when it was paused.
Illustrative Example of Time-Based Commitment Fees
This box presents a hypothetical scenario that illustrates how a time-based commitment fee (TBCF) policy would work in practice, based on the parameters provided above.
In this illustrative scenario, a member with a quota of SDR 5 billion is assumed to have three successive precautionary FCL arrangements leading up to a drawing during the third arrangement. The level of undrawn credit and the cumulative time (“clock”) toward meeting the duration trigger are shown in the figure below.
| T0: | A 12-month precautionary FCL arrangement for 600 percent of quota is approved. As the full amount is immediately available for purchase and exceeds the 575 percent of quota threshold, the duration trigger “clock” starts (blue area in the figure below). |
| T12: | The FCL arrangement expires with no immediate successor arrangement. Undrawn credit available to the member falls to zero and the “clock” pauses. |
| T15: | Three months later, a second 24-month precautionary FCL arrangement for 600 percent of quota is approved. As the period between the two arrangements is shorter than the 12-month cooling-off period and the new level of undrawn credit again exceeds the threshold, the “clock” resumes from the previously accumulated 12 months. |
| T39: | At the end of the second FCL arrangement, a third precautionary FCL arrangement of 24 months is approved with 700 percent of quota access. |
| T51: | A year into the third arrangement, the 4-year duration trigger is met. The 15 bps fee starts to accrue daily on the portion of undrawn credit above the threshold under the current arrangement (125 percent of quota). |
| T57: | Six months later, external risks materialize and the member makes a partial purchase of 500 percent of quota to meet a balance of payments need. The level of undrawn credit falls to 200 percent of quota, the “clock” is paused and the fee stops accruing. The FCL arrangement remains in effect. |
| T63: | The third FCL arrangement expires with the remaining 200 percent of quota undrawn. Upon expiry of the arrangement (which would also be the end of the relevant period), the TBCF is billed for the 6-month period between T51 and T57 when undrawn credit remained above the threshold (orange area in the figure). For the assumed quota, the fee amount payable would be about SDR 4.7 million (annual fee rate of 15 bps on undrawn credit of SDR 6.25 billion (125 percent of quota), pro-rated for 6 months). |
| T69: | The 12-month cooling off period, which started when the “clock” was paused at T57, is exceeded. The “clock” would start from zero should the member have a subsequent arrangement approved with undrawn credit exceeding the threshold. |
| T0: | A 12-month precautionary FCL arrangement for 600 percent of quota is approved. As the full amount is immediately available for purchase and exceeds the 575 percent of quota threshold, the duration trigger “clock” starts (blue area in the figure below). |
| T12: | The FCL arrangement expires with no immediate successor arrangement. Undrawn credit available to the member falls to zero and the “clock” pauses. |
| T15: | Three months later, a second 24-month precautionary FCL arrangement for 600 percent of quota is approved. As the period between the two arrangements is shorter than the 12-month cooling-off period and the new level of undrawn credit again exceeds the threshold, the “clock” resumes from the previously accumulated 12 months. |
| T39: | At the end of the second FCL arrangement, a third precautionary FCL arrangement of 24 months is approved with 700 percent of quota access. |
| T51: | A year into the third arrangement, the 4-year duration trigger is met. The 15 bps fee starts to accrue daily on the portion of undrawn credit above the threshold under the current arrangement (125 percent of quota). |
| T57: | Six months later, external risks materialize and the member makes a partial purchase of 500 percent of quota to meet a balance of payments need. The level of undrawn credit falls to 200 percent of quota, the “clock” is paused and the fee stops accruing. The FCL arrangement remains in effect. |
| T63: | The third FCL arrangement expires with the remaining 200 percent of quota undrawn. Upon expiry of the arrangement (which would also be the end of the relevant period), the TBCF is billed for the 6-month period between T51 and T57 when undrawn credit remained above the threshold (orange area in the figure). For the assumed quota, the fee amount payable would be about SDR 4.7 million (annual fee rate of 15 bps on undrawn credit of SDR 6.25 billion (125 percent of quota), pro-rated for 6 months). |
| T69: | The 12-month cooling off period, which started when the “clock” was paused at T57, is exceeded. The “clock” would start from zero should the member have a subsequent arrangement approved with undrawn credit exceeding the threshold. |
Undrawn Credit and Duration Trigger “Clock” Under Hypothetical Scenario
Citation: Policy Papers 2017, 068; 10.5089/9781498346153.007.A001
Undrawn Credit and Duration Trigger “Clock” Under Hypothetical Scenario
Citation: Policy Papers 2017, 068; 10.5089/9781498346153.007.A001
Undrawn Credit and Duration Trigger “Clock” Under Hypothetical Scenario
Citation: Policy Papers 2017, 068; 10.5089/9781498346153.007.A001
Fee level. Since the TBCF is not state-dependent and could become payable when members face continued or heightened risk, its level should be modest. The June paper considered a range between 10 bps and 20 bps. On balance, staff considers that a fee in the middle of that range (15 bps) could be appropriate to provide an incentive to reduce the size of prolonged high-access commitments, without unduly adding to exit pressures if risks remained heightened.
Billing. The TBCF would be additional to the regular commitment fees.9 It would be applied to the portion of undrawn credit that is above the threshold, and only for the period that undrawn credit remains above the threshold after the duration trigger has been met. The fee would be billed and paid ex-post on the day following the end of each relevant 12-month period or the end of the arrangement, if sooner.
Non-refundability. Since the TBCF would be charged only for periods when undrawn credit exceeds the threshold, it would not be refundable in the case of drawings. Accordingly, it would be recognized as income by the Fund so long as the duration trigger is met.
Scope of the policy. Given that the purpose of the TBCF is to discourage large-scale prolonged precautionary commitments, it would be appropriate to apply it only to arrangements in the credit tranches. As extended arrangements should generally not be approved on a precautionary basis, staff proposes to exclude them from the policy.
11. If the TBCF were to be established with the proposed parameters, the policy would in practice target large FCL arrangements. Currently, the only arrangement in the credit tranches above the proposed threshold is Mexico’s FCL arrangement with access of 700 percent of quota. Should Mexico’s access remain above the threshold for 4 years continuously from the date that the TBCF Decision becomes effective (e.g., December 2017), the TBCF of 15 bps would be applied to the portion of Mexico’s undrawn access above 575 percent of quota from December 2021, in addition to the regular commitment fee of 60 bps applied on this portion of access.
Explanation of Proposed Decisions and Issues for Discussion
12. This paper proposes the adoption of a Board decision to complete the FCL and PLL Review. This decision, subject to adoption by a majority of votes cast, would complete the FCL and PLL Review called for in Decision No. 15596-(14/46), adopted May 21, 2014, and confirm that the next review will take place in accordance with the decision on streamlining of policy reviews (Decision No. 15764-(15/39), which states that the next FCL/PLL review will take place in five years or more, or on an as needed basis, or where the aggregate outstanding credit and commitments under the FCL and PLL reach SDR 150 billion as in the Decision currently in effect. It also amends the FCL decision to lower the access threshold (in quota terms), above which an assessment of the impact of an arrangement on Fund liquidity is required for the purpose of consulting the Executive Board on a potential new FCL arrangement in an informal meeting, from 1,000 to 575 percent of quota.10 It recently came to staff’s attention that this threshold was not changed at the review of the access limits policy, following the doubling of Fund quotas.
13. The paper also includes a proposed decision to establish the TBCF. Adoption of Proposed Decision II, which would establish the TBCF on the basis set out above, would require a majority carried by 70 percent of total voting power, and would adopt a new Rule I-8A. The proposed Rule I-8A would “start the clock” on the calculation of the 4-year period from the date of the adoption of the decision.
14. Directors may wish to consider the following issues for discussion:
Do Directors concur with the proposal to retain the PLL?
Do Directors agree to extend the use of the core set of indicators with thresholds to the PLL as set forth in Box 1?
Do Directors support introducing a TBCF? Do Directors agree with the key proposed features?
Proposed Decisions
Decisions I and II are proposed for adoption. Decision I may be adopted by a majority of votes cast. Decision II may be adopted by a 70 percent majority of the total voting power.
Decision I. Completion of Review of Decisions on FCL Arrangements and PLL Arrangements and Amendment to Decision on FCL Arrangements
1. Pursuant to Decision No. 15596-(14/46), adopted May 21, 2014, the Fund has reviewed the decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29) adopted March 24, 2009, as amended, and the decision on Precautionary and Liquidity Line Arrangements, Decision No. 15017-(11/112), adopted November 21, 2011, as amended.
2. The next review of the decision on Flexible Credit Line Arrangements and the decision on Precautionary and Liquidity Line Arrangements, shall take place in five years or more, or on an as needed basis, or whenever the aggregated outstanding credit and commitments under the FCL and PLL reach SDR 150 billion, in accordance with the decision on streamlining of policy reviews (Decision No. 15764-(15/39), adopted April 23, 2015).
3. Paragraph 6.(a)(iii)(II) of the decision on Flexible Credit Line Arrangements shall be amended to read as follows: “(II) an assessment of the impact of the arrangement on Fund liquidity in cases where it is contemplated that access would exceed 575 percent of quota or SDR 10 billion, whichever is lower.”
Decision II. Establishment of a Time-Based Commitment Fee
A new Rule I-8A shall be adopted to read as follows:
“A member with an arrangement in the credit tranches approved or augmented after [Date of Adoption of Decision] (the “arrangement”) shall also be subject to the following provisions:
- (a)The member shall pay a non-refundable charge of 15/100 of 1 percent per annum on credit tranche amounts in excess of 575 percent of the member’s quota that could be purchased by the member during each relevant period from the first point of time during the arrangement when the duration trigger is met, as determined under subparagraph (c) below, until the beginning of the next relevant period or through the end of the arrangement, whichever earlier, or thereafter each subsequent relevant period under the arrangement if the duration trigger continues to be met at the beginning of that relevant period. The charge shall be payable on the day following the end of each relevant period.
- (b)Under this Rule I-8A, a relevant period shall be defined in accordance with Rule I-8, and an amount that could be purchased by the member, as being calculated at any time during a relevant period, shall be the amount that could be purchased by the member from that time through the end of the same relevant period.
- (c)The duration trigger is met if the amounts that could be purchased by the member during the relevant periods under arrangements in the credit tranches exceed 575 percent of the member’s quota for a cumulative duration of 48 months. Such arrangements would be measured in percent of the member’s quota in effect on the day on which the charge under subparagraph (a) above is payable. For the purposes of accumulating time towards the total of 48 months, only the period(s) of time during each relevant period after [Date of Adoption of Decision], when credit tranche amounts that could be purchased by the member were in excess of 575 percent of the member’s quota, shall be counted. If there was any continuous period of 12 months or longer during which the credit tranche amounts that could be purchased by the member fell to 575 percent of the member’s quota or lower, then no time prior to that period shall be counted toward the accumulated 48 months required for the duration trigger to be met.”
Annex I. Illustrative Revised Presentation of the Fund’s Forward Commitment Capacity (FCC)
This Annex illustrates a revised presentation of total commitments in the calculation of the Fund’s Forward Commitment Capacity (FCC) to include a breakdown between arrangements treated as precautionary by the authorities and those expected to be drawn (“non-precautionary”).
1. At the June 30 Board meeting, Directors generally supported counting precautionary arrangements at their full value in calculating the FCC (“full scoring”).1 This was seen to provide clear assurance that resources committed under such arrangements will be available to members to whom these commitments were made in all circumstances. Nevertheless, a few Directors saw some scope for flexibility in scoring these commitments against the FCC, given the low probability of drawing under such arrangements.
2. While maintaining full scoring, staff noted that it would seem reasonable to take account of the level of precautionary commitments when assessing the adequacy of the Fund’s liquidity.2 In particular, the same level of the FCC could be considered more or less comfortable depending on the relative size of drawing versus precautionary commitments. In circumstances where precautionary commitments are a relatively large share of the total, the Fund could be willing to tolerate a lower FCC before activating the NAB, and the Managing Director could take such considerations into account in making a proposal on activation. To facilitate such judgments, staff proposes that the FCC calculation in future provide a breakdown of total commitments between arrangements expected to be drawn and those treated as precautionary by the authorities.
3. The Table below illustrates the revised FCC presentation, which would be published weekly on the Fund’s website following the conclusion of the FCL and PLL review. The revised table would break down the current line item of undrawn balances under GRA lending commitments into precautionary and non-precautionary arrangements (see rows highlighted in red in Table A.I). As an illustrative example for October 19, 2017, the former would include the three FCL arrangements, the one PLL arrangement and four precautionary Stand-by Arrangements in effect at that time.
Illustrative Revised Presentation of the Forward Commitment Capacity
As of October 19, 2017
(in billions of SDRs)
Undrawn balances under arrangements treated as precautionary by the authorities.
Does not include the Bilateral Borrowing Agreements (activated only if the modified FCC is at or below SDR 100 billion).
Illustrative Revised Presentation of the Forward Commitment Capacity
As of October 19, 2017
(in billions of SDRs)
| Forward Commitment Capacity (FCC) | ||
|---|---|---|
| I. Usable resources (a) + (b) | 389.3 | |
| (a) Fund quota resources | 385.7 | |
| (b) Fund borrowed resources | 3.6 | |
| II. Undrawn balances under GRA lending commitments | 101.1 | |
| III. Uncommitted usable resources ( I - II ) | 288.2 | |
| IV. Repurchases one-year forward | 3.8 | |
| V. Repayments of borrowed resources one-year forward | 2.7 | |
| VI. Prudential balance | 79.9 | |
| VII. Forward commitment capacity ( III + IV - V - VI ) 2/ | 209.4 | |
| (a) From Quota resources | 209.4 | |
| (b) From NAB resources | -- | |
| (c) From Bilateral Borrowed resources | -- | |
Undrawn balances under arrangements treated as precautionary by the authorities.
Does not include the Bilateral Borrowing Agreements (activated only if the modified FCC is at or below SDR 100 billion).
Illustrative Revised Presentation of the Forward Commitment Capacity
As of October 19, 2017
(in billions of SDRs)
| Forward Commitment Capacity (FCC) | ||
|---|---|---|
| I. Usable resources (a) + (b) | 389.3 | |
| (a) Fund quota resources | 385.7 | |
| (b) Fund borrowed resources | 3.6 | |
| II. Undrawn balances under GRA lending commitments | 101.1 | |
| III. Uncommitted usable resources ( I - II ) | 288.2 | |
| IV. Repurchases one-year forward | 3.8 | |
| V. Repayments of borrowed resources one-year forward | 2.7 | |
| VI. Prudential balance | 79.9 | |
| VII. Forward commitment capacity ( III + IV - V - VI ) 2/ | 209.4 | |
| (a) From Quota resources | 209.4 | |
| (b) From NAB resources | -- | |
| (c) From Bilateral Borrowed resources | -- | |
Undrawn balances under arrangements treated as precautionary by the authorities.
Does not include the Bilateral Borrowing Agreements (activated only if the modified FCC is at or below SDR 100 billion).
“Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform,” IMF Policy Paper, December 2017, and the Acting Chair’s Summing Up from Executive Board Meeting 17/56, June 30, 2017.
“Adequacy of the Global Financial Safety Net–Proposal for a New Policy Coordination Instrument”, “Collaboration Between Regional Financing Arrangements and the IMF”, and “Collaboration Between Regional Financing Arrangements and the IMF–Background Paper”.
Box 3 in “Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform,” IMF Policy Paper, December 2017.
“Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument – Specific Proposals”.
Considering the preference of most Directors, the option of a steepening of the commitment fee schedule is not considered further in this paper.
This proposal was not endorsed by the Executive Board.
For example, for FCLs that are being treated as precautionary at approval, the level of undrawn credit would be the arrangement size. For phased arrangements like SBAs, the level of undrawn credit would depend on the Board-approved phasing and actual purchases.
A duration trigger of four years would also make the fee less likely to be triggered by drawing arrangements, since a member’s purchases would reduce the level of undrawn credit to below the threshold within each relevant period.
Since the fee could accordingly become payable only under future arrangements, there would be no need for a grandfathering provision for current arrangements.
The current commitment fees are 15 bps for access up to 115 percent of quota, 30 bps for access in excess of 115 and up to 575 percent of quota, and 60 bps for access in excess of 575 percent of quota.
Specifically, the Decision requires an assessment of the impact of a new FCL arrangement on Fund liquidity in cases when staff consults with the Executive Board in an informal meeting and where it is contemplated that access would exceed the quota-based threshold or SDR 10 billion, whichever is lower. Setting the threshold level at 575 percent of quota would align it with the threshold for the highest level of the commitment fees, as had also been the case when the current 1,000 percent of quota threshold was originally established.
See the Acting Chair’s Summing Up from Executive Board Meeting 17/56, June 30, 2017.
See paragraph 74 in “Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform,” IMF Policy Paper, December 2017.
