The Executive Board of the International Monetary Fund (IMF) has been discussing during the past year proposals to reform the Fund’s lending toolkit, with the aim of further strengthening the Global Financial Safety Net (GFSN). In this context, the Board has considered a proposal for a new liquidity facility, as well as improvements to the Fund’s existing instruments for crisis prevention as part of the Review of the Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL). The reforms stemming from these discussions are part of the Fund’s broader agenda to strengthen the GFSN, which also includes the recent introduction of a new Policy Coordination Instrument and an enhanced framework for cooperation with Regional Financing Arrangements.
The discussions were informed by three staff papers: “Adequacy of the Global Financial Safety Net—Considerations for Fund Toolkit Reform” (discussed by the Board on November 9, 2016), “Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform” (discussed by the Board on June 30, 2017), and “Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform—Revised Proposals” (discussed by the Board on December 6, 2017).
The Review of the FCL and PLL found that the instruments have been effective in providing precautionary support against external risks, and that successor FCL arrangements and associated access levels have been appropriately tailored to country circumstances. To enhance crisis prevention, staff developed a proposal for a new facility, called the Short-term Liquidity Swap (SLS), to provide members with very strong policies with predictable and renewable liquidity support against potential, short-term, moderate capital flow volatility. The SLS was designed as a revolving credit line, and included several other innovative features. However, the proposal was not adopted by the IMF’s Executive Board. The Review also covered a possible role for a new Time-Based Commitment Fee (TBCF) in response to concerns about prolonged use of high-access arrangements on a precautionary basis, but this proposal was also not adopted. Finally, the Review introduced refinements to the qualification framework for the FCL and the PLL to make it more transparent and predictable for actual and potential users.