Review of the Fund's Strategy on Overdue Financial Obligations

"This paper reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations. The level of overdue obligations to the Fund declined and their structure has remained broadly unchanged since the last review. Total overdue obligations to the Fund at end-June 2017 amounted to SDR 1,205.7 million, a decline of about SDR 100 million from the end-June 2012 level, when the strategy was reviewed last. All overdue obligations to the Fund at end-June 2017 were due to two protracted overdue obligations cases. Sudan accounts for the bulk of the overdue obligations to the Fund (80 percent), and Somalia for the remainder. Zimbabwe, which was in protracted overdue obligations to the PRGT at the time of the last Review, settled its overdue obligations to the PRGT on October 20, 2016."

Abstract

"This paper reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations. The level of overdue obligations to the Fund declined and their structure has remained broadly unchanged since the last review. Total overdue obligations to the Fund at end-June 2017 amounted to SDR 1,205.7 million, a decline of about SDR 100 million from the end-June 2012 level, when the strategy was reviewed last. All overdue obligations to the Fund at end-June 2017 were due to two protracted overdue obligations cases. Sudan accounts for the bulk of the overdue obligations to the Fund (80 percent), and Somalia for the remainder. Zimbabwe, which was in protracted overdue obligations to the PRGT at the time of the last Review, settled its overdue obligations to the PRGT on October 20, 2016."

Introduction

1. This paper reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations since the last review.1 Section II presents an overview of overdue financial obligations at end-June 2017, and the recent reviews of the protracted overdue obligations cases. Section III discusses the rights approach and proposes to extend the availability of the rights approach to end-August 2022. Section IV discusses progress under the Fund’s strategy on overdue obligations and proposes a decision to complete the Review.

Recent Developments

A. Overview

2. Total overdue obligations to the Fund amounted to SDR 1,205.7 million at end-June 2017. They declined by nearly SDR 100 million since the last review, reflecting payments by Sudan and Zimbabwe (Figure 1 and Table 1).2 Most of the overdue obligations to the Fund (about 92 percent) were to the General Resources Account (GRA), with the remainder to the Trust Fund (about 8 percent), and the Structural Adjustment Facility (SAF) (about 1 percent).

Figure 1.
Figure 1.

Overdue Financial Obligations to the Fund 1/

(In millions of SDRs; 1980-end-June 2017)

Citation: Policy Papers 2018, 035; 10.5089/9781498309103.007.A001

Source: Finance Department1/ The decline in overdue obligations in 1993, 1995, 2002, and 2008 are due to repayments by Peru, Zambia, the Democratic Republic of the Congo, and Liberia, respectively.
Table 1.

Overdue Financial Obligations to the Fund, 2012–17

(In millions of SDRs)

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Source: Finance Department.

Comprises Trust Fund and SAF overdue principal obligations.

Comprises overdue Trust Fund and SAF special charges and interest obligations.

3. All overdue obligations are accounted for by two members—Somalia and Sudan―which remained in protracted overdue obligations to the Fund during the period under review (Table 4).3 Somalia and Sudan have accumulated overdue obligations dating back to the mid-1980s, and almost all their overdue obligations (99.9 percent) have been outstanding for six months or longer. These two members account for about 20 and 80 percent of total overdue obligations to the Fund, respectively (Figure 2).

Table 4.

Overdue Financial Obligations to the Fund by Duration, 1981–2017

(In millions of SDRs; end of period)

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Source: Finance Department.
Figure 2.
Figure 2.

Overdue Financial Obligations by Member

(In millions of SDRs; as of end-June 2017)

Citation: Policy Papers 2018, 035; 10.5089/9781498309103.007.A001

Source: Finance Department.

4. Zimbabwe repaid its overdue obligations to the PRGT using its SDR holdings on October 20, 2016.4 Zimbabwe had been in continuous overdue obligations to the PRGT since February 2001. The authorities had been making regular monthly payments of US$0.15 million since 2013. The final repayment of SDR 78.3 million was applied towards the PRGT’s Reserve Account. This was not accompanied by a normalization of arrears to other international financial institutions. Zimbabwe is in arrears to the World Bank (SDR 844 million as of end-June 2017) and the African Development (AfDB)(SDR 461 million as of end-May 2017). Discussions are ongoing over financing and modalities to clear these obligations.

5. The repayment allowed for removal of the outstanding remedial measures applied to Zimbabwe. These measures were: (i) the declaration of noncooperation with the Fund; (ii) the partial suspension of provision of Fund technical assistance (TA); and (iii) the removal of Zimbabwe from the list of PRGT-eligible countries. In line with the strategy on overdue financial obligations these remedial measures were aimed at encouraging the authorities to make payments to the PRGT and to undertake policies that would enable them to become current on Zimbabwe’s financial obligations to the PRGT. The settlement of overdue obligations and lifting of remedial measures constitute a necessary but insufficient step towards Zimbabwe being able to access IMF financing. Zimbabwe must also resolve its arrears to multilateral creditors (including the AfDB, the World Bank, and other multilateral institutions), bilateral official creditors, and external private creditors (if any).5 From a policy perspective, strong fiscal adjustment and structural reforms will be crucial to restore fiscal and debt sustainability and foster private sector development.

6. Overdue financial obligations to the Fund continue to impose a significant financial cost on the Fund and its membership. The ongoing cost of deferred charges to the GRA is borne by debtor and creditor members through the burden-sharing mechanism, which relies on an adjustment to the rate of charge and the rate of remuneration to make up for the income loss associated with the nonpayment of GRA charges (Box 1). As of end-June 2017, total burden-shared deferred charges amounted to about SDR 718 million, an increase of some SDR 15 million from 2012 (Table 9).

Table 5.

Overdue Financial Obligations to the Fund by Type, 1981–2017

(In millions of SDRs; end of period)

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Includes periodic charges and special charges on overdue GRA obligations.

Includes Trust Fund, SAF, PRGT overdue interests, special charges, and additional interest.

Source: Finance Department.
Table 6.

Number of Countries Incurring Late Payments to the Fund, 2000–17

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Source: Finance Department.

Six months to June 30, 2017.

Includes all types of financial obligations falling due to the Fund. Members with multiple obligations falling due during the period are counted only once.

Members paying late during the period or with obligations overdue at the end of the period are counted only once.

Members with overdue obligations outstanding for six months or more at end of period.

Table 7.

Countries with Protracted Overdue Financial Obligations to the Fund 1/

(As of end-June 2017)

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Source: Finance Department.

Countries with overdue obligations outstanding for six months or more.

Includes outstanding repurchases, SAF, PRGT and Trust Fund loans, and overdue charges and interest (including special charges).

Table 8.

Financial Obligations Falling Due & Payments to the Fund by Protracted Overdue Obligations Cases, 2012–17 1/

(In millions of SDRs)

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Source: Finance Department.

Includes payments to the Fund, quarterly net SDR charges, and annual SDR assessment charges. Amounts of 0.0 are less than SDR 50,000.

As of October 2016, Zimbabwe no longer has any overdue obligations. For 2016, the large ratio of payments made to obligations falling due is owing to Zimbabwe’s repayment of a remainder of its overdue obligations to the PRGT.

Amounts exclude payments attributed to overdue obligations from the partial distribution of the General Reserve attributed to windfall gold sales profits in 2012 and 2013. In accordance with Executive Board Decision No. 15092-(12/19) adopted February 24, 2012, owing to Somalia’s and Sudan’s overdue repurchase obligations to the GRA, Somalia’s and Sudan’s share in the distribution of the general reserve attributed to windfall gold sale profits was made in Somalia’s own currency and in Sudan’s own currency and was attributed to Fund holdings of Somalia’s currency and Sudan’s currency subject to repurchase.

Table 9.

Deferred GRA Charges of Countries with Protracted Overdue Obligations, FY 2012–17 1/

(In millions of SDRs, as of June 30, 2017)

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Source: Finance Department.

Deferred charges only relate to the GRA. Overdue GRA charges prior to May 1, 1986 and special charges to the GRA are not subject to burden sharing.

7. The two members with protracted overdue financial obligations to the Fund have also accumulated arrears to other international financial institutions (Table 2). As of end-June 2017, their arrears to the World Bank amounted to SDR 863 million—an increase of SDR 241 million (39 percent) since the last review. Arrears to the AfDB amounted to SDR 313 million; an increase of SDR 51 million (20 percent) since the last review. No payments were made to either of these institutions by the members with protracted overdue obligations during the period under review with the exception of a token payment by Sudan to the AfDB.

Table 2.

Overdue Financial Obligations to the Fund and Other International Financial Institutions

(In millions of SDRs; as of end-June 2017)

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Sources: African Development Bank Group, World Bank, and IMF Finance Department.

Countries in non-accrual status with disbursements suspended.

Converted at the US$/SDR exchange rate of June 30, 2017.

Data as of end-May 2017.

The Burden-Sharing Mechanism1

The burden-sharing mechanism was established in 1986. Since then, it has been used to cover the charges (“deferred charges”) due from and unpaid by members with overdue obligations. These charges, if unpaid, would have negative impact on the IMF’s income. In addition, until November 1, 2006, resources generated by the burden-sharing mechanism financed the accumulating precautionary balances against possible credit default, in the Special Contingent Account (SCA-1). The Executive Board suspended further accumulation in the SCA-1, effective November 2006.2 Currently, burden-sharing is used to cover income losses related to overdue obligations charges due and unpaid by Sudan and Somalia who remain in protracted overdue obligations to the Fund. After deferred charges are settled, equivalent amounts are distributed to members that previously paid higher charges or received reduced remuneration.

Burden sharing of deferred charges is achieved through increases in the rate of charge paid by debtor members and reductions in the rate of remuneration to creditor members. The debtor and creditor members provide equal amounts to cover the charges.

The burden-sharing mechanism has proved essential to continued compliance with International Financial Reporting Standards (IFRS) given the constraints under the IMF Articles of Agreement to make specific loan-loss provisions. Also, from an accounting perspective the SCA-1 offers protection against the risk of loss resulting from the ultimate failure of a member to repay its overdue charges and principal should a member in overdue obligations withdraw from the IMF (or if the IMF is liquidated).

1 For further information, see: IMF Financial Operations 2016, International Monetary Fund, Washington DC, 2016; p. 141.2 The accumulated balances are to be distributed to contributing members when there are no outstanding overdue obligations or such earlier time as the Fund decides. In March 2008, a partial distribution of SDR 0.5 billion from the SCA-1 account was made in the context of Liberia’s debt relief and overdue obligations clearance. For further information on composition of the IMF’s precautionary balances, see IMF Financial Operations 2016, International Monetary Fund, Washington DC, 2016; p. 143, Box 6.4.

8. The incidence of short-term overdue obligations continued a declining trend (Figure 3). On average, three members per year incurred short-term overdue obligations (less than six months) since the last review, and only three members were late more than five days. Short-term overdue obligations were mostly incurred due to technical reasons and settled before a formal communication from the Managing Director was called for under the timetable of remedial measures.6 In one instance, Greece, the Managing Director briefed the Board about the developments before the deadline envisaged under the timetable of remedial measures due to the gravity of the circumstances and the fact that Directors were informed via the press. In June 2015, Greece “bundled” four payments to facilitate repaying the Fund. The “bundled” repurchases were to be made on June 30, 2015. Nevertheless, the authorities missed the June 30 payment and the subsequent July 13th payment.7, 8 In both instances staff immediately communicated with the authorities and briefed the Board.9 The Managing Director had also participated in the Euro Summit discussions on Greece held in Brussels on July 11–12, 2015.10 The Euro Summit acknowledged the importance of ensuring that Greece could clear its overdue obligations to the IMF and the Greek authorities reiterated their unequivocal commitment to honor their financial obligations to all their creditors fully and in a timely manner.11 Greece fully settled its overdue obligations to the IMF on July 20, 2015.12

Figure 3.
Figure 3.

Members in Short-Term and Protracted Overdue Financial Obligations

(Count)

Citation: Policy Papers 2018, 035; 10.5089/9781498309103.007.A001

9. Members with protracted overdue obligations also account for the largest share of overdue currency valuation adjustments (Table 10). Sudan accounted for 30 percent of the total overdue currency valuation adjustments owed to the Fund. To maintain the value of the Fund’s holdings of a member’s currency in terms of the SDR, the Fund, at a minimum, adjusts its holdings of the member’s currency at the end of each financial year. Such adjustments may result in an obligation by the member to pay additional currency to the Fund, or vice-versa, depending on exchange rate movements (Box 2). While overdue currency valuation adjustments do not generally affect the Fund’s financing capacity, they nevertheless represent an essential element of members’ financial obligations to the Fund, and staff actively pursues their settlement.

Currency Valuation Adjustments––CVA1

The currency valuation adjustments are part of the IMF’s holdings of members’ currencies. Currencies held by the IMF are valued in terms of the SDR using each member country’s representative rate of exchange. When that exchange rate changes, a member must pay additional currency if their currency depreciates against the SDR and the IMF must refund some of these currency holdings if the currency appreciates. That allows the IMF to maintain, in SDR terms, the value of the balances of the IMF’s holdings of its currency unchanged and insulates the IMF’s resources from exchange rate fluctuations.

All holdings of a member’s currency in the General Resources Account, including any unsettled obligations resulting from an earlier revaluation, are revalued at the new rate. The new rate is applied to all transactions in that currency, including administrative receipts and payments, until the rate is again adjusted. A new rate becomes effective in the IMF’s accounts at the close of business on the date of its adjustment.

1 For further information see: IMF Financial Operations 2016, International Monetary Fund, Washington DC, 2016; p. 37.
Table 10.

Countries with Overdue Currency Valuation Adjustments 1/

(In millions of SDRs)

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Source: Finance Department.

The Fund revalues members’ currencies at least annually, at the end of the Fund’s financial year (April 30). Members are notified of the adjustments arising from the revaluation. Settlement of adjustments shall be made promptly after the end of the financial year and at other times requested by the Fund or the member. Adjustments are payable in local currency and are not included among overdue obligations. This table lists members whose currency valuation adjustments payable from April 30, 2016 had not been settled as of end-June 2017 as well as the cumulative adjustments payable as of June 30, 2017.

Sudan: Adjustments have been outstanding since the end of FY1996.

10. Since the general SDR allocation on August 28, 2009, members with protracted overdue financial obligations to the Fund have remained current to the SDR Department.13 Pursuant to Rule T-2, the accounts of participants in the SDR Department are debited with the amounts of the assessments levied on participants for the expenses of conducting the business of the SDR Department in accordance with Article XX, Section 4. However, SDRs allocated under the special allocation pursuant to the Fourth Amendment to members in protracted overdue obligations are held in escrow accounts in the SDR Department, and will be made available to these members following clearance of their respective overdue obligations.

B. Recent Reviews of Protracted Overdue Obligations Cases14

11. In the period since June 2012, the record of cooperation with the Fund by the countries with protracted overdue obligations countries has evolved. The remedial measures have remained in place in the two protracted overdue obligations cases.

Somalia

12. The Executive Board last reviewed Somalia’s overdue financial obligations to the Fund and further review following declaration of ineligibility in February 2017. This was the fifth review conducted since Somalia re-established relations with the Fund following a hiatus of more than two decades, in April 2013. A review was postponed on one occasion to benefit from an on-going policy discussion and to align the review with the Board’s discussion of the country matters. The declaration of ineligibility to use the Fund’s general resources remains in place (Table 3).

13. The Executive Board noted that, since the previous review of the overdue financial obligations, the authorities had continued to make progress in strengthening policies and governance, supported by the staff-monitored program which aimed to strengthen macroeconomic management, rebuild institutions, and improve governance and economic statistics. Going forward, Directors encouraged the authorities to keep up the pace of policy and reform implementation, particularly in fiscal and financial sectors and in preparing the National Development Plan, along with a productive dialogue with the creditor community. In this context, and to facilitate future fund-raising efforts to clear overdue obligations and secure debt relief, the Fund strongly encouraged the authorities to refrain from new external borrowing and to seek external financing only in the form of grants. While recognizing Somalia’s difficult economic, political, and security situation, the Fund strongly encouraged Somalia to make regular and timely payments to the Fund in line with its capacity to pay and to increase them as Somalia’s payment capacity improves.15 The Executive Board will again consider Somalia’s overdue financial obligations to the Fund within one year of the date of the review decision adopted on February 3, 2017.16

Sudan

14. The Executive Board last reviewed Sudan’s overdue financial obligations to the Fund and the Managing Director’s complaint with respect to the suspension of Sudan’s voting and related rights in December 2016. This was the fifth review conducted since the time of the last review of the strategy on overdue financial obligations, in August 2012. The reviews were postponed on four occasions to benefit from an on-going policy discussions and to align the reviews with the Board’s discussion of country matters. The complaint with respect to the suspension of Sudan’s voting and related rights remains in place (Table 3).

15. The Executive Board noted that Sudan’s economic situation deteriorated sharply in the aftermath of South Sudan’s secession, but was encouraged that economic performance had so far improved. Addressing the challenges that followed the secession would require accelerating policy consolidation and reform to achieve macroeconomic stability, address vulnerabilities, and promote inclusive growth.

16. The Executive Board noted the extension of the “zero-option”17 and encouraged the authorities to continue to reach out to their creditors to elicit support for debt relief. In that context, the Board underscored that it is important to avoid selective debt servicing to bilateral creditors as this may complicate reaching agreement with these creditors on a debt resolution strategy.

17. The Executive Board urged the authorities to continue to strengthen cooperation with the Fund. They welcomed the payments received in 2016 so far and the authorities’ commitment to a minimum payment of US$10 million to the Fund per year, and strongly encouraged them to make payments to the Fund that were at least sufficient to cover obligations falling due, to make payments regularly, and to increase them as Sudan’s payment capacity improves.18 The Executive Board will again consider Sudan’s overdue financial obligations to the Fund and the Managing Director’s complaint with respect to the suspension of Sudan’s voting and related rights in the Fund within twelve months of the date of this decision adopted on December 15, 2016.19

Determinants of Overdue Obligations and Their Duration1

Recent research on determinants of overdue obligations to the Fund suggests the causes of overdue obligations are multifaceted and encompass both economic and political factors. Among the economic factors the most important determinants of overdue obligations are previous overdue obligations, reserves coverage of imports, and institutional quality. The political developments, including civil unrest, make overdue obligations more likely to arise and to last longer.

On average, a country with overdue obligations would have worse macroeconomic outcomes―debt, inflation, international reserves, growth, and welfare―than a country without overdue obligations. The protracted overdue obligations countries performed worse than the ones with short-term overdue obligations. They suffered much higher incidences of civil unrest that the two other groups and their institutional quality ratings have been much worse. They have (not surprisingly) accumulated more credit outstanding to the IMF than other countries.

At a time of clearance of protracted overdue obligations, the macroeconomic outcomes in protracted overdue obligations countries approximated the outcomes in the sort-term overdue obligations countries. The civil unrest incidence dropped as well but remained somewhat elevated compared to the short-term overdue obligations cases.

For protracted overdue obligations, severe political crises are the most common cause. As triggers of protracted overdue obligations, the political factors (e.g., wars, political acts, etc.) have been present on their own or have interlinked with global factors (e.g., commodity price swings, weather events, or a debt crisis affecting potentially all economies and beyond individual control), and country-specific (e.g., corruption, poor policy implementation, etc.) factors.

The estimated probabilities of overdue obligations occurrence are small and declining over time for countries with outstanding Fund credit. This is owing to the improved political environment and the macroeconomic environment that changed for the better since 1980s.

uA01fig01

Protracted Overdue Obligations – Duration in Years

Citation: Policy Papers 2018, 035; 10.5089/9781498309103.007.A001

Solving protracted overdue obligations cases can take a long time. The remaining two protracted overdue obligations cases are fragile countries. For that group of countries, the research suggests that real GDP growth and civil unrest have been the most important determinants of the persistence of protracted overdue obligations. This suggests that the clearance of protracted overdue obligations will require a decisive turnaround of political fortunes in addition to a lasting change on the macroeconomic front.

1 See: Anne Oeking and MariuszSumlinski, “Arrears to the IMF – A Ghost of the Past?”, IMF Working Paper 16/225, International Monetary Fund, 2016.

Extension of the Rights Approach

18. The rights approach helps eligible members with overdue obligations to the Fund to establish a track record of cooperation on policies with the Fund by undertaking an economic program with conditionality equivalent to that of upper credit tranche Fund arrangements.20 The member is also expected to make payments to the Fund (and the World Bank) that, at a minimum, are sufficient to meet new obligations falling due.21 By establishing such a track record, the member accumulates “rights” to future drawings of Fund resources following the clearance of its overdue financial obligations and upon approval of a successor arrangement by the Fund. At the end of the rights accumulation program, bilateral creditors would provide a bridge loan to clear the member’s overdue obligations to the Fund, which would be followed by the member’s access to new Fund financing.

19. The rights approach remains an important option for overdue obligations clearance for Somalia and Sudan—the two members that remain eligible. The rights approach was initiated in 1990 and used in the 1990s to clear the overdue obligations to the Fund of three members—Peru, Sierra Leone, and Zambia. Eligibility for the rights approach was restricted to the eleven members that had protracted overdue obligations to the Fund at end-1989. Of these countries, only Somalia and Sudan remain eligible for the rights approach. Use of the rights approach is not required for these members, but it could provide a useful approach for overdue obligations clearance considering country-specific circumstances.

20. The availability of the rights approach has been extended on several occasions, most recently in August 2015.22 The availability of the rights approach was extended to end-August 2017, to maintain availability of the rights approach for potential overdue obligations clearance for Somalia and Sudan—the remaining two eligible members—and to align the Board’s consideration of the extension of the availability of the rights approach with the review of the Fund’s overdue obligations strategy.23

21. Staff proposes to extend the availability of the rights approach to end-August 2022. This extension would maintain the availability of the rights approach for potential overdue obligations clearance for Somalia and Sudan and align the Board’s consideration of the extension of the availability of the rights approach with the reviews of the Fund’s overdue obligations strategy, which are to be conducted every five years or more, as needed. A proposed decision is included to this effect.

Progress Under the Fund’s Overdue Obligations Strategy

22. The Fund’s strategy on overdue obligations has remained broadly effective in dealing with cases that have arisen to date. No changes to the strategy are proposed at this time. The strategy is comprised of three elements: prevention, intensified collaboration (including the rights approach), and remedial measures. The preventive element of the strategy has generally worked well in avoiding new overdue obligations, or in bringing about the quick clearance of such overdue obligations should they occur, thereby preventing new cases of protracted overdue obligations. The timetables for remedial measures for overdue financial obligations to the Fund’s General and SDR Departments and the PRGT are provided in Annexes I and II.

Table 3.

Remedial Measures Applied to Countries in Protracted Overdue Obligations to the Fund 1/

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Source: Finance Department.

Remedial measures are applied to overdue financial obligations to the General Resources Account (GRA), the SDR Department, and to the Poverty Reduction and Growth Trust (PRGT). With respect to the GRA and the SDR Departments, a complaint is issued by the Managing Director when a member falls into overdue obligations to the Fund for two months or more. In the GRA, depending on the persistence in failure of a member to fulfill its obligations, the complaint may lead to several different sanctions under Article XXVI, Section 2: declaration of ineligibility to use Fund resources, suspension of voting rights in the Fund, and compulsory withdrawal from the Fund. Regarding SDR Department, Article XXVI, Section 2(f) provides that Article XXVI, Section 2 sanctions shall not apply to failure to fulfill any obligations with respect to SDRs. Rather, the right of a participant to use SDRs may be suspended as provided for under Article XXIII, Sections 2(a) and (b). Overdue obligations to the PRGT are not breaches of obligations under the Articles and are thus not subject to Article XXVI sanctions. Remedial measures for dealing with PRGT overdue obligations include removal from the list of PRGT-eligible countries, declaration of noncooperation and suspension of technical assistance. The Fund also levies the SDR interest rate on any amounts of any overdue interest on, or overdue repayments of, Trust loans.

Considering the lifting of the suspension of Sudan’s voting rights on 8/1/2000, the complaint for the compulsory withdrawal of Sudan has been reformulated as a complaint for the suspension of Sudan’s voting rights.

Complaint withdrawn on February 12, 1997, following clearance of overdue obligations in the SDR Department.

Annex I. Overdue Financial Obligations to the General Department and the SDR Department Timetable of Remedial Measures1

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Annex II. Overdue Financial Obligations to the Poverty Reduction and Growth Trust (PRGT) Timetable of Remedial Measures1

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1

The last review was concluded in August 2012; see Review of the Fund’s Strategy on Overdue Financial Obligations, August 20, 2012; Decision No. 15225-(12/83), adopted August 27, 2012. In April 2015, the Board approved selected streamlining proposals under the FY16–FY18 medium-term budget, changing the periodicity of the review of the Fund’s strategy on overdue financial obligations to 5 years or more, as needed. See Selected Streamlining Proposals Under the FY16-FY18 Medium-Term Budget, March 27, 2015, and Decision No. 15764-(15/39), adopted April 23, 2015. Consequently, the deadline to complete the next review of the Fund’s strategy on overdue financial obligations was moved to end-August 2017.

2

Sudan’s payments are applied to the overdue principal as per the authorities’ instructions.

3

Protracted overdue obligations are those outstanding for six months or more.

4

Zimbabwe—Settlement of Overdue Financial Obligations to the Poverty Reduction and Growth Trust, Lifting of Declaration of Noncooperation, Lifting of Restriction on Fund Technical Assistance, and Restoration of Poverty Reduction and Growth Trust Eligibility, November 9, 2016.

5

For the Fund’s policies on arrears to multilateral creditors and external private creditors, see Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy Framework, April 26, 2013, Annex I, paragraphs 8–13; for the Fund’s policy on arrears to official bilateral official creditors, see Reforming the Fund’s Policy on Non-Toleration of Arrears to Official Creditors, October 15, 2015, and the Chairman’s Summing Up―Reforming the Fund’s Policy on Non-Toleration of Arrears to Official Creditors, December 8, 2015.

6

In accordance with the timetable, a formal communication from the Managing Director to the authorities is called for when an obligation has been outstanding for two weeks and to the Board when a member is overdue in its obligations one month after the emergence of overdue obligations.

7

Press Release No. 15/310, June 30, 2015.

8

Press Release No. 15/334, July 13, 2015.

9

Ibidem.

10

Press Release No. 15/332, July 13, 2015.

11

Euro Summit statement, July 12, 2015, p. 5 and 6.

12

Press Release No. 15/344, July 20, 2015.

13

Somalia and Sudan received, respectively, under the general SDR allocation the following amounts: SDR 33 million, SDR 126 million; and SDR 4 million, and SDR 16 million, respectively, under the special SDR allocation.

14

This section summarizes progress under the Fund’s overdue obligations strategy with respect to the protracted overdue obligations cases. Updates of developments in these countries would be provided at the next review of each member’s overdue obligations within one year of the date of the last review’s decision. For an overview of determinants and duration of overdue obligations, see Box 3 at the end of this section.

15

Somalia has been in continuous overdue obligations to the Fund since 1987 and no payments to the Fund have been made since December 1990. In accordance with Executive Board Decision No. 15092-(12/19) adopted February 24, 2012, owing to Somalia’s overdue repurchase obligations to the GRA, Somalia’s share in the distribution of the general reserve attributed to windfall gold sale profits was made in Somalia’s own currency and was attributed to Fund holdings of Somalia’s currency subject to repurchase. This reduced Somalia’s overdue financial obligations to the Fund in 2012 and 2013.

16

The reviews are conducted yearly following the Board’s approval in April 2015 of selected streamlining proposals under the FY16–FY18 medium-term budget, changing the periodicity of the review of the overdue financial obligations by country to one year. See Selected Streamlining Proposals Under the FY16-FY18 Medium-Term Budget, March 27, 2015, and Decision No. 15764-(15/39), adopted April 23, 2015.

17

The so-called “zero-option” is a 2012 agreement between Sudan and South Sudan whereby Sudan would retain all the external liabilities after the secession of South Sudan, if the international community gave firm commitments to the delivery of debt relief within two years. Absent such commitment, Sudan’s external debt would be apportioned with South Sudan based on a formula (to be determined). This deadline has been extended two times.

18

In accordance with Executive Board Decision No. 15092-(12/19) adopted February 24, 2012, owing to Sudan’s overdue repurchase obligations to the GRA, Sudan’s share in the distribution of the general reserve attributed to windfall gold sale profits was made in Sudan’s own currency and was attributed to Fund holdings of Sudan’s currency subject to repurchase. This reduced Sudan’s overdue financial obligations to the Fund in 2012 and 2013.

19

The reviews are conducted yearly following the Board’s approval in April 2015 of selected streamlining proposals under the FY16–FY18 medium-term budget, changing the periodicity of the review of the overdue financial obligations by country to one year. See Selected Streamlining Proposals Under the FY16-FY18 Medium-Term Budget, March 27, 2015, and Decision No. 15764-(15/39), adopted April 23, 2015.

20

Summing Up by the Chairman—Operational Modalities of the Rights Approach, June 22, 1990.

21

While Rights Accumulation Programs involve upper credit tranche conditionality, they require modified financing assurances in the sense that overdue obligations to the IMF (and possibly to other multilateral institutions) can remain outstanding during the program period, although members are expected to make maximum efforts to reduce their overdue financial obligations to the IMF.

22

Decision No. 15853-(15/80), adopted August 4, 2015.

23

In April 2015, the Board approved selected streamlining proposals under the FY16–FY18 medium-term budget, changing the periodicity of the review of the Fund’s strategy on overdue financial obligations to 5 years or more, as needed. Consequently, the deadline to complete the next review of the Fund’s strategy on overdue financial obligations was moved to end-August 2017. See Selected Streamlining Proposals Under the FY16-FY18 Medium-Term Budget, March 27, 2015, and Decision No. 15764-(15/39), adopted April 23, 2015.

1/

Based on the procedures for dealing with members with overdue financial obligations to the Fund adopted by the Executive Board on August 17, 1989, as amended by Decision No. 12546-(01/84), adopted on August 22, 2001.

1/

Based on Decision No. 12545-(01/84) PRGF, adopted on August 22, 2001, as amended by Decision No. 13590-(05/99) ESF, November 23, 2005, effective January 5, 2006.

Review of the Fund's Strategy on Overdue Financial Obligations
Author: International Monetary Fund. Strategy, Policy, &, Review Department, International Monetary Fund. Finance Dept., and International Monetary Fund. Legal Dept.
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    Overdue Financial Obligations to the Fund 1/

    (In millions of SDRs; 1980-end-June 2017)

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    Overdue Financial Obligations by Member

    (In millions of SDRs; as of end-June 2017)

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    Members in Short-Term and Protracted Overdue Financial Obligations

    (Count)

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    Protracted Overdue Obligations – Duration in Years