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GUIDANCE NOTE FOR FUND STAFF ON THE TREATMENT AND USE OF SDR ALLOCATIONS

August 2021

IMF staff regularly produces papers proposing new IMF policies, exploring options for reform, or reviewing existing IMF policies and operations. The following documents have been released and are included in this package:

  • The Guidance Note prepared by IMF staff and completed on July 28, 2021.

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© 20[xx] International Monetary Fund

GUIDANCE NOTE FOR FUND STAFF ON THE TREATMENT AND USE OF SDR ALLOCATIONS

July 28, 2021

EXECUTIVE SUMMARY

This Note provides guidance for staff on the treatment and use of allocations of Special Drawing Rights (SDRs). It presents a consistent framework for IMF country teams to assess the macroeconomic implications of the SDR allocation at the country level, covering the following areas:

  • Statistical and accounting treatment. Members should present and disseminate their SDR data in line with the best practices to which they subscribe. Under the latest recording guidelines in the Balance of Payments and International Investment Position Manual―Sixth Edition (BPM6), both gross international reserves and external long-term debt liabilities would increase with the new SDR allocation. Net international reserves (NIR) would also normally be expected to increase, while net foreign assets (NFA) do not change.

  • General macroeconomic implications and advice. Member countries can use their newly allocated SDRs unconditionally. A central policy question is whether the policy space provided by the allocation should be retained or used, either partially or entirely. This decision should reflect many considerations, including the economic conjuncture and the stage of the COVID-19 pandemic, the adequacy of reserves, the availability of fiscal and monetary policy space, domestic and external debt sustainability and financial stability, financing constraints, and other country-specific factors.

    In the circumstances prevailing at the time of the 2021 general allocation of SDRs, given the exceptional nature of the COVID-19 shock, countries that need to prioritize the response to the crisis should act flexibly and swiftly, including by potentially using the policy space provided by the SDR allocation to fight the pandemic. For countries exiting the emergency phase of the COVID-19 pandemic, the policy advice should shift to supporting a resilient, inclusive, sustainable, and green recovery. Staff should advise member authorities to use SDRs consistent with macroeconomic sustainability and in a transparent manner, and to not delay needed macroeconomic adjustment, reforms, and debt restructuring, nor prolong unsustainable macroeconomic policies.

  • Debt sustainability analyses. The SDR allocation, by itself, does not negatively impact members’ debt sustainability and could even enhance it by strengthening reserve buffers and resilience. If the authorities use the policy space provided by the allocation, the overall impact of the SDR allocation on debt sustainability depends on how the allocation is used. This updated guidance supersedes prior staff guidance related to debt sustainability analyses, including the 2018 Debt Sustainability Framework for Low-Income Countries (LIC-DSF).

  • Transparency and accountability. Several elements of the Fund’s work on transparency are relevant for the use of SDRs, including the Fund’s Safeguards Assessment Policy (SAP), and fiscal transparency. Staff can leverage these frameworks to encourage transparency and accountability in the use of SDRs.

    The Fund already publishes quarterly SDR holdings by members and will further enhance transparency in the use of SDRs by publishing those holdings by aggregate category. It will also publish the Board paper Annual Update on SDR Trading Operations. Two years after the allocation, staff will prepare an ex-post report on the use of SDRs.

  • Reserve management. Like other reserve assets, SDR holdings expose central banks to certain financial risks, which need to be understood, measured, and appropriately managed. These include liquidity, currency, interest rate, and credit risks.

  • Implications for Fund-supported programs. The SDR allocation will generally require an update of Fund-supported programs, particularly a fresh look at reserve adequacy and macroeconomic policies. The following key principles apply: (i) different domestic arrangements for recording SDRs should not lead to different macroeconomic assessments and advice across countries, although possible constraints on the use of SDRs arising from institutional arrangements would need to be considered; (ii) direct program limits on the use of SDR holdings would be inconsistent with their status as an unconditional reserve asset, but program targets may indirectly result in limits via fiscal and monetary conditionality; (iii) the degree to which program targets should be adjusted following the SDR allocation depends on an assessment of reserve adequacy and other relevant macroeconomic considerations; and (iv) the allocation should not delay needed macroeconomic adjustments and reforms nor substitute for debt restructuring, if debt is assessed as unsustainable. Access to financing under Fund arrangements will continue to be guided by the established criteria—including the member’s balance of payment need, ability to repay the Fund, and outstanding Fund credit and track record—while considering the impact of the SDR allocation on members’ macroeconomic frameworks.

Approved By

Ceyla Pazarbasioglu

Prepared by the Strategy, Policy, and Review Department in collaboration with the Finance, Legal, Monetary and Capital Markets, and Statistics Departments. The team was led by C. Tovar (SPR) and comprised by N. Shenai (team lead), M. Takebe, Y. Wu, T. Zheng, and E. Pondi Endengle; D. Kim, W. McGrew, L. Kohler; H. Poirson Ward, S. Rodriguez, M. Hengge; M. Saenz, T. Willems; K. Fletcher (all SPR); H. Hatanpaa, G. Everaert, M. Nkusu, M. Manno, J. Mburu, V. Kurcova, E. Okosodo, A. Nakafeero, F. Moreau, and Z. Tan (all FIN); H. Pham, A. Rosha, and C. Thiemann (all LEG); A. Qureshi (MCM); and B. Cotto, M. Dinenzon, and V. Josyula (all STA). N. Hallmark (SPR) provided research assistance, while T. Garicoche and D. Miller Passos Da Silva helped prepare the report. A. Corbacho (SPR) provided overall guidance under the supervision of K. Kostial (SPR).

Contents

  • Abbreviations and Acronyms

  • INTRODUCTION

  • STATISTICAL AND ACCOUNTING CONSIDERATIONS

  • GENERAL MACROECONOMIC IMPLICATIONS AND POLICY ADVICE

  • IMPLICATIONS FOR DEBT SUSTAINABILITY ANALYSES

  • PROMOTING TRANSPARENCY AND ACCOUNTABILITY IN THE USE AND THE REPORTING OF SDRS

  • IMPLICATIONS FOR CENTRAL BANKS’ RESERVE MANAGEMENT

  • IMPLICATIONS FOR FUND-SUPPORTED PROGRAMS

  • BOXES

  • 1. Key Legal Considerations Related to the Treatment and Use of SDR Allocation

  • 2. Modifications to Past Guidance for DSAs

  • FIGURE

  • 1. Selected Interest Rates

  • TABLES

  • 1. Uses of SDR Holdings—Implications for the Public DSA

  • 2. Publicly Available Information on SDR Allocations and Holdings, Trading, and VTAs

  • 3. Template for Reporting Quarterly Changes in Participants’ SDR Holdings

  • ANNEXES

  • I. Additional Statistical Considerations

  • II. Reconstitution Requirements for SDR Holdings

  • III. SDR Department

  • IV. Useful Tools and Links to SDR Resources for Staff References

Abbreviations and Acronyms

BPM6

Balance of Payments and International Investment Position Manual—Sixth Edition

BOPSY

Balance of Payments Statistical Yearbook

CB

Central Bank

CCRT

Catastrophe Containment and Relief Trust

DSA

Debt Sustainability Analysis

EDS

External Debt Statistics

ESS

External Sector Statistics

FTC

Fiscal Transparency Code

FTE

Fiscal Transparency Evaluation

GFS

Government Finance Statistics

GFSM

Government Financial Statistics Manual

GRA

General Resources Account

HIPC

Heavily Indebted Poor Countries

IFS

International Financial Statistics

IFRS

International Financial Reporting Standards

IIP

International Investment Position

IRFCL

International Reserves and Foreign Currency Liquidity

JEDH

Joint External Debt Hub

LIC

Low-Income Country

LIC-DSF

Debt Sustainability Framework for Low-Income Countries

MAC-DSA

Debt Sustainability Analysis for Market-Access Countries

MFS

Monetary and Financial Statistics

MFSMCG

Monetary and Financial Statistics Manual and Compilation Guide

MoF

Government Agency (e.g., Ministry of Finance)

NAFA

Net Acquisition of Financial Assets

NFA

Net Foreign Assets

NIL

Net Incurrence of Liabilities

NIR

Net International Reserves

QEDS

Quarterly External Debt Statistics

QPSDS

Quarterly Public Sector Debt Statistics

PRGT

Poverty Reduction and Growth Trust

RAP

Reserve Asset Portion

SAP

Safeguards Assessment Policy

SDRs

Special Drawing Rights

STA

International Monetary Fund Statistics Department

TMU

Technical Memorandum of Understanding

VTA

Voluntary Trading Arrangements

Guidance Note for Fund Staff on the Treatment and Use of SDR Allocations
Author: International Monetary Fund