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IMF POLICY PAPER
REVIEW OF TEMPORARY MODIFICATIONS TO THE FUND’S ACCESS LIMITS IN RESPONSE TO THE COVID-19 PANDEMIC
December 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:
A Press Release.
The Staff Report, prepared by IMF staff and completed on November 29, 2021 for the Executive Board’s consideration on December 20, 2021.
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International Monetary Fund
Washington, D.C.
© 2021 International Monetary Fund
Press Release
PR[21/XX]
IMF Executive Board Approves Temporary Extension of Cumulative Access Limits in the Fund’s Emergency Financing Instruments
FOR IMMEDIATE RELEASE
Washington, DC – December 23, 2021: On December 20, 2021, the IMF’s Executive Board approved 18-month extensions (through end-June 2023) of the temporary increases to the cumulative access limits under its emergency financing instruments, i.e., the Rapid Financing Instrument (RFI) regular window, the Rapid Credit Facility (RCF) Exogenous Shock window, and the RFI’s and RCF’s Large Natural Disaster (LND) windows and allowed all other access limits that had been temporarily increased to return to their pre-pandemic levels from January 1, 2022 as scheduled.1 This decision reflects the expected and ongoing gradual shift to upper-credit-tranche (UCT) quality arrangements from emergency financing triggered by urgent, pandemic-related balance of payment (BoP) needs. At the same time, the decision ensures continued access by member countries to the Fund’s emergency financing, should urgent BoP needs arise when a UCT-quality arrangement is either not necessary or not feasible.
The temporary increases in access limits for the RFI regular window and the RCF Exogenous Shock window were first introduced in April 2020 and extended in September 2020, and again in March 2021. For the RFI’s and RCF’s LND windows, the temporary increases were introduced in June 2021.
The Executive Board reinstated the limit on the number of disbursements under the RCF within a 12-month period and endorsed staff’s proposal to prepare an exit strategy from the temporary increase in cumulative access limits under emergency financing instruments by end-June 2023.
Executive Board Assessment2
Executive Directors noted that the temporarily-high access limits ensured that the Fund was able to swiftly provide adequate support to its members during the pandemic. They stressed that access limits are a key element of the Fund’s risk management framework, providing safeguards to Fund resources and preserving the revolving nature and catalytic role of Fund financing. Returning annual access limits to lower levels while extending the cumulative access limits for emergency financing balances the need to preserve member countries’ borrowing space with safeguarding Fund resources.
Directors agreed with the proposal to extend the temporarily-higher cumulative access limits under the Fund’s emergency financing instruments for 18 months, while allowing all other temporarily-increased access limits to expire and return on January 1, 2022 to pre-pandemic levels, except for the PRGT normal annual access limit, which will become 145 percent of quota as approved in July 2021. They also noted that the PRGT normal cumulative access limit was increased on a non-transitory basis to 435 percent of quota in July 2021. A few Directors thought that the extension of the cumulative limits under the emergency financing instruments could have been shorter.
Directors agreed that the respective cumulative access limits for the regular window of the Rapid Financing Instrument (RFI) and the exogenous shocks window of the Rapid Credit Facility (RCF) will remain at 150 percent of quota through end-June 2023. They also agreed that cumulative access limits for the RFI’s and RCF’s Large Natural Disaster (LND) windows will remain at 183.33 percent of quota through end-June 2023. Directors noted that the further temporary extension of the higher cumulative access limits for emergency financing instruments would have a limited impact on GRA and PRGT resources.
Directors also agreed to reinstate from January 1, 2022 the temporarily-suspended two-disbursement limit under the RCF within a 12-month period. They took note that no member requested RCF disbursements in excess of such limit despite its relaxation during the pandemic period.
Directors noted that the extensions of the temporarily-higher cumulative access limits would leave adequate borrowing room to support urgent balance of payments needs under the emergency financing instruments for most Fund members when upper credit tranche (UCT)-quality programs are either not feasible or not necessary. Some Directors urged careful monitoring to ensure that affected countries are not unduly constrained by the return to lower annual access limits. Many Directors emphasized the need for a rigorous and transparent application of the qualification requirements for emergency financing, including a convincing justification in case a UCT-quality program is assessed to be not feasible, and some highlighted the importance of strong governance and robust safeguards for the use of emergency financing. Directors underscored that members should be encouraged to transition to tailored, UCT-quality programs when appropriate and feasible to support structural reforms to address underlying vulnerabilities and larger financing needs. In this context, Directors welcomed the fact that members have been increasingly seeking financial assistance under Fund arrangements that meet UCT-quality standards rather than through emergency financing instruments.
Directors generally welcomed the staff proposal to prepare an exit strategy by end-June 2023 and asked for early Board engagement. Some Directors emphasized that the 18-month extension should be the last, and a few called on staff to prepare an exit strategy much earlier than proposed. A few other Directors recommended having greater flexibility.
Title Page
REVIEW OF TEMPORARY MODIFICATIONS TO THE FUND’S ACCESS LIMITS IN RESPONSE TO THE COVID-19 PANDEMIC
November 29, 2021
EXECUTIVE SUMMARY
Over the course of the pandemic, the Fund has made several modifications to the access limits on the use of Fund’s resources to increase the borrowing space under the hard caps on emergency financing and under the annual limits that trigger exceptional access (EA) safeguards under GRA and PRGT. The current temporarily-increased access limits expire at end-December 2021, and absent policy changes, the limits would return to the lower pre-pandemic levels or to the new PRGT annual access limit. Specifically, on January 1, 2022, the GRA and PRGT annual access limits would return to 145 percent of quota from the current level of 245 percent of quota. The annual/cumulative access limits for emergency financing instruments would return to: (i) 50/100 percent of quota, respectively, for the Rapid Financing Instrument (RFI) regular window and Rapid Credit Facility (RCF) Exogenous Shock window; and (ii) 80/133.33 percent of quota, respectively, for Large Natural Disaster (LND) windows of the RCF and RFI. In addition, the temporarily suspended limit on the number of disbursements under the RCF within a 12-month period would expire as of January 1, 2022.
The return of GRA and PRGT access limits to lower levels would not unduly constrain countries’ access to future Fund financing. However, because many countries have received emergency financing at the level of 100 percent of quota during the pandemic, reverting the cumulative access limits under the emergency financing instruments to the pre-pandemic levels would restrict these countries from accessing emergency financing for several years, until they start repurchasing/repaying their loans.
Staff proposes to let all access limits return to pre-pandemic levels (or the new PRGT annual access limit), with the exception of the cumulative access limits for emergency financing instruments, which would be extended at the current level for another 18 months. Specifically, the cumulative access limits would remain at 150 percent of quota for RFI regular window and RCF exogenous shock window, and 183.33 percent of quota for the Large Natural Disaster windows of the RFI and RCF until end-June 2023, allowing access of at least 50 percent of quota (cumulative) under the Fund’s emergency financing instruments for most countries. In addition, staff proposes to reinstate from January 1, 2022 the limit on the number of disbursements under the RCF within a 12-month period.
Staff’s proposal strikes a balance between safeguarding Fund resources and allowing countries some room to access emergency financing instruments in case of an urgent BoP need when an upper credit tranche-quality (UCT) program is either not feasible or not necessary. This proposal also supports the shift from emergency financing towards UCT-quality arrangements. Staff will develop an exit strategy towards a post-pandemic emergency financing access limit policy by end-June 2023.
Approved By
Guillaume Chabert, Yan Liu, and Zuzana Murgasova
Prepared by the Strategy, Policy, and Review Department; Legal Department; and Finance Department. The team comprised Daehaeng Kim, Jung Yeon Kim, Andreja Lenarcic, and Giulio Lisi (SPR); Kyung Kwak, Qingxiang Li, Gustavo Pinto, and Gabriela Rosenberg (LEG); Charleen Gust, Beata Jajko, Nelson Sobrinho, and Olaf Unteroberdoerster (FIN). Xiaoya Yue and Khamza Sharifzoda (SPR), and Sandra Saveikyte (FIN) provided research assistance and Merceditas San Pedro-Pribram and Phyo Thet Zin (SPR) provided administrative support.
Contents
INTRODUCTION
IMPLICATIONS OF RETURNING TO PRE-PANDEMIC ACCESS LIMITS
STAFF PROPOSAL: EXTEND THE CURRENT RCF AND RFI CUMULATIVE ACCESS LIMITS FOR 18 MONTHS
RESOURCE IMPLICATIONS OF STAFF PROPOSAL
STAFF PROPOSALS
FIGURES
1. Fund Financial Support, 2002–2021
2. EF Cumulative Borrowing Space Upon Expiration of Temporary High Access
3. Fund’s Lending During the Pandemic
4. Cumulative Borrowing Space Under Staff Proposal
TABLES
1. Access Limits by Type of Instruments
2. Staff Proposal on Access Limits by Type of Instruments
ANNEXES
I. Timeline of Modifications in Access Limits During the Pandemic Period
II. Countries with Approved Emergency Financing Ordered by Access Level
III. Transition Rule
IV. Countries with Limited Annual Borrowing Space from January 1, 2022
APPENDICES
I. Instrument to Establish the Poverty Reduction and Growth Trust—Redlined Version
II. Rapid Financing Instrument—Redlined Version of Paragraph 5
For the PRGT, the annual/cumulative normal access limits approved in July 2021 of 145/435 percent of quota, respectively, will apply.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
