Copyright Page
IMF POLICY PAPER
REVIEW OF THE FUND’S INCOME POSITION FOR FY 2022 AND FY 2023–2024
[MONTH] [YEAR]
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 on the Review of the Fund’s Income Position for FY 2022 and FY 2023–2024, prepared by IMF staff and completed on April 11, 2022 for the Executive Board’s consideration on April 28, 2022.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Electronic copies of IMF Policy Papers
are available to the public from
https://www.imf.org/en/publications
International Monetary Fund
Washington, D.C.
Press Release
PRESS RELEASE
PR22/175
IMF Executive Board Review of the Fund's Income Position for FY 2022 and FY 2023-2024
FOR IMMEDIATE RELEASE
Net operational income is anticipated to remain strong for FY 2022 and to continue in FY 2023 and FY 2024 but subject to greater than normal uncertainties. A projected unrealized pension-related accounting gain is expected to increase overall Fund income in FY 2022.
The Executive Board agreed to maintain the margin for the rate of charge on IMF lending unchanged at 100 basis points for financial years FY 2023 and FY 2024.
Washington, DC – May 27, 2022: On April 28, 2022, the Executive Board of the International Monetary Fund (IMF) completed its annual review of the Fund’s income position for the financial year (FY) ending April 30, 2022.
FY 2022 Income Position
Net operational income, of about SDR 1.5 billion (US$2.1 billion), is anticipated for FY 2022, ref lecting mainly the ongoing elevated use of Fund credit. The actuarial remeasurement of staf f retirement plan assets and liabilities is projected to make an unrealized contribution of about SDR 0.5 billion (US$0.7 billion) to the net income for the year.1 Overall net income is expected to reach SDR 2.2 billion (US$3.1 billion) after adding estimated investment income in the Endowment Subaccount of SDR 0.2 billion (US$0.3 billion). Net income excluding the impact of IAS 19 gains and losses will increase the Fund’s precautionary balances, which are projected to rise to SDR 20.9 billion (US$29.1 billion) at end-FY 2022.
The Executive Board also adopted several other decisions that are relevant to the Fund’s finances. These included decisions to: (i) place the pension-related remeasurement gain in the special reserve and the remainder of net income equally in the special and general reserves; (ii) transf er currencies equivalent to the increase in the Fund’s reserves from the General Resources Account (GRA) to the Investment Account; (iii) retain the income of the Fixed-Income Subaccount and Endowment Subaccount for FY 2022 in the Investment Account; and (iv) reimburse costs to the GRA for the expenses of conducting the business of the SDR Department.
Projections of the Fund’s income remain subject to greater than normal uncertainties as economic pressures and the war in Ukraine continue to weigh heavily on the recovery from the pandemic. Changes in key assumptions such as the discount rate used to measure the Fund’s retirement plan obligations and asset returns can have a large impact on the actual outcome. The FY 2022 annual f inancial statements will update for the impact of changes in key assumptions made at the time of the April projections.
FY 2023-2024 Income Position and Lending Rate
As noted above, operational income for FY 2023 and FY 2024 is expected to remain strong, with projected annual net income of SDR 2.1 billion (US$3.0 billion) for both years. However, these projections are subject to a high degree of uncertainty related to the scale of new lending associated with macroeconomic developments and the varying paths to recovery; as well as the timing and amounts of disbursements under approved arrangements. Prospects for recovery remain uncertain as the war in Ukraine and the lingering effects of the pandemic combine to increase inflationary pressures; and are likely to impact actuarial assumptions such as the discount rate, and the performance of the Fund’s investment and retirement plan asset portfolios. Positive projected net income should allow the Fund to continue to accumulate precautionary balances.
The IMF’s basic lending rate for member countries’ use of IMF credit is the SDR interest rate plus a f ixed margin. The Board sets the margin for a period of two financial years, in line with the principle that the margin should be stable and predictable. The Executive Board agreed to maintain the margin for the rate of charge unchanged at 100 basis points for financial years FY 2023 and FY 2024.
Title Page
REVIEW OF THE FUND'S INCOME POSITION FOR FY 2022 AND FY 2023–2024
April 11, 2022
EXECUTIVE SUMMARY
This paper updates the projections of the Fund’s income position for FY 2022 and FY 2023–2024 and proposes related decisions for the current financial year. The paper also includes a proposed decision to set the margin for the rate of charge for financial years 2023 and 2024.
The Fund’s overall net income for FY 2022 is projected at about SDR 2.2 billion. Projections of the Fund’s income are subject to greater than normal uncertainties amid the war in Ukraine and the lingering effects of the COVID-19 pandemic on key assumptions. For FY 2022, these uncertainties relate mainly to the discount rate to be used to measure the Fund’s retirement plan obligations at April 30, 2022 and to the full year asset returns on the retirement plan and the Fixed-Income and Endowment Subaccounts. For FY 2023–2024, a key additional uncertainty is the potential scale of new lending and program disruptions associated with the war in Ukraine and the membership’s uneven path to recovery from the COVID-19 pandemic.
The projections point to a net income position of about SDR 2.1 billion for both FY 2023 and FY 2024, excluding the impact of any pension-related gain or loss. Based on the current projection, the indicative medium-term target for precautionary balances of SDR 25 billion is expected to be reached in early FY 2025. These projections are subject to considerable uncertainty and are sensitive to a number of assumptions.
The paper recommends that the margin for the rate of charge for the period FY 2023– 2024 be kept unchanged at 100 basis points. The margin will again be set under the exceptional circumstances clause, as non-lending income continues to be constrained by the low interest rate environment and lending income will be used to finance a portion of the Fund’s non-lending activities.
The paper also proposes that the decision to initiate the Endowment Subaccount (EA) payout under the framework approved by the Board in 2018 be delayed by one year; mainly on account of the market correction following the sharp increase in inflation and war in Ukraine significantly eroding the EA cushion below the desired level. The cushion is expected to remain susceptible to significant fluctuations and elevated downside risks associated with investments in the EA.
The paper proposes an allocation framework for isolating the volatile IAS 19 pension-related remeasurement gains and losses in the special reserve. In FY 2022, a portion of General Resources Account (GRA) net income equivalent to the remeasurement gain is to be placed to the special reserve and the remainder would be placed equally to the special and general reserves. After the placement of the GRA FY 2022 net income to reserves, the precautionary balances, which have been adjusted to reflect the pension funding status on an economic basis, are projected to reach SDR 20.9 billion at the end of FY 2022. The paper further proposes to transfer currencies equivalent to the increase in the Fund’s GRA reserves from the GRA to the Investment Account.
Approved By
Bernard Lauwers (FIN)
Prepared in the Finance Department by Alexander Attie, Marco Cobanera, Martin Gororo, Courage Gumbanjera, Diviesh Nana (lead), Amadou Ndiaye, Victoria Nichipurenko, Enosa Okosodo Odibo, Joel Chiedu Okwuokei, Breno Oliveira, Diana Parra, Vidhya Rustaman, Charles Xie, Jesse Jinyong Yang, Jessie Yang, Edda Zoli, and Vera Zolotarskaya, under the guidance of Jeannie Khaw and Simon Bradbury (all FIN), and, in consultation with the Legal Department (Hoang The Pham and Jonathan Swanepoel), and the Office of Budget and Planning (Anand Balakrishnan and Maria Albino). Administrative assistance was provided by Amara Myaing (FIN).
Contents
Glossary
INTRODUCTION
REVIEW OF THE FY 2022 INCOME POSITION
DISPOSITION DECISIONS
A. Investment Income from the Subaccounts and Timing of Initiation of the EA Payout
B. Allocation of Income
C. Transfer of Currencies
FY 2023–2024 INCOME OUTLOOK
A. Summary of Key Risks
B. Key FY 2023–2024 Income Outlook Factors
C. Review of the Margin for the Rate of Charge
BOX
1. EA Payout Policy Framework—Key Features
FIGURES
1. Summary of Proposed Disposition Decisions
2. EA Asset Value and Retained Investment Income Cushion
3. Reserve Allocation and Net Income Losses, 1958–2021
4. Reserve Composition and Special Reserve as a Percentage of Total Reserves, 1958–2021
5. Projected Reserve Accumulation Under Different Allocation Options
6. Projected Precautionary Balances Accumulation
7. EMBIG Spreads: Total Composite and Bottom Quartile
8. Projected Non-Lending Operational Income and Non-Lending Expenses
TABLES
1. Projected Income and Expenditures—FY 2022
2. Reconciliation of Pension-Related (IAS 19) Gains/(Losses)
3. Projected Income Sources and Uses—FY 2022–2024
4. Sensitivity Analysis—Effect of Changes in Selected Assumptions on FY 2023 Projected Income
5. Income from the Margin and Reserve Accumulation
6. Long-Term Credit Market and Comparator Spreads
7. Recent Burden Sharing Adjustment Rates
ANNEXES
I. Decisions in Effect Related to the FY 2022 Income Position
II. Treatment of Pension-Related Revaluations for Precautionary Balances—New Approach
III. Implementation of the New Income Model—Status Update FY 2022
IV. Endowment Payout—Practical Considerations
V. Assumptions Underlying the Income Projections
VI. Consolidated Medium-Term Income and Expenses
Glossary
| ACES | Analytic Costing and Estimation System |
| BoP | Balance of Payments |
| CCBR | Comprehensive Compensation and Benefits Review |
| CCRT | Catastrophe Containment and Relief Trust |
| CPI | Consumer Price Index |
| DBO | Defined Benefit Obligation |
| EA | Endowment Subaccount |
| EMBI | Emerging Markets Bond Index |
| EMBIG | Emerging Markets Bond Index Global |
| FCL | Flexible Credit Line |
| FI | Fixed-Income Subaccount |
| GAF | Generally Available Facilities |
| GED | Global External Deflator |
| GRA | General Resources Account |
| HIPC | Heavily Indebted Poor Country |
| IA | Investment Account |
| IAS 19 | Accounting standard that deals with pension and other employee benefits |
| IFRS | International Financial Reporting Standards |
| IFRS 9 | Accounting standard that deals with provisioning for loan impairments |
| NAV | Net Asset Value |
| NIM | New Income Model |
| NOI | Net Operating Income |
| PRGT | Poverty Reduction and Growth Trust |
| RST | Resilience and Sustainability Trust |
| SCA-1 | First Special Contingent Account |
| SDA | Special Disbursement Account |
| UCT | Upper Credit Tranche |
| VTA | Voluntary Trading Arrangements |
