Most resources for IMF loans are provided by member countries,
primarily through their payment of quotas. Borrowing provides a
temporary supplement to quota resources and has played a critical
role in enabling the Fund to meet members’ needs for financial
support during the global economic crisis. Concessional lending and
debt relief for low-income countries are financed through separate
contribution-based trust funds.
The quota system
Each member of the IMF is assigned a
quota, based broadly on its relative size in the world economy,
which determines its maximum contribution to the IMF’s financial
resources. Upon joining the IMF, a country normally pays up to
one-quarter of its quota in the form of widely accepted foreign
currencies (such as the U.S. dollar, euro, yen, or pound sterling) or
Special Drawing Rights (SDRs). The remaining three-quarters are paid
in the country’s own currency.
Quotas are reviewed at least every five years. Ad
hoc quota increases of 1.8 percent were agreed in 2006 as the first
step in a two-year program of quota and voice reforms. Further ad hoc
quota increases were approved by the Board of Governors in April 2008,
resulting in an overall increase of 11.5 percent. The
2008 reform came into effect in March 2011 following ratification of
the amendment to the IMF’s Articles by 117 member countries,
representing 85 percent of the IMF’s voting power.
The
Fourteenth General Review of Quotas was completed two years ahead of
the original schedule in December 2010, with a decision to double the
IMF’s quota resources to SDR 476.8 billion.
Gold holdings
The IMF’s gold holdings amount to about 90.5 million troy ounces
(2,814.1 metric tons), making the IMF the third largest official holder
of gold in the world. However, the IMF’s Articles of Agreement strictly
limit the use of this gold. If approved by an 85 percent majority of
voting power of member countries, the IMF
may sell or accept gold as payment by member countries but it is
prohibited from buying gold or engaging in other gold transactions.
In December 2010, the IMF sold 403.3 metric tons of gold—about
one-eighth of its holdings The limited gold sale was conducted under
strong safeguards to avoid market disruption and all gold sales were at
market prices, including direct sales to official holders.
SDR 4.4 billion of profits from the sale of its gold were used to
establish an endowment as part of the IMF’s new income model, designed
to put the institution’s finances on a sustainable footing.A proportion
of the gold sales is used to subsidize financing for low-income
countries.
The IMF’s lending capacity
The IMF can use its quota-funded holdings of rrencies of financially
strong economies to finance
lending. The Executive Board selects these currencies every three
months. Most are issued by industrial countries, but the list has also
included currencies of countries such as Botswana, China, and India. The
IMF’s holdings of these currencies, together with its own SDR holdings,
make up its own usable resources. If needed, the IMF can temporarily
supplement these resources by borrowing (see below).
The amount the IMF has readily available for new (non-concessional)
lending is indicated by its
forward commitment capacity (FCC). This is determined by its usable
resources—including unused amounts under loan and note purchase
agreements and amounts available under the IMF’s two standing
multilateral borrowing arrangements (see below)— plus projected loan
repayments over the subsequent twelve months, less the resources that
have already been committed under existing lending arrangements, less a
prudential balance.
Borrowing arrangements
The IMF maintains two standing multilateral
borrowing arrangements—the expanded New Arrangements to Borrow (NAB)
and the General Arrangements to Borrow (GAB)—currently with a total
borrowing capacity of SDR 370.0 billion (about $559 billion). If the IMF
believes that its quota resources might fall short of the needs of its
member countries—for example, in the event of a major financial
crisis—it can activate these arrangements.
In April 2010, the Executive Board adopted a proposal for an expanded
and more flexible NAB, by which the NAB was expanded to SDR 367.5 billion,
with the addition of 13 new participating countries, including a number
of emerging market countries who made significant contributions to this
large expansion. The expanded NAB came into effect on March 11, 2011 and
was activated shortly afterwards. The expanded NAB has been activated
six times for the maximum period of six months and for the full amount,
with the most recent activation starting on October 1, 2013.
Since the onset of the global crisis, the IMF has signed a number of
bilateral loan and note purchase agreements to supplement its quota
resources. The first round of bilateral borrowing took place in 2009–10.
The use of 2009–10 bilateral borrowing has been discontinued since April
1, 2013 and the remaining undrawn balances under pre-NAB commitments are
financed with quota resources.
In 2012, as economic and financial conditions worsened in the Euro Area,
38 countries committed to increase IMF resources further by US$461
billion through bilateral borrowing agreements. As of February 27,
2014, 30 agreements are now effective for $422 billion. These resources
will serve as a second line of defense to the
Fund’s quota and NAB resources.
IMF concessional lending and debt relief
The IMF provides two primary types of financial assistance to
low-income countries: low-interest loans under the
Poverty Reduction and Growth Trust (PRGT), and debt relief under the
Heavily Indebted Poor Countries (HIPC) Initiative, the
Multilateral Debt Relief Initiative (MDRI), and
Post-Catastrophe Debt Relief (PCDR). These resources come from
member contributions and the IMF itself, rather than from the quota
subscriptions.
In July 2009, the Executive Board approved far-reaching
reforms of the concessional facilities, including temporarily
providing zero interest payments on concessional loans to all low-income
countries (subsequently extended through end-2014), to help them cope
with the crisis. Along with these reforms, the Fund also sought to boost
its concessional lending capacity over 2009–14 by mobilizing an
additional SDR 10.8 billion (about $16 billion) in new financing
commitments and SDR 1.5 billion (about $2.3 billion, in end-2008 present
value terms) in new subsidy resources.
In September 2012, the Fund
adopted a strategy to make the PRGT self-sustaining and to support
concessional lending of about SDR 1¼ billion (about $2.0 billion) a
year, on average, over the longer term. To provide the PRGT with the
financial resources needed to sustain this strategy, the Executive Board
also approved a partial distribution of the Fund’s general reserve of
SDR 1.75 billion (about $2.7 billion) attributed to windfall profits
from gold sales. The proviso for this distribution was that it would
become effective only once satisfactory assurances were received that
members would contribute at least SDR 1.575 billion (equivalent to at
least 90 percent of the distribution) in subsidy resources to the PRGT,
either from their share in the distribution of reserves or from other,
new contributions. Such assurances were achieved on October 10, 2013,
with 151 members having pledged contributions corresponding to 92.43
percent of the distribution.
The PRGT-HIPC Trust was established to provide debt relief under the
HIPC Initiative and to subsidize PRGT lending. The resources
available to the Trust consist of grants and deposits pledged from
93 member countries and contributions from the IMF itself. The bulk of
the IMF’s contribution comes from off-market gold transactions made
during 1999–2000.
Debt relief under the MDRI-I and MDRI-II Trusts were established in
early 2006 and financed from the IMF’s own resources of SDR 1.5 billion
in the Special Disbursement Account (SDA). The MDRI-I Trust provided
debt relief to countries (both HIPCs and non-HIPCs) with per capita
incomes at, or below $380 a year (on the basis of 2004 gross national
income). The MDRI-II Trust provided debt relief to HIPCs with per capita
incomes above $380 a year, with financing from bilateral resources of
SDR 1.12 billion transferred from the PRGT.
The
PCDR Trust was established in June 2010 to provide post-catastrophe
debt relief. The Trust was initially financed by SDR 280 million
(equivalent to around $422 million) of the IMF’s own resources. It is
expected to be replenished through future donor contributions, as
necessary.
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