Chapter

Lending

Author(s):
International Monetary Fund
Published Date:
October 2018
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Unlike development banks, the IMF does not lend for specific projects but instead to member countries that experience balance of payments difficulties, to give them time to rectify economic policies and restore growth without having to resort to actions damaging to their own or other members’ economies. IMF financing is meant to help member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. This crisis-resolution role is at the core of IMF lending activities.

In broad terms, the IMF has two types of lending—loans provided at nonconcessional interest rates and loans provided to low-income countries on concessional terms, with interest rates that are low or in some cases zero. Currently, pursuant to a waiver approved by the Board, no concessional loans bear any interest.

The global financial crisis highlighted the need for an effective global financial safety net to help countries cope with potential adverse shocks. A key objective of recent lending reforms has therefore been to complement the IMF’s traditional role of resolving crises with additional tools for preventing crises.

Nonconcessional Financing Activity

GRA Resources

The General Resources Account (GRA) is the principal account of the IMF, consisting of a pool of currencies and reserve assets that represent the paid subscriptions of member countries’ quotas. The GRA is the account from which the nonconcessional lending operations of the IMF are financed. In FY2018, the Executive Board approved three new arrangements and one augmentation to an existing arrangement under the IMF’s nonconcessional financing instruments, totaling SDR 63.3 billion ($91.0 billion at the SDR/dollar exchange rate on April 30, 2018, of 0.69538).

An arrangement under the Flexible Credit Line (FCL) with Mexico (SDR 62.4 billion)—which is treated by Mexico as precautionary—accounted for 99 percent of these commitments. (Mexico’s FCL arrangement was a successor to a previous arrangement of the same magnitude that was canceled.) The remaining 1 percent comprised extended arrangements under the Extended Fund Facility (EFF) with Mongolia (SDR 314.5 million), and Gabon (SDR 464.4 million), and an EFF augmentation with Côte d’Ivoire (SDR 108.4 million). Table 2.1 details the arrangements approved during the financial year, and Figure 2.1 shows the arrangements approved over the past 10 financial years.

Figure 2.1Arrangements approved in the General Resources Account during financial years ended April 30, 2009–18

(Billions of SDRs)

Source: IMF Finance Department.

During FY2018, disbursements under financing arrangements from the GRA, referred to as “purchases,” totaled SDR 4.2 billion ($6.0 billion). Of these purchases, 86 percent were made by Egypt, Iraq, Sri Lanka, and Tunisia.

Total repayments, termed “repurchases,” for the financial year amounted to SDR 14.6 billion ($21.0 billion), including advance repurchases from Portugal of SDR 7.6 billion (10.9 billion) and from Ireland of SDR 3.8 billion ($5.4 billion). Reflecting the slightly larger repurchases relative to purchases, the stock of GRA credit outstanding decreased to SDR 37.9 billion ($54.5 billion) from SDR 48.3 billion ($66.2 billion) a year earlier. Figure 2.2 shows the stock of nonconcessional loans outstanding during the past 10 financial years.

Figure 2.2Nonconcessional loans outstanding, FY2009–18

(Billions of SDRs)

Source: IMF Finance Department.

GRA Borrowing

The IMF is a quota-based institution, and its aggregate quota resources were doubled through implementation of the quota increases under the Fourteenth General Review. However, borrowed resources continue to play a key role in supplementing quota resources. The New Arrangements to Borrow (NAB), a set of credit arrangements with 40 participants totaling about SDR 182 billion, serves as a second line of defense after quotas. On February 25, 2016, the IMF Executive Board terminated early the activation period under the NAB (which had originally covered October 1, 2015, through March 31, 2016) in light of the effectiveness of the Fourteenth General Review of quotas on January 26, 2016.

The current set of NAB arrangements were renewed in November 2016, and became effective for the five-year period from November 17, 2017, to November 16, 2022.

The IMF also has bilateral borrowing agreements, which provide a third line of defense after quotas and the NAB. These agreements, under the 2016 borrowing framework, allow the IMF to maintain access on a temporary basis to bilateral borrowing from the membership and thereby to avoid a sharp contraction in lending capacity. Borrowing agreements under the 2016 framework have a common maximum term of December 31, 2020, with an initial term of December 31, 2019, extendable for an additional year with the consent of the creditors. As of April 30, 2018, 40 member countries had committed a total of about SDR 316 billion or $455 billion in bilateral borrowing.

The General Arrangements to Borrow (GAB) is a more limited backstop to the IMF’s quota resources in circumstances where a proposal to activate the NAB is not accepted by the NAB participants. The GAB does not add to the IMF’s overall resource envelope, because commitments made under the GAB reduce the amount available under the NAB by an equal amount.

The GAB decision will not be renewed when its current term ends on December 25, 2018. This follows the unanimous agreement by GAB participants that the GAB should be allowed to lapse when its current term ends.

Concessional Financing Activity

In FY2018, the IMF committed loans amounting to SDR 1.703 billion ($2.38 billion) to its low-income developing member countries under programs supported by the Poverty Reduction and Growth Trust (PRGT). Total concessional loans outstanding to 53 members amounted to SDR 6.36 billion at the end of April 2018. Table 2.4 details the new arrangements and augmentations of access under existing arrangements under the IMF’s concessional financing facilities. Figure 2.3 illustrates amounts outstanding on concessional loans over the past decade.

Figure 2.3Concessional loans outstanding, FY2009–18

(Billions of SDRs)

Source: IMF Finance Department.

Table 2.2Financial terms under IMF General Resources Account credit: This table shows major nonconcessional lending facilities. Stand-By Arrangements have long been the core lending instrument of the institution. In the wake of the 2007–09 global financial crisis, the IMF strengthened its lending toolkit. A major aim was to enhance crisis prevention instruments through the creation of the Flexible Credit Line (FCL) and the Precautionary and Liquidity Line (PLL). In addition, the Rapid Financing Instrument (RFI), which can be used in a wide range of circumstances, was created to replace the IMF’s emergency assistance policy.
Credit facility (year adopted)1PurposeConditionsPhasing and monitoring
Stand-By Arrangements (SBA) (1952)Short- to medium-term assistance for countries with short-term balance of payments difficultiesAdopt policies that provide confidence that the member’s balance of payments difficulties will be resolved within a reasonable periodQuarterly or semiannual purchases (disbursements) contingent on observance of performance criteria and other conditions
Extended Fund Facility (EFF) (1974) (Extended Arrangements)Longer-term assistance to support members’ structural reforms to address long-term balance of payments difficultiesAdopt up to 4-year program, with structural agenda and annual detailed statement of policies for the next 12 monthsQuarterly or semiannual purchases (disbursements) contingent on observance of performance criteria and other conditions
Flexible Credit Line (FCL) (2009)Flexible instrument in the credit tranches to address all balance of payments needs, potential or actualVery strong ex ante macro-economic fundamentals, economic policy framework, and policy track recordApproved access available up front throughout the arrangement period; 2-year FCL arrangements are subject to a midterm review after 1 year
Precautionary and Liquidity Line (PLL) (2011)Instrument for countries with sound economic fundamentals and policiesSound policy frameworks, external position, and market access, including financial sector soundnessLarge front-loaded access, subject to semiannual reviews (for 1- to 2-year PLL)
Rapid Financing Instrument (RFI) (2011)Rapid financial assistance to all member countries facing an urgent balance of payments needEfforts to solve balance of payments difficulties (may include prior actions)Outright purchases without the need for full-fledged program or reviews
Source: IMF Finance Department.

The IMF’s lending through the General Resources Account (GRA) is primarily financed from the capital subscribed by member countries; each country is assigned a quota that represents its financial commitment. A member provides a portion of its quota in Special Drawing Rights (SDRs) or the currency of another member acceptable to the IMF and the remainder in its own currency. An IMF loan is disbursed or drawn by the borrower’s purchase of foreign currency assets from the IMF with its own currency. Repayment of the loan is achieved by the borrower’s repurchase of its currency from the IMF with foreign currency.

The rate of charge on funds disbursed from the GRA is set at a margin (currently 100 basis points) over the weekly SDR interest rate. The rate of charge is applied to the daily balance of all outstanding GRA drawings during each IMF financial quarter. In addition, a one-time service charge of 0.5 percent is levied on each drawing of IMF resources in the GRA, other than reserve tranche drawings. An up-front commitment fee (15 basis points on committed amounts of up to 115 percent of quota, 30 basis points for amounts in excess of 115 percent and up to 575 percent of quota, and 60 basis points for amounts in excess of 575 percent of quota) applies to the amount available for purchase under arrangements (SBAs, EFFs, PLLs, and FCLs) that may be drawn during each (annual) period; this fee is refunded on a proportionate basis as subsequent drawings are made under the arrangement.

Surcharges were introduced in November 2000. A new system of surcharges took effect August 1, 2009, and was updated on February 17, 2016, with some limited grandfathering for existing arrangements.

Access limits1Charges2Repayment schedule (years)Installments
Annual: 145% of quota; cumulative: 435% of quotaRate of charge plus surcharge (200 basis points on amounts above 187.5% of quota; additional 100 basis points when outstanding credit remains above 187.5% of quota for more than 36 months)33¼–5Quarterly
Annual: 145% of quota; cumulative: 435% of quotaRate of charge plus surcharge (200 basis points on amounts above 187.5% of quota; additional 100 basis points when outstanding credit remains above 187.5% of quota for more than 51 months)34½–10Semiannual
No preset limitRate of charge plus surcharge (200 basis points on amounts above 187.5% of quota; additional 100 basis points when outstanding credit remains above 187.5% of quota for more than 36 months)33¼–5Quarterly
125% of quota for 6 months; 250% of quota available upon approval of 1- to 2-year arrangements; total of 500% of quota after 12 months of satisfactory progressRate of charge plus surcharge (200 basis points on amounts above 187.5% of quota; additional 100 basis points when outstanding credit remains above 187.5% of quota for more than 36 months)33¼–5Quarterly
Annual: 37.5% of quota (60% for large natural disasters); cumulative: 75% of quotaRate of charge plus surcharge (200 basis points on amounts above 187.5% of quota; additional 100 basis points when outstanding credit remains above 187.5% of quota for more than 36 months)3¼–5Quarterly
Source: IMF Finance Department.

The IMF’s lending through the General Resources Account (GRA) is primarily financed from the capital subscribed by member countries; each country is assigned a quota that represents its financial commitment. A member provides a portion of its quota in Special Drawing Rights (SDRs) or the currency of another member acceptable to the IMF and the remainder in its own currency. An IMF loan is disbursed or drawn by the borrower’s purchase of foreign currency assets from the IMF with its own currency. Repayment of the loan is achieved by the borrower’s repurchase of its currency from the IMF with foreign currency.

The rate of charge on funds disbursed from the GRA is set at a margin (currently 100 basis points) over the weekly SDR interest rate. The rate of charge is applied to the daily balance of all outstanding GRA drawings during each IMF financial quarter. In addition, a one-time service charge of 0.5 percent is levied on each drawing of IMF resources in the GRA, other than reserve tranche drawings. An up-front commitment fee (15 basis points on committed amounts of up to 115 percent of quota, 30 basis points for amounts in excess of 115 percent and up to 575 percent of quota, and 60 basis points for amounts in excess of 575 percent of quota) applies to the amount available for purchase under arrangements (SBAs, EFFs, PLLs, and FCLs) that may be drawn during each (annual) period; this fee is refunded on a proportionate basis as subsequent drawings are made under the arrangement.

Surcharges were introduced in November 2000. A new system of surcharges took effect August 1, 2009, and was updated on February 17, 2016, with some limited grandfathering for existing arrangements.

Source: IMF Finance Department.

The IMF’s lending through the General Resources Account (GRA) is primarily financed from the capital subscribed by member countries; each country is assigned a quota that represents its financial commitment. A member provides a portion of its quota in Special Drawing Rights (SDRs) or the currency of another member acceptable to the IMF and the remainder in its own currency. An IMF loan is disbursed or drawn by the borrower’s purchase of foreign currency assets from the IMF with its own currency. Repayment of the loan is achieved by the borrower’s repurchase of its currency from the IMF with foreign currency.

The rate of charge on funds disbursed from the GRA is set at a margin (currently 100 basis points) over the weekly SDR interest rate. The rate of charge is applied to the daily balance of all outstanding GRA drawings during each IMF financial quarter. In addition, a one-time service charge of 0.5 percent is levied on each drawing of IMF resources in the GRA, other than reserve tranche drawings. An up-front commitment fee (15 basis points on committed amounts of up to 115 percent of quota, 30 basis points for amounts in excess of 115 percent and up to 575 percent of quota, and 60 basis points for amounts in excess of 575 percent of quota) applies to the amount available for purchase under arrangements (SBAs, EFFs, PLLs, and FCLs) that may be drawn during each (annual) period; this fee is refunded on a proportionate basis as subsequent drawings are made under the arrangement.

Surcharges were introduced in November 2000. A new system of surcharges took effect August 1, 2009, and was updated on February 17, 2016, with some limited grandfathering for existing arrangements.

Table 2.3Concessional lending facilities: Three concessional lending facilities for low-income developing countries are available.
Extended Credit Facility (ECF)Standby Credit Facility (SCF)Rapid Credit Facility (RCF)
ObjectiveHelp low-income countries achieve and maintain a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth
PurposeAddress protracted balance of payments problemsResolve short-term balance of payment needsLow-access financing to meet urgent balance of payments needs
EligibilityCountries eligible for assistance under the Poverty Reduction and Growth Trust (PRGT)
QualificationProtracted balance of payments problem; actual financing need over the course of the arrangement, though not necessarily when lending is approved or disbursedPotential (precautionary use) or actual short-term balance of payments need at the time of approval; actual need required for each disbursementUrgent balance of payments need when upper-credit-tranche (UCT) program is either not feasible or not needed1
Poverty Reduction and Growth StrategyIMF-supported program should be aligned with country-owned poverty reduction and growth objectives and should aim to support policies that safeguard social and other priority spending
Submission of Poverty Reduction Strategy (PRS) documentSubmission of PRS document not required; if financing need persists, SCF user would request an ECF arrangement with associated PRS documentation requirementsSubmission of PRS document not required
ConditionalityUCT-quality; flexibility on adjustment path and timingUCT-quality; aim to resolve balance of payments need in the short termNo ex-post conditionality; track record used to qualify for repeat use (except under the shocks window and the natural disasters window)
Access PoliciesAnnual limit of 75% of quota; cumulative limit (net of scheduled repayments) of 225% of quota. Limits are based on all outstanding PRGT credit. Exceptional access to PRGT resources: annual limit of 100% of quota; cumulative limit (net of scheduled repayments) of 300% of quota
Norms and sublimits2
The access norm is 90% of quota per 3-year ECF arrangement for countries with total outstanding concessional IMF credit under all facilities of less than 75% of quota, and is 56.25% of quota per 3-year arrangement for countries with outstanding concessional credit of between 75% and 150% of quota.The access norm is 90% of quota per 18-month SCF arrangement for countries with total outstanding concessional IMF credit under all facilities of less than 75% of quota, and is 56.25% of quota per 18-month arrangement for countries with outstanding concessional credit of between 75% and 150% of quota.There is no norm for RCF access

Sublimits (given lack of UCT conditionality): total stock of RCF credit outstanding at any point in time cannot exceed 75% of quota (net of scheduled repayments). The access limit under the RCF over any 12-month period is set at 18.75% of quota, under the “shocks window” at 37.5% of quota, and under the “large natural disasters window” at 60% of quota. Purchases under the RFI made after July 1, 2015, count toward the applicable annual and cumulative RCF limits.
Financing Terms3Interest rate: Currently zero Repayment terms: 5½–10 yearsInterest rate: Currently zero. Repayment terms: 4–8 years Availability fee: 0.15% on available but undrawn amounts under precautionary arrangementInterest rate: Zero

Repayment terms: 5½–10 years
Blending Requirements with GRA financingBased on income per capita and market access; linked to debt vulnerability. For members presumed to blend, blending of PRGT: GRA resources takes place in the ratio 1:2.
Precautionary UseNoYes, annual access at approval is limited to 56.25% of quota while average annual access at approval cannot exceed 37.5% of quota.No
Length and Repeated Use3–4 years (extendable to 5); can be used repeatedly12–24 months; use limited to 2½ of any 5 years4Outright disbursements; repeated use possible subject to access limits and other requirements
Concurrent UseGeneral Resources Account (Extended Fund Facility/ Stand-By Arrangement)General Resources Account (Extended Fund Facility/ Stand-By Arrangement) and Policy Support InstrumentGeneral Resources Account (Rapid Financing Instrument and Policy Support Instrument); credit under the RFI counts towards the RCF limits
Source: IMF Finance Department.Note: GRA = General Resources Account.

UCT-quality conditionality is the set of program-related conditions intended to ensure that IMF resources support the program’s objectives, with adequate safeguards to the IMF resources.

Access norms do not apply when outstanding concessional credit is above 150% of quota. In those cases, access is guided by consideration of the access limit of 225% of quota (or exceptional access limit of 300% of quota), expectation of future need for IMF support, and the repayment schedule.

The IMF reviews interest rates for all concessional facilities every two years. At the latest review in October 2016, the Executive Board approved zero interest rates on the ECF and SCF through the end of December 2018 and a modification of the interest mechanism ensuring that rates would remain at zero for as long as (and whenever) global rates are low. In July 2015, the Executive Board permanently set the interest rate on the RCF to zero.

SCFs treated as precautionary do not count toward the time limits.

Source: IMF Finance Department.Note: GRA = General Resources Account.

UCT-quality conditionality is the set of program-related conditions intended to ensure that IMF resources support the program’s objectives, with adequate safeguards to the IMF resources.

Access norms do not apply when outstanding concessional credit is above 150% of quota. In those cases, access is guided by consideration of the access limit of 225% of quota (or exceptional access limit of 300% of quota), expectation of future need for IMF support, and the repayment schedule.

The IMF reviews interest rates for all concessional facilities every two years. At the latest review in October 2016, the Executive Board approved zero interest rates on the ECF and SCF through the end of December 2018 and a modification of the interest mechanism ensuring that rates would remain at zero for as long as (and whenever) global rates are low. In July 2015, the Executive Board permanently set the interest rate on the RCF to zero.

SCFs treated as precautionary do not count toward the time limits.

Table 2.4Arrangements approved and augmented under the Poverty Reduction and Growth Trust in FY2018(Millions of SDRs)
MemberEffective dateAmount approved
new three-year extended credit facility arrangements
Burkina FasoMarch 14, 2018108.4
CameroonJune 26, 2017483.0
ChadJune 30, 2017224.3
GuineaDecember 11, 2017120.5
MalawiApril 30, 201878.1
MauritaniaDecember 6, 2017115.9
Sierra LeoneJune 5, 2017161.8
TogoMay 5, 2017176.2
Subtotal1,468.1
augmentations of extended credit facility ARRANGEMENTs1
Central African RepublicDecember 15, 201739.0
Central African RepublicJuly 17, 201711.1
Cote d’Ivoire2June 19, 201754.2
MadagascarJune 28, 201730.6
MaliJuly 7, 201788.6
Subtotal223.5
disbursements under rapid credit facility
The GambiaJune 26, 201711.7
Subtotal11.7
Total1,703.2
Source: IMF Finance Department.

For augmentation only the amount of the increase is shown.

Additional SDR 108 million provided from the General Resources Account under a blended arrangement.

Source: IMF Finance Department.

For augmentation only the amount of the increase is shown.

Additional SDR 108 million provided from the General Resources Account under a blended arrangement.

The IMF’s framework for concessional financing is regularly reviewed to take account of changing needs. In 2015, the financial safety net for low-income countries was enhanced as part of the international community’s wider effort to support countries in pursuing the Sustainable Development Goals (SDGs). Key changes included (1) a 50 percent increase in PRGT access norms and limits; (2) rebalancing the funding mix of concessional and nonconcessional resources provided to countries that receive IMF financial support in the form of a blend of PRGT and GRA resources from a 1:1 to 1:2 ratio; and (3) setting the interest rate permanently at zero on fast-disbursing support under the Rapid Credit Facility to assist countries in fragile situations, for example, affected by conflict or natural disaster.

An Executive Board discussion in November 2016 clarified various aspects related to applying this financial safety net, including PRGT-eligible members’ access to the GRA, policies on blending, and the role of norms in determining access.

In addition:

  • ▪ In October 2016, it was decided to set interest rates on all concessional loans to zero until December 31, 2018. The interest-rate-setting mechanism was also modified so that interest rates will remain at zero as long as and whenever global interest rates are low.

  • ▪ In May 2017, the Board discussed options to better assist countries, including PRGT-eligible members, faced with sudden balance of payments pressures due to major natural disasters. Directors supported a proposal to increase the annual access limit under the Rapid Credit Facility and Rapid Financing Instrument from 37.5 to 60 percent of quota for countries hit by large natural disasters.

A fundraising round was started in 2015 to support continued concessional lending by the IMF for its poorest and most vulnerable members, and it mobilized SDR 11.4 billion in new PRGT loan resources, exceeding its original objective to raise up to SDR 11 billion. Of the 28 potential lenders approached—including 14 new lenders from among both emerging market and advanced economies—15 committed to new borrowing agreements as of April 30, 2018. These included two new lenders, Brazil and Sweden. In January 2018, the cumulative borrowing limit under the PRGT was raised by SDR 1 billion to SDR 38.5 billion to accommodate the above-target level of new loan resources that were secured.

Regarding debt relief, the Heavily Indebted Poor Countries (HIPC) Initiative has been largely completed. A total of 36 countries, out of 39 of those eligible or potentially eligible, benefited from HIPC relief. These include Chad, the latest beneficiary that received debt relief in the amount of SDR 17 billion in April 2015. The IMF can also provide grants for debt relief to eligible countries through the Catastrophe Containment and Relief Trust (CCRT), established in February 2015. The CCRT provides exceptional support to countries confronting balance of payments difficulties resulting from major natural disasters, such as massive earthquakes; from life-threatening, fast-spreading epidemics with the potential to affect other countries; and from other types of catastrophic disasters. To date, three countries (Guinea, Liberia, and Sierra Leone) have benefited from debt relief under the CCRT. In addition, in 2010, Haiti received SDR 178 million in debt stock relief under the former Post-Catastrophe Debt Relief Trust.

Program Design

Collaboration between Regional Financing Arrangements and the IMF

Since the global financial crisis, the global financial safety net has expanded and become multi-layered. This trend led to a need for stronger collaboration among these varied layers to ensure that any crisis-mitigation efforts are both timely and effective.

In July 2017, the Executive Board discussed the IMF’s ongoing work on enhancing collaboration between regional financing arrangements (RFAs) and the IMF. The work is part of a broader discussion with Executive Directors over proposals to strengthen the global financial safety net.

Executive Directors welcomed the proposed framework and agreed that stronger IMF-RFA collaboration would benefit both. These include promoting early engagement, exploiting complementarities, increasing the firepower, and mitigating contagion. Directors also concurred that a more structured approach would help enhance transparency, predictability, and effectiveness of collaboration in an increasingly multi-layered global financial safety net, with the IMF at its center.

Directors broadly supported the proposed operational modalities for collaboration based on activities in the areas of capacity development, surveillance, nonfinancial support, and lending. Directors regarded the proposals as an important first step toward stronger and more structured collaboration between the IMF and RFAs.

Currency Unions

Despite a long history of program engagement, the IMF lacked a general guidance on program design in members of currency unions. Under IMF-supported programs, the IMF has engaged with members of the four currency unions—the Central African Economic and Monetary Community, the Eastern Caribbean Currency Union, the European Monetary Union, and the West African Economic and Monetary Union.

In February 2018, the Executive Board discussed an IMF paper, “Program Design in Currency Unions.”

This new guidance will help ensure consistent, transparent, and evenhanded treatment across IMF-supported programs, as well as make the approach to programs consistent with that for IMF macroeconomic surveillance.

Executive Directors supported the establishment of general guidance on IMF engagement with currency union institutions where the policies of these institutions are critical to the success of IMF-supported programs.

Policy Coordination Instrument

In July 2017 the Executive Board approved the establishment of a new nonfinancing Policy Coordination Instrument (PCI) to further strengthen the global financial safety net and enhance the effectiveness of the IMF’s toolkit. The decision followed a series of discussions by the Executive Board on the adequacy of the safety net.

The new instrument is designed to help countries unlock financing from official and private donors and creditors, as well as demonstrate a commitment to a reform agenda. It will enable a policy dialogue between the IMF and countries, monitoring of economic developments and policies, as well as Board endorsement of those policies. The key design features draw on IMF financing arrangements and the Policy Support Instrument, with some differences. These include no eligibility requirements (it is open to the full membership), a more flexible review schedule, and a review-based approach for monitoring of conditionality.

Seychelles was the first IMF member country to request a PCI. The country has made considerable progress toward macroeconomic stability since the 2008 crisis under three consecutive IMF programs, and the growth outlook remains positive, buoyed by the tourism sector. However, it still faces vulnerabilities and pressures, as a small island economy dependent on tourism in a challenging global economic environment.

In December 2017, the Board approved a three-year PCI for Seychelles that will build on the lessons learned from the previous programs supported by the IMF. The PCI aims to support the authorities’ efforts to consolidate macroeconomic stabilization and foster sustained and inclusive growth. Program reviews take place on a semiannual fixed schedule. While the PCI involves no use of IMF resources, successful completion of program reviews would help signal Seychelles’ commitment to continued strong economic policies and structural reforms.

Policy Support Instrument

For low-income developing countries that do not want or need an IMF loan, a flexible tool can access the Policy Support Instrument (PSI) to secure IMF advice and support without a borrowing arrangement. It is a valuable complement to the IMF’s lending facilities under the PRGT. The PSI helps countries design effective economic programs. And it delivers clear signals to donors, multilateral development banks, and markets: the IMF endorses the strength of a member’s policies.

The PSI is designed to promote a close policy dialogue between the IMF and a member country, usually through semiannual IMF assessments of the member’s economic and financial policies. It is available to PRGT-eligible countries with a poverty reduction strategy in place that have a policy framework focused on consolidating macroeconomic stability and debt substantiality, while deepening structural reforms in key areas in which growth and poverty reduction are constrained. Such reforms would support strong and durable poverty reduction and growth for countries whose institutions are capable of supporting continued good performance. In general, policies under the PSI aim to consolidate macroeconomic stability and push ahead with structural measures to boost growth and jobs. These include measures to improve public sector management, strengthen the financial sector, or build up social safety nets. The IMF’s Executive Board program reviews play a critical role in assessing performance under the program and allowing it to adapt to economic developments.

In FY2018, the Board approved extensions of the PSI for Rwanda, Senegal, and Tanzania.

Post-Program Monitoring

When a member country borrows money from the IMF, its policies come under closer scrutiny. Once a country has completed its lending program, it may be subject to Post-Program Monitoring (PPM), which is an important part of the IMF’s safeguard architecture. PPM is generally expected for all member countries that have substantial IMF credit outstanding following the expiration of their programs. The aim is to identify risks to such member countries’ medium-term viability and provide early warnings on risks to the IMF’s balance sheets. Should it become necessary, IMF staff will advise on policy actions to correct macroeconomic imbalances.

Pakistan

In March 2018, the Executive Board concluded the first PPM discussions with Pakistan.

Pakistan’s near-term outlook for economic growth is broadly favorable. Real GDP is expected to grow by 5.6 percent in FY2017–18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained.

However, continued erosion of macroeconomic resilience could put this outlook at risk. Following significant fiscal slippages last year, the fiscal deficit is expected at 5.5 percent of GDP this year, with risks toward a higher deficit ahead of upcoming general elections. Surging imports have led to a widening current account deficit and a significant decline in international reserves despite higher external financing. The FY2017–18 current account deficit could reach 4.8 percent of GDP, with gross international reserves further declining in a context of limited exchange rate flexibility. Against the background of rising external and fiscal financing needs and declining reserves, risks to Pakistan’s medium-term capacity to repay the IMF have increased since completion of the Extended Fund Facility arrangement in September 2016.

Directors took note of Pakistan’s favorable growth momentum, but noted with concern the weakening of the macroeconomic situation, including a widening of external and fiscal imbalances, a decline in foreign exchange reserves, and increased risks to Pakistan’s economic and financial outlook and its medium-term debt sustainability. In this context, Executive Directors urged a determined effort by the authorities to refocus near-term policies to preserve macroeconomic stability.

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