Chapter 12: Evidence from Two Countries That “Graduated” from Prolonged Use

International Monetary Fund. Independent Evaluation Office
Published Date:
April 2003
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1. Morocco is one of the few recent prolonged users of IMF resources to have “graduated.” It had a series of nine arrangements between 1980 and 1993,1 but has not had an IMF-supported program since then and completed repaying its borrowing from the IMF in 1997.

2. After a temporary sharp increase in phosphate prices in the early 1970s that led to a boom in expenditures, the Moroccan economy ran into major problems in the late 1970s, as the global recession and falling phosphate prices led to sharp declines in exports and budgetary revenues. At first, the government maintained spending and this resulted in very large current account and budget deficits, financed mainly through external borrowing on commercial terms. Consequently, the imbalances Morocco faced as it entered a series of IMF-supported programs were very large. In 1981, the external current account deficit (excluding grants) exceeded 12 percent of GDP, while the central government budget deficit reached 14 percent of GDP. Between 1982 and 1984, the stock of external debt averaged over 100 percent of GDP, while the external debt-service ratio, before rescheduling, averaged 50 percent of exports of goods and services. In addition, Morocco faced major structural weaknesses, with heavy government regulation, including on consumer prices and credit allocation, a strong inward economic orientation, and considerable vulnerability to exogenous shocks due to its dependence on the agricultural sector and on phosphate exports.

3. Programs in the early 1980s had only a moderate impact in reducing these imbalances. Fiscal adjustment was achieved mainly through expenditure reduction, but domestic payments arrears rose. At first, progress on structural reforms was slower than planned, in part due to concerns over the social acceptability of a more rapid pace of reform. For example, there were serious riots over increases in the prices of some heavily subsidized consumer goods.

4. In the second half of the 1980s, as the structural reforms started to reach maturity, the contribution of the private sector to investment and growth increased as it benefited from deregulation and improved access to credit. Moreover, financial adjustment policies and structural reforms became mutually reinforcing, as for example tax reform contributed to a greater tax effort, and as export growth accelerated. Over the course of its IMF programs, Morocco eventually achieved significant structural changes, including the liberalization of most foreign transactions and consumer prices; reform of public enterprises; tax and public expenditure reform; and the removal of administrative impediments to private investment. Moreover programs were successful in raising saving: the ratio of gross national saving to GDP rose from an average of 16 percent during 1980–82 to almost 23 percent during 1990–92 (Figure 12.1). Tax reforms contributed to this change, with the tax effort rising from 19¼ percent of GDP to 22¼ percent of GDP over the same period.2 Progress, while eventually substantial, was not smooth. There were a number of setbacks in the face of exogenous shocks and periodic slippages in policy implementation.

Figure 12.1.Morocco: National Saving

(In percent of GDP)

Source: IMF staff reports.

5. This experience suggests a number of questions. Were there elements of the design and implementation of programs that helped Morocco achieve greater external sustainability and dispense with IMF support more quickly than many other prolonged users? Why did core policies continue to move in the right direction? And compared with the other case studies, were there any differences in terms of “exit strategies” once Morocco had reached a certain threshold in terms of external viability? The following aspects help to cast light on these issues:

No obvious differences in the time frame of programs from other prolonged users

6. As in Pakistan and Senegal (but less so in the Philippines), programs were initially overoptimistic about the time frame needed for external viability to be restored.3 For example, the 1983 staff report stated that despite large disequilibria, Morocco “must aim at reaching a sustainable position in a relatively short period.... the medium-term scenario in which the program is set aims at reaching this sustainability by 1988.... which, in the view of the staff, is an appropriate time horizon.”4 Later, programs appear to have become more realistic about the timetable for restoring external viability: by the 1986 program viability was not expected until about 1993. Medium-term projections in subsequent programs broadly maintained this time horizon.

7. Programs from 1982 onward were supported by 12–18 month SBAs, but there was some recognition on both sides that this was part of a more medium-term effort. Nevertheless, the Moroccan authorities have expressed the view that programs still had an overly short-term time horizon, particularly as far as structural reforms were concerned and that, at least formally, staff could not candidly position programs within the longer-term framework. Thus, initial programs were too ambitious about the timetable for structural reform.

8. For example, the 1983 program called for a value-added tax (VAT) to be implemented by July 1984, and for draft bills for reform of the general income tax and the corporate income tax to be submitted along with the 1984 budget. In the event, the VAT was not implemented until 1986, after extended consideration in Parliament, and a global personal income tax was only implemented in 1989. Despite this initial “overpromising” on the timetable of tax reform—which appears to have reflected institutional pressures to demonstrate concrete progress within the time frame of the program—one factor that helped maintain progress was that an initial “Loi Cadre” adopted by Parliament had defined the over-all framework for tax reform, so that the ultimate objectives remained clear despite slippages in the timetable of individual components. Indeed, officials and staff interviewed were of the view that, with hindsight, the additional time taken for preparation and debate, including in Parliament, on the VAT and the income and profits taxes contributed to their eventual successful implementation by helping to secure greater popular support.

Program design and the nature of conditionality showed no major differences in approach from that in other prolonged users

9. Until 1985, IMF-supported programs focused on fiscal adjustment, primarily through large reductions in capital spending and public sector wage restraint, tight monetary policy through credit controls, and a flexible exchange rate. Structural reforms were also envisaged, but in practice were largely limited to preparatory work. From 1986 on, programs gave greater emphasis to structural reform, including of the fiscal system and trade regime. Programs continued to target moderate strengthening of the fiscal position, while the nominal exchange rate was fixed in relation to a basket of the currencies of Morocco’s principal trading partners.

10. Programs generally took a fairly gradual approach to adjustment. On average, the six IMF-supported programs between 1983 and 1992 targeted a reduction in the fiscal deficit by an average of 1.3 percentage points of GDP between the year in which the program started and the next,5 while the current account deficit was projected to narrow on average by 1.4 percentage points of GDP over the same period (Table 12.1 and Figures 12.2 and 12.3). In both cases, the targeted adjustment was somewhat greater in the earlier programs than in later ones, in part reflecting the scale of the initial imbalances. Although there was considerable slippage in individual programs, there was a substantial reduction in the fiscal deficit over the period of IMF-supported programs, from 14 percent of GDP in 1981 to a little over 2 percent in 1992.6

Table 12.1.Morocco: Implementation of Fiscal Programs1
Source: IMF staff reports.

Central government deficit, payments order basis, excluding grants; unless otherwise stated.

Budget deficit, excluding grants, and excluding changes in “Fonds réservés.”

Source: IMF staff reports.

Central government deficit, payments order basis, excluding grants; unless otherwise stated.

Budget deficit, excluding grants, and excluding changes in “Fonds réservés.”

Figure 12.2.Morocco: Current Account Balance1

(In millions of U.S. dollars)

Source: IMF staff reports.

1 The starting point of projections is occasionally off the “actuals” line because of subsequent revisions to the data on which the projections were based.

Figure 12.3.Morocco: Central Government Balance1

(Payments order basis; in percent of GDP)

Source: IMF staff reports.

1 The starting point of projections is occasionally off the “actuals” line because of subsequent revisions to the data on which the projections were based.

11. Conditionality in most programs concentrated on the standard macroeconomic quantitative performance criteria. Programs typically also included indicative benchmarks for government revenue, which would trigger consultations on corrective actions if they were missed. Conditionality on structural measures was exercised primarily through the review process, with little use of specific benchmarks. There seems to have been relatively limited use of prior actions even though the guidelines on prolonged use called for greater emphasis on such actions.7

12. Given the basic commitment of the authorities, the IMF’s flexibility in exercising conditionality—with the focus on reviews to judge whether sufficient progress was being made in key structural areas—was probably appropriate. However, there is no evidence that the IMF was more “flexible” than in many other cases; for example, programs with the Philippines also relied primarily on reviews for structural conditionality.8

Ownership and implementation: despite slippages in timing, political commitment to the broad direction of the reforms and good implementation capacity appear to have been the critical factors

13. Implementation of the programs was somewhat mixed, but despite periodic slippages, particularly in relation to fiscal targets, policies on core issues continued to move in the right direction, although not always at the pace envisaged in programs.9 Implementation of the monetary aspects of programs was generally strong. This consistent direction appears to have owed much to a high degree of commitment by the economic team to the underlying aims and content of successive programs, with the backing of the highest levels of government, and to a high degree of political stability. Interviews with staff also suggest that the strength of Morocco’s civil service was a major factor in successful implementation of key reforms. Increasing transparency in putting information and policies out for public discussion also appears to have helped develop a broader consensus, although this consensus was by no means complete since some measures—especially price increases on consumer goods—continued to meet considerable social resistance.

14. In this context, the pace of adjustment and re-form was set to some degree by the authorities’ perceptions of the domestic political acceptability of reform. In practice, the IMF accommodated this approach by tolerating minor policy slippages and taking a flexible attitude to progress on structural re-form in completing program reviews. But this approach does not seem to have differed fundamentally from that in the case study countries where there was also considerable de facto flexibility. The real difference appears to have been made by strong domestic ownership, rather than by the structure of conditionality.

The economy was highly vulnerable to exogenous shocks, but the approach of programs to this uncertainty was not different from that in other prolonged users10

15. However, although exogenous developments led to some relaxation of adjustment efforts in 1981–82 and caused temporary problems in other programs, more generally, shocks do not seem to have distracted the authorities from their broad commitment to advancing reform. For example, there was no major erosion of earlier gains even in the face of the Middle East crisis in 1990–91 and episodes of severe drought. Nevertheless, in their questionnaire responses, the Moroccan authorities said that programs were insufficiently flexible with regard to exogenous shocks. In their view, advance agreement on how supply shortfalls would be dealt with in programs would have made the process smoother and programs less subject to interruption.

With regard to the exit strategy, the authorities and the IMF appear to have adopted a narrower rationale for continued program involvement than in some other prolonged users

16. The staff appraisal for the 1992 SBA request noted that Morocco was poised to achieve viable budgetary and external sector positions, and that with the help of the program in 1992 and a further concerted effort in 1993, Morocco would graduate from the use of IMF resources, restore normal rela tions with its creditors, be able to service its future debt obligations, and achieve current account convertibility in 1993. This “graduation” certainly did not mean that all structural adjustment problems had been solved. Indeed, the economy continued to face major challenges, including in the areas of public enterprise reform, the regulatory environment for private investment, and reform of the financial system. Moreover, the economy remained insufficiently diversified, with its heavy reliance on rain-fed agriculture leaving it still very sensitive to weather variations.

17. However, it is not clear that common standards were applied with respect to different countries when judging when an exit from IMF-supported programs was justified. For example, a comparison of Morocco’s situation in 1993 with that of the Philippines, where the IMF judged that a further EFF arrangement was justified, does not suggest any obvious reasons for the differences in approach (see Box 5.3 in Chapter 5 of Part I).

Lessons from Jamaica: Implications for Ownership and the “Seal of Approval“

18. Jamaica is a former prolonged user of IMF resources that made a decision not to seek further financial support from the IMF. The current evaluation has not attempted to investigate all aspects of IMF-supported programs with Jamaica, but focuses on two issues: (i) how did the authorities’ decision not to enter into new lending arrangements with the IMF affect the nature of the policy dialogue and “ownership”; and (ii) what lessons does Jamaica’s recent experience suggest for the IMF’s role in signaling a “seal of approval” on the macroeconomic framework to donors, including other IFIs? The evaluation is based on reviews of internal and published IMF documents, interviews with IMF staff and a senior Jamaican representative as well as written responses by the authorities.

19. Since the 1960s, Jamaica has had nine SBAs and four extended arrangements with the IMF. The last EFF expired in March 1996, after which the Jamaican government announced its “independence from the IMF,” indicating that it would not borrow again. The authorities explained in interviews with the IEO that this decision was taken in large part because of their assessment that previous IMF-supported programs had not achieved success and that they had consequently prepared a “homegrown” macroeconomic program.

20. At the time the EFF expired, Jamaica still faced large adjustment challenges. Public debt was high (over 100 percent of GDP, with over two-thirds external); inflation was over 20 percent; the real effective exchange rate was appreciating under the combined impact of sizable wage increases in the public and private sectors and an anti-inflationary monetary policy that had pushed up real interest rates;11 growth remained weak (recorded GDP rose by only 3 percent during the decade of the 1990s);12 and the first stage of a major financial sector crisis was under way. The IMF policy advice at the time was that (i) a major adjustment of the exchange rate was necessary in order to restore competitiveness and thereby contribute to higher sustainable growth, along with (ii) some fiscal adjustment (i.e., small overall surpluses). Later, IMF staff also recommended a workout strategy for the financial sector that involved the separation of banks from insurance companies and the intervention and closure of all insolvent institutions. The authorities strongly rejected the advice on the exchange rate, arguing that, with a wage formation process that was heavily influenced by the exchange rate, a sizable devaluation would only accelerate the wage-price spiral so that the best way to assure competitiveness was through a tight monetary policy. The IMF staff initially doubted that, in the likely protracted low-growth environment that such a stabilization strategy would involve, the authorities would be able to maintain the sizable fiscal effort necessary to avoid unsustainable public debt dynamics. On the financial sector, the government feared that outright intervention and closure of banks would lead to a crisis of confidence and capital flight. They opted instead for a strategy based on guaranteeing all deposits and other liabilities; keeping all institutions open; and dealing with problem institutions more gradually, albeit at a high fiscal cost. An off-budget institution, FINSAC, was created and gradually acquired shares in a number of institutions in return for official liquidity support until it effectively controlled all domestically owned commercial banks; a process of merger, reorganization, and gradual privatization then followed.

21. In the event, the government did manage to generate and maintain large primary fiscal surpluses (Figure 12.4), involving some difficult budgetary decisions, including a squeeze on capital spending. As the authorities’ “homegrown” policy strategy was seen to be implemented quite forcefully, and the IMF backed away in subsequent Article IV surveillance reports from its previous insistence on an initial large depreciation while still encouraging greater exchange rate flexibility, the nature of the policy dialogue gradually improved. In July 2000, it was agreed that there would be staff monitoring of the government’s economic program. The authorities have indicated that they sought the SMP specifically in order to obtain policy-based loans from the multi-lateral development banks by sending a signal on their macroeconomic framework.13

Figure 12.4.Jamaica:Trends in Fiscal Balance and Public Debt

(In percent of GDP)

Source: IMF staff reports.

1Includes FINSAC interest payments on a full year base. Fiscal year starts in April.

2Excluding Bank of Jamaica’s external debt and net of public enterprises’ holding of FINSAC and government securities.

22. The authorities’ program achieved some important results, although Jamaica’s problems are far from resolved.14 High primary fiscal surpluses prevented the public sector debt dynamics from deteriorating further; real interest rates declined moderately, although they are still extremely high; and the cushion of external reserves improved. However, the public sector debt (at around 130 percent of GDP) remains a major source of vulnerability and real GDP growth has only recently begun to recover moderately, after a number of years of stagnation. Nevertheless, given the extremely difficult starting conditions and the consequences of the financial sector crisis, any adjustment was bound to be protracted and difficult, with or without IMF support.

23. This experience suggests some interesting lessons:

On ownership

  • The staff’s own assessment was that one of the main reasons earlier programs had failed to achieve their objectives was a lack of owner-ship. In their view, as reflected in an internal re-view prepared in 1998, the authorities’ agreement to programs had been mainly motivated by the need to obtain foreign financing and debt relief—a view shared by the authorities. Under these conditions, program implementation, when it was successful, was geared to meeting specific quantitative performance criteria rather than to the implementation of the underlying policy approach. Indeed, a principal conclusion of the internal assessment was that unless the authorities made a future economic program a matter of national political priority, it was unlikely that any such program would achieve the stated objectives.

  • In this case, the move away from a financial arrangement with the IMF—at the authorities’ initiative—was associated with much stronger domestic ownership, which proved critical. The policy strategy they pursued, while not in accord with the IMF’s recommendations on some key points, does not appear to have been a less appropriate strategy in Jamaica’s circumstances, especially since it was implemented with commitment. Although any counterfactual cannot be asessed with rigor, it seems likely that, if Jamaica had been obliged at that time (e.g., in order to unlock other sources of financing) to adopt a program along the lines proposed by the IMF staff, the eventual outcome would have been worse than the current situation, especially because a lack of ownership would have led to weak implementation. It is more difficult to judge which set of policies might have been preferable, abstracting from political commitment.15

  • With the benefit of hindsight, the IMF should not have been so dogmatic in insisting upon its preferred strategy, which also involved substantial risks. However, the IMF was prepared to modify its position, once it was clear that the authorities had a strong commitment to an alternative strategy and were prepared to back it up with action, especially on fiscal policy. Indeed, records of the surveillance Board discussions in May 2001 suggest that a number of Executive Directors expressed sympathy for the authorities’ position on the exchange rate/monetary policy framework.

  • The authorities’ strong commitment to transparency was a major advantage. They agreed to the publishing of a (rather critical) Public Information Notice (PIN) following the 1997 Article IV consultation—an action that had a favorable effect on private financial markets (reflected in quite narrow spreads)—and have consistently agreed to the publishing of Article IV consultation missions’ concluding statements, including information on performance relative to SMP targets, as well as staff reports for the consultations and SMPs. Their normal practice has been to issue, around the time of publication, their own “commentary” on the staff reports, emphasizing both points of agreement and disagreement, which has helped foster a more open debate.

On the seal of approval

  • Internal IMF documents and staff interviews suggest that the need for an IMF arrangement in order to have access to Paris Club rescheduling was a major motivation behind the authorities’ proceeding with many earlier programs.16 But, as noted above, many of the programs appear to have been weakly owned. By the time the government decided to forgo any further lending arrangements with the IMF, any further rescheduling of (pre-cutoff date) official debt would have had little impact, and Jamaica was able to access private financial markets without an IMF-supported program. Therefore, the initial lack of a “seal of approval” from the IMF mainly affected program lending by the multi-lateral development banks.

  • The ambiguous nature of the staff-monitored program (SMP) as a seal of approval on the macroeconomic framework caused some initial problems. On the one hand, the authorities were concerned that the IMF might become an impediment to their access to much needed resources from other sources, notably the World Bank and the IDB, while the latter institutions were concerned that the IMF staff might not be as rigorous in their policy advice and assessments if no IMF financial resources were involved. The World Bank also had burden-sharing concerns. Eventually, both institutions did undertake lending for financial sector restructuring, using the SMP as the basis for the signal on the macroeconomic framework.

  • Despite these initial concerns about the role of the SMP, it does appear to have played a useful role in the case of Jamaica—allowing some room for maneuver to combine a strong domestic policy formulation process with a healthier policy dialogue with the IMF. IMF staff expressed the view that the authorities became more receptive to a discussion on alternative policy mixes—within their own overall framework—once the SMP route became an option, and the authorities have also indicated that they found the approach useful. The point is not that the SMP as an instrument necessarily had any major advantages over a lending arrangement. Although the IMF did have initial reservations about the authorities’ approach, these reservations diminished, and the IMF might have been willing to agree to a lending arrangement in support of the authorities’ program rather than a SMP. But in this case a SMP did provide an alternative approach to signaling on the “seal of approval” that was more acceptable to the authorities, and hence more likely to foster ownership.

Two EFFs in the early 1980s, both of which quickly went off-track and were cancelled, followed by seven SBAs between 1982 and 1993 (see Figure 3.1 in Part I, Chapter 3). Morocco also had six nearly continuous annual SBAs between 1965 and 1972.

Morocco’s adjustment experience is described in more detail in Nsouli and others (1995).

The first programs in 1980 and 1981 turned out to be particularly unrealistic, assuming as they did that commercial banks would continue to lend on a significant scale.

However, even then the medium-term projections showed large overall balance of payments deficits (equivalent to 6 percent of GDP) persisting through 1987. The staff report claimed that “beyond 1987, the situation could be regarded as more sustainable in the light of the resumption of normal capital inflows....”

That is, between the projection or estimate for year T, and the projection for year T + 1.

Year-to-year comparisons are complicated because of arrears and other data issues. Much of the fiscal adjustment apparently occurred in 1986, after the 1985 program went off-track and before a new program was approved in December of that year.

However, they were used on occasion. For example, parliamentary approval of a revised budget, upward adjustment of retail prices of subsidized commodities, and partial reversal of recently introduced import restrictions were required as “prior actions” for approval of the 1983 SBA arrangement. The 1992 SBA also included a number of prior actions relating to fiscal issues and the reform of interest rate policy, open market operations, and consideration of a new banking law.

The Executive Board did grant waivers of fiscal performance criteria in the 1983, 1986, and 1988 programs, in addition to waivers for primarily technical breaches of performance criteria relating to external arrears.

Both the 1980 and 1981 EFF programs went off-track quickly and were cancelled, with less than 20 percent of the planned disbursements made. The remaining SBAs were more successfully implemented; on average 78 percent of planned disbursements were made. However, neither of the last two programs in 1990 and 1992 was completed as performance criteria were missed and program reviews were not completed.

However, unlike, for example, in Senegal, there was only very limited use of automatic adjustments to quantitative performance criteria. The 1990 and 1992 programs did include adjusters in relation to net external financing and to privatization proceeds.

The real effective exchange rate appreciated by over 20 percent in the two years prior to March 1996 and appreciated by a further 30 percent in the next two years, before leveling off.

However, GDP growth was probably under-recorded because the sizable informal sector appears to have grown much faster.

A staff-monitored program (SMP) is an informal agreement between the authorities and the IMF staff to monitor the implementation of the authorities’ economic program; such monitoring does not imply endorsement of the program by the IMF Executive Board, management, or staff, but management and staff should consider that the program is capable of achieving its targets if it is consistently implemented. See “Guidelines for the Use of Staff Monitored Programs.” While SMPs can serve several purposes, the objective of Jamaica’s SMP was to serve as a signal to official lenders—specifically, the World Bank, as the text notes, and the Inter-American Development Bank (IDB) and the Caribbean Development Bank (CDB)—about the authorities’ commitment to sound macroeconomic policies. While the minimum requirement of the World Bank to proceed with policy-based adjustment (as opposed to project) lending is that IMF management provide a “comfort” letter indicating that, in its view, macroeconomic policies are being conducted in a satisfactory manner, in the case of Jamaica the World Bank had initially indicated that it preferred an IMF-supported program to be in place. It eventually agreed to accept the SMP as the necessary seal of approval.

See the staff report for the 2001 Article IV Consultation and Review of Staff-Monitored Program, available on the IMF’s web-site, for further details.

Kirkpatrick and Tennant (2002) attempt to assess what the outcome would have been if an alternative financial sector strategy, closer to one like that recommended by the IMF, had been adopted. However, their counterfactual assumes that the IMF strategy would have led to a major currency crisis and output collapse and hence an obviously inferior outcome. There is no way to test this assertion. It is also possible that the counterfactual would have been a stronger flow of funds into foreign-owned domestic banks.

Jamaica reached seven rescheduling agreements with the Paris Club between 1984 and 1993.


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Glossary of Selected Terms1AAccess Policy and Access Limits

Policies that govern the use of IMF resources by its members, including access limits set in terms of members’ quotas. The access policy, including annual and cumulative limits, under the credit tranches and the Extended Fund Facility (EFF) are reviewed each year. Access under other facilities also is reviewed periodically. Access under the Supplemental Reserve Facility (SRF) and the Contingent Credit Line (CCL) are not subject to limits in relation to quotas.


A decision by the IMF that gives a member the assurance that the institution stands ready to provide foreign exchange or SDRs in accordance with the terms of the decision during a specified period of time. An IMF arrangement—which is not a legal contract—is approved by the Executive Board in support of an economic program under which the member undertakes a set of policy actions to reduce economic imbalances and achieve sustainable growth. Resources used under an arrangement carry with them the obligation to repay the IMF in accordance with the applicable schedule, and to pay charges on outstanding purchases (drawings) and loans.

Article IV

Article IV consultations are the main vehicle through which the IMF exercises its bilateral surveillance mandate. In accordance with Article IV of its Articles of Agreement, the IMF holds consultations, normally every year, with each of its members. The purpose of these consultations is to assess whether a country’s economic developments and policies are consistent with the achievement of sustainable growth and domestic and external stability. In this way, the IMF seeks to provide a preventive mechanism that is capable of signaling dangers on the economic horizon and anticipating the need for policy action. The outcome of these consultations is a staff report discussed by the IMF’s Executive Board. Many countries choose to make these reports public after they have been discussed by the Board.

Articles of Agreement

An international treaty that sets out the purposes, principles, and financial structure of the IMF. The Articles, which entered into force in December 1945, were drafted by representatives of 45 nations at a conference held in Bretton Woods, New Hampshire. The Articles have since been amended three times, in 1969, 1978, and 1992, as the IMF responded to changes in the world economic and financial structure.

BBasic Rate of Charge

A single unified rate of charge that is applied to the outstanding use of IMF credit financed from the IMF’s general resources. The basic rate of charge, which is set as a proportion of the weekly SDR interest rate, is applied to the daily balance of all outstanding purchases (drawings) during each of the IMF’s financial quarters. A surcharge is added for use of resources under the Supplemental Reserve Facility and the Contingent Credit Line.


In the context of IMF arrangements, a point of reference against which progress may be monitored. Benchmarks may be either quantitative or structural in content, and may be set on a quarterly or semiannual basis.

CCompensatory Financing Facility (CFF)

A special IMF financing facility (window) that was established to provide resources to members to cover shortfalls in export earnings and services receipts, as well as excesses in cereal import costs, that are temporary and arise from events beyond the members’ control.


Economic policies that members intend to follow as a condition for the use of IMF resources. These are often expressed as performance criteria (for example, monetary and budgetary targets) or benchmarks, and are intended to ensure that the use of IMF credit is temporary and consistent with the adjustment program designed to correct a member’s external payments imbalance.

Contingent Credit Line (CCL)

The CCL is aimed at preventing the spread of a financial crisis, enabling countries that are basically sound and well managed to put in place precautionary financing in the event a crisis should occur. Short-term financing would be provided under a Stand-By or an Extended Arrangement to help members overcome the balance of payments financing needs arising from a sudden and disruptive loss of market confidence due to contagion, and largely generated by circumstances beyond the member’s control.

Credit Tranche Policies

Policies under which members may make use of IMF credit. The amount of such use is related to a member’s quota. Early in its history, the IMF made credit available in four tranches (segments), each equal to 25 percent of a member’s quota. Provided a member is making reasonable efforts to solve its balance of payments problems, it can make use of IMF resources up to the limit of the first credit tranche on fairly liberal terms. Requests for use of more resources (upper credit tranche purchases) require substantial grounds for expecting that the member’s balance of payments difficulties will be resolved within a reasonable period of time. Such use is almost always made under a Stand-By or an Extended Arrangement, entailing phasing of purchases, performance criteria, and reviews.

EEarly Repurchase Expectation

The expectation of repurchase (repayment) in advance of its originally scheduled due date. According to the Articles of Agreement, a member is normally expected to repurchase its currency (make repayment of usable currencies) as its balance of payments and reserve positions improve. The current early repurchase policy has been in effect since June 1979 and establishes amounts expected to be repurchased taking into account the level of a member’s reserves and their growth, as well as other parameters. A separate repurchase expectation applies to purchases made under the Supplemental Reserve Facility and the Contingent Credit Line. Such repurchases are expected one year before they become obligatory, except that at the request of the member the IMF may decide to extend the expectation period by up to one year, though not beyond the due date.

Enhanced Structural Adjustment Facility (ESAF)

Facility established in December 1987 to provide assistance on concessional terms to low-income member countries facing protracted balance of payments problems. (Changed to the Poverty Reduction and Growth Facility in 1999.)

Enhanced Surveillance Procedure

Policy introduced in 1985 to help members make progress in addressing their debt problems and improving relations with their creditors. During the enhanced surveillance period, economic developments in the member country are monitored by the IMF. The staff prepares an assessment of the member’s economic program, which may be presented by the member to official and private creditors for consideration. The policy was broadened in 1993 to cover any situation in which a member would find this enhanced monitoring by the IMF helpful.

Executive Board

The Executive Board consists of 24 Executive Directors representing the IMF’s 184 member countries. At present, eight Executive Directors represent individual countries: China, France, Germany, Japan, Russia, Saudi Arabia, the United Kingdom, and the United States. The 16 other Executive Directors each represent groupings of the remaining countries. The Executive Board rarely makes its decisions on the basis of formal voting, but relies instead on the formation of consensus among its members.

Extended Arrangement

A decision of the IMF under the Extended Fund Facility that gives a member the assurance of being able to purchase (draw) resources from the General Resources Account (GRA) during a specified period, and up to a particular amount.

Extended Fund Facility

A financing facility (window) under which the IMF supports economic programs that generally run for three years and are aimed at overcoming balance of payments difficulties resulting from macroeconomic and structural problems. Typically, the member’s economic program states the general objectives for the three-year period and the specific policies for the first year; policies for subsequent years are spelled out at the time of program reviews.

Financing Assurances

An IMF policy developed in response to the external debt crisis of the late 1970s and early 1980s to help mobilize financial support from the international banking community for countries experiencing debt-servicing difficulties. Under the policy, the IMF would not make its resources available to a member undertaking an adjustment program until receiving assurances that the financing for the program would be forthcoming.

GGeneral Resources

Assets, whether ordinary (owned) or borrowed, maintained within the IMF’s General Resources Account (GRA), that constitute the bulk of resources available to the IMF to provide financial support to its members.

HHeavily Indebted Poor Countries (HIPC) Initiative

The HIPC Initiative, adopted in 1996, provides exceptional assistance to eligible countries to reduce their external debt burdens to sustainable levels, thereby enabling them to service their external debt without the need for further debt relief and without compromising growth. It is a comprehensive approach to debt relief that involves multilateral, Paris Club, and other official and bilateral creditors. Assistance under the HIPC Initiative is limited to PRGF- and IDA-eligible countries that have established a strong track record of performance under PRGF- and IDA-supported programs. A strong track record of policy implementation is intended to ensure that debt relief is put to effective use. Recent enhancements to the HIPC Initiative aim to provide deeper, broader, and quicker debt relief. It is expected that as many as 36 IMF members could qualify for assistance under the enhanced Initiative.

IInternational Monetary and Financial Committee (IMFC)

The IMFC consists of 24 Governors representing constituencies or groups of countries, corresponding to those of the Executive Board. It meets twice a year, on the occasion of the IMF–World Bank Annual and Spring Meetings, to advise the IMF on the functioning of the international monetary system. In April 2002, the members of the IMFC were the Governors of the IMF for Algeria, Argentina, Australia, Belgium, Botswana, Brazil, Canada, China, Finland, France, Gabon, Germany, India, Italy, Japan, Mexico, Netherlands, Russia, Saudi Arabia, Switzerland, Thailand, United Arab Emirates, United Kingdom and United States.

LLetter of Intent

A document emanating from country authorities that presents to the Executive Board the economic programs that they formulated in consultation with the IMF, in support of their request for IMF lending.

Liquidity Ratio

A measure used to gauge the IMF’s capacity to provide financial assistance to members and meet members’ claims on the IMF. It is the ratio of the IMF’s net uncommitted usable resources to its liquid liabilities.


IMF management consists of the Managing Director and three Deputy Managing Directors. The Managing Director is Head of IMF staff and Chairman of the Executive Board. He is appointed by the Executive Board.

PParis Club

The Paris Club is an informal group of official creditors, industrial countries in most cases, that seek solutions for debtor countries facing payments difficulties. Although the Paris Club has no legal basis, its members agree to a set of rules and principles designed to reach a coordinated agreement on debt rescheduling quickly and efficiently. The Paris Club and the IMF have extensive contacts, since the Paris Club normally requires countries to have an active IMF-supported program in order to qualify for a rescheduling agreement.

Performance Criteria

Macroeconomic or structural indicators that must be met, typically on a quarterly or semiannual basis, for the member to qualify for purchases under the phasing schedule for Stand-By Arrangements, Extended Fund Facility (EFF) Arrangements, and Poverty Reduction and Growth Facility Arrangements. Some performance criteria are those necessary to implement specific provisions of the Articles of Agreement.


The practice of making the IMF’s resources available to its members in installments over the period of an arrangement. The pattern of phasing can be even, front-loaded, or back-loaded, depending on the financing needs and the speed of adjustment.

Poverty Reduction and Growth Facility (PRGF)

Established as the Enhanced Structural Adjustment Facility (ESAF) in 1987, enlarged and extended in 1994, and further strengthened in 1999 to make poverty reduction a key and more explicit element. The purpose of the facility is to support programs to strengthen substantially and in a sustainable manner balance of payments positions, and to foster durable growth, leading to higher living standards and a reduction in poverty. Eighty low-income countries are currently PRGF-eligible. Loans are disbursed under three-year arrangements, subject to observance of performance criteria and the completion of program reviews. Loans carry an annual interest rate of 0.5 percent, with a 5½ year grace period and a 10-year maturity.

Precautionary Arrangement

A Stand-By or an Extended Arrangement under which the member agrees to meet specific conditions for use of IMF resources although it has indicated to the Executive Board its intention not to make purchases (drawings).

Program Monitoring

Monitoring by the IMF to determine whether the performance criteria specified and policy commitments made in the context of a Stand-By or an Extended Arrangement are being observed by the member receiving resources (see Conditionality).

Purchases and Repurchases

When a member draws on the IMF’s general resources, it does so by purchasing SDRs or other members’ currencies in exchange for its own (domestic) currency. The IMF’s general resources are, by nature, revolving: purchases (or drawings) have to be reversed by repurchases (or repayments) in installments within the period specified for a particular policy or facility.


The capital subscription, expressed in SDRs, that each member must pay to the IMF on joining. Up to 25 percent is payable in SDRs or other acceptable reserve assets and the remainder in the member’s own currency that the IMF in turn can use to obtain reserve assets from the member. Quotas determine the maximum amount of resources a member is called upon to provide to the IMF, serve as the basis for voting power on IMF decisions, determine the distribution of SDR allocations, and serve as the basis for access to IMF resources. Quotas are normally reviewed every five years.

SSpecial Drawing Right (SDR)

International reserve asset created by the IMF in 1969 to supplement existing reserve assets. The currency value of the SDR is determined daily by the IMF by summing the values in U.S. dollars, based on market exchange rates, of a basket of four major currencies—the euro, Japanese yen, pound sterling, and the U.S. dollar. The SDR valuation basket is normally reviewed every five years. Members of the IMF may use SDRs in a variety of voluntary transfers, including in operations and transactions involving the General Resources Account (GRA), such as the payment of charges and repurchases (repayments). The SDR is also the unit of account of the IMF’s financial activities.

Stand-By Arrangement

A decision of the IMF by which a member is assured that it will be able to make purchases (drawings) from the General Resources Account (GRA) up to a specified amount and during a specified period of time, usually one to two years, provided that the member observes the terms set out in the supporting arrangement.

Supplemental Reserve Facility (SRF)

A facility (window) established in December 1997 to provide financial assistance to members experiencing exceptional balance of payments difficulties due to short-term financing needs resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the members’ reserves.


The IMF has a mandate under its Articles of Agreement to exercise firm surveillance over the exchange rate policies of members in order to oversee the international monetary system and ensure its effective operation. To this end, the IMF assesses whether a country’s economic developments and policies are consistent with the achievement of sustainable growth and domestic and external stability (bilateral surveillance). The IMF also assesses the global implications of members’ policies and reviews key developments and prospects in the international monetary system (multilateral surveillance). In this way, the IMF seeks to provide a preventive mechanism that is capable of signaling dangers on the economic horizon and anticipating the need for policy action. (See also Article IV.)

UUse of IMF Resources (or IMF Credit)

The extension of credit to members through the use of IMF resources under the General Resources Account, loans made to members of resources in the Special Disbursement Account, or resources borrowed by the IMF as Trustee for the PRGF Trust.

This glossary is based on the “Glossary of Selected Financial Terms” and various factsheets prepared by the IMF’s External Relations Department. The full glossary is available on the IMF’s website at The factsheets are available at Words in light italics are “see also” references.

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