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A Factsheet - April 2008

IMF Quotas

The endorsement of a reform in the International Monetary Fund (IMF) quota system by its Executive Board on March 28, 2008, is a major first step to bring voting shares in line countries’ weight in the global economy and thus increase the voice and participation of emerging market and low-income countries at the IMF. The significance of this reform rests primarily on:

• An increase in voting shares for 135 of the 185 member countries, representing a shift of 5.4 percentage points (eight of the ten countries with the largest increase in voting share are emerging market countries).

• A simple quota formula with GDP (the most important variable) constructed as a blend of GDP at market exchange rates and at Purchasing Parity Power (PPP) rates. The blend is important because GPD at PPP rates tends to be higher in emerging and low-income countries than in advanced economies.

• The tripling of basic votes and the allocation of additional alternate Executive Directors for Directors representing the two African constituencies at the Executive Board which enhance the voice and participation of low-income countries.

• The dynamism of the reform package that calls on the Executive Board to recommend further realignments in quota and voting shares every five years. This will guarantee further increases in the shares of underrepresented members. The package also specifies that the voting share of low-income countries will not fall in the future.

During the spring meetings of the IMF and the World Bank on April 12-13, 2008, the International Monetary and Financial Committee (the IMF’s main advisory committee) welcomed the agreement by the Board on the package of quota and voice reforms as an “important contribution to enhance the Fund’s credibility and legitimacy” and noted “The package of reforms is forward-looking in requesting that the Executive Board recommend further realignments of members’ quota shares in the context of future general quota reviews, which take place every five years, to ensure that members’ quota shares adequately reflect their relative positions in the world economy. These realignments are expected to result in increases in the quota shares of dynamic economies, and hence in the share of emerging market and developing countries as a whole. The Committee also looks forward to further work by the Executive Board on elements of the new quota formula that can be improved before the formula is used again”.

The commitment to review the variables in the formula and the quota and voting shares every five years alongside the spirit of compromise in the Fund’s membership were sufficient to draw widespread support for the reform. The reform is being supported by almost all member countries, most notably emerging market countries such as China, India, Brazil, and South Africa (South Africa’s share will fall as a result of the reform).

Quota and Voice Reform

On March 28, 2008, a large-scale quota and voice reform in the making for nearly two years was agreed by the IMF's Executive Board. It aims to make quotas more responsive to economic realities while enhancing the participation and voice of low-income countries in the IMF's decision making. The IMF's membership had agreed to initial ad hoc quota increases for four countries—China, Korea, Mexico, and Turkey—in September 2006. In March 2008, the Executive Board endorsed a package with more fundamental reforms, including agreement on a new quota formula; a second round of ad hoc quota increases based on the new formula; a tripling of basic votes to increase the voice of low-income countries; and an additional Alternate Executive Director for the two African chairs at the Board. Moreover, the reform envisages realignments of quota and voting shares every five years. The Executive Board's recommendation has been sent to the Board of Governors for their approval.

How does the IMF determine a member country's quota?

When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members that are broadly comparable in economic size and characteristics. The IMF uses a set of quota formulas to guide the assessment of a member's relative position.

Quotas are denominated in Special Drawing Rights (SDRs), the IMF's unit of account. The largest member of the IMF is the United States, with a quota of SDR 37.1 billion (about $61.0 billion), and the smallest member is Palau, with a quota of SDR 3.1 million (about $5.1 million).

What are the functions of quotas?

A member's quota delineates basic aspects of its financial and organizational relationship with the IMF, including:

Subscriptions. A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the Fund: up to 25 percent must be paid in SDRs or widely accepted currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member's own currency.

Voting power. The quota largely determines a member's voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota. Accordingly, the United States has 371,743 votes (16.79 percent of the total), and Palau has 281 votes (0.01 percent).

Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. Under Stand-By and Extended Arrangements, for instance, a member can borrow up to 100 percent of its quota annually and 300 percent cumulatively. However, access may be higher in exceptional circumstances.

Quota reviews

The IMF's Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority. There are two main issues addressed in a general quota review: the size of an overall increase and the distribution of the increase among the members. First, a general quota review allows the IMF to assess the adequacy of quotas both in terms of members' balance of payments financing needs and in terms of its own ability to help meet those needs. Second, a general review allows for increases in members' quotas to reflect changes in their relative positions in the world economy. The Thirteenth General Review was concluded on January 28, 2008 with no proposal by the Board of Governors to increase quotas.

Ad hoc quota increases outside general reviews do not occur often, although the increase in quotas endorsed on March 28, 2008 does qualify as ad-hoc because it was agreed outside the realm of the general quota reviews. In future, it has been agreed that this type of ad-hoc increases will be considered at the time of the general quota reviews irrespective of the liquidity needs of the institution. The goal is to have a dynamic mechanism to adjust quota shares every five years to reflect members' evolving weight in the world economy and to increase the shares of underrepresented countries.