IMF Executive Board Considers Use of Windfall Gold Sale Profits

Public Information Notice (PIN) No. 11/121
September 16, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On September 9, 2011, the Executive Board of the International Monetary Fund (IMF) held a follow-up discussion on the use of windfall profits from the Fund’s limited gold sale.


A key element of the new income model endorsed by the Executive Board in 2008 was a limited sale of IMF gold to fund an endowment that would help diversify the Fund’s income sources. In addition, before approving the sale, the Executive Board endorsed a strategy pursuant to which resources linked to the gold sale would be used to boost the concessional lending capacity of the Poverty Reduction and Growth Trust (PRGT). The gold sales started in October 2009 and were concluded in December 2010. The sales generated total proceeds of SDR 9.54 billion (US$15.05 billion1), of which SDR 2.69 billion (US$4.24 billion) represented the book value and SDR 6.85 billion (US$10.81 billion) represented the profits.

At a preliminary discussion of the use of the gold sales profits in April 2011,2 Executive Directors noted their expectation that at least SDR 4.4 billion of gold sale profits would be placed in an endowment within the Investment Account once such an endowment is established. Directors also affirmed their support for the strategy to use part of the profits to generate resources of SDR 0.5–0.6 billion for subsidies for the PRGT, as agreed under the 2009 financing package for low-income countries (LICs).

Today’s discussion focused on options for the use of resources linked to the remaining windfall profits of about SDR 1.75 billion (US$2.76 billion) that had resulted from the higher-than-anticipated average gold sales price. The Executive Board considered three broad options for the use of the windfall profits. These were:

• To use resources linked to the gold sales profits to increase the PRGT’s capacity to assist LICs beyond 2014.

• To count the profits towards precautionary balances held to protect the Fund against financial risks, including increased credit risks.

• To add the profits to the endowment as a permanent part of the Fund’s financing structure to help ensure a sustainable and diversified income base.

The Executive Board also considered a sequenced approach, under which the gold windfall would continue to be held in the Fund’s general reserves pending a future decision on its ultimate use. Directors had expressed preliminary views on these options during the April 2011 discussion. At that time, there was no consensus on a single option and Directors agreed to revisit the potential uses of the windfall profits by the time of the 2011 Annual Meetings.

Executive Board Assessment

Executive Directors welcomed a further discussion on the use of the windfall profits from the Fund’s limited gold sale. They reaffirmed their support for the 2009 financing package for low-income countries (LICs), including a distribution to the Fund’s membership of up to SDR 0.7 billion (US$1.10 billion) of the windfall profits with the expectation that members would return broadly equivalent funds as PRGT subsidy contributions. Today’s discussion focused on options for using the remaining windfall profits of SDR 1.75 billion (US$2.76 billion), which have been placed to the general reserve. Directors stressed that any final proposals concerning the use of the windfall profits would need to take account of the Fund’s financial position.

Many Directors continued to support using resources linked to the remaining gold windfall profits as part of a strategy to assist LICs. In particular, many were in favor of, or open to, using these resources as part of a strategy to bolster the PRGT’s capacity to provide concessional assistance to LICs. This option would involve a distribution-and-return mechanism similar to that already envisaged under the 2009 LIC financing package (as described above and in paragraph 10 and Section III of the paper Use of Windfall Gold Sales Profits—Further Considerations). Directors supporting this option considered it desirable to secure a stable source of financing needed to narrow, if not close, the large projected gap in the PRGT’s capacity to meet longer-term demand of LICs. A number of them did not see an urgent need to accelerate the pace of accumulation of precautionary balances or to augment the endowment.

Many Directors supported, or were willing to consider, counting the remaining windfall profits toward the Fund’s precautionary balances, in light of the elevated credit exposure of the Fund. These Directors saw no pressing need at this stage to augment resources in the PRGT or the endowment. They also noted that this option would not preclude a later decision to use the windfall profits for different purposes.

A number of Directors supported, or were willing to consider, adding the remaining windfall profits to the Fund’s endowment. They noted that increasing the size of the endowment would help ensure a sustainable and diversified income base, as envisaged under the new income model, particularly given the uncertain prospects for investment returns from the endowment.

Directors recognized that choosing between these main options involves tradeoffs with respect to their financial policy implications. Some Directors could support a combination of options, though recognizing that such an approach would limit progress toward each individual objective.

Given the lack of a consensus at this stage, most Directors were willing to support a sequenced approach, under which the remaining windfall would remain in the Fund’s general reserve and would continue to be invested on an interim basis in the Investment Account, but not be counted toward precautionary balances, on the understanding that the Board would revisit the ultimate use of the windfall profits in a year’s time. This approach would allow time for greater clarity to emerge regarding the global outlook, the Fund’s income position and credit risks, and the evolution of demand for concessional financing. A number of Directors would have preferred to take a decision on the use of the windfall without further delay.

Directors agreed with the staff proposal that a Board decision to distribute up to SDR 0.7 billion (US$1.10 billion) of gold profits already endorsed under the 2009 package be considered in 2011. In this context, many also expressed explicit support for the staff proposal that this process should be initiated only once the lower end of the target range for bilateral contributions has been met; however, a few preferred to delink the distribution process from the fund-raising target. Directors also broadly supported establishing a minimum threshold of 90 percent for assurances that would need to be provided for PRGT subsidy contributions before the distribution is effected.

Directors agreed to take up the issue of whether to extend the exceptional interest forgiveness on PRGT loans in the context of the scheduled review of PRGT interest rates in late 2011, and that broader questions regarding PRGT concessionality should be discussed as part of the LIC facilities review in 2012.

1 US dollar amounts based on September 16, 2011 exchange rate of US$1=SDR 0.633932.

2 See Public Information Notice (PIN) No. 11/48.


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