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The International Monetary Fund (IMF) today announced a new method of measuring its liquidity which is designed to give a clearer measure of its capacity to make new loans. This is a further step in the IMF's continuing effort to enhance public understanding of its finances.
The new measure, known as the one-year forward commitment capacity (FCC), indicates how much the IMF has readily available for new lending from its regular, or quota-based, financial resources. The FCC does not include IMF lending on concessional terms. The FCC will replace the traditional liquidity ratio as the primary measure of the IMF's liquidity.
As of November 29, 2002, the IMF's one-year FCC amounted to SDR 49 billion (about US$65 billion—see Table). The FCC is defined as: the IMF's stock of usable resources less undrawn balances under current lending arrangements (currently, SDR 66 billion, or about US$87 billion), plus projected repayments by Fund borrowers (so-called "repurchases") during the coming twelve months (SDR 16 billion, or about US$21 billion), less a prudential balance intended to safeguard the liquidity of creditors' claims and to take account of any potential erosion of the IMF's resource base (SDR 33 billion, or about US$43 billion).
The prudential balance represents an indicative level of uncommitted usable resources that the IMF would normally not use to make financial commitments. It is calculated as 20 percent of the quotas of member countries whose currencies are currently used in IMF lending and any amounts activated under borrowing arrangements. The prudential balance is determined by judgement, it does not constitute a rigid minimum, and the IMF's uncommitted resources could, on a strictly temporary basis, fall below this level.
The FCC takes fully into account current IMF lending commitments (Lending Arrangements), including commitments under arrangements that are considered precautionary—it would also include commitments under Contingent Credit Lines (CCL)—and thus treats undrawn balances under all financial arrangements in the same way. In assessing IMF liquidity on the basis of the FCC, the actual resources available may be larger to the extent that commitments are not fully disbursed.
The FCC will be published weekly (Week-at-a-Glance) and monthly (Financial Resources & Liquidity). Although the Executive Board has decided that the FCC will replace the traditional liquidity ratio, the IMF will continue to publish the liquidity ratio for the time being.
The IMF's Financial Resources and Liquidity Position:
The financial resources covered in this note are a pool of currencies and other assets in the General Resources Account (GRA) that are built up from members' fully paid capital subscriptions in the form of quotas. These resources are used in the IMF's regular operations. They do not include resources from the Trust Fund, the ESAF Trust, the PRGF Trust, and the PRGF-HIPC Trust, which are used in the IMF's concessional lending.
I. Total resourcesThese comprise IMF's holdings of members' currencies, SDRs, gold, and "other assets" (such as buildings and receivables). The IMF holds 103.4 million fine ounces of gold, valued on its balance sheet at SDR 5.9 billion on the basis of an average historical acquisition cost. As mandated by the IMF's Articles of Agreement, gold acquired prior to 1978 is valued at SDR 35 per ounce, the "official" price used at that time in dealings among central banks. Gold acquired since 1978 (13 million ounces) is valued at the market price in effect at the time of acquisition.
II. Non-usable resourcesResources that are considered non-usable to finance the IMF's ongoing operations and transactions. They comprise (i) its gold holdings, (ii) the currencies of members that are using IMF resources and are therefore, by definition, in a weak balance of payments or reserve position, (iii) the currencies of other members with relatively weak external positions, and (iv) the "other assets" noted above.
Credit outstanding represents the largest portion of non-usable currencies. The use of IMF credit by a member increases the IMF's non-usable resources and reduces its usable resources by equivalent amounts.
III. Usable resourcesThese consist of (i) holdings of the currencies of members considered by the Executive Board to have a sufficiently strong balance of payments and reserve position for their currencies to be used in the financing of IMF transactions (see Financial Transactions), (ii) holdings of SDRs, and (iii) unused amounts, if any, under credit lines already activated, such as under the General Arrangements to Borrow and New Arrangements to Borrow (GAB/NAB).
IV. Undrawn balances under arrangementsAmounts committed under arrangements but not yet disbursed. This includes amounts committed under all arrangements (see Lending Arrangements), including arrangements considered precautionary and Contingent Credit Lines. The Contingent Credit Line facility is designed differently from other IMF financial arrangements, because commitments under this facility are agreed with countries that are not facing balance of payments difficulties. As such, undrawn balances under Contingent Credit Line arrangements are much less likely to be drawn down by the relevant member country than other IMF financial arrangements.
V. Uncommitted usable resourcesUsable resources less the full amount of undrawn balances under existing arrangements.
VI. Repurchases one-year forwardRepurchases (repayments) by member countries during the coming one-year period. These repurchases add to the supply of the IMF's usable resources. It is assumed that repurchases would be made on an expectations basis for SRF and CCL, and on an obligations basis under all other facilities (see Terms of IMF Lending).
VII. Prudential balanceThe prudential balance is intended to safeguard the liquidity of creditors' claims and take account of the potential erosion of the IMF's resource base. The prudential balance is set at 20 percent of the quotas of members that issue the currencies that are used in the financing of IMF transactions and any amounts activated under borrowing arrangements. The prudential ratio of 20 percent as decided by the IMF's Executive Board reflects historical experience and judgments on the indicative level of uncommitted usable resources that the IMF would normally not use to make financial commitments. The prudential ratio also applies to activated amounts under the General Arrangements to Borrow/New Arrangements to Borrow (GAB/NAB), if any, since borrowing under the IMF's standing borrowing arrangements represents a liquid claim on IMF resources. The prudential balance does not represent a rigid minimum and IMF resources could on a strictly temporary basis, fall below this level.
VIII. One-year forward commitment capacity (FCC)A measure of the resources available for new financial commitments in the coming year. The FCC is equal to uncommitted usable resources plus repurchases one-year forward minus the prudential balance. The FCC accounts fully for actual IMF financing commitments, including commitments under arrangements that are considered precautionary and under Contingent Credit Lines, and thus treats undrawn balances under all financial arrangements in the same way. In assessing IMF liquidity on the basis of the FCC, the actual resources available may be larger to the extent that commitments are not fully disbursed.
Potential GAB/NAB borrowing equals total amount of borrowing available under GAB/NAB net of activated amounts. The total amount of borrowing available under the IMF's two borrowing arrangements, the GAB and the NAB, is SDR 34 billion (see Borrowing Arrangements). Activated borrowed resources are always considered to be fully committed and should be deducted from the total amount available under GAB/NAB.
Liquid liabilities consist of (i) reserve tranche positions, which a member acquires when the IMF uses the member's currency to provide credit to other members and through reserve assets paid by the member in connection with quota payments, and (ii) the amount of any outstanding borrowing by the IMF, e.g., under the GAB/NAB. The bulk of liquid liabilities reflects credit extended by the IMF.
Liquidity ratio is the traditional measure of the IMF's liquidity position. It is defined as the ratio of the IMF's net uncommitted usable resources to its liquid liabilities (for an explanation, see IMF's Financial Resources and Liquidity Position 2000-October 2002 or Financial Organization & Operations).
IMF EXTERNAL RELATIONS DEPARTMENT