IMF Executive Board Approves New Two-Year US$30 Billion Flexible Credit Line Arrangement for PolandPress Release No. 11/15
January 21, 2011
The Executive Board of the International Monetary Fund (IMF) today approved a successor two-year arrangement for Poland under the Flexible Credit Line (FCL) in an amount equivalent to SDR 19.17 billion (about US$30 billion, or 1,400 percent of quota).
Poland’s first FCL arrangement was approved on May 6, 2009 (see Press Release No. 09/153). A successor arrangement was approved on July 2, 2010 (see Press Release No. 10/276). The Polish authorities have stated that they intend to treat the arrangement as precautionary and do not intend to draw on the FCL.
Following the Executive Board discussion of Poland, Mr. John Lipsky, First Deputy Managing Director and Acting Chairman of the Board, made the following statement:
“Poland’s macroeconomic performance was strong in the decade leading up to the global crisis, supported by sound economic policies. Inflation was brought down to low single digits, the commitment to the EU Stability and Growth Pact helped lower the fiscal deficit relative to GDP and limit government debt, and strong financial oversight bolstered the resilience of the financial system.
“Strong policy frameworks allowed the authorities to undertake countercyclical monetary and fiscal policies in response to the global crisis, while preserving financial sector stability. At the same time, the FCL arrangement supported investor confidence. As a result, Poland was the only EU economy to avoid a recession in 2009, and the government maintained access to international capital markets on favorable terms.
“The economy gathered momentum in 2010, underpinned by low interest rates, a neutral fiscal stance, improving external demand, and rising confidence in the wake of the second FCL arrangement. Looking forward, economic growth is projected to remain solid and balanced. The authorities are committed to keep implementing economic policies that preserve macroeconomic stability.
“However, sizeable downside risks remain, particularly from the possibility of further spillovers of financial turbulence in other parts of Europe. Against this background, the Executive Board today approved the authorities’ request for a new arrangement under the FCL facility as a successor to the previous arrangement approved in July 2010. The authorities intend to continue to treat the FCL arrangement as precautionary.
“The augmented duration and size of this successor FCL—new features made possible by the recent reform of IMF facilities—will allow the FCL to play an even stronger role in insuring Poland against external risks while continuing to support the authorities’ overall macroeconomic strategy.”
The FCL was established on March 24, 2009 for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes. FCL arrangements are approved for countries meeting pre-set qualification criteria (see Press Release No. 09/85).
The FCL was further enhanced with reforms approved in August 30, 2010 (see Press Release No. 10/321). The duration of the line was expanded from one year to up to two years (with an interim review of continued qualification after one year) and the removal of the implicit cap on access to resources of 1000 percent of a country’s IMF quota. The repayment period on any drawings is between three and a quarter and five years. Access is determined on a case-by-case basis, and is fully available from the start, rather than being phased over time as in traditional IMF arrangements. Disbursements under the FCL are not conditioned on implementation of specific policy targets or meeting quantitative criteria. There is flexibility to either draw on the credit line at the time it is approved, or treat it as precautionary.
The qualification criteria are the core of the FCL and serve to highlight the IMF’s confidence in a qualifying member country’s policies, and its ability to take corrective economic policy measures when needed. At the heart of the qualification process is an assessment that the member country has very strong economic fundamentals and institutional policy frameworks; is implementing—and has a sustained track record of implementing—very strong policies; and remains committed to maintaining such policies in the future.
The criteria used to assess a country’s qualification for an FCL arrangement are a sustainable external position; a capital account position dominated by private flows; a track record of access to international capital markets at favorable terms; a reserve position that is relatively comfortable when the FCL is requested on a precautionary basis; and sound public finances, including a sustainable public debt position. The criteria also includes low and stable inflation, in the context of a sound monetary and exchange rate policy framework; no bank solvency problems that pose systemic threats to banking system stability; effective financial sector supervision; and data integrity and transparency.