IMF Executive Board Adopts New Rule for Basic Rate of Charge on IMF’s GRA Lending

Press Release No. 11/485
December 22, 2011

The Executive Board of the International Monetary Fund (IMF) on December 9, 2011, adopted a new rule for setting the basic rate of charge levied by the IMF on lending from its General Resources Account (GRA). The basic rate of charge is composed of the interest rate on the Special Drawing Right (SDR) plus a margin. The new rule, which changes the criteria for establishing the margin, is based on principles that were endorsed by the Executive Board in April 2008 and have guided the IMF in setting the margin since FY 2009. Formalizing these principles in a new rule is a further important step toward fully implementing the new income model (see Press Release No. 08/101) adopted in 2008 to broaden the Funds’ income sources and reduce its reliance on lending income.

Under the new rule, the margin will be set to cover the IMF’s lending related intermediation costs and allow for a buildup of reserves. The amount of reserve accumulation to be generated through the margin will be based on a judgment of the Executive Board, taking account of relevant factors such as the level of precautionary balances in relation to the target, and the expected contribution to reserve accumulation from other income sources including surcharges and commitment fees.

In addition, the new rule includes a cross-check to ensure that the resulting rate of charge maintains a reasonable alignment against long term credit market conditions. Under the previous rule, the margin was normally to be set to cover costs of the full range of the IMF’s activities and to generate a predetermined amount of net income.

The Executive Board agreed in 2008 that the margin under the new income model should be stable and predictable. In line with this objective, under the new rule the margin will now be set for a period of two financial years starting with FY 2013‒14 (the two-year period beginning May 1, 2012).

Following the Executive Board’s discussion on the new rule for the basic rate of charge on IMF’s GRA Lending, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:

“The Executive Board today adopted a new Rule I-6(4) for setting the margin for the basic rate of charge effective for FY2013 onwards—a further important step toward implementing fully the new income model, which aims to broaden the Fund’s income sources and reduce reliance on lending income as the primary source of revenue.

“The new rule is based on the principles for setting the margin proposed by the Committee of Eminent Persons and endorsed by the Executive Board in 2008, which have already guided the Fund in setting the margin since FY2009 under the exceptional circumstances clause of the old Rule I-6(4). Formalizing these principles now in a new rule was generally viewed as appropriate, although some Directors could also have gone along with delaying the decision until other elements of the new income model were fully operational.

“Directors generally considered that the new rule allows for a reasonable degree of flexibility and Board judgment, while reflecting the role envisaged for the margin under the new income model. Some Directors noted that the Board should, in exercising this judgment to set the margin, attach high priority to the objective of building up reserves to mitigate credit risks facing the Fund.

“A few Directors expressed an expectation that the exceptional circumstances clause contained in the new rule would be invoked only rarely and, in this connection, a few attached particular importance to ensuring that intermediation costs are fully covered by the margin.

“Directors also stressed the importance of keeping under careful review the selected market indicators for cross-checking the alignment of the margin with long-term credit conditions. They urged continued efforts to refine the methodology for estimating intermediation costs.”

For additional information on the New Rule, on IMF lending and on the new income model, please see:

PAPER – A New Rule for Setting the Margin for the Basic Rate of Charge


IMF Income Model Reform

FACTSHEET - Where the IMF Gets its Money


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