1998 IMF Survey Supplement on the Fund / September 1998
IMF Resources Under Considerable Strain
Owing to Heavy Demand for Financing
With the very high demand for IMF resources and a drop in the number of countries whose balance of payments and reserve positions were regarded as sufficiently strong for their currencies to be used to finance IMF credit, the IMF’s liquidity position weakened considerably during 1997/98. At a review in March 1998, the Board considered the IMF’s liquidity position vulnerable and expected it to remain under considerable strain in the period immediately ahead. Directors emphasized the pressing need for the agreed quota increase under the Eleventh General Review to take early effect. They also called for a rapid conclusion of the adherence process for the New Arrangements to Borrow.
The liquid resources of the IMF consist of usable currencies and SDRs held in its General Resources Account. Usable currencies, the largest component of liquid resources, are those of members whose balance of payments and reserve positions are sufficiently strong to warrant the use of their currencies in financing IMF operations and transactions. The exclusion of six members from the list of sufficiently strong countries during the year reduced the stock of usable currencies by about SDR 2.4 billion, while the inclusion of three other members on the list added SDR 3.0 billion to the stock of usable currencies. More significantly, however, purchases during the year far exceeded repurchases, and the IMF’s usable resources declined to SDR 47.3 billion at the end of April 1998 from SDR 62.7 billion a year earlier.
To assess the adequacy of the IMF’s liquidity, the stock of usable currencies and SDRs is reduced by the amount of resources committed under arrangements and expected to be drawn. A further reduction is made to take account of the need to maintain working balances of currencies. After these adjustments were made, the IMF’s uncommitted and adjusted liquid resources totaled SDR 22.5 billion as of April 30, 1998, compared with SDR 43.5 billion a year earlier.
The IMF’s liquid liabilities at the end of April 1998, consisting entirely of reserve tranche positions, amounted to SDR 50.3 billion, a substantial rise from the level of SDR 36.1 billion a year earlier. The ratio of the IMF’s uncommitted and adjusted liquid resources to its liquid liabilities, called the liquidity ratio, declined to 44.8 percent at the end of April 1998 from 120.5 percent a year earlier, and further declined to 36.7 percent as of August 31, 1998.