1998 IMF Survey Supplement on the Fund / September 1998
IMF Sets Annual Net Income Target
To Add to Reserves
The IMF aims for a target amount of net income each financial year to add to its reserves, after both covering its administrative expenses and remunerating its creditor positions. The rate of charge on the use of IMF resources is linked to the SDR interest rate, which changes weekly, while the rate of remuneration is equal to the SDR interest rate. At the beginning of each financial year, the IMF sets the rate of charge as a proportion of the SDR interest rate, so as to achieve a predetermined net income target. This mechanism ensures that the IMF’s operational income is adjusted to reflect its main operational costs. Since December 1997, the IMF also levies a surcharge on the use of credit under the Supplemental Reserve Facility (SRF).
In April 1997, the proportion of the rate of charge to the SDR interest rate for 1997/98 was set at 109.6 percent to achieve a net income target of SDR 99 million or 5 percent of the IMF’s reserves at the beginning of the financial year, with the proviso that any income in excess of the target be used to reduce retroactively the proportion of the rate of charge for the year.
Following a review of the IMF’s income position at midyear, the proportion of the rate of charge to the SDR interest rate for 1997/98 was retroactively reduced to 107.0 percent from the initial 109.6 percent, and SDR 31 million was returned to the members that had paid charges through the third quarter of the financial year. Furthermore, it was decided that the net operational income derived from the SRF (after meeting the expenses of administering the ESAF Trust) was to be excluded from other income and be placed in the IMF’s General Reserve at the end of the financial year. After that exclusion, by the end of the financial year, actual income exceeded the target by SDR 22 million, which again was returned to members that paid charges during the year, thereby further retroactively reducing the rate of charge to 105.6 percent of the SDR interest rate for 1997/98.
To strengthen its financial position against the consequences of overdue obligations, the IMF has adopted “burden-sharing” measures to accumulate additional precautionary balances and to distribute the financial burden of overdue obligations between debtor and creditor members. As part of this mechanism, adjustments are made to the rate of charge and the rate of remuneration. The resources so generated are intended to protect the IMF against risks associated with arrears and to provide additional liquidity. For 1997/98, the adjustments under burden sharing resulted in an average rate of charge of 4.65 percent and an average rate of remuneration of 3.97 percent. After the retroactive reductions of the rate of charge, SDR 164 million was added to the IMF’s reserves, of which SDR 65 million was added to the General Reserve and the rest to the Special Reserve. Total reserves increased to SDR 2.13 billion as of April 30, 1998, from SDR 1.97 billion a year earlier. For 1998/99, the Executive Board set the rate of charge on the use of IMF credit at 107 percent of the interest rate.