## b2-standardized-definition-of-net-international-reserves

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---

### SECTION I: THE ISSUE — Background and purpose of NIR
- Importance:
  - The assessment and analysis of the adequacy of a country’s reserves are important for understanding external vulnerabilities; IMF Article IV staff reports generally include an assessment of adequacy in view of a country’s specific characteristics and vulnerabilities.
  - Gross reserve assets (RA) or gross international reserves (GIR) are well defined in BPM6 and the IRFCL Guidelines, but gross reserves alone may not reflect usable precautionary buffers when there are predetermined short-term foreign currency drains.
- Concept:
  - Net international reserves (NIR) = gross reserves minus short-term foreign currency drains is a concept used to guide macroeconomic policy advice and reserve adequacy assessments.
  - The IMF’s ARA Guidance Note emphasizes that significant short-term FX liabilities or other potential short-term drains on a central bank’s reserves should be considered; such drains can limit the usability and availability of reserves.
- Operational use:
  - Fund-supported programs frequently define NIR for program performance criteria (PC) and specify NIR definitions in Technical Memoranda of Understanding (TMU); program definitions can differ from definitions tailored only for reserve adequacy assessments.
  - There is no standardized statistical definition of NIR; a standardized definition consistent with reserve adequacy conceptual frameworks could provide operational clarity and a more harmonized measure of external resilience.

### Current concepts and measurement differences
- Primary sources for NIR concepts:
  - The ARA Guidance Note.
  - The IRFCL Guidelines (which rely on BPM6 reserve-related liabilities).
  - Operational guidance in Fund-supported program documents and TMUs.
- Key conceptual and measurement differences:
  - Treatment of liabilities to residents versus non-residents.
  - Maturity of liabilities included (short-term only versus all maturities).
  - Inclusion/exclusion of off-balance-sheet items (e.g., forward leg of FX swaps).
  - Treatment of IMF credits and loans.
- BPM6 and alternative treatments:
  - BPM6 does not define NIR but defines reserve-related liabilities (RRL) as direct claims by non-residents on an economy’s reserve assets; RRL includes the value of SDR allocations and loans from the IMF to monetary authorities and does not include liabilities to residents nor off-balance-sheet items.
  - The ARA Guidance Note defines net reserves as reserve assets minus predetermined short-term drains due to both non-residents and residents, arising from on- and off-balance-sheet activities (including activated swaps and forward positions that unwind, and short-term FX liabilities such as FX deposits and cash outflows from repos).
  - The IRFCL Guidelines suggest NIR often refers to reserve assets net of outstanding reserve-related liabilities (usually only short-term liabilities) and focuses on monetary authorities’ readily available claims on and liabilities to nonresidents.
  - The IRFCL concept of foreign currency liquidity is broader than NIR: it includes (i) foreign currency resources (official reserve assets and other foreign currency assets) that can be mobilized, and (ii) predetermined and contingent inflows and outflows over the coming 12-month period, taking account of drains arising from authorities’ financial activities vis-à-vis residents and nonresidents.

### Practice in TMUs and empirical survey findings
- Sample Definition of NIR PC (August 1, 2003) — operational umbrella:
  - Defines reserve assets as readily available claims on nonresidents denominated in foreign convertible currencies (including monetary gold, SDRs, foreign currency cash, foreign currency securities [specify], deposits abroad, and the country's reserve position at the Fund).
  - Excludes assets that are pledged, collateralized, encumbered, claims on residents, claims arising from derivatives vis-à-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies, and illiquid assets.
  - Defines reserve liabilities to include all foreign exchange liabilities to residents and nonresidents, including commitments arising from derivatives, and all credit outstanding from the Fund.
- Survey of 37 arrangements with NIR PCs (approved between January 2015 and July 2020) — summary of variation in reserve liabilities (RL) definitions:
  - IMF credit: All 37 arrangements include all IMF credit in RL; outstanding liabilities to other international financial institutions are mentioned in many cases.
  - Maturity of liabilities to nonresidents (except IMF credit): 26 arrangements include short-term only in RL; 9 arrangements include all maturities in RL; remaining 2 arrangements consider country-specific factors.
  - Liabilities to residents: 19 arrangements include all maturities in RL (some exclude government deposits); 10 arrangements include short-term only in RL (some exclude government deposits); remaining 8 arrangements: the definition of NIR does not cover claims on residents.
  - Central bank and government liabilities: All arrangements include central bank liabilities in RL; none include central government liabilities except two that include central government derivatives.
  - Financial derivatives: 18 arrangements include commitment to sell FX in RL; 10 arrangements do not mention derivatives; the rest are country specific.
  - SDR allocations: 15 arrangements exclude SDR allocation in RL (a couple exclude SDR allocations received after the start of the arrangement); 21 arrangements do not mention SDR allocations; 1 arrangement includes SDR allocation.

### Proposed standardized statistical definition (Guidance Note)
- Core formula:
  - Net international reserves = Reserve assets – Net short-term foreign currency drains
- Definitions and operational rules:
  - NIR are calculated as reserve assets (RA) minus predetermined net short-term foreign currency drains (FCD).
  - RA are defined as in BPM6 (paragraph 6.64), adjusted for FX financial derivatives in FCD as discussed.
  - FCD are the predetermined contractual foreign currency obligations (foreign currency outflows net of inflows) scheduled to come due during the 12 months ahead, as defined in the IRFCL Template (section II).
  - If short-term foreign currency outflows/inflows vis-à-vis domestic currency from forwards and futures are scheduled in FCD (IRFCL, Section II, 2), corresponding market values of the derivative contracts recorded in Section I.A (5) of the IRFCL template should be excluded from RA to avoid double counting. This exclusion does not apply to non-deliverable forwards. Only market values of FX forwards/swaps, for which notional values are recorded in Section II.2, should be excluded; market values of other types of derivatives remain in RA.
- Alignment and differences with other concepts:
  - The proposed definition is broadly consistent with the ARA Guidance Note and aligned with the majority of TMU conditions analyzed.
  - Asset side: RA per BPM6 excludes foreign currency assets with residents (e.g., foreign currency deposits with domestic banks and securities issued by domestic government and companies) because these are unlikely to be readily available in adverse circumstances.
  - Liability side: Includes short-term on- and off-balance-sheet foreign currency obligations to residents and nonresidents (which could represent short-term drains), and includes short-term on- and off-balance-sheet foreign currency obligations of the central government because payment would usually involve reserve assets.
  - Only short-term liabilities are deducted in the proposed definition; by contrast, the Sample Definition of NIR PC deducts long-term liabilities and all Fund credit and loans (these broader deductions could still be applied for program design and monitoring).
  - Based on the proposed definition, SDR allocations would increase NIR in most cases (SDR allocations are recorded as debt liabilities and considered long-term reserve-related liabilities; they are not included in short-term foreign currency drains when recorded at the central bank).

### Key comparisons across NIR concepts (high-level)
- Foreign currency liabilities to residents:
  - ARA Guidance Note: Deducted from RA.
  - Sample Definition of NIR PC: Deducted from RA.
  - NIR based on BPM6 RRL concept: Only non-resident liabilities are deducted.
  - Definition proposed in this GN: Deducted from RA.
- Foreign currency liabilities of the central government:
  - ARA Guidance Note: Not deducted from RA.
  - Sample Definition: Not specified.
  - NIR based on BPM6 RRL: Not deducted from RA, but Section II of the IRFCL Template encompasses them.
  - Definition proposed in this GN: Deducted from RA.
- Off-balance-sheet items:
  - ARA Guidance Note and Sample Definition: Deducted from RA.
  - NIR based on BPM6 RRL: Not deducted from RA but separately shown in Section II of the IRFCL Template.
  - Definition proposed in this GN: Deducted from RA.
- Maturity of liabilities to be deducted:
  - ARA Guidance Note: Short-term.
  - Sample Definition: All maturities.
  - NIR based on BPM6 RRL: Short-term on a remaining maturity basis.
  - Definition proposed in this GN: Short-term on a remaining maturity basis.
- Valuation of liabilities to be deducted:
  - ARA Guidance Note and Sample Definition: Not specified.
  - NIR based on BPM6 RRL concept: Nominal value for loans (market value for debt securities).
  - Definition proposed in this GN: The cash-flow value when the flows take place.
- Treatment of IMF loans and credits:
  - ARA Guidance Note: Not specified.
  - Sample Definition: All credit outstanding from the Fund is deducted from RA.
  - NIR based on BPM6 RRL: Short-term liabilities (principal and accrued interest) are deducted from RA.
  - Definition proposed in this GN: Short-term scheduled debt service (principal and interest) is deducted from RA.

### Scope, placement in BPM7, and data considerations
- Scope and BPM7 placement:
  - The proposed statistical definition of NIR is beyond the realms of the balance of payments (BPM) framework because the BPM does not cover transactions and positions with residents (paragraph 17).
  - The GN proposes to include the definition in BPM7 as additional guidance, noting NIR is an essential concept widely used to assess external vulnerability and that there are strong needs for a standardized definition as a benchmark to define country-specific NIR.
  - BPM7 could discuss the definition in a box or appendix so the topic is understood as additional guidance beyond general balance of payments concepts.
- Data relationship with BPM6 and IRFCL:
  - Existing coverage: These concepts and data are already covered in BPM6 and the IRFCL Guidelines (paragraph 18). The definition of reserve assets on a gross basis is based on BPM6. The concept of FCD goes beyond the residence concept of BPM6; Section II of the IRFCL Template already covers the FCD concept and data (paragraph 18).
  - Data compilation and reporting: Compilation of the IRFCL Template is a requirement to subscribe to the IMF’s Special Data Dissemination Standard (SDDS); some non-subscribing countries also compile these data (paragraph 19). Even if countries do not compile the IRFCL Template yet, IMF country teams can request data from authorities per the IRFCL Guidelines and calculate NIR (paragraph 19).
  - BPM7 accommodation and limitations: BPM7 could flexibly accommodate the NIR concept, but data collection would be limited to cross-border positions and transactions based on the residency concept (paragraph 20). The BPM6 data collection framework for RRL should be maintained (paragraph 20). Introduction of the NIR concept in BPM7 (going beyond BPM framework) does not entail any new data collection by extending the current framework — important to avoid duplicating data collection with the IRFCL Template (paragraph 20). The frequency of the IRFCL Template reporting (monthly) is better than balance of payments and IIP reporting (quarterly) (paragraph 20).

### Role of the IRFCL Guidelines and Template
- Central role and coverage:
  - The IRFCL Guidelines should play the central role in collecting data related to NIR (paragraph 21).
  - The IRFCL Template provides a comprehensive framework to collect data related to reserve assets encompassing positions with residents and nonresidents, on- and off-balance sheet items, and items for the monetary authorities and the central government (paragraph 21).
  - The IRFCL Template covers contingent liabilities of the monetary authorities and the central government (including guarantees, credit lines, and options) and financial instruments denominated in foreign currency and settled in domestic currency (paragraph 21).
  - Some essential concepts and data to define NIR (e.g., positions with residents and off-balance sheet items) are not available in the BPM framework (paragraph 21).
  - At present, most countries do not provide a decomposition of predetermined short-term drains between the central bank and the central government; greater provision of these data would aid analysis (paragraph 21).
- Scope notes:
  - Sections II and III of the IRFCL Template cover only short-term items (i.e., items that require payments up to one year) on a remaining maturity basis; long-term liabilities/payment obligations are out of scope. The IRFCL Template covers amortization and interest payments for IMF credit and loans scheduled in a year or less. FCD also include scheduled receipts of foreign currency (e.g., the forward leg of currency swaps).

### Use of the standardized statistical definition and flexibility for applications
- Proposed statistical definition restated:
  - NIR = Reserve Assets (RA) minus Net short-term foreign-currency drains (FCD).
- Benefits:
  - Offers a standardized approach to support careful monitoring of the build-up of potential short-term drains on reserves (paragraph 22).
  - Provides guidance to authorities and others for analysis of external vulnerability (paragraph 22).
- Preservation of flexibility and country-specific adjustments:
  - The standardized definition should not limit flexibility to adjust the measurement of NIR for reserve adequacy assessments or for Fund-supported program design (paragraph 23).
  - Illustrative modifications for country-specific conditions:
    - For Fund-supported programs, all outstanding IMF credit and loans, regardless of their maturity, should be deducted from RA to measure NIR for program purposes.
    - Long-term foreign exchange liabilities to residents and nonresidents could also be deducted, as well as other deductions to reflect country circumstances.
    - There may be a case to exclude from FCD central bank FX liabilities to some residents (for example, the central government—typically government deposits—and some liabilities to commercial banks).
    - The treatment of contingent liabilities (for example, guarantees, credit lines, and sold options) could vary among countries.
  - Illustrative example: A government may issue Eurobonds and deposit the FX proceeds at the central bank to support NIR without intending to draw down such deposits; or the government might gradually draw down its FX deposits at the central bank in local currency, with the domestic liquidity creation sterilized with domestic currency instruments, preserving the FX reserves. Part of reserve requirements received from commercial banks might be excluded from FCD if they are expected to be stable even in adverse circumstances.

### Questions posed for discussion in the Guidance Note
- Do you agree with the proposed statistical definition of NIR = Reserve Assets (RA) minus Net short-term foreign-currency drains (FCD)?
- Do you agree that BPM7 should explain the concept/statistical definition and use of NIR (in an annex and/or a Box) even though it goes beyond the scope of the balance of payments framework?
- Do you agree to the data collection for the proposed NIR (i.e., to be collected in the IRFCL Template/framework)?
- Do you have any other suggestions on the concept of NIR proposed in the GN?

*Guidance Note (GN) on the proposed standardized statistical definition of Net International Reserves (NIR), International Monetary Fund.*

### SECTION I: THE ISSUE

### b2-standardized-definition-of-net-international-reserves - SECTION I: THE ISSUE

### Background: purpose and need for NIR
- The assessment and analysis of the adequacy of a country’s reserves are important for understanding external vulnerabilities; IMF Article IV staff reports generally include an assessment of adequacy in view of a country’s specific characteristics and vulnerabilities.
- Gross reserve assets (RA) or gross international reserves (GIR) are well defined in BPM6 and the IRFCL Guidelines, but gross reserves alone may not reflect usable precautionary buffers when there are predetermined short-term foreign currency drains.
- Net international reserves (NIR) = gross reserves minus short-term foreign currency drains is a concept used to guide macroeconomic policy advice and reserve adequacy assessments.
- The IMF’s ARA Guidance Note emphasizes that significant short-term FX liabilities or other potential short-term drains on a central bank’s reserves should be considered; such drains can limit the usability and availability of reserves.
- Fund-supported programs frequently define NIR for program performance criteria (PC) and specify NIR definitions in Technical Memoranda of Understanding (TMU); program definitions can differ from definitions tailored only for reserve adequacy assessments.
- There is no standardized statistical definition of NIR; a standardized definition consistent with reserve adequacy conceptual frameworks could provide operational clarity and a more harmonized measure of external resilience.

### Current concepts and measurement differences
- Three main sources for NIR concepts described:
  - The ARA Guidance Note.
  - The IRFCL Guidelines (which rely on BPM6 reserve-related liabilities).
  - Operational guidance in Fund-supported program documents and TMUs.
- Key conceptual and measurement differences across sources relate to:
  - Treatment of liabilities to residents versus non-residents.
  - Maturity of liabilities included (short-term only versus all maturities).
  - Inclusion/exclusion of off-balance-sheet items (e.g., forward leg of FX swaps).
  - Treatment of IMF credits and loans.
- BPM6 does not define NIR but defines reserve-related liabilities (RRL) as direct claims by non-residents on an economy’s reserve assets; RRL includes the value of SDR allocations and loans from the IMF to monetary authorities and does not include liabilities to residents nor off-balance-sheet items.
- The ARA Guidance Note defines net reserves as reserve assets minus predetermined short-term drains due to both non-residents and residents, arising from on- and off-balance-sheet activities (including activated swaps and forward positions that unwind, and short-term FX liabilities such as FX deposits and cash outflows from repos).
- The IRFCL Guidelines suggest NIR often refers to reserve assets net of outstanding reserve-related liabilities (usually only short-term liabilities) and focuses on monetary authorities’ readily available claims on and liabilities to nonresidents.
- The IRFCL concept of foreign currency liquidity is broader than NIR: it includes (i) foreign currency resources (official reserve assets and other foreign currency assets) that can be mobilized, and (ii) predetermined and contingent inflows and outflows over the coming 12-month period, taking account of drains arising from authorities’ financial activities vis-à-vis residents and nonresidents.

### Practice in TMUs and empirical survey findings
- The IMF Note “Sample Definition of NIR Performance Criteria” (August 1, 2003) provides an operational umbrella definition used in TMUs; it:
  - Defines reserve assets as readily available claims on nonresidents denominated in foreign convertible currencies (including monetary gold, SDRs, foreign currency cash, foreign currency securities [specify], deposits abroad, and the country's reserve position at the Fund).
  - Excludes assets that are pledged, collateralized, encumbered, claims on residents, claims arising from derivatives vis-à-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies, and illiquid assets.
  - Defines reserve liabilities to include all foreign exchange liabilities to residents and nonresidents, including commitments arising from derivatives, and all credit outstanding from the Fund.
- Definitions of NIR in TMUs vary significantly to fit country circumstances.
- A survey of 37 arrangements with NIR PCs, approved between January 2015 and July 2020, finds wide variation in definitions of reserve liabilities (RL). Survey results summarized:
  - IMF credit: All 37 arrangements include all IMF credit in RL; outstanding liabilities to other international financial institutions are mentioned in many cases.
  - Maturity of liabilities to nonresidents (except IMF credit): 26 arrangements include short-term only in RL; 9 arrangements include all maturities in RL; remaining 2 arrangements consider country-specific factors.
  - Liabilities to residents: 19 arrangements include all maturities in RL (some exclude government deposits); 10 arrangements include short-term only in RL (some exclude government deposits); in the remaining 8 arrangements, the definition of NIR does not cover claims on residents.
  - Central bank and government liabilities: All arrangements include central bank liabilities in RL; none include central government liabilities except two that include central government derivatives.
  - Financial derivatives: 18 arrangements include commitment to sell FX in RL; 10 arrangements do not mention derivatives; the rest are country specific.
  - SDR allocations: 15 arrangements exclude SDR allocation in RL (a couple exclude SDR allocations received after the start of the arrangement); 21 arrangements do not mention SDR allocations; 1 arrangement includes SDR allocation.

### Proposed standardized statistical definition (this GN)
- Proposed formula:
  - Net international reserves = Reserve assets – Net short-term foreign currency drains
- Definitions and operational rules:
  - NIR are calculated as reserve assets (RA) minus predetermined net short-term foreign currency drains (FCD).
  - RA are defined as in BPM6 (paragraph 6.64), adjusted for FX financial derivatives in FCD as discussed.
  - FCD are the predetermined contractual foreign currency obligations (foreign currency outflows net of inflows) scheduled to come due during the 12 months ahead, as defined in the IRFCL Template (section II).
  - If short-term foreign currency outflows/inflows vis-à-vis domestic currency from forwards and futures are scheduled in FCD (IRFCL, Section II, 2), corresponding market values of the derivative contracts recorded in Section I.A (5) of the IRFCL template should be excluded from RA to avoid double counting. This exclusion does not apply to non-deliverable forwards. Only market values of FX forwards/swaps, for which notional values are recorded in Section II.2, should be excluded; market values of other types of derivatives remain in RA.
- Alignment and differences with other concepts:
  - The proposed definition is broadly consistent with the ARA Guidance Note and aligned with the majority of TMU conditions analyzed.
  - Asset side: RA per BPM6 excludes foreign currency assets with residents (e.g., foreign currency deposits with domestic banks and securities issued by domestic government and companies) because these are unlikely to be readily available in adverse circumstances.
  - Liability side: Includes short-term on- and off-balance-sheet foreign currency obligations to residents and nonresidents (which could represent short-term drains), and includes short-term on- and off-balance-sheet foreign currency obligations of the central government because payment would usually involve reserve assets.
  - Only short-term liabilities are deducted in the proposed definition; by contrast, the Sample Definition of NIR PC deducts long-term liabilities and all Fund credit and loans (these broader deductions could still be applied for program design and monitoring).
  - Based on the proposed definition, SDR allocations would increase NIR in most cases (SDR allocations are recorded as debt liabilities and considered long-term reserve-related liabilities; they are not included in short-term foreign currency drains when recorded at the central bank).

### Key comparisons across NIR concepts (high-level items from Table 2)
- Foreign currency liabilities to residents:
  - ARA Guidance Note: Deducted from RA.
  - Sample Definition of NIR PC: Deducted from RA.
  - NIR based on BPM6 RRL concept: Only non-resident liabilities are deducted.
  - Definition proposed in this GN: Deducted from RA.
- Foreign currency liabilities of the central government:
  - ARA Guidance Note: Not deducted from RA.
  - Sample Definition: Not specified.
  - NIR based on BPM6 RRL: Not deducted from RA, but Section II of the IRFCL Template encompasses them.
  - Definition proposed in this GN: Deducted from RA.
- Off-balance-sheet items:
  - ARA Guidance Note and Sample Definition: Deducted from RA.
  - NIR based on BPM6 RRL: Not deducted from RA but separately shown in Section II of the IRFCL Template.
  - Definition proposed in this GN: Deducted from RA.
- Maturity of liabilities to be deducted:
  - ARA Guidance Note: Short-term.
  - Sample Definition: All maturities.
  - NIR based on BPM6 RRL: Short-term on a remaining maturity basis.
  - Definition proposed in this GN: Short-term on a remaining maturity basis.
- Valuation of liabilities to be deducted:
  - ARA Guidance Note and Sample Definition: Not specified.
  - NIR based on BPM6 RRL concept: Nominal value for loans (market value for debt securities).
  - Definition proposed in this GN: The cash-flow value when the flows take place.
- Treatment of IMF loans and credits:
  - ARA Guidance Note: Not specified.
  - Sample Definition: All credit outstanding from the Fund is deducted from RA.
  - NIR based on BPM6 RRL: Short-term liabilities (principal and accrued interest) are deducted from RA.
  - Definition proposed in this GN: Short-term scheduled debt service (principal and interest) is deducted from RA.

*Source: Prepared by IMF staff and contributors; referenced materials include BPM6, the IRFCL Guidelines, the ARA Guidance Note, TMU practice, and a survey of 37 Fund-supported arrangements (approved between January 2015 and July 2020).*

### 17.      The proposed statistical definition of NIR is beyond the realms of BPM as the balance of

### b2-standardized-definition-of-net-international-reserves - 17.      The proposed statistical definition of NIR is beyond the realms of BPM as the balance of

### Scope and placement in BPM7
- The proposed statistical definition of NIR is beyond the realms of the balance of payments (BPM) framework because the BPM does not cover transactions and positions with residents (paragraph 17).
- The GN proposes to include the definition in BPM7 as additional guidance, noting that:
  - NIR is an essential concept widely used to assess external vulnerability.
  - There are strong needs for a standardized definition as a benchmark to define country-specific NIR.
  - BPM7 could discuss the definition in a box or appendix so the topic is understood as additional guidance beyond general balance of payments concepts.

### Data considerations and relationship with BPM6 and IRFCL
- Existing coverage:
  - These concepts and data are already covered in BPM6 and the IRFCL Guidelines (paragraph 18).
  - The definition of reserve assets on a gross basis is based on BPM6.
  - The concept of FCD (foreign-currency drains) goes beyond the residence concept of BPM6; Section II of the IRFCL Template already covers the FCD concept and data (paragraph 18).
- Data compilation and reporting:
  - Compilation of the IRFCL Template is a requirement to subscribe to the IMF’s Special Data Dissemination Standard (SDDS); some non-subscribing countries also compile these data (paragraph 19).
  - Even if countries do not compile the IRFCL Template yet, IMF country teams can request data from authorities per the IRFCL Guidelines and calculate NIR (paragraph 19).
- BPM7 accommodation and limitations:
  - BPM7 could flexibly accommodate the NIR concept, but data collection would be limited to cross-border positions and transactions based on the residency concept (paragraph 20).
  - The BPM6 data collection framework for RRL should be maintained (paragraph 20).
  - Introduction of the NIR concept in BPM7 (going beyond BPM framework) does not entail any new data collection by extending the current framework — important to avoid duplicating data collection with the IRFCL Template (paragraph 20).
  - The frequency of the IRFCL Template reporting (monthly) is better than balance of payments and IIP reporting (quarterly) (paragraph 20).

### Role of the IRFCL Guidelines and Template
- Central role:
  - The IRFCL Guidelines should play the central role in collecting data related to NIR (paragraph 21).
  - They provide a comprehensive framework to collect data related to reserve assets encompassing:
    - positions with residents and nonresidents,
    - on- and off-balance sheet items,
    - items for the monetary authorities and the central government (paragraph 21).
- Coverage:
  - The IRFCL Template covers contingent liabilities of the monetary authorities and the central government (including guarantees, credit lines, and options) and financial instruments denominated in foreign currency and settled in domestic currency (paragraph 21).
  - Some essential concepts and data to define NIR (e.g., positions with residents and off-balance sheet items) are not available in the BPM framework (paragraph 21).
  - At present, most countries do not provide a decomposition of predetermined short-term drains between the central bank and the central government; greater provision of these data would aid analysis (paragraph 21).
- Note on scope of Sections II and III of IRFCL Template (footnoted text):
  - Sections II and III cover only short-term items (i.e., items that require payments up to one year) on a remaining maturity basis.
  - Long-term liabilities/payment obligations (e.g., redemption of long-term bonds, long-term foreign currency swaps with other central banks) are out of scope of those sections.
  - The IRFCL Template covers amortization and interest payments for IMF credit and loans scheduled in a year or less (i.e., short-term payments only).
  - FCD also include scheduled receipts of foreign currency (e.g., the forward leg of currency swaps).
  - For a complete list of FCD and their descriptions, refer to Chapter 3 of the IRFCL Guidelines.

### Use of the standardized statistical definition
- Proposed statistical definition:
  - NIR = Reserve Assets (RA) minus Net short-term foreign-currency drains (FCD) (question 1).
- Benefits:
  - Offers a standardized approach to support careful monitoring of the build-up of potential short-term drains on reserves (paragraph 22).
  - Provides guidance to authorities and others for analysis of external vulnerability (paragraph 22).
- Preservation of flexibility and country-specific adjustments:
  - The standardized definition should not limit flexibility to adjust the measurement of NIR for reserve adequacy assessments or for Fund-supported program design (paragraph 23).
  - Country-specific conditions and circumstances should be carefully considered to determine NIR; examples of modifications include (paragraph 23):
    - For establishing and monitoring Fund-supported programs, all outstanding IMF credit and loans, regardless of their maturity, should be deducted from RA to measure NIR for program purposes.
    - Long-term foreign exchange liabilities to residents and nonresidents could also be deducted, as well as other deductions to reflect country circumstances.
    - There may be a case to exclude from FCD central bank FX liabilities to some residents (for example, the central government—typically government deposits—and some liabilities to commercial banks).
    - The treatment of contingent liabilities (for example, guarantees, credit lines, and sold options) could vary among countries.
  - Illustrative example (footnote):
    - A government may issue Eurobonds and deposit the FX proceeds at the central bank to support NIR without intending to draw down such deposits; or the government might gradually draw down its FX deposits at the central bank in local currency, with the domestic liquidity creation sterilized with domestic currency instruments, preserving the FX reserves.
    - Part of reserve requirements received from commercial banks might be excluded from FCD if they are expected to be stable even in adverse circumstances.

### Questions for discussion (as posed in the GN)
- Do you agree with the proposed statistical definition of NIR = Reserve Assets (RA) minus Net short-term foreign-currency drains (FCD)?
- Do you agree that BPM7 should explain the concept/statistical definition and use of NIR (in an annex and/or a Box) even though it goes beyond the scope of the balance of payments framework?
- Do you agree to the data collection for the proposed NIR (i.e., to be collected in the IRFCL Template/framework)?
- Do you have any other suggestions on the concept of NIR proposed in the GN?

### Annex highlights
- Annex I — Definition of Reserve-Related Liabilities in BPM6:
  - RRL are foreign currency liabilities of the monetary authorities that can be considered direct claims by nonresidents on the reserve assets of an economy (paragraphs 6.115–6.116).
  - Items included: SDR allocation, loans from the IMF to monetary authorities, foreign currency loan and deposit liabilities to nonresidents (including swaps with other central banks, loans from BIS), loan liabilities associated with securities repoed out, foreign currency securities issued by monetary authorities owed to nonresidents, and other foreign currency liabilities to nonresidents (including foreign currency accounts payable and financial derivatives recorded on a net basis) (Annex I).
  - Liabilities to residents and liabilities both denominated and settled in domestic currency are not included (Annex I).
- Annex II — International Reserves and Foreign Currency Liquidity Template:
  - The Template integrates international reserves and foreign currency liquidity, covering balance-sheet and off-balance-sheet activities, future and potential inflows/outflows, liquidity characteristics (e.g., pledged assets), and exchange rate risk exposure (Annex II).
  - Summary structure includes:
    - Section I.A Official reserve assets: (1) Foreign currency reserves (a) Securities; (b) Total currency and deposits; (2) IMF reserve position; (3) SDRs; (4) Gold (including gold deposits and gold swapped); (5) Other reserve assets.
    - Section I.B Other foreign currency assets.
    - Section II Predetermined short-term net drains: (1) Loans, securities, and deposits; (2) Forwards, futures, and swaps; (3) Other (e.g., repos and trade credit).
    - Section III Contingent short-term net drains: (1) Contingent liabilities (a) Collateral guarantees; (b) Other; (2) Securities with embedded options; (3) and (4) Undrawn, unconditional credit lines; (5) Short and long positions in options.
    - Section IV Memo items: (1)(a) Short-term domestic currency debt; (b) Financial instruments denominated in foreign currency and settled by other means; (c) Pledged assets; (d) Securities lent and on repo; (e) Financial derivative assets (net) by type (e.g., forwards, swaps, options); (f) Financial derivatives that have a residual maturity greater than one year; (2) Currency composition of reserves.
- Annex III — IMF Note “Sample Definition of NIR Performance Criteria” (August 1, 2003):
  - Provides a sample NIR PC definition: net international reserves are the difference between reserve assets and reserve liabilities; reserve assets are readily available claims on nonresidents denominated in foreign convertible currencies and include central bank holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country's reserve position at the Fund.
  - Exclusions: assets that are pledged, collateralized, or otherwise encumbered; claims on residents; claims in foreign exchange arising from derivatives vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; and illiquid assets.
  - Reserve liabilities in the sample include all foreign exchange liabilities to residents and nonresidents, including commitments to sell foreign exchange arising from derivatives, and all credit outstanding from the Fund.
  - The sample specifies that program documentation should indicate program price of gold and program exchange rates for valuation, the initial stock of program NIR, and relevant adjusters.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/bptt/b2-standardized-definition-of-net-international-reserves.pdf_