## ADEQUACY OF GFSN—REVISED PROPOSALS (INTRODUCTION and selected sections)

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---

### Introduction: purpose, organization, and decision context
- Purpose and context:
  - Latest paper in the Fund’s work stream on the Adequacy of the Global Financial Safety Net (GFSN); follows the Executive Board’s June 30, 2017 discussion (“the June paper”).
  - Presents revised reform proposals in light of Directors’ views.
  - In the absence of sufficient Executive Board support for a new liquidity facility, proposes to retain the Precautionary and Liquidity Line (PLL).
  - Proposes to introduce a Time-Based Commitment Fee (TBCF).
  - Work complements the new non-financing Policy Coordination Instrument and operational principles and framework for future Fund engagement with Regional Financing Arrangements.
- Organization of the paper:
  - Section II: revised reform proposals.
  - Section III: issues for discussion and proposed decisions to (i) complete the review of the Flexible Credit Line (FCL) and the PLL; and (ii) introduce a TBCF.
  - Annex: planned revision to the presentation of the Fund’s Forward Commitment Capacity (FCC) to provide a breakdown between precautionary and other Fund commitments.
- Key decision context:
  - Reflects Executive Board discussions and Directors’ views on toolkit reform, retention of the PLL, and introduction of a TBCF.

### Revised proposals — A. Short-term Liquidity Swap (SLS)
- Board outcome:
  - Insufficient support to establish the SLS at the current juncture; Board support fell short of the 85 percent majority of the total voting power required to establish the SLS.
- Director views:
  - Most Directors supported creating the SLS for potential short-term, frequent, and moderate balance of payments needs and agreed on key design features.
  - General consensus that such a liquidity facility could be a valuable addition to the GFSN.
- Implication:
  - The SLS proposal could act as a blueprint for a new liquidity facility should membership appetite return.

### Revised proposals — B. Precautionary and Liquidity Line (PLL)
- Staff proposal:
  - Retain the PLL given the absence of a new SLS and concerns that eliminating the PLL could open a new gap in the toolkit.
- Qualification framework enhancements (extension of FCL enhancements to the PLL):
  - Recommended enhancements to the FCL qualification framework would be extended to the PLL, including new core indicators with specified thresholds for economic fundamentals, policies, and policy track record.
  - Extension would not change the overall strength of the PLL qualification standard.
  - PLL qualification would continue to be based on strong performance in most of the five qualification areas (i.e., three of five areas) assessed on the basis of the nine qualification criteria, guided by relevant indicators (which now include the proposed core indicators with thresholds).
  - The mapping of the nine qualification criteria into the five qualification areas for the PLL remains unchanged from the 2014 review.
  - No precise “scoring” of the nine qualification criteria; bottom-line assessment on each criterion remains a judgment guided by indicators.
- Guidance notes:
  - Guidance notes for both the FCL and the PLL would be revised to include the proposed core set of indicators and other operational considerations (strengthening implementation of the external economic stress index (ESI) and assessment of impact on access levels of additional reserve drawdown).

- Box 1 — Qualification Criteria and Proposed Core Indicators (core points):
  - The proposed indicators and thresholds are the same as for the FCL; bottom-line assessments are informed by other relevant information.
  - The nine criteria (condensed):
    1. A sustainable external position — assessed in the most recent Board document (Article IV or ESR) as “broadly consistent”, “moderately stronger (weaker)”, “stronger”, or “substantially stronger”; members with “weaker” or “substantially weaker external positions” would not meet the criterion.
    2. A capital account position dominated by private flows — public flows < half of direct, portfolio, and other asset and liability flows on average in the past three years.
    3. A track record of steady sovereign access to capital markets at favorable terms — public sector issuance or guaranteeing of external bonds or disbursements in at least three of the last five years in a cumulative amount ≥ 50 percent of the country’s Fund quota at the time of assessment; member did not lose market access in the last 12 months per staff assessment.
    4. Reserves for precautionary arrangements — reserves > 100 percent of the ARA metric on average over three years, and not below 80 percent in any of the three years.
    5. Sound public finances — public debt assessed as sustainable with a high probability, taking into account risks not immediately visible in projections.
    6. Low and stable inflation — maintained single-digit inflation over the past five years; bottom-line considers deviations from targets and persistent deflation.
    7. Sound financial system and absence of solvency problems — average capital adequacy ratio above regulatory thresholds; Article IV not highlighting significant solvency risks or recapitalization needs.
    8. Effective financial sector supervision — most recent FSAP or Article IV did not raise substantial supervisory concerns.
    9. Data transparency and integrity — member is an SDDS subscriber or has made satisfactory progress toward meeting SDDS requirements.
- Table 1 — Mapping (summary):
  - Five PLL qualification areas mapped to the nine criteria:
    I. External Position and Market Access: criteria 1–4
    II. Fiscal Policy: criterion 5
    III. Monetary Policy: criterion 6
    IV. Financial Sector Soundness and Supervision: criteria 7–8
    V. Data Adequacy: criterion 9

### Revised proposals — C. Time-Based Commitment Fee (TBCF)
- Rationale and Director views:
  - Many Directors supported introducing a TBCF to strengthen price-based incentives against prolonged use of high-access precautionary arrangements.
  - Directors generally agreed the FCL has provided effective precautionary support; concerns remained about prolonged use of high-access precautionary arrangements.
  - Some Directors favored steepening the commitment fee schedule at high access levels; the majority preference supported the TBCF option considered in this paper.
  - Directors opposing a TBCF argued exit should be state-dependent.
- Staff proposal (note: not endorsed by the Executive Board):
  - Establish a TBCF applied to commitments in the credit tranches that remain very high for an extended period.
  - Aim to balance raising the cost of prolonged precautionary commitments while mitigating undue penalties for members facing risks that justify continued high access.

- Key design elements (same as the June paper):
  - Application of policy:
    - An arrangement in the credit tranches becomes subject to the TBCF when the level of undrawn credit in the credit tranches has remained above the threshold for a defined period (“duration trigger”).
    - Level of undrawn credit, per Rule I-8, is the amount that could be purchased during the relevant period (12 months or the period left under the arrangement, if shorter).
  - Threshold:
    - Set at 575 percent of quota to encourage exit from prolonged commitments under arrangements with very high access (typically precautionary FCL arrangements) while limiting application to high-access non-precautionary credit-tranche arrangements.
  - Duration trigger:
    - Fee payable when undrawn credit has remained above the threshold for a cumulative 4-year period, aligning the trigger with the typical length of a severe shock and two 2-year FCL arrangements.
  - Start of the clock:
    - The count toward the 4-year duration trigger could start with the adoption of the TBCF Decision (the “middle” option from the June paper and its Supplement), implying that upon adoption the clock would start for current arrangements with undrawn credit above the threshold.
    - Since fee could become payable only under future arrangements, no grandfathering provision for current arrangements is needed.
  - Cooling-off period:
    - A cooling-off continuous 12-month period would pause (and if satisfied, reset) the clock toward the 4-year trigger when undrawn balances fall to or below the threshold.
    - If undrawn credit remains at or below the threshold for 12 consecutive months, the clock is reset and neither current nor successor arrangements would become subject to a fee unless undrawn credit again exceeds and remains above the threshold for another 4 years.
    - If undrawn credit rises above the threshold again during those 12 months (i.e., before the cool-off period ends), the clock continues to count from when it was paused.
  - Operational note:
    - A 4-year duration trigger makes the fee less likely to be triggered by drawing arrangements because purchases reduce undrawn credit below the threshold within each relevant period.

- Fee mechanics and parameters:
  - Fee level:
    - TBCF is not state-dependent and could become payable when members face continued or heightened risk; its level should be modest.
    - The June paper considered a range between 10 bps and 20 bps.
    - Staff considers that a fee in the middle of that range (15 bps) could be appropriate.
  - Billing:
    - TBCF would be additional to the regular commitment fees.
    - Applied to the portion of undrawn credit above the threshold, only for the period that undrawn credit remains above the threshold after the duration trigger has been met.
    - Billed and paid ex-post on the day following the end of each relevant 12-month period or the end of the arrangement, if sooner.
  - Non-refundability:
    - Charged only for periods when undrawn credit exceeds the threshold and would not be refundable in the case of drawings.
    - Recognized as income by the Fund so long as the duration trigger is met.
  - Current commitment fee schedule (for context):
    - 15 bps for access up to 115 percent of quota,
    - 30 bps for access in excess of 115 and up to 575 percent of quota,
    - 60 bps for access in excess of 575 percent of quota.
  - Scope and policy intent:
    - Purpose: intended to discourage large-scale prolonged precautionary commitments.
    - Scope: appropriate to apply the TBCF only to arrangements in the credit tranches.
    - Extended arrangements are proposed to be excluded from the policy because extended arrangements should generally not be approved on a precautionary basis.

- Proposed Rule text and operational mechanics (Rule I-8A) — key elements:
  - Charge rate:
    - A member shall pay a non-refundable charge of 15/100 of 1 percent per annum on credit tranche amounts in excess of 575 percent of the member’s quota that could be purchased by the member during each relevant period from the first point of time during the arrangement when the duration trigger is met, until the beginning of the next relevant period or through the end of the arrangement, whichever earlier, or thereafter each subsequent relevant period under the arrangement if the duration trigger continues to be met at the beginning of that relevant period. The charge shall be payable on the day following the end of each relevant period.
  - Relevant period:
    - Defined in accordance with Rule I-8; an amount that could be purchased by the member, as being calculated at any time during a relevant period, shall be the amount that could be purchased by the member from that time through the end of the same relevant period.
  - Duration trigger:
    - Met if the amounts that could be purchased by the member during the relevant periods under arrangements in the credit tranches exceed 575 percent of the member’s quota for a cumulative duration of 48 months.
    - Arrangements measured in percent of the member’s quota in effect on the day on which the charge is payable.
    - For accumulating time toward the total of 48 months, only periods after [Date of Adoption of Decision] when credit tranche amounts that could be purchased by the member were in excess of 575 percent of the member’s quota shall be counted.
    - If there was any continuous period of 12 months or longer during which the credit tranche amounts that could be purchased by the member fell to 575 percent of the member’s quota or lower, then no time prior to that period shall be counted toward the accumulated 48 months required for the duration trigger to be met.
  - Implementation timing:
    - Proposed Rule I-8A would “start the clock” on the calculation of the 4-year period from the date of the adoption of the decision.

- Practical targeting and example application:
  - In practice the TBCF would target large FCL arrangements.
  - Current example noted:
    - The only arrangement in the credit tranches above the proposed threshold at the time of writing is Mexico’s FCL arrangement with access of 700 percent of quota.
    - If Mexico’s access remained above the threshold for 4 years continuously from the date that the TBCF Decision becomes effective (e.g., December 2017), the TBCF of 15 bps would be applied to the portion of Mexico’s undrawn access above 575 percent of quota from December 2021, in addition to the regular commitment fee of 60 bps applied on this portion of access.
- Related procedural and decision points:
  - Adoption of Proposed Decision II, to establish the TBCF on the basis set out, would require a majority carried by 70 percent of total voting power and would adopt a new Rule I-8A.
  - Amendment to FCL decision:
    - Paragraph 6.(a)(iii)(II) of the decision on Flexible Credit Line Arrangements would be amended to require an assessment of the impact of the arrangement on Fund liquidity in cases where access would exceed 575 percent of quota or SDR 10 billion, whichever is lower.
  - Decision timing and reviews:
    - The next review of the decision on Flexible Credit Line Arrangements and the decision on Precautionary and Liquidity Line Arrangements shall take place in five years or more, or on an as needed basis, or whenever the aggregated outstanding credit and commitments under the FCL and PLL reach SDR 150 billion, in accordance with the decision on streamlining of policy reviews.

### Box 2 — Illustrative Example of Time-Based Commitment Fees (selected operational example and fee calculation)
- Illustrative scenario: timeline and clock mechanics
  - Member quota: SDR 5 billion.
  - Sequence of precautionary FCL arrangements and events:
    - T0: 12-month precautionary FCL arrangement for 600 percent of quota is approved. Full amount immediately available for purchase and exceeds the 575 percent of quota threshold; the duration trigger “clock” starts.
    - T12: The FCL arrangement expires with no immediate successor arrangement. Undrawn credit available to the member falls to zero and the “clock” pauses.
    - T15: Three months later, a second 24-month precautionary FCL arrangement for 600 percent of quota is approved. The period between arrangements is shorter than the 12-month cooling-off period and the new level of undrawn credit again exceeds the threshold; the “clock” resumes from the previously accumulated 12 months.
    - T39: At the end of the second FCL arrangement, a third precautionary FCL arrangement of 24 months is approved with 700 percent of quota access.
    - T51: A year into the third arrangement, the 4-year duration trigger is met. The 15 bps fee starts to accrue daily on the portion of undrawn credit above the threshold under the current arrangement (125 percent of quota).
    - T57: Six months later, external risks materialize and the member makes a partial purchase of 500 percent of quota. The level of undrawn credit falls to 200 percent of quota, the “clock” is paused and the fee stops accruing. The FCL arrangement remains in effect.
    - T63: The third FCL arrangement expires with the remaining 200 percent of quota undrawn. Upon expiry (end of the relevant period), the TBCF is billed for the 6-month period between T51 and T57 when undrawn credit remained above the threshold.
    - T69: The 12-month cooling-off period, which started when the “clock” was paused at T57, is exceeded. The “clock” would start from zero should the member have a subsequent arrangement approved with undrawn credit exceeding the threshold.
- Example fee calculation:
  - Annual fee rate: 15 bps.
  - Undrawn credit subject to fee at time fee began: SDR 6.25 billion (125 percent of quota).
  - Fee amount payable for the 6-month period between T51 and T57: about SDR 4.7 million (annual fee rate of 15 bps on undrawn credit of SDR 6.25 billion, pro-rated for 6 months).

- Fee design, billing, and revenue recognition (summary):
  - Fee would be additional to regular commitment fees, non-refundable in case of drawings, billed ex-post on the day following the end of each relevant 12-month period or the end of the arrangement, if sooner, and recognized as income by the Fund so long as the duration trigger is met.

- Procedural note:
  - Adoption of the TBCF Decision would require a majority carried by 70 percent of total voting power and would adopt Rule I-8A; proposed amendments to FCL decision and review timing are specified above.

*Source: ADEQUACY OF GFSN—REVISED PROPOSALS (INTRODUCTION and selected sections).*

### INTRODUCTION _____________________________________________________________________ 3

### INTRODUCTION

### Purpose and context
- This paper is the latest in the Fund’s work stream on the Adequacy of the Global Financial Safety Net (GFSN) and follows the Executive Board’s June 30, 2017 discussion (“the June paper”).
- It presents revised reform proposals in light of Directors’ views and, in the absence of sufficient Executive Board support for a new liquidity facility, proposes to retain the Precautionary and Liquidity Line (PLL).
- The paper also proposes to introduce a Time-Based Commitment Fee (TBCF).
- The work complements the new non-financing Policy Coordination Instrument and operational principles and framework for future Fund engagement with Regional Financing Arrangements.

### Organization of the paper
- Section II: revised reform proposals.
- Section III: issues for discussion and proposed decisions to (i) complete the review of the Flexible Credit Line (FCL) and the PLL; and (ii) introduce a TBCF.
- Annex: planned revision to the presentation of the Fund’s Forward Commitment Capacity (FCC) to provide a breakdown between precautionary and other Fund commitments.

### Key decision context
- The paper reflects Executive Board discussions and Directors’ views on toolkit reform, retention of the PLL, and introduction of a TBCF.

---

### REVISED PROPOSALS

### A. Short-term Liquidity Swap (SLS)
- Board outcome:
  - Insufficient support to establish the SLS at the current juncture; Board support fell short of the 85 percent majority of the total voting power required to establish the SLS.
- Director views:
  - Most Directors supported creating the SLS for potential short-term, frequent, and moderate balance of payments needs and agreed on key design features.
  - General consensus that such a liquidity facility could be a valuable addition to the GFSN.
- Implication:
  - The SLS proposal could act as a blueprint for a new liquidity facility should membership appetite return.

### B. Precautionary and Liquidity Line (PLL)
- Staff proposal:
  - Retain the PLL given the absence of a new SLS and concerns that eliminating the PLL could open a new gap in the toolkit.
- Qualification framework:
  - Recommended enhancements to the FCL qualification framework would be extended to the PLL, including new core indicators with specified thresholds for economic fundamentals, policies, and policy track record.
  - This extension would not change the overall strength of the PLL qualification standard.
  - PLL qualification would continue to be based on strong performance in most of the five qualification areas (i.e., three of five areas) assessed on the basis of the nine qualification criteria, guided by relevant indicators (which now include the proposed core indicators with thresholds).
  - The mapping of the nine qualification criteria into the five qualification areas for the PLL remains unchanged from the 2014 review.
  - No precise “scoring” of the nine qualification criteria; bottom-line assessment on each criterion remains a judgment guided by indicators.
- Guidance notes:
  - Guidance notes for both the FCL and the PLL would be revised to include the proposed core set of indicators and other operational considerations (strengthening implementation of the external economic stress index (ESI) and assessment of impact on access levels of additional reserve drawdown).

Box 1 — Qualification Criteria and Proposed Core Indicators (core points)
- The proposed indicators and thresholds are the same as for the FCL; bottom-line assessments are informed by other relevant information.
- The nine criteria (condensed):
  1. A sustainable external position — assessed in the most recent Board document (Article IV or ESR) as “broadly consistent”, “moderately stronger (weaker)”, “stronger”, or “substantially stronger”; members with “weaker” or “substantially weaker external positions” would not meet the criterion.
  2. A capital account position dominated by private flows — public flows < half of direct, portfolio, and other asset and liability flows on average in the past three years.
  3. A track record of steady sovereign access to capital markets at favorable terms — public sector issuance or guaranteeing of external bonds or disbursements in at least three of the last five years in a cumulative amount ≥ 50 percent of the country’s Fund quota at the time of assessment; member did not lose market access in the last 12 months per staff assessment.
  4. Reserves for precautionary arrangements — reserves > 100 percent of the ARA metric on average over three years, and not below 80 percent in any of the three years.
  5. Sound public finances — public debt assessed as sustainable with a high probability, taking into account risks not immediately visible in projections.
  6. Low and stable inflation — maintained single-digit inflation over the past five years; bottom-line considers deviations from targets and persistent deflation.
  7. Sound financial system and absence of solvency problems — average capital adequacy ratio above regulatory thresholds; Article IV not highlighting significant solvency risks or recapitalization needs.
  8. Effective financial sector supervision — most recent FSAP or Article IV did not raise substantial supervisory concerns.
  9. Data transparency and integrity — member is an SDDS subscriber or has made satisfactory progress toward meeting SDDS requirements.

Table 1 — Mapping (summary)
- Five PLL qualification areas mapped to the nine criteria:
  I. External Position and Market Access: criteria 1–4
  II. Fiscal Policy: criterion 5
  III. Monetary Policy: criterion 6
  IV. Financial Sector Soundness and Supervision: criteria 7–8
  V. Data Adequacy: criterion 9

### C. Time-Based Commitment Fee (TBCF)

- Rationale and Director views:
  - Many Directors supported introducing a TBCF to strengthen price-based incentives against prolonged use of high-access precautionary arrangements.
  - Directors generally agreed the FCL has provided effective precautionary support; concerns remained about prolonged use of high-access precautionary arrangements.
  - Some Directors favored steepening the commitment fee schedule at high access levels; the majority preference supported the TBCF option considered in this paper.
  - Directors opposing a TBCF argued exit should be state-dependent.

- Staff proposal:
  - Establish a TBCF applied to commitments in the credit tranches that remain very high for an extended period.
  - The proposal aims to balance raising the cost of prolonged precautionary commitments while mitigating undue penalties for members facing risks that justify continued high access.
  - Note: This proposal was not endorsed by the Executive Board.

- Key design elements (same as the June paper):
  - Application of policy:
    - An arrangement in the credit tranches becomes subject to the TBCF when the level of undrawn credit in the credit tranches has remained above the threshold for a defined period (“duration trigger”).
    - Level of undrawn credit, per Rule I-8, is the amount that could be purchased during the relevant period (12 months or the period left under the arrangement, if shorter).
  - Threshold:
    - Set at 575 percent of quota to encourage exit from prolonged commitments under arrangements with very high access (typically precautionary FCL arrangements) while limiting application to high-access non-precautionary credit-tranche arrangements.
  - Duration trigger:
    - Fee payable when undrawn credit has remained above the threshold for a cumulative 4-year period, aligning the trigger with the typical length of a severe shock and two 2-year FCL arrangements.
  - Start of the clock:
    - The count toward the 4-year duration trigger could start with the adoption of the TBCF Decision (the “middle” option from the June paper and its Supplement), implying that upon adoption the clock would start for current arrangements with undrawn credit above the threshold.
    - Since fee could become payable only under future arrangements, no grandfathering provision for current arrangements is needed.
  - Cooling-off period:
    - A cooling-off continuous 12-month period would pause (and if satisfied, reset) the clock toward the 4-year trigger when undrawn balances fall to or below the threshold.
    - If undrawn credit remains at or below the threshold for 12 consecutive months, the clock is reset and neither current nor successor arrangements would become subject to a fee unless undrawn credit again exceeds and remains above the threshold for another 4 years.
    - If undrawn credit rises above the threshold again during those 12 months (i.e., before the cool-off period ends), the clock continues to count from when it was paused.
  - Operational note:
    - A 4-year duration trigger makes the fee less likely to be triggered by drawing arrangements because purchases reduce undrawn credit below the threshold within each relevant period.

- Illustrative mechanics:
  - Box 2 in the source provides an illustrative scenario explaining practical application of the TBCF (not reproduced here).

---

*Source: ADEQUACY OF GFSN—REVISED PROPOSALS (INTRODUCTION and selected sections).*

### Box 2. Illustrative Example of Time-Based Commitment Fees

### Box 2. Illustrative Example of Time-Based Commitment Fees

### Illustrative scenario: timeline of arrangements, undrawn credit, and the “clock”
- Member quota: SDR 5 billion.
- Sequence of precautionary FCL arrangements and events:
  - T0: 12-month precautionary FCL arrangement for 600 percent of quota is approved. The full amount is immediately available for purchase and exceeds the 575 percent of quota threshold; the duration trigger “clock” starts.
  - T12: The FCL arrangement expires with no immediate successor arrangement. Undrawn credit available to the member falls to zero and the “clock” pauses.
  - T15: Three months later, a second 24-month precautionary FCL arrangement for 600 percent of quota is approved. The period between arrangements is shorter than the 12-month cooling-off period and the new level of undrawn credit again exceeds the threshold; the “clock” resumes from the previously accumulated 12 months.
  - T39: At the end of the second FCL arrangement, a third precautionary FCL arrangement of 24 months is approved with 700 percent of quota access.
  - T51: A year into the third arrangement, the 4-year duration trigger is met. The 15 bps fee starts to accrue daily on the portion of undrawn credit above the threshold under the current arrangement (125 percent of quota).
  - T57: Six months later, external risks materialize and the member makes a partial purchase of 500 percent of quota. The level of undrawn credit falls to 200 percent of quota, the “clock” is paused and the fee stops accruing. The FCL arrangement remains in effect.
  - T63: The third FCL arrangement expires with the remaining 200 percent of quota undrawn. Upon expiry (end of the relevant period), the TBCF is billed for the 6-month period between T51 and T57 when undrawn credit remained above the threshold.
  - T69: The 12-month cooling-off period, which started when the “clock” was paused at T57, is exceeded. The “clock” would start from zero should the member have a subsequent arrangement approved with undrawn credit exceeding the threshold.

- Example fee calculation provided in scenario:
  - Annual fee rate: 15 bps.
  - Undrawn credit subject to fee at time fee began: SDR 6.25 billion (125 percent of quota).
  - Fee amount payable for the 6-month period between T51 and T57: about SDR 4.7 million (annual fee rate of 15 bps on undrawn credit of SDR 6.25 billion, pro-rated for 6 months).

### Fee design, billing, and revenue recognition
- Fee level:
  - TBCF is not state-dependent and could become payable when members face continued or heightened risk; its level should be modest.
  - The June paper considered a range between 10 bps and 20 bps.
  - Staff considers that a fee in the middle of that range (15 bps) could be appropriate.
- Billing:
  - The TBCF would be additional to the regular commitment fees.
  - It would be applied to the portion of undrawn credit that is above the threshold, and only for the period that undrawn credit remains above the threshold after the duration trigger has been met.
  - The fee would be billed and paid ex-post on the day following the end of each relevant 12-month period or the end of the arrangement, if sooner.
- Non-refundability:
  - The TBCF would be charged only for periods when undrawn credit exceeds the threshold and would not be refundable in the case of drawings.
  - It would be recognized as income by the Fund so long as the duration trigger is met.

- Current commitment fee schedule (for context):
  - 15 bps for access up to 115 percent of quota,
  - 30 bps for access in excess of 115 and up to 575 percent of quota,
  - 60 bps for access in excess of 575 percent of quota.

### Scope and policy intent
- Purpose:
  - The TBCF is intended to discourage large-scale prolonged precautionary commitments.
- Scope:
  - It would be appropriate to apply the TBCF only to arrangements in the credit tranches.
  - Extended arrangements are proposed to be excluded from the policy because extended arrangements should generally not be approved on a precautionary basis.

### Proposed Rule text and operational mechanics (Rule I-8A)
- Key elements as proposed:
  - Charge rate: A member shall pay a non-refundable charge of 15/100 of 1 percent per annum on credit tranche amounts in excess of 575 percent of the member’s quota that could be purchased by the member during each relevant period from the first point of time during the arrangement when the duration trigger is met, until the beginning of the next relevant period or through the end of the arrangement, whichever earlier, or thereafter each subsequent relevant period under the arrangement if the duration trigger continues to be met at the beginning of that relevant period. The charge shall be payable on the day following the end of each relevant period.
  - Relevant period: Defined in accordance with Rule I-8; an amount that could be purchased by the member, as being calculated at any time during a relevant period, shall be the amount that could be purchased by the member from that time through the end of the same relevant period.
  - Duration trigger: Met if the amounts that could be purchased by the member during the relevant periods under arrangements in the credit tranches exceed 575 percent of the member’s quota for a cumulative duration of 48 months.
    - Arrangements measured in percent of the member’s quota in effect on the day on which the charge is payable.
    - For accumulating time toward the total of 48 months, only periods after [Date of Adoption of Decision] when credit tranche amounts that could be purchased by the member were in excess of 575 percent of the member’s quota shall be counted.
    - If there was any continuous period of 12 months or longer during which the credit tranche amounts that could be purchased by the member fell to 575 percent of the member’s quota or lower, then no time prior to that period shall be counted toward the accumulated 48 months required for the duration trigger to be met.
  - Implementation timing:
    - The proposed Rule I-8A would “start the clock” on the calculation of the 4-year period from the date of the adoption of the decision.

### Practical targeting and example application
- In practice the TBCF would target large FCL arrangements.
- Current example noted:
  - The only arrangement in the credit tranches above the proposed threshold at the time of writing is Mexico’s FCL arrangement with access of 700 percent of quota.
  - If Mexico’s access remained above the threshold for 4 years continuously from the date that the TBCF Decision becomes effective (e.g., December 2017), the TBCF of 15 bps would be applied to the portion of Mexico’s undrawn access above 575 percent of quota from December 2021, in addition to the regular commitment fee of 60 bps applied on this portion of access.

### Related procedural and decision points
- Adoption mechanics:
  - Adoption of Proposed Decision II, to establish the TBCF on the basis set out, would require a majority carried by 70 percent of total voting power and would adopt a new Rule I-8A.
- Amendment to FCL decision:
  - Paragraph 6.(a)(iii)(II) of the decision on Flexible Credit Line Arrangements would be amended to require an assessment of the impact of the arrangement on Fund liquidity in cases where access would exceed 575 percent of quota or SDR 10 billion, whichever is lower.
- Decision timing and reviews:
  - The next review of the decision on Flexible Credit Line Arrangements and the decision on Precautionary and Liquidity Line Arrangements shall take place in five years or more, or on an as needed basis, or whenever the aggregated outstanding credit and commitments under the FCL and PLL reach SDR 150 billion, in accordance with the decision on streamlining of policy reviews.

*Source: Box 2, “Illustrative Example of Time-Based Commitment Fees,” pp. 10–16, Adequacy of GFSN—Revised Proposals (IMF).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2017/pp121917-adequacyofgfsn-revisedproposals.pdf_