## ppea2021053 ## Source details **Canonical URL:** [ppea2021053](https://www.imf.org/-/media/files/publications/pp/2021/english/ppea2021053.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2021/english/ppea2021053.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2021/english/ppea2021053.pdf.json) --- ### Executive summary — key statistics and recent response - New lending to LICs during 2020 amounted to SDR 9.3 billion. - 53 of 69 eligible LICs received financial support in 2020. - 29 LICs benefited from SDR 520 million in grant-based debt service relief from the Catastrophe Containment and Relief Trust (CCRT). - PRGT disbursements to LICs during 2020 amounted to SDR 6.8 billion. - Staff projects total PRGT lending to reach around SDR 21 billion during the pandemic and its immediate aftermath (2020–24). - Staff projects PRGT loan mobilization needs in a first-stage funding strategy of SDR 12.6 billion in PRGT loan resources and SDR 2.8 billion in new subsidy resources. - Possible longer-term PRGT loan mobilization via SDR channeling could range from SDR 24–34 billion for the remainder of this decade (2021–29). - Stock of outstanding credit to LICs at end-2020 amounted to SDR 15.7 billion (SDR 12.4 billion from the PRGT). ### Funding strategy and mobilization (first stage) - Objective: finance exceptional pandemic-related concessional lending while preserving PRGT’s endowment-based financing model. - Stage one targets and mechanics: - Mobilize SDR 12.6 billion in PRGT loan resources. - Mobilize SDR 2.8 billion in new subsidy resources (to allow lending at zero interest rates). - Require increase in cumulative PRGT borrowing limit from SDR 55.5 billion to SDR 68 billion to permit additional loan mobilization. - Proposed financing mix: combination of internal Fund resources and a broad burden-shared bilateral fundraising effort. - Proposed donor mobilization specifics: - SDR 2.3 billion to be raised via a broad burden-shared bilateral fundraising campaign (as part of the SDR 2.8 billion subsidy target). - Suspension of PRGT reimbursement to the GRA for administrative expenses through FY2026 to generate SDR 0.5 billion in subsidy resources. - New PRGT accounts proposed: - Subsidy Reserve Account (SRA) — primary for subsidy contributions; secondary as a supplementary reserve backstop. - Deposit and Investment Account (DIA) — to accept investments that generate earnings for PRGT subsidy accounts. - Donor delivery options (flexible, pledges upfront/disbursed over time): - Budgetary grants (e.g., 10-year tranches). - Donating SDRs or interest earnings. - Providing PRGT loans at below the SDR rate (implicit subsidy). - Investing resources in the Trust (deposit or investment agreements) via DIA. - Illustrative valuation (Table 2 highlights for a SDR 1 billion 10-year contribution): - Grant in 10 annual tranches: Nominal 1,000; NPV (Baseline) 946. - Implicit subsidy loan at 5bp: Nominal 110; NPV (Baseline) 102. - Interest on member's SDR holdings in excess of 5bp: Nominal 151; NPV (Baseline) 138. - Earnings on investment pooled with PRGT assets (remunerated at 5bp): Nominal 268; NPV (Baseline) 230. - Memorandum item — Subsidy cost of SDR 1 billion PRGT credit outstanding: Nominal 156; NPV (Baseline) 143. ### PRGT lending policy reforms and safeguards - Key policy reforms proposed: - Raise normal annual/cumulative limits on access to PRGT resources to 145/435 percent of quota (aligning with GRA normal access thresholds of 145/435 percent). - Eliminate the hard limits on exceptional access (EA) to PRGT resources for the poorest LICs — EA available if PRGT EA criteria are met. - Modify and align PRGT EA criteria with PS-HCC requirements, with the exception that EA eligibility depends on not meeting the income threshold for blending at time of request. - Simplify access norms: unified access norm set at 145 percent of quota for any three-year ECF arrangement. - Modify the blending framework: income threshold specification, market access role, and PRGT:GRA mix simplification (1:2 ratio with PRGT access capped at 145 percent of quota per arrangement). - Consider a dual pricing / dual interest rate mechanism (all-PRGT option for presumed blenders at an intermediate rate). - Strengthen safeguards: deeper analysis of public debt composition and dynamics, disclosure requirements, comparative Fund-credit metrics, and program design to manage credit risk. - Procedural safeguards and High Access Procedures (HAP): - Existing HAP flow trigger: 180 percent of quota; stock trigger: 225 percent of quota; temporary pandemic modifications raised flow trigger to 240 percent through end-2023 and stock trigger to 300 percent through June 30, 2021. - Proposal to retain higher flow and stock triggers introduced March 2021 until the next full review of LIC facilities. - Debt vulnerability and program design: - New requirements for deeper disclosure and analysis in staff reports for countries at high risk/in debt distress and for requests above current normal access limits. - Program objectives for high risk/in-distress countries must include concrete reduction in debt vulnerabilities over the program period. ### PRGT financing model details, interest rate treatment, and accounts - Historical and current resource context: - Members have voluntarily provided about SDR 5.3 billion to subsidy accounts. - Members have made close to SDR 55.5 billion available in loan resources. - Fund contributed about SDR 5.5 billion in internal resources, mostly derived from gold sales. - Two new PRGT accounts and functions: - Subsidy Reserve Account (SRA): hold and invest subsidy resources; second-line backstop to the Reserve Account (RA); SRA resources used after existing subsidy accounts exhausted and before RA becomes sole funding source. - Deposit and Investment Account (DIA): vehicle for long-term deposit/investment agreements to generate investment returns that can be transferred to SRA. - DIA design and scale: - Contributors remunerated at fixed or floating rate between zero and the SDRi. - Investment agreements generally long term (e.g., 10–20 years). - If contributors channel up to half of prospective subsidy contributions via DIA, potential DIA investments could be around SDR 10 billion in stage one. - PRGT interest rate mechanism: - Mechanism adopted in 2009 and modified in 2019 has broadly worked as intended. - Directors agreed interest rates on all loans provided through PRGT facilities will remain at zero until the next review of the interest rate structure by end-July 2023 (staff proposes zero interest through July 2023, based on 12-month average SDR interest rate of 0.08 percent). - PRGT interest rates set under the mechanism: zero if SDRi < 2 percent; scheduled biennial reviews. - Reserve coverage implications: - Under stage one assumptions, reserve coverage of PRGT credit outstanding would decline from currently 32 percent to an average of 22–34 percent in 2025–29 (depending on demand and level of subsidy channeled to SRA), before gradually increasing thereafter. - Illustration: assuming about half of PRGT subsidy contributions are channeled to the SRA, reserve coverage would remain above 20 percent throughout even if PRGT lending is 20 percent above the Baseline. ### Demand uncertainty, monitoring, scenarios, and lending projections - Recent demand profile: - March–December 2020: lending to LICs amounted to SDR 9.1 billion (SDR 6.56 billion from the PRGT), with almost 90 percent provided via the RCF and RFI. - March–July 2020: new lending surged to SDR 7.97 billion (PRGT plus GRA), with 90 percent delivered via 47 disbursements to 44 countries under EF instruments. - August–December 2020: new lending amounted to SDR 1.1 billion. - First six months of 2021: new lending amounted to SDR 2.51 billion, with SDR 2.1 billion from UCT programs. - As of mid-2021: SDR 5.14 billion in undrawn commitments under 15 arrangements. - Scenario construction and projections (2020–24 and beyond): - Baseline: - Assumes nearly two-thirds of LICs seek program support during 2020–24. - Total PRGT lending projected to reach around SDR 21 billion during 2020–24. - Combined Fund lending commitments about SDR 34 billion during 2020–24 (including SDR 21 billion from the PRGT). - PRGT credit outstanding would peak in 2025/26 at about SDR 22 billion (more than three times pre-pandemic level). - Typical non-blend LIC would borrow about 1½ percent of GDP from the PRGT annually during crisis period; peak PRGT credit of 5–8 percent of GDP by 2025/26 (around 11 percent of government debt). - Debt service would peak at around 2–3 percent of exports annually during 2025–30 (historically about 1 percent). - Low Case: - Lower share of LICs request programs (40 percent). - Baseline/Low Case post-crisis decade average annual demand assumption: SDR 1.65 billion. - High Case: - About 80 percent of LICs request programs; per-country access at nearly three times historical levels. - Under High Case, PRGT credit could peak at 6–12 percent of GDP for non-blend LICs. - High Case would stress-test PRGT resources; reducing PRGT lending by reinstating pre-pandemic limits could lower lending by up to SDR 4¼ billion and lower subsidy resource gap by up to SDR 0.3 billion in some calibrations. - Projected decade ranges and SDR channeling: - Voluntary channeling of SDRs could facilitate additional PRGT loan mobilization in the range SDR 24–34 billion for 2021–29. - Total SDRs channeled to the PRGT over coming years projected in range SDR 20–35 billion, of which SDR 12–20 billion in near term (includes DIA investments and assumed encashment buffer of 20 percent and SDR 17 billion already mobilized). - If Board endorses “all PRGT” financing for presumed blenders, loan resource needs could rise to around SDR 42–59 billion and decade ranges increase (e.g., overall range up to around SDR 33–54 billion under some reform permutations). ### Administrative, contingency measures, governance, and monitoring - Annual monitoring and reviews: - Staff proposes annual Executive Board reviews of PRGT resource adequacy, with first annual review expected before the 2022 Spring Meetings. - Annual reviews to include updates on lending developments, loan and subsidy resource mobilization, investment and interest developments, PRGT lending capacity and resource outlook, credit risks and reserve coverage outlook, and options for adapting funding strategy. - Contingency measures management may propose ahead of second-stage review: - Additional bilateral fundraising efforts led by IMF management. - Extend suspension of reimbursements to the GRA beyond FY2026. - Seek member support for a “gold pledge” as a backstop (would require 85 percent of total voting power). - Coordinated effort to secure government guarantees from advanced countries as an ultimate backstop. - Board decision on distribution of GRA reserves to facilitate contributions contingent on pledges and precautionary balances target. - Recalibration of access limits and norms; review of PRGT interest framework that could lead to higher, though still concessional, lending rates. - Administrative proposal approved in staff package: - Suspend PRGT reimbursement to the GRA for administrative expenses through FY2026 to yield SDR 0.5 billion for the PRGT Reserve Account. ### Annex highlights — access limits, blending, dual interest mechanism, and debt sustainability - Access limits evolution and staff proposals: - Proposed non-transitory normal access limits: 145/435 percent of quota (annual/cumulative), with temporary increase to 245 percent of quota for annual access through end-December 2021. - Staff propose elimination of hard caps on PRGT exceptional access for the poorest LICs, subject to EA criteria. - Blending reforms proposed: - Income threshold for blending: GNI per capita must exceed IDA operational cutoff by at least 5 percent for two consecutive years; once met, country continues to meet threshold unless income per capita falls below 95 percent of IDA cutoff. - Market access role simplified: prospective market access removed; past durable and substantial access retains operational role. - Blend mix proposed: 1:2 PRGT:GRA with PRGT capped at 145 percent of quota per arrangement. - Under alternative “dual pricing”/all-PRGT option, presumed blenders could access PRGT-only financing at an intermediate rate (e.g., two-thirds of GRA rate), with implications for significantly larger PRGT credit outstanding and reserve coverage declines. - Dual interest rate mechanism (Annex V): - Two rates: R_A (current mechanism) and R_B (higher, linked to but less than GRA rate; example R_B = two-thirds of current GRA rate). - IIRs (intermediate interest rate countries/presumed blenders) could access PRGT at R_B; poorest LICs remain at R_A (zero under current setting). - Legal and operational changes required; potential effects on concessionality measured via grant element calculations. - Debt sustainability trends and tools (Annex VI): - As of end-May 2021: 42 percent of LICs assessed at high risk of debt distress; 14 percent in debt distress. - Pre-pandemic (end-2016): 26 percent at high risk; 7 percent in debt distress. - Enhanced documentation and comparative Fund-credit metrics to be included in staff reports for high-risk or high-access requests. - Methodology allows graphical comparison of projected Fund credit metrics relative to control groups of PRGT arrangements (e.g., Fund credit outstanding as percent of GDP, debt service to Fund as percent of exports/revenues). ### Issues and decisions posed to Directors (summary of questions) - Support for proposed lending framework reforms: - Increase normal access limits to 145/435 percent of quota? - Eliminate hard caps on PRGT exceptional access? - Safeguards on debt sustainability/capacity to repay as endorsed in March 2021? - Thresholds for triggering High Access Procedures? - Align PRGT EA criteria with PS-HCC, with blending-income exception? - Simplify norms specification to unified 145 percent of quota for three-year ECF? - Support for blending reforms: - Adjust income threshold used in determining blend status? - Simplify role of market access and debt vulnerabilities in blend determination? - Simplify rules for PRGT/GRA mix for presumed blenders? - Merit in continued work on a dual interest rate mechanism permitting all-PRGT financing for presumed blenders? - Support for two-stage funding strategy: - Stage one: mobilize SDR 12.6 billion in additional loan resources (raising borrowing limit to SDR 68.0 billion) and SDR 2.8 billion in new subsidy resources (including SDR 2.3 billion via bilateral grants and suspension of PRGT reimbursement to GRA through FY2026)? - Annual Executive Board reviews of concessional resources and fundraising progress? - Creation of SRA and DIA? - Maintain PRGT interest rates on all facilities at zero through end-July 2023 with review by July 2023? *Italic: Executive Summary and selected excerpts from "FUND CONCESSIONAL FINANCIAL SUPPORT FOR LICS—RESPONDING TO THE PANDEMIC" (June 30, 2021) and instrument/annex excerpts from ppea2021053.* ### 12.6 billion in PRGT loan resources and SDR 2.8 billion in new subsidy resources. They ### FUND CONCESSIONAL FINANCIAL SUPPORT FOR LICS—RESPONDING TO THE PANDEMIC ### Executive summary — key statistics and recent response - New lending to LICs during 2020 amounted to SDR 9.3 billion. - 53 of 69 eligible LICs received financial support in 2020. - 29 LICs benefited from SDR 520 million in grant-based debt service relief from the Catastrophe Containment and Relief Trust (CCRT). - Staff projects total PRGT lending to reach around SDR 21 billion during the pandemic and its immediate aftermath (2020–24). - Staff projects PRGT loan mobilization needs in a first-stage funding strategy of SDR 12.6 billion in PRGT loan resources and SDR 2.8 billion in new subsidy resources. - Possible longer-term PRGT loan mobilization via SDR channeling could range from SDR 24–34 billion for the remainder of this decade (2021–29). ### Funding strategy and mobilization (first stage) - Objective: finance exceptional pandemic-related concessional lending while preserving PRGT’s endowment-based financing model. - First-stage mobilization targets: - SDR 12.6 billion in PRGT loan resources. - SDR 2.8 billion in new subsidy resources (to allow lending at zero interest rates). - Proposed financing mix: combination of internal Fund resources and a broad burden-shared bilateral fundraising effort. - Flexibility for donors: - Support to be pledged upfront and disbursed over time. - Range of options available for timing and mechanisms of contributions. - New PRGT accounts proposed to facilitate contributions: - Subsidy Reserve Account (SRA) — primary for subsidy contributions; secondary purpose as a supplementary reserve account to boost the reserve coverage ratio. - Deposit and Investment Account (DIA) — to accept investments that generate earnings for the PRGT’s subsidy accounts. - Proposed donor mobilization: SDR 2.3 billion to be raised via a broad burden-shared bilateral fundraising campaign (as part of the SDR 2.8 billion subsidy target), complemented by suspension of PRGT reimbursement to the GRA for administrative expenses through FY2026. - Annual monitoring: staff proposal for annual reviews of the adequacy of PRGT resources, with the first annual review expected before the 2022 Spring Meetings. ### PRGT lending policy reforms and safeguards - Key policy reforms proposed: - Raise normal annual/cumulative limits on access to PRGT resources to 145/435 percent of quota (aligning with the same thresholds for normal access in the GRA). - Eliminate the hard limits on exceptional access (EA) to PRGT resources for the poorest LICs, enabling concessional terms if EA criteria are met. - Modify the framework for blending concessional and non-concessional resources to be more robust and less complex. - Strengthen safeguards to address debt sustainability and capacity to repay the Fund. - Retain zero interest rates on PRGT loans, consistent with established rules for setting these interest rates. - Program design and debt sustainability assessments to play key roles in managing credit risk linked to higher lending levels. - New financing requests to require deeper staff analysis of public debt composition and dynamics, including the significance of non-restructurable debt (such as IMF credit). ### PRGT financing model details, interest rate treatment, and accounts - Directors broadly supported increasing the PRGT cumulative borrowing limit to SDR 68 billion to allow mobilization of the loan resources. - Subsidy resources generation agreed by Directors to include: - Suspension of PRGT reimbursement to the GRA for administrative expenses through FY2026. - Mobilizing SDR 2.3 billion via a broad burden-shared bilateral fundraising campaign. - Two new PRGT accounts to be created: Subsidy Reserve Account (SRA) and Deposit and Investment Account (DIA). - PRGT interest rate mechanism: - Noted that the mechanism adopted in 2009 and modified in 2019 has worked broadly as intended. - Agreement that interest rates on all loans provided through PRGT facilities will remain at zero until the next review of the interest rate structure, to occur by end-July 2023. - Directors urged exploration of the Fund’s own efforts, including internal resources; some Directors recommended exploring gold sales, while a few opposed gold sales or a gold pledge due to complexity, time, and potential balance sheet impacts. ### Demand uncertainty, monitoring, and review timetable - Given uncertainties around demand for concessional resources and timing/scale of donor contributions, Directors underscored: - The need to closely monitor PRGT finances. - Support for annual reviews of PRGT resource adequacy. - A few Directors emphasized that frequent reviews would enable adequate Board oversight and contingency measures, including possible adjustments to lending policies. - A number of Directors called for an update to the Board on fund-raising status after this year’s Annual Meetings. - Directors looked forward to the first annual review of PRGT finances before the 2022 Spring Meetings. ### Longer-term financing (second stage) and options - A decision on the longer-term PRGT envelope to be taken at the second stage as part of the next full review of concessional financing and policies in 2024/25. - Consideration of further use of IMF internal resources if the Board favors a significantly larger PRGT lending envelope and associated endowment. - Channeling of SDRs could facilitate additional PRGT loan mobilization, potentially in the range SDR 24–34 billion for 2021–29, and possibly significantly more if blending rule reforms are implemented. _Executive Summary and selected excerpts from "FUND CONCESSIONAL FINANCIAL SUPPORT FOR LICS—RESPONDING TO THE PANDEMIC" (June 30, 2021)_ ### 4. The Fund responded to the pandemic with a series of temporary increases to access ### ppea2021053 - 4. The Fund responded to the pandemic with a series of temporary increases to access ### IMF emergency response and lending surge - PRGT disbursements to LICs during 2020 amounted to SDR 6.8 billion—compared with an annual average of less than SDR 1 billion during 2017–2019. - Total new lending to LICs in 2020, including non-concessional loans from the Fund’s General Resources Account (GRA) as part of blended financing, reached SDR 9.3 billion. - In all, 53 of 69 PRGT-eligible countries received financial assistance from the Fund in 2020, including via debt service relief from the Catastrophe Containment and Relief Trust (CCRT). - The temporary doubling of annual limits on access to the Emergency Financing (EF) facilities on April 6, 2020 facilitated the surge in emergency financing. - By end-2020, 47 LICs had received financial support through EF facilities (with 6 countries receiving two EF disbursements); 3 additional countries received financial support through disbursements under new or augmented UCT programs. - The stock of outstanding credit to LICs at end-2020 amounted to SDR 15.7 billion (SDR 12.4 billion from the PRGT), twice the amount outstanding at end-2019. ### Evolving patterns of lending during the pandemic - March–December 2020: lending to LICs amounted to SDR 9.1 billion (SDR 6.56 billion from the PRGT), with almost 90 percent provided via the RCF and RFI. - March–July 2020: new lending surged to SDR 7.97 billion (PRGT plus GRA), with 90 percent delivered via 47 disbursements to 44 countries under EF instruments. - August–December 2020: new lending amounted to SDR 1.1 billion, split almost equally between 6 EF disbursements and 10 disbursements under UCT programs. - First six months of 2021: new lending amounted to SDR 2.51 billion, with SDR 2.1 billion coming from disbursements under UCT programs (including five new arrangements with Kenya, Madagascar, Senegal, Uganda and Sudan) and the remainder from five EF disbursements. - As of mid-2021, there were SDR 5.14 billion in undrawn commitments under 15 arrangements in place. - Active discussions on new arrangements were at advanced stage with 8 countries; 2 were expected to come to the Board by end-July, all involving arrangements of around 3 years, with proposed access ranging from 86 percent of quota to 280 percent of quota and an average access level of 146 percent of quota. - Access levels under the six arrangements approved in the past nine months ranged from 80 percent of quota to 305 percent of quota. ### Broader support measures and SDR allocation - The CCRT reform allowed 29 countries to qualify and immediately receive grants covering debt service payments to the IMF falling due from mid-April 2020 through mid-October 2021; grant support amounted to SDR 520 million. - A further SDR 160 million in grants, covering debt service from mid-October 2021 through mid-April 2022, is expected to be made available if there are sufficient resources in the Trust. - Donors have disbursed or pledged some SDR 575 million to the CCRT since March 2020. - An expected general SDR allocation of $650 billion would provide potential financing of $21 billion (about SDR 14.6 billion) to LICs. ### LIC financing needs, risks, and projected demand - Most LICs face severe economic challenges and balance of payments (BoP) needs as they seek to recover from the pandemic shock and resume development objectives; the majority are expected to seek multiyear program support with substantial financial assistance from the Fund. - More than half the debt owed to the PRGT at end-2020 was borrowed during the preceding 12 months, with repayments falling due from late-2025 through 2030. - Expanding lending to countries that already have significant outstanding debt to the Fund increases risks: additional low-cost (zero-interest) PRGT financing adds to non-restructurable debt and can reduce the space for negotiated debt restructuring if external debt servicing becomes unsustainable. - The provision of high levels of Fund credit needs to be linked to careful scrutiny of public debt sustainability over the medium-term. ### PRGT financing position and proposed strategic response - The PRGT is designed to be self-sustaining, with an endowment that generates sufficient investment returns to subsidize lending at zero or near-zero interest rates. - While assessed as adequately financed to meet LICs’ future borrowing needs prior to the pandemic, the large surge in lending since the onset of the pandemic and expectations of continued high lending levels mean the PRGT is now significantly underfunded. - The endowment will need a substantial injection of fresh funds to sustain reasonable levels of lending to LICs over the medium-to-longer term. - The paper proposes a package consisting of: - Enhancements to the lending framework to make it fit-for-purpose for LIC financing needs during the pandemic crisis and recovery period. - A funding strategy to rebuild the PRGT’s finances to ensure sustainability of concessional lending over the longer-term. - The focus is on the next 3–4 years, with a comprehensive review of concessional financing and policies to be undertaken in 2024–25. ### Proposed adjustments to PRGT access limits and safeguards - Permanent (non-transitory) PRGT access limits prior to pandemic review were 100/300 percent of quota (annual/cumulative). - Temporary pandemic limits were raised to 245/435 percent of quota; these temporary limits were set to expire in the coming weeks (relative to the report). - Non-blend countries eligible for Exceptional Access (EA) may request up to 33/100 percent of quota in additional PRGT funding if EA criteria are met. - There is a strong case for raising limits on access to PRGT resources to address large projected external financing needs of many LICs and to limit the number of non-blend LICs required to access the GRA. - Text Table 1: PRGT Credit Outstanding as Percent of Quota (As of June 16, 2021) — excludes blend countries: - Chad 295% - Madagascar 241% - Mali 223% - Burkina Faso 213% - Malawi 211% - Niger 208% - Central African Republic 192% - Mauritania 192% - Sierra Leone 180% - Grenada 177% - Rwanda 169% - Togo 169% - Guinea 160% - Mozambique 158% - Absent changes to PRGT access limits, many of the poorest LICs with high credit outstanding would likely be required to request financing from GRA instruments, which are less appropriate for protracted BoP needs. *International Monetary Fund — “FUND CONCESSIONAL FINANCIAL SUPPORT FOR LICS—RESPONDING TO THE PANDEMIC” (excerpt)* ### 21. Staff propose the following set of principles to guide the setting of access limits: ### ppea2021053 - 21. Staff propose the following set of principles to guide the setting of access limits: ### Principles for setting access limits - Non-blend countries seeking access to PRGT resources at levels viewed as “normal access” for other member countries should be able to borrow the entire amount from the PRGT. Normal access here is access that would not trigger application of the GRA EA framework or Policy Safeguards for High Combined Credit to GRA-PRGT Resources (PS-HCC). - Poorer LICs are eligible for access to PRGT resources in excess of normal access limits: this access should no longer be subject to hard caps, but the proposed arrangements must meet the PRGT EA criteria. - LICs that meet the income criterion for blending, which is based on the International Development Association (IDA) operational cutoff, should not be eligible for access to PRGT resources above the normal access limits. ### Implications and continuities with current rules - These principles depart from current concessional lending rules where: - i) access limits are set at levels that constrain demand for PRGT resources to align with the available PRGT resource envelope; and - ii) there are hard caps on all countries’ access to concessional resources. - Continuities: - only poorer LICs are eligible for EA; and - access levels for all financing requests continue to be based on case-by-case assessment of program design and country circumstances, applying long-established criteria. ### Financial cost and projected impact through 2024 - Raising access limits in the proposed manner is expected to have a modest financial cost to the PRGT. - Case-by-case assessment will continue to determine actual borrowing, considering BoP needs, program strength, capacity to repay, and debt vulnerabilities. - Using the Baseline projections for Fund lending through 2024: - Returning to the 2019 access limits and caps after the temporary increases now in place expire would affect about a dozen countries. - That return would reduce PRGT lending by about SDR 1½ billion through 2024. - Baseline projection of PRGT lending is SDR 21.5 billion during 2020–24. - For affected countries, programs that meet the policy requirements of the GRA (see Annex 1) would be in a position to replace reduced PRGT lending with GRA resources. ### Operational approach and timing - Proposals on access limits (Box 1) take account of temporary access limit increases currently in place. - Non-transitory changes to PRGT access limits would be taken up in the context of the regular reviews of LIC facilities to align PRGT policies with financial self-sustainability over time. - Access limits (expressed as a share of quota) would be revisited in the context of any general quota increase. ### Box 1 — PRGT Access Limits: Staff Proposals (key elements) Background - GRA EA framework thresholds for annual and cumulative access were set at 145/435 percent of quota in February 2016. - The threshold for annual access was temporarily increased to 245 percent of quota in July 2020; this temporary increase is set to expire at end-2021, reverting to 145 percent. - Policy safeguards for high combined GRA-PRGT exposure were introduced in September 2020; the thresholds triggering these safeguards are the same as those that trigger the GRA EA framework—currently 245/435 percent of quota, with the annual threshold set to decline to 145 percent of quota at end-December 2021. Normal access to PRGT resources (staff proposal) - Limits on normal access to the PRGT proposed to be set at 145/435 percent of quota, with the limit on annual access temporarily increased to 245 percent through end-December 2021. - Staff proposal implications: - the limit on normal cumulative access would (absent a new Board decision) continue at 435 percent of quota until the next full review of LIC facilities, expected to be conducted in 2024–25; - the limit on normal annual access would (absent a new Board decision) continue at 245 percent of quota until end-2021, after which it would decline to 145 percent of quota until the next full review of LIC facilities; - changes to the thresholds triggering application of the EA framework in the GRA or the Policy Safeguards for High Combined Credit (PS-HCC) before the next full review of LIC facilities would not affect PRGT access limits ahead of that review. - Proposed increases in access limits would apply to new financing requests and to existing arrangements as of the date of effectiveness of the proposed changes, except: - arrangements grandfathered when the PS-HCC policy was adopted will remain subject to the PRGT EA thresholds and criteria in place at the time of approval of those arrangements. - In the event of an augmentation under a grandfathered arrangement, grandfathering would end and the new PRGT access rules would apply. Exceptional access to PRGT resources (staff proposal) - Eligibility: - LICs that meet relevant eligibility criteria can request EA (access above the normal limits). - A country is eligible for PRGT EA only if it does not meet the proposed income threshold for blending (discussed below). It will not be disqualified from EA on the basis of market access. - Caps and limits: - Available access is currently subject to a hard cap of 33.3/100 percent of quota on top of the normal access limits. - Staff proposal: access to PRGT resources for countries eligible for EA is not subject to hard caps; a financing request may be approved in amounts exceeding the normal access limits if the PRGT EA criteria are satisfied. ### Norms for access - Historical role: - Access norms have guided PRGT facility design since 2010; they are neither ceilings nor floors and are not entitlements, but help set access when BoP need is hard to determine. - Current system: - Access norms linked to initial stock of credit outstanding: - 120 percent of quota for a 3-year ECF when credit outstanding is below 100 percent of quota; - 75 percent of quota when credit is between 100 and 200 percent of quota; - undefined if outstanding credit exceeds 200 percent of quota. - Past reviews increased these parameters in line with increases in normal PRGT access limits. - Staff proposal: - Simplification to a unified access norm set at 145 percent of quota for any three-year ECF arrangement. - Rationale: pandemic-created large and diverse financing needs reduce the relevance of differentiating by past exposure; simplification strengthens signaling and provides a clear uniform starting point for discussions. - The role of norms will be reassessed at the next comprehensive review of LIC facilities in 2024/25. ### Safeguards and assessment of debt vulnerabilities - Case-by-case determination: - Access under PRGT or GRA is justified on a rigorous, case-by-case basis using standard access policy criteria: size of BoP need, program strength, capacity to repay the Fund, and past track record of using Fund credit. - Debt sustainability measures (introduced March 2021): - i) disclosure requirements and deeper analysis of debt composition and dynamics in staff reports, building on disclosure requirements in the newly-modified Debt Limits Policy (DLP), which takes effect on June 30, 2021, and including cross-country comparisons of outstanding and projected Fund credit relative to key economic metrics; - ii) a requirement, in all cases of countries at high risk of/in debt distress (regardless of proposed access levels), that program objectives include the achievement of a concrete reduction in debt vulnerabilities over the course of the program and beyond. ### Procedural safeguards and high access procedures (HAP) - Existing HAP (introduced 2009; upgraded May 2019): - Applied when a financing request entails proposed access such that: - i) access to PRGT resources over any 36-month period would exceed 180 percent of quota (“flow trigger”); or - ii) aggregate exposure to the PRGT, net of repayments, would exceed 225 percent (“stock trigger”). - Objective: enhanced Board oversight via an early informal staff consultation with the Executive Board when a new or augmented financing request involving high access could be appropriate. - Informational requirements for consultations include (but are not limited to): - factors underlying the large BoP need after accounting for donor financing; - summary of main policy measures and macroeconomic framework; - assessment of program strength and capacity to repay, including an updated capacity-to-repay table; - analysis of debt vulnerabilities, identifying data weaknesses and discussing results from “realism” tools in the LIC DSF; - reference to impact on the Fund’s concessional resources; - likely timetable for discussion with authorities; - an SEI table; - DSA charts. - Temporary modifications introduced March 22, 2021 in response to pandemic lending: - flow trigger set at 240 percent of quota through end-2023 (to allow initial emergency financing to drop out of the 36-month calculation); - stock trigger increased to 300 percent of quota through June 30, 2021 (to avoid triggering safeguards in cases involving modest new access). - Proposed persistence: - It is proposed that the flow and stock triggers remain at the higher levels introduced in March 2021 until the next full review of LIC facilities. - Rationale: average program size projected to be substantially higher than pre-COVID levels; exposure to the PRGT expected to increase for the majority of borrowers, supporting the case for maintaining the higher stock trigger to avoid triggering procedural safeguards for modest new access. ### Alignment of PRGT EA criteria with PS-HCC - Two sets of standards currently apply to access above 145/435 percent of quota: - PRGT EA criteria (introduced 2009) and - Policy Safeguards for High Combined Credit (PS-HCC) relating to high combined access to GRA and PRGT resources (introduced September 2020). - Proposed change: - Modify PRGT EA criteria to align with PS-HCC requirements specified in IMF (2020e), with one significant exception: - countries would be eligible for PRGT EA only if they do not meet the income threshold for blending at the time of a new financing request. - The proposed change removes the formal requirement that, for countries at high risk of/in debt distress, EA should be available only in support of programs that include debt relief or debt restructuring operations; however, the fundamental requirement remains that the program achieve moderate risk of debt distress within the program period. *International Monetary Fund — ppea2021053, excerpt on PRGT access limits and related policies* ### 35. PRGT-eligible countries are divided into two groups: i) blend countries, who can access ### PRGT blending, eligibility, and lending projections (excerpt) ### Overview of blend vs non-blend status - PRGT-eligible countries are divided into two groups: - blend countries: can access concessional financing from the Fund only in conjunction with GRA resources; - non-blend countries: can access PRGT resources up to the relevant access limits, needing to tap GRA resources only if their financing requests exceed these limits. - Moving from non-blend to blend status implies Fund financial support provided on less concessional terms and programs required to meet the policy requirements of the GRA as well as the PRGT. - Blend status is determined by GNI per capita, access to international financial markets, and severity of debt vulnerabilities. - IDA operational cutoff: currently $1,185. - LICs with GNI per capita above the IDA operational cutoff or with significant access to international financial markets and income above 80 percent of the IDA cutoff are required to blend if debt vulnerabilities are assessed to be contained (low or moderate risk of debt distress). - Countries assessed to be at high risk of debt distress that meet both the income and market access criteria (including market access on a forward-looking basis) are also required to blend. - All other countries are not required to blend. ### Staff assessment: need for targeted reforms to the blending framework - Key problems identified: - Robustness: Countries can flip between blend and non-blend status too easily, creating operational difficulties. Examples: Kenya was viewed as a non-blend case in May 2020 but as a blend case in April 2021; Ghana was viewed as a non-blend case in April 2020 but would likely be treated as a PB after its large dollar sovereign bond issue in late-March 2021. - Complexity: Rules governing PRGT access in blended arrangements (e.g., the 1:2 PRGT-GRA mix, capped at differing norms depending on initial PRGT credit outstanding) have become complex; a simpler rule would allow full operation of the 1:2 principle in normal access situations. - Specific complexities noted: - The 1:2 ratio (PRGT:GRA) was 1:1 prior to July 2015. - The applicable cap for PRGT access can be i) 120 percent of quota, ii) 75 percent, or iii) undefined, depending on initial PRGT credit outstanding. - The Policy Safeguards threshold: access not exceeding 435 percent of quota. ### Proposed reforms to blending rules - Reforms are proposed in three areas: a) the income criterion for blending; b) the impact of debt vulnerabilities and financial market access on blend status; c) the mix of GRA and PRGT resources applied in blended arrangements. - Income criterion (proposed): - Countries are deemed to meet the income threshold for blending when GNI per capita has exceeded the IDA operational cutoff by at least 5 percent for two consecutive years. - Having met the income threshold, the country continues to meet it provided that income per capita does not fall below 95 percent of the IDA operational cutoff; should income per capita fall below this level, the country no longer meets the income threshold. - Countries that do not meet the income threshold for blending are not required to blend, irrespective of market access. - The case for these specific parameter choices and the implications for the coming year (through end-June 2022) are discussed in Annex III (not reproduced here). - Example implications: Tanzania would no longer be required to blend under this proposal. (Tanzania’s 2019 income per capita was 91 percent of the IDA cutoff, falling to 89.6 of the IDA cutoff in 2020.) - Debt vulnerabilities and market access (proposed): - Countries that meet the income criterion for blending are required to blend unless debt vulnerabilities limit their access to international financial markets. - Countries are deemed to face limits on market access if they are i) in debt distress or ii) at high risk of debt distress and a) have had limited past access to international financial markets or b) are small/micro-states. - Countries are assessed to have had limited past access to markets if they do not meet the criterion of “durable and substantial access to international financial markets as defined in the first test of market access in the PRGT eligibility decision.” (That first test requires issuance or guarantee of eligible external debt in at least three of the past five years in a cumulative amount equivalent to at least 50 percent of quota; validation of debt data is required.) - The proposals remove the role of prospective market access in determining blend status, eliminating a judgment that shifts with market sentiment. - Mix of PRGT and GRA resources for blend countries (proposed formula): - The funding mix would follow the 1:2 ratio (PRGT:GRA), with PRGT access capped at 145 percent of quota per arrangement. - A blend country requesting arrangements with combined PRGT/GRA access that would not trigger the Policy Safeguards (i.e., access not exceeding 435 percent of quota) would receive the 1:2 mix. - A country seeking cumulative access of 435 percent or more would be capped at 145 percent of quota from the PRGT. - Access to PRGT credit would also be subject to the limit on normal cumulative access to the PRGT of 435 percent. ### Alternative: dual pricing within the PRGT - Rationale: - Differentiating terms between the poorest countries and substantially better-off LICs can allocate scarce concessional resources more generously to the poorest while still providing loans to better-off LICs on less generous (but still attractive) terms. - Hardening of concessional terms as countries move up the income ladder prepares them for eventual graduation from PRGT eligibility. - Proposal: - Achieve harder terms for better-off LICs via dual pricing within the PRGT, allowing all PRGT-eligible countries to meet their financing needs entirely via the PRGT (i.e., all-PRGT access). - This would permit more flexible program design for presumed blenders (e.g., allowing all-ECF financing) while generating modest subsidy savings for the PRGT. - Challenges: - Such a reform would result in a substantial increase in PRGT credit outstanding and a sharp decline in reserve coverage in the PRGT; policy, financial, and legal issues would need to be resolved and work will continue, including strategies to bolster reserve coverage of PRGT loans. ### Lending scenarios and financing needs (projections and assumptions) - Context and recent support: - IMF emergency support in response to COVID-19: SDR 8.4 billion, of which SDR 6.2 billion from the PRGT. - Total new lending commitments under ECF or blended arrangements reached SDR 2.5 billion through May 2021, of which SDR 1.2 billion from the PRGT. - Staff projection (based on policy proposals in the paper): - Total PRGT lending projected to reach around SDR 21 billion during the pandemic and its immediate aftermath (2020–24). - Projection subject to significant uncertainty (factors: number of LICs requesting support, size of programs, pace of recovery). - Scenario construction: - Baseline: - Assumes nearly two-thirds of LICs seek program support during 2020–24. - Access per arrangement calibrated to reflect exceptionally high financing needs, with average access scaled up to almost twice the level observed in recent years. - Low Case and High Case: - Calibrated by assuming a lower/higher share of LICs request programs. - High Case constructed to stress-test PRGT resources, with per-country access levels at nearly three times historical levels. - Base self-sustained lending envelope assumption: - Staff assumes a base self-sustained lending envelope of at least SDR 1.65 billion per year is preserved. - Combined Fund lending and SDR allocation: - Under the Baseline, total lending commitments of about SDR 34 billion during 2020–24 (including SDR 21 billion from the PRGT). - PRGT credit outstanding would peak in 2025/26 at about SDR 22 billion, more than three times the pre-pandemic level, before gradually declining thereafter. - Under the Baseline, lending to LICs during the pandemic years would be more than four times the historical average. - Fund lending in the baseline/high case scenarios would cover somewhere between one-quarter and one-half of the available borrowing space estimated by staff (see referenced macro paper). - Country-level exposure and capacity-to-repay concerns: - Under the Baseline, the typical non-blend LIC would borrow about 1½ percent of GDP from the PRGT annually during the crisis period (about twice the historical level). - Resulting in peak PRGT credit of 5–8 percent of GDP by 2025/26 (around 11 percent of government debt), before declining thereafter. - Debt service would peak at around 2–3 percent of exports annually during 2025–30, compared to about 1 percent for the PRGT historically. - Under the High Case scenario, non-blend LICs could have credit peaking at 6–12 percent of GDP. *Excerpt from IMF staff paper: “Fund Concessional Financial Support for LICs—Responding to the Pandemic” (selected paragraphs).* ### 53. The unprecedented demand for Fund concessional financing is creating a large ### 53. The unprecedented demand for Fund concessional financing is creating a large ### PRGT resource gap and drivers - The PRGT faces a large resource gap created by pandemic-related lending needs (Figure 3F). - Financial costs derive from: - (i) the unprecedented surge in RCF support in 2020 that will amortize over 10 years; - (ii) the gradual shift toward multiyear program support, which will be committed and disbursed over the coming years, and amortized beyond the middle of the next decade; and - (iii) elevated demand expected for the post-crisis decade as a result of somewhat more LICs seeking successor arrangements, higher access levels compared to pre-pandemic years, and delayed transitions into graduation and presumed blending, as a result of longer-term economic scarring. - Under existing policies, PRGT crisis lending would reach unprecedented high levels, with credit peaking at around three times the pre-pandemic level. - Reinstating pre-pandemic PRGT access limits and caps (after the temporarily higher access limits expire) would: - Affect about a dozen LICs for which access limits are most binding; - Reduce PRGT lending by no more than SDR 1½ billion during 2021–24; - Much of this reduced PRGT lending could be offset by “top up” borrowing from the GRA by these LICs. - Under the High Case: - About half of eligible LICs affected; - Reducing PRGT lending by up to SDR 4¼ billion; - Lowering the subsidy resource gap by up to SDR 0.3 billion. ### PRGT financing status and historical endowment - To date, members have voluntarily provided about SDR 5.3 billion to the framework’s subsidy accounts. - Members have made close to SDR 55.5 billion available in loan resources. - The Fund contributed about SDR 5.5 billion in internal resources, mostly derived from gold sales. ### Two-stage funding strategy (staff proposal) - Objective: cover resource costs created by pandemic-related PRGT lending while preserving long-term sustainability of the endowment-based financing model. - Proposed stages: - Stage one: medium-term fundraising to finance crisis-related lending while preserving PRGT capacity to subsidize lending in the longer term. - Stage two: a post-pandemic review to consider long-term PRGT self-sustainability, including possible use of internal resources. - Preliminary informal consultations suggest most Executive Directors support mobilizing additional PRGT resources in two stages. ### Stage one funding targets and mechanics - Stage one aims to mobilize: - (i) a further SDR 12.6 billion in PRGT loan resources; and - (ii) SDR 2.8 billion in new subsidy resources. - Rationale: - Close the resource gaps created by pandemic-related financial support to LICs while preserving a base self-sustained subsidization capacity for post-crisis concessional lending. - Additional loan resources details: - Require increase in cumulative PRGT borrowing limit from SDR 55.5 billion to SDR 68 billion. - Would increase total loan mobilization round to almost SDR 30 billion. - Sufficient to cover the demand scenarios discussed through 2024, including in the High Case. - Staff would approach current and potential new lenders to contribute these additional loan resources, on top of the SDR 17 billion already secured. - Another round of PRGT loan mobilization would follow in 2024/25 to cover lending in the second half of the decade (part of “stage two”). - “Channeling” of SDRs by contributors, including from the proposed new allocation, could facilitate these loan mobilization efforts. - New subsidy resources: - Would cover all pandemic-related lending under the Baseline while leaving a residual (post-crisis) self-sustained capacity of SDR 1.65 billion per year. - SDR 1.65 billion per year is described as sufficient to preserve access levels in real terms relative to pre-pandemic levels and allow for continued significant program support in the post-pandemic decade and beyond. - Actual post-crisis residual self-sustained lending capacity might be somewhat higher or lower depending on realized lending levels relative to the Baseline. ### Administrative and contingency measures - Staff proposes suspension of PRGT administrative cost reimbursement through FY2026 to: - Generate SDR 0.5 billion in subsidy resources; and - Boost reserve coverage. - Context: - Annual reimbursement from the PRGT Reserve Account to the GRA was part of the Fund’s New Income Model in 2008. - Temporary suspension is a recognized contingency measure under the PRGT’s three-pillar framework when self-sustained capacity falls short of the target envelope. - Retaining these resources in the PRGT Reserve Account would add to the PRGT’s endowment for subsidization purposes and improve the reserve coverage ratio. - The proposed suspension would slow accumulation of Precautionary Balances in the GRA by an equivalent amount, but is not expected to significantly delay reaching the current SDR 25 billion target. - The reimbursement of the PRGT can be waived notwithstanding the PRGT contains Special Disbursement Account (SDA) resources derived from gold sales profits. ### Bilateral subsidy fundraising plan (SDR 2.3 billion) - Staff will seek bilateral subsidy contributions of SDR 2.3 billion via a broad, burden-shared campaign involving economically stronger member countries based on quota shares. - Target donors: - Financial Transactions Plan (FTP) members and other advanced and G20 countries, excluding any countries requiring IMF BoP support in the last three years. - Management would request bilateral subsidy pledges in the coming months, even if pledges are subject to domestic procedures. - Table 1 (summary indicators from source): - All members (190): cumulative PRGT subsidy contributions as of April 30, 2021 = 5,304 (SDR million); illustrative new contributions request based on SDR 2.3 billion target = 2,300 (SDR million). - FTP members (50): cumulative contributions = 4,874; illustrative new contributions request = 2,172. - G-7 (7): cumulative contributions = 3,077; illustrative new contributions request = 1,138. - Other advanced (22): cumulative contributions = 1,290; illustrative new contributions request = 476. - Other FTP members (21): cumulative contributions = 508; illustrative new contributions request = 558. - Non-FTP members (11): cumulative contributions = 125; illustrative new contributions request = 128. - Total from 61 members: percent share in total member quota = 87.90; cumulative PRGT subsidy contributions as of April 30, 2021 = 4,999; illustrative new contributions request = 2,300. - Total from other members (93): percent share in total member quota = 12.10; cumulative contributions = 305. ### Donor delivery options for bilateral subsidy contributions - Options available to provide flexibility; resources pledged upfront and disbursed over time: - Budgetary grants: - Donors can disburse pledged budgetary grants upfront or in future years, possibly in annual tranches. - Could provide PRGT subsidy contributions over a longer period (e.g., 10 years) based on subsidized loan or deposit/investment agreements. - Donating SDRs or interest earnings: - Outright donations of SDR holdings are possible but typically constrained by domestic institutional frameworks and entail ongoing costs for donors responsible for SDR charges and potential permanent costs if Fund cancels SDRs. - Some donors may contribute part of the interest earned on their SDR holdings (or from interest earnings on GRA lending). - Providing PRGT loans at below the SDR rate: - Loans can be in currencies or members' SDR holdings; provide savings to the Trust on subsidization expenses and count as implicit subsidy grant contributions. - One operationalization: cap interest paid to lenders at a level below the projected SDR rate. - Illustration: a SDR 1 billion loan to the PRGT provided at a fixed 5 basis points and disbursed over three years would generate an expected NPV subsidy contribution of about SDR 100 million over 13 years assuming a gradual normalization of interest rates (Table 2). - Investing resources in the Trust (deposit or investment agreements): - Member’s principal is invested and generates net investment returns used as subsidy resources; principal returned at maturity or other terminating event. - Could be done in currencies or from a member's SDR holdings for a period (e.g., 10–20 years). - Investment agreements entail investment risk; realized returns could turn negative, potentially leading to principal loss. - Flexibility in maturity schedule can help manage investment risk by linking maturity to attainment of pledged contribution. - Speed of subsidy accumulation depends on realized investment returns and remuneration received by contributor (e.g., flat remuneration at 5 basis points generates higher subsidy contributions over a given horizon than remuneration at the prevailing SDR rate). ### Illustrative subsidy valuation (Table 2 highlights) - Table 2: Subsidy value of a SDR 1 billion 10-year contribution to the PRGT under alternative methods (SDR million; estimates for 10-year contribution period starting in 2022, end-2020 NPV discounting at the assumed SDR rate, remuneration of non-grant contributors at the floor SDR rate of 5bp). - Selected entries (as reported): - Grant provided in 10 annual tranches: - Nominal: 1,000; NPV (Baseline): 946; Nominal (Interest Rates 100bp Above Baseline): 1,000; NPV (100bp Above Baseline): 889. - Implicit subsidy loan to PRGT provided at 5bp rate: - Nominal: 110; NPV (Baseline): 102; Nominal (100bp Above Baseline): 182; NPV (100bp Above Baseline): 157. - Interest on member's SDR holdings in excess of 5bp: - Nominal: 151; NPV (Baseline): 138; Nominal (100bp Above Baseline): 251; NPV (100bp Above Baseline): 216. - Earnings on investment pooled with PRGT assets: - a. Remunerated at 5bp: Nominal: 268; NPV (Baseline): 230; Nominal (100bp Above Baseline): 398; NPV (100bp Above Baseline): 306. - b. Remunerated at SDR rate: Nominal: 94; NPV (Baseline): 80; Nominal (100bp Above Baseline): 94; NPV (100bp Above Baseline): 72. - Memorandum item — Subsidy cost of SDR 1 billion PRGT credit outstanding: - Nominal: 156; NPV (Baseline): 143; Nominal (100bp Above Baseline): 256; NPV (100bp Above Baseline): 221. ### Proposed new PRGT accounts to facilitate contributions and reinforce reserve coverage - Two new accounts proposed: - Subsidy Reserve Account (SRA): - Purpose: hold and invest PRGT subsidy resources and provide an additional backstop to the PRGT Reserve Account (RA) to help manage credit risk. - Can receive bilateral grants or investment returns contributed by members to finance PRGT subsidization. - Invest subsidy resources alongside pool of PRGT assets under a Board-approved investment strategy. - SRA resources used for subsidizing PRGT lending after resources in existing subsidy accounts are exhausted and before RA becomes sole funding source under self-sustained endowment model. - Designated as a “second line” backstop for reserve coverage in the event RA resources were depleted as a result of very large arrears. - As with other contributor-funded PRGT accounts, amendments adversely affecting contributors would require consent of creditors, who would retain right to receive pro-rata contributions back in event of changes they did not agree with. - Deposit and Investment Account (DIA): - Purpose: allow members to channel SDRs (or currencies) for generating investment returns that could be used as PRGT subsidy resources. - Resources in both accounts would be invested alongside balances in existing PRGT subsidy accounts and the RA. - Note: Necessary amendments to the PRGT to introduce these accounts could be adopted by a majority of the votes cast and would not require consent of current contributors to the PRGT. _International Monetary Fund — Fund Concessional Financial Support for LICs: Responding to the Pandemic (extract: paragraphs 53–62)_ ### 63. The proposed DIA would become the main vehicle for borrowing SDRs or currency ### 63. The proposed DIA would become the main vehicle for borrowing SDRs or currency from members with the objective of generating investment returns for PRGT subsidization. ### Purpose and design of the DIA - Centralize new long-term subsidy-contributing resources in a separate account to support larger-scale investments by facilitating liquidity management and an encashment regime. - Members’ investments in the DIA would be remunerated at a fixed or floating rate, between zero and the SDRi, depending on contributor preferences. - Investment returns (above the agreed rate of remuneration) attributed to a contributor would be transferred as a subsidy contribution to the SRA at the final maturity of the member’s investment agreement. - Investment agreements would generally be long term (e.g., 10–20 years), with final maturity depending on: the total amount placed in the DIA, the member’s target subsidy contribution, and the interest remuneration paid to the member. - Investors would bear some degree of investment risk; risk can be managed by building flexibility into the maturity schedule of the investment agreement. - Resources could be pooled and invested alongside other PRGT assets, based on a Board-approved investment strategy (the current one aims to generate a long-term return of the SDR rate plus 90 basis points). - An alternative is a separate investment strategy specifically for DIA assets if the pool is sufficiently large and the risk-return profile is substantially different from PRGT subsidy accounts and the RA. - Staff will develop an appropriate investment strategy following consultations with potential contributors; this will be discussed with the Executive Board in the context of the ongoing Review of the Investment Account and Trust Asset Investment Strategy. ### Liquidity, encashment, and reserve asset status - SDRs or currencies placed in the DIA could retain their reserve asset status if they can be encashed upon the representation that the relevant member is experiencing a BoP need, subject to a commitment that the contributor reconstitutes the investment once the relevant member no longer has a BoP need. - An encashment buffer option: participating contributors deposit an additional amount of SDRs equivalent to 20–30 percent of their invested resources into the DIA (remunerated at the SDRi), kept available to allow any participating contributor to encash its DIA assets quickly if needed. - Alternative encashment approach: invest DIA resources with an investment strategy that allocates a certain share of the portfolio in sufficiently liquid assets to support encashment, noting that this would result in lower expected investment returns and hence a reduced subsidy contribution for a given principal amount and investment period. - DIA investments would be best placed by members with strong BoP and reserve positions and low risk of encashment needs. ### Role in fundraising stages and projected scale - The DIA could facilitate the “stage one” subsidy fundraising campaign by providing contributing members the option of contributing up to half of their prospective subsidy contribution through a long-term investment agreement. - If all contributors pursued this option, it would result in around SDR 10 billion in DIA investments. - To the extent that the DIA can facilitate channeling of SDRs (which will be in ample supply if the proposed SDR allocation is approved), it may be useful for generating additional subsidy resources as part of stage two of the funding strategy. ### First-stage funding strategy outcomes and reserve coverage implications - Suspension of PRGT reimbursement to the GRA through FY26 would retain additional resources in the RA, increasing gradually over time based on investment returns. - Reserve coverage of PRGT credit outstanding would decline from currently 32 percent to an average of 22–34 percent in 2025–29 (depending on demand for PRGT loans and the level of subsidy contributions channeled to the proposed SRA), before gradually increasing thereafter. - Illustration: assuming about half of PRGT subsidy contributions are channeled to the SRA, the reserve coverage ratio would remain above 20 percent throughout even if PRGT lending is 20 percent above the Baseline. - If a significantly higher lending trajectory materializes, or the reform option of providing “all-PRGT” financing to presumed blenders is implemented, an interim review of concessional financing and policies would be called for, including to assess options for bolstering credit protections. ### Monitoring, contingency measures, and governance - The adequacy of PRGT resources must be carefully monitored throughout the first phase. - The two-stage funding strategy is designed to be robust to some variation around Baseline lending and fundraising assumptions, and deviations from assumed interest rates and investment returns. - Example sensitivity: under the Baseline scenario, a shortfall of one-third in bilateral contributions would reduce the self-sustained capacity in the post-crisis decade by more than 10 percent, to below SDR 1.5 billion per year. - Such a shortfall would increase the amount needed in stage two by about SDR 0.7 billion, the minimum needed to achieve a self-sustained lending envelope of at least SDR 1.65 billion a year. - Under the Low Case, this illustrative shortfall would be roughly offset by lower subsidy needs estimated for that scenario. - Annual Executive Board reviews could trigger contingency measures when lending and/or fundraising evolution point to substantial risks to PRGT resources; annual reviews will include: - (i) update of lending developments and demand projections, - (ii) update on loan and subsidy resource mobilization, plus investment and interest developments, - (iii) assessment of the PRGT’s lending capacity and resource outlook, - (iv) assessment of credit risks, Fund exposure across LICs, and reserve coverage outlook, - (v) possible options for adapting the funding strategy. - Possible contingency measures IMF management may propose ahead of the second stage review include: - Additional bilateral fundraising efforts, led by IMF management and supported by the Executive Board. - Extend the suspension of reimbursements to the GRA for PRGT administrative costs for a number of years beyond FY2026. - Seek member support for a “gold pledge” as a backstop for possible future credit losses and possibly restoration of subsidization capacity; this would require 85 percent of total voting power for the Executive Board decision and parliamentary procedures where applicable. - A coordinated effort to secure government guarantees from a group of advanced countries as an ultimate backstop against possible credit losses. - A Board decision to consider a distribution of GRA reserves to facilitate contributions to the PRGT, contingent on a minimum threshold of pledges being reached, once precautionary balances have reached their medium-term target. - Recalibration of access limits and norms; reductions in PRGT access would need to consider possible spillovers into top-up GRA financing. - A review of the PRGT interest framework that could lead to higher, though still concessional, lending rates. ### Second-stage review and longer-term PRGT envelope options - A decision on the appropriate longer-term PRGT envelope would be taken at the second stage as part of the next full Review of Concessional Financing and Policies scheduled for 2024/25. - The review will cover policies and possible reforms, the financial situation of the endowment under different policy and demand scenarios, and funding options. Central question: appropriate longer-term self-sustained lending capacity of the PRGT. - Options and illustrative targets: - A self-sustained lending envelope of SDR 1.65 billion annually would essentially maintain access per country at the pre-pandemic level in real terms and accommodate LICs with longer-term scarring from the pandemic. - A larger envelope of SDR 2.4–3.0 billion a year would make room for per-country PRGT access broadly in line with GRA arrangements for EM countries, limiting risk of LICs resorting to “top up” GRA borrowing. - Example: if lending evolves as assumed under the Baseline, mobilizing additional subsidy resources of SDR 3.4 billion in stage two (on top of the SDR 2.8 billion mobilized in stage one) would increase long-term self-sustained lending capacity from SDR 1.65 billion to SDR 2.4 billion a year. - In an extreme High Case, residual self-sustained annual lending capacity could decline to around SDR 1.3 billion by end-2024 (assuming the stage one fundraising target has been met), which could justify mobilizing additional subsidy resources in the range of around SDR 5–7½ billion to increase capacity to SDR 2.4–3.0 billion a year. ### Projected SDR channeling, loan needs, and decade ranges - Voluntary channeling of SDRs could facilitate mobilization of additional PRGT loan resources, which could range from SDR 24–34 billion for the remainder of this decade (2021–29), and significantly more if blenders receive “all PRGT” financing. - If the Board endorses “all PRGT” financing for presumed blenders, loan resource needs could rise to around SDR 42–59 billion. - Total SDRs channeled to the PRGT over the coming years are projected in the range of SDR 20–35 billion, of which SDR 12–20 billion in the near term. These estimates include possible channeling of SDRs as investment resources for the DIA. - The overall range for the decade could increase to around SDR 33–54 billion if the additional blending reform is implemented. - Note: these estimates take into account the assumed encashment buffer of 20 percent and the SDR 17 billion already mobilized so far. ### Box 3 highlights: “all-PRGT” financing for presumed blenders (financial implications) - Under Baseline demand projections, PRGT credit outstanding would peak at SDR 27.5 billion, rather than SDR 22.5 billion, reflecting the shift from blended to all-PRGT financing for blenders. - The reform would increase PRGT loan resource needs by SDR 26 billion for the remainder of the decade, which could be facilitated by SDR “channeling.” - Under Baseline demand assumptions, the reform would generate net subsidy savings to the PRGT of around SDR 40 million during 2023–25, and SDR 500 million through 2034. - Reserve coverage would reach a trough of 17 percent under the reformed Baseline. To keep reserve coverage above 20 percent, the Reserve Account would need to be augmented by more than SDR 1 billion. - Additional implications: introduction of a floating rate for concessional lending, potential implications under IFRS-9 and donors’ accounting of ODA to the PRGT, system changes to track different loan terms under the same facility, and tracking net interest paid by presumed blenders to the PRGT under the proposed interest formula (two-thirds of the GRA rate of charge). *Source: ppea2021053 - 63. The proposed DIA would become the main vehicle for borrowing SDRs or currency from members with the objective of generating investment returns for PRGT subsidization.* ### 70. In line with the approved PRGT interest rate mechanism, staff proposes keeping zero ### ppea2021053 - 70. In line with the approved PRGT interest rate mechanism, staff proposes keeping zero ### PRGT interest rate proposal - Staff proposes keeping zero interest rates for all PRGT credit outstanding under the ECF, SCF, and RCF. - The PRGT interest rate mechanism, adopted in 2009 and most recently modified in 2019, links PRGT facility rates to the global interest rate. - Based on the average SDR interest rate over the most recently observed 12-month period (0.08 percent), staff proposes continuation of a zero interest rate for the ECF, the SCF as well as for the RCF until July 2023. - The next review of PRGT interest rates is proposed to be held according to the usual schedule in two years by July 2023. - The next review could include a discussion of interest rates for presumed blenders if the Executive Board decides to consider the reform option discussed above. ### Catastrophe Containment and Relief Trust (CCRT) — debt relief financing - The CCRT was created in 2015 to provide grants for debt relief to eligible low-income members hit by catastrophic natural disasters or fast-spreading public health disasters. - In April 2020 the Fund approved debt service relief for all 29 eligible countries of up to two years until April 2022, to be disbursed in tranches and subject to resource availability. - To mid-October 2021, the Fund has disbursed SDR 520 million in debt service relief in three tranches. - IMF launched an urgent fundraising effort of SDR 1 billion (US$1.4 billion) in April 2020 to provide resources to cover two years of relief (SDR 679 million) and address initial CCRT underfunding (SDR 200–275 million). - To date, grant pledges of SDR 575 million have been secured from 18 contributors. - Substantial additional grant resources are needed to unlock the fourth and final tranche of debt service relief, estimated at SDR 160 million, ending in April 2022. ### Heavily Indebted Poor Countries (HIPC) Initiative - The Fund has provided SDR 2.6 billion in debt relief to 38 of the 39 eligible countries. - Eritrea has yet to start the HIPC qualification process. - Protracted arrears cases (Liberia, Somalia, Sudan) were not included in the original costing of the HIPC Initiative. - In March 2020 and June 2021 the IMF and the World Bank jointly committed to provide HIPC and “beyond-HIPC” debt relief to Somalia and Sudan, respectively. - Somalia: - 121 countries pledged an equivalent of SDR 280.1 million to finance the IMF’s share of debt relief, estimated at SDR 252.9 million. - Total grants for Somalia: SDR 114.2 million (including a EUR 9 million European Commission grant). - Of the total pledged amount, SDR 237.3 million have materialized to date. - Sudan: - 120 countries pledged SDR 1,059 million to finance the IMF debt relief, which is estimated at SDR 992 million. - Total grants for Sudan: SDR 136.5 million (including a EUR 12 million European Commission grant). - As of end-April 2021, the balance in the PRG-HIPC Trust stood at SDR 258 million. ### Enterprise risks and PRGT resource adequacy - Proposals seek to mitigate multiple enterprise risks; risks created are consistent with current Board-approved risk acceptance levels under baseline scenarios. - Increasing the PRGT’s access limits could mitigate strategic risks and credit/repayment risks by providing more headroom under existing or follow-up UCT programs on PRGT terms. - Primary driver of PRGT resource needs in stage one is the surge in lending levels over 2020–24, with proposed higher access limits having a relatively modest impact on resource needs. - PRGT credit/repayment risks may rise by increasing the threshold for exceptional access (EA), but staff’s proposed safeguards and higher scrutiny are intended to mitigate this risk. - Under the Baseline demand scenario and implementation of “stage one” (suspension of reimbursement to the GRA and new bilateral subsidy contributions, including to the proposed SRA): - PRGT’s reserve coverage ratio would remain well above 20 percent during the anticipated peak in PRGT credit outstanding. - PRGT’s reserve coverage ratio is expected to gradually increase to above 40 percent over the longer term. - Suspending reimbursement to the GRA for PRGT administrative expenses through FY2026 will slow accumulation of the Fund’s precautionary balances, but would not significantly delay reaching the Board-approved target of SDR 25 billion. - Residual liquidity and credit risks remain; PRGT resources must be carefully monitored throughout the first phase of the funding strategy. - Two-stage funding strategy designed to be robust to variation around baseline assumptions; annual reviews of PRGT resources could trigger contingency measures if needed. - In the event of a significant fundraising shortfall, exceptionally high lending, and/or deterioration in borrowers’ repayment capacity, remedial measures will likely be needed to ensure adequate subsidy and loan resources and/or credit protections. ### Issues for discussion (questions posed to Directors) - Support for proposed reforms to enhance the PRGT lending framework, including: - increases in the normal access limits for the PRGT? - elimination of hard caps on PRGT exceptional access? - safeguards on debt sustainability/capacity to repay as endorsed by the Board in March 2021 and further elaborated in Annex VI? - thresholds for triggering the High Access Procedures? - alignment of the PRGT EA criteria with the criteria under the policy on Policy Safeguards on High Combined Credit? - simplification of the specification of norms? - Support for proposals on modifying the blending rules, including: - adjusting the income threshold used in determining blend status? - simplifying the role of market access and debt vulnerabilities in determining blend status? - simplifying the rules for determining the mix of PRGT and GRA resources in arrangements for presumed blenders? - Merit in continued work to explore reforms introducing a dual interest rate mechanism in the PRGT while allowing PRGT-eligible countries to meet all their financing needs from the PRGT? - Support for the two-stage funding strategy: - (i) medium-term fundraising to finance crisis-related lending while preserving PRGT’s long-term subsidy capacity; followed by - (ii) a long-term solution to PRGT self-sustainability? - Support for a “stage one” medium-term fundraising effort to mobilize: - (i) SDR 12.6 billion in additional loan resources, requiring an increase in the PRGT cumulative borrowing limit from SDR 55.5 billion currently to SDR 68 billion; and - (ii) SDR 2.8 billion in new subsidy resources, including a suspension of reimbursement to the GRA through FY26 and SDR 2.3 billion via a burden-shared bilateral grant fundraising campaign? - Agreement with the proposal for the Executive Board to review annually concessional resources and progress with stage one fundraising? - Support for creation of two new PRGT accounts to receive member contributions—a “Subsidy Reserve Account” (SRA) and a “Deposit and Investment Account” (DIA)? - Agreement that the PRGT interest mechanism remains appropriate, and that PRGT interest rates on all facilities will be set at zero through end-July 2023? ### Annex I — PRGT facilities: selected features (high-level points) - PRGT-eligible countries currently number 69. - Country subgroups: - Blend countries (presumed blenders) can access PRGT resources only in conjunction with GRA resources, combined in a mix of 1:2 (PRGT: GRA) subject to a cap on PRGT access; up to one-third of Fund financing may be on PRGT terms. - Non-blend countries must access GRA only if seeking Fund resources above relevant PRGT access limits; subgroup includes i) countries eligible to seek EA to PRGT resources and ii) countries not eligible to seek EA. - PRGT lending facilities differ from GRA facilities: - PRGT concessional lending terms are more generous than corresponding GRA facilities. - The ECF is designed for LICs with protracted BoP problems and may require a series of ECF-supported programs. - Access limits: - All 69 countries eligible for normal limits set at 100/300 percent of quota in May 2019. - Subgroup of 28 countries (all with incomes below the IDA operational threshold, currently $1,185) are eligible for EA, subject to hard limits of 133/400 percent of quota, provided programs meet PRGT EA criteria. - Notation “A/B percent of quota” refers to annual and cumulative access limits, respectively. ### Annex II — PRGT Exceptional Access (EA) Criteria and PS-HCC safeguards (summary) - PRGT EA Criteria allow PRGT financing above 100/300 percent of quota (temporarily increased to 245/435 through end-June 2021) if criteria are met. - PS-HCC safeguards apply to combined PRGT and GRA access above 145/435 percent of quota (temporarily increased to 245/435 through end-December 2021). - Key distinctions between PRGT EA and PS-HCC: - Criterion 1: PRGT EA requires an exceptionally large BoP need that cannot be met within normal limits; PS-HCC requires experiencing or having potential for exceptional BoP pressures that cannot be met within normal limits. - Criterion 2: PRGT EA requires a comparatively strong adjustment program and ability to repay; for countries at high risk of/in debt distress, PRGT EA 2 requires debt relief or restructuring and projected reduction to moderate/low risk of debt distress within three years (outside HIPC). PS-HCC relaxes requirement for debt restructuring and sets a 36-month time-frame for achieving moderate/low risk of debt distress for new programs or within arrangement period. - Proposed PRGT EA criteria emphasize that risks to the sustainability of public debt must be adequately contained, evidenced by: - rigorous analysis indicating high probability that public debt is sustainable in the medium term (generally low or moderate overall risk under LIC-DSF); or - where not sustainable with high probability, access above proposed thresholds only if combination of policies and financing from non-Fund sources, possibly including debt restructuring, restores public debt sustainability with high probability (i) within 36 months from Board approval of the financing request or within the period of a newly approved arrangement (whichever is longer) or (ii) within the remaining period of an arrangement for augmentation/rephasing cases. *International Monetary Fund — Fund Concessional Financial Support for LICs—Responding to the Pandemic (excerpts from the provided content unit)* ### Annex II Table 1. Current and Proposed PRGT Exceptional Access Criteria (concluded) ### Annex II Table 1. Current and Proposed PRGT Exceptional Access Criteria (concluded) ### Current and Proposed Exceptional Access (EA) Criteria — summary - Proposed modification for HCCE/Safeguards: - "For members for whom use of the MAC DSA is warranted: the debt sustainability requirements for providing exceptional access to GRA resources are met." - Criterion 3 (income/market-access related): - Current formulation: "Countries that have GNI per capita at or below the prevailing operational cutoff for assistance from IDA and have not had sustained past access to international financial markets (if GNI per capita is below 80 percent of the IDA cutoff, market access does not preclude EA)." - Proposed formulation: "Countries that do not meet the income criterion for presumed blending at the time when a new financing request (including augmentation/rephasing) is made." - Criterion 4 (program prospects): - Both current and proposed formulations: "The policy program of the member provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment." ### Blending policies and eligibility — high-level principles - PRGT-eligible countries are divided into: - blend countries: access concessional PRGT financing only in conjunction with GRA resources; - non-blend countries: can access PRGT resources up to relevant access limits without GRA unless requests exceed those limits. - General principles preserved under reforms: - i) Countries required to blend only if they meet a per capita income threshold. - ii) Countries that meet the income threshold are required to blend unless debt vulnerabilities impair access to international financial markets. - iii) Countries required to blend that request Fund financing receive PRGT and GRA resources in a 1:2 mix. ### The Income Threshold — proposed technical changes - Rationale: GNI per capita data are volatile due to real GDP fluctuations and exchange rates; single-year thresholds risk frequent shifts between blend and non-blend status. - Proposed specification to reduce premature/soon-reversed shifts: - "A country is deemed to meet the income threshold for blending when GNI per capita has exceeded the IDA operational cutoff by at least 5 percent for two consecutive years." - "Having met the income threshold, the country continues to meet it provided that income per capita does not fall below 95 percent of the IDA operational cutoff. Should income per capita fall below this level, the country no longer meets the income threshold." - Empirical support (2000 through 2019): - Only four cases identified where a country met the 5 percent-above cutoff for two successive years and later fell below the IDA cutoff: Solomon Islands, Sudan, Tajikistan, Yemen. Three of these reflect large declines linked to serious internal conflict. - Larger margins (7½ percent or 10 percent, or 10 percent for most recent year) would not materially change the classification for these historical cases. - 2020 shock implications: - Applying proposed rules, the number of countries that do not meet the income threshold for blending would increase by five: Kyrgyz, Lesotho, Myanmar, Zambia, and Zimbabwe. - Under the current rules, all except Myanmar would also have been classified as not meeting the threshold. Myanmar’s 2020 income level still exceeds the IDA cutoff but by less than 5 percent. - Haiti: an upgrade of national income accounts yields a large increase in measured national income; Haiti would meet the income threshold under current rules (2020 GNI per capita above the threshold) but not under the new rules (2020 GNI per capita is not 5 percent above the IDA cutoff). - Operational timing notes: - "The starting point for applying this test would be the years 2019–2020." - World Bank GNI per capita data releases used: July 1, 2020 (for 2019) and July 1, 2021 (for 2020). ### The Market Access Threshold — current approach preserved with simplifications - Under both current and proposed rules, countries that meet the income criterion for blending are required to blend unless debt vulnerabilities limit market access. - Debt vulnerabilities are deemed to limit access when: - the country is assessed to be in debt distress; or - the country is assessed to be at high risk of debt distress and a) has had limited past access to external financial markets or b) is a small/micro-state. - Limited past access is operationalized by the established criterion of "durable and substantial access to international financial markets." - That criterion: country has issued or guaranteed eligible external debt in at least three out of the past five years in a cumulative amount equivalent to at least 50 percent of its quota; staff assessment requires validation of debt data with country authorities. ### Blend-status adjustments and examples - Annex III Table 2 and surrounding text note: - Three countries previously required to blend drop off the list because of sharp declines in national income in 2020: Lesotho, Kyrgyz Republic, Myanmar. - Of eight countries previously assessed as potential blend countries: - Three (Cameroon, Ghana, Kenya) are now required to blend, given confirmed past market access. - Three do not have to blend given small island status: Cabo Verde, Dominica, Maldives. - Blend status of two (Lao PDR, Papua New Guinea) depends on validation of past external borrowings data with authorities. ### Eligibility for Exceptional Access (EA) to PRGT resources — counts and changes - As of end-May 2020: 28 countries eligible for EA to PRGT resources, based on 2019 GNI per capita below the IDA cutoff. - Absent specification changes, with 2020 GNI per capita data (to be released July 1, 2021) this number would increase to 32, adding Lesotho, Kyrgyz Republic, Zambia, and Zimbabwe. - Under the proposal to base EA eligibility on meeting the income threshold for blending, the number of countries eligible for EA would increase to 34, with inclusion of Myanmar and Tanzania. ### Annex III Box 1 — Current blending policy (operative points) - Blending presumed for countries at low or moderate risk of debt distress if either: - per capita income > 100 percent of IDA operational cutoff; or - per capita income > 80 percent of IDA operational cutoff and country has sustained past and prospective access to international financial markets. - Sustained past market access in such cases: issued or guaranteed eligible external debt during at least two of the past five years in a cumulative amount equivalent to at least 25 percent of quota. - For countries at high risk of debt distress but not in debt distress, blending is presumed where: - per capita income > 100 percent of IDA operational cutoff; - issued or guaranteed eligible external debt in at least three out of past five years in cumulative amount ≥ 50 percent of quota; and - country has prospective market access (assessment requires judgment based on DSA, spreads, credit ratings, program assumptions, and public debt data quality). - Access limits when blended: - PRGT and GRA resources in a 1:2 mix; - access to concessional resources capped at the norm applicable to unblended arrangements; - all access above the norm must be from the GRA. - Notes on norms: high access norms (120 percent of quota for a 3-year ECF) apply if PRGT credit outstanding < 100 percent of quota; low access norms (75 percent of quota) apply if PRGT credit outstanding is between 100 and 200 percent of quota; norms not applicable if PRGT credit outstanding > 200 percent of quota. ### Annex III Table 3 — Blend status under proposed reform (selected statistics) - Table provides 2020 GNI per capita (US $) and Risk of Debt Distress (end-May 2021) for PRGT-eligible countries, indicating which countries are "Presumed Blenders" and which are "Countries not required to blend." - Selected entries (2020 GNI per capita; Risk of Debt Distress end-May 2021): - St. Lucia: 8,790 — High - Grenada: 8,740 — In debt distress - St. Vincent and the Grenadines: 7,340 — High - Dominica: 6,870 — High - Maldives: 6,830 — High - Tuvalu: 5,820 — High - Moldova: 4,570 — Low - Bhutan: 2,860 — Moderate - Vanuatu: 2,780 — Moderate - Lao PDR 1/: 2,480 — High - Solomon Islands: 2,300 — Moderate - Côte d'Ivoire: 2,280 — Moderate - Papua New Guinea 1/: 2,260 — High - Djibouti: 3,320 — High - Ghana: 2,230 — High - Cabo Verde: 3,060 — High - Bangladesh: 2,010 — Low - Myanmar: 1,260 — Low - Haiti: 1,250 — High - Nepal: 1,190 — Low - Zambia: 1,190 — In debt distress - Lesotho: 1,100 — Moderate - Zimbabwe: 1,090 — In debt distress - Tanzania: 1,080 — Low - Ethiopia: 890 — High - Uganda: 800 — Low - Sudan: 650 — In debt distress - Malawi: 580 — Moderate - Niger: 530 — Moderate - Liberia: 530 — Moderate - Central African Republic: 510 — High - Afghanistan: 500 — High - Sierra Leone: 490 — High - Madagascar: 480 — Moderate - Mozambique: 460 — In debt distress - Somalia: 310 — In debt distress - Burundi: 270 — High - Eritrea: - — In debt distress - Yemen: - — In debt distress - Marshall Islands / Micronesia / South Sudan / Tonga: GNI per capita data incomplete/not available; assorted risk entries flagged High in table footnotes. - Footnotes in table: - "1/ Blend status dependent on validation of scale of debt issuance in previous five years." - Source: World Bank, World Development Indicators. *International Monetary Fund — Annex II Table 1 and Annex III (from "FUND CONCESSIONAL FINANCIAL SUPPORT FOR LICs—RESPONDING TO THE PANDEMIC")* ### Annex IV. Evolution of PRGT Access Limits ### Annex IV. Evolution of PRGT Access Limits ### Purpose and general design of PRGT access limits - Limits on access to PRGT resources ration concessional resources and help mitigate credit risk when LICs eligible for EA request support in excess of normal access limits. - A member’s total access under all concessional facilities is subject to “global” annual and cumulative limits (covers the ECF, SCF, and RCF). - Annual access limit: disbursements in any 12-month period on a rolling basis. - Cumulative access limit: total outstanding Fund concessional credit at any point in time, after accounting for projected disbursements and repayments. - There are normal limits on access and exceptional limits (hard caps); EA available only to the poorest LICs. - Access to the RCF is also subject to annual and cumulative sub-ceilings differentiated across the RCF windows: “the regular,” “exogenous shocks,” and “large natural disasters” windows. - Purchases under the RFI count towards applicable RCF annual and cumulative sub-ceilings. ### Major changes to PRGT access limits since 2009 - 2015–17: - Annual and cumulative access limits were raised by 50 percent across all facilities on July 1, 2015 to address erosion of access relative to trade, capital flows, and GDP and to support SDG-related financing needs. - The increases in access limits, expressed as a share of quota, were reduced by one-half in January 2016 as the 14th General Review of Quotas became effective (leaving access in SDR terms for most countries unaffected by the quota increase). - May 2017: a large natural disaster window was created under the RCF and RFI allowing higher annual access levels than other windows. - 2018–19 Review of Facilities for LICs: - Annual and cumulative access limits and norms were raised by one-third across all lending instruments in May 2019 to offset erosion and restore access relative to GDP and trade to levels achieved when generalized access increases occurred in 2009 and 2015. - The cumulative RCF/RFI access limits for disbursements associated with large natural disasters were raised by an additional one-third to provide room for members already with significant outstanding RCF/RFI exposure. - 2020–21 Temporary modifications in response to COVID-19: - April 2020: limits on annual and cumulative access under the RCF exogenous shocks window were increased from 50 percent of quota and 100 percent of quota to 100 percent and 150 percent, respectively; similar increases for the RFI. New limits initially for six months, later extended through end-2021. - July 2020: the normal annual access limit (NAAL) was raised from 100 to 150 percent of quota through April 6, 2021. The increase intended to provide room for higher access without triggering the EA framework for countries that had used much of annual borrowing space due to COVID-19 related EF. - March 2021: PRGT global annual and cumulative access limits temporarily raised through end-June 2021: - NAAL increased from 150 to 245 percent of quota. - NCAL (normal cumulative access limit) increased from 300 to 435 percent of quota. - EAAL and ECAL were increased by similar absolute amounts through June 30, 2021. - On June 25, 2021, staff proposed a temporary extension of the increased limits to July 31, 2021. - June 2021: annual and cumulative access limits under the Large Natural Disaster (LND) window of the RCF and RFI increased by 50 percent of quota, from 80 percent of quota and 133.33 percent of quota to 130 percent and 183.33 percent, respectively, until end-2021. ### Key numeric access-limit milestones and values (as presented) - Cumulative access limits (all PRGT facilities - normal) - 225 - 300 - 300 - 435 - 435 - Cumulative access limits (all PRGT facilities - exceptional) - 300 - 400 - 400 - 535 - No hard cap - Annual access limits (all PRGT facilities - normal) - 75 - 100 - 150 - 245 - Annual limit is at 245 percent of quota until end-2021, after which it would decline to 145 percent of quota. - Annual access limits (all PRGT facilities - exceptional) - 100 - 133.33 - 183.33 - 278.33 - No hard cap - Norms (3-year ECF) - High access: 90 → 120 → 120 → 120 - Low access: 56.25 → 75 → 75 → 75 - Norm is set at 145, independent of the stock of credit outstanding. - RCF / RFI window-specific limits (cumulative and annual) — selected values over reviews and temporary modifications: - RCF (regular window) cumulative: 75 → 75 → 100 → 100 - RCF/RFI (large natural disasters window) cumulative: N.A. → 75 → 133.33 → 183.33 - RCF (exogenous shocks window)/RFI (regular window) cumulative: 75 → 75 → 100 → 150 - RCF (regular window) annual: 18.75 → 18.75 → 50 → 50 - RCF/RFI (large natural disasters window) annual: N.A. → 60 → 80 → 130 - RCF (exogenous shocks window)/RFI (regular window) annual: 37.5 → 37.5 → 50 → 100 ### Policy intent of temporary increases - Create more room to provide concessional financing to LICs and avoid requiring LICs with high outstanding exposure to seek Fund support through the GRA in the uncertain pandemic environment. - Allow augmented access by countries vulnerable to large natural disasters in line with pre-pandemic practice. --- ### Annex V. A Dual Interest Rate Mechanism in the PRGT ### Proposal summary - Introduce two interest rates within the PRGT: - R_A: set in accordance with the existing interest rate mechanism (currently implies a zero rate for all PRGT facilities). - R_B: a higher rate linked to, but less than, the GRA rate of charge (the SDR interest rate (SDRi) + 100 basis points). - Blending criteria would determine which rate a country incurs. Countries currently required to blend PRGT and GRA resources (intermediate interest rate countries, IIRs) would be eligible to meet their entire financing needs from the PRGT at R_B. - LICs that are not IIRs would face unchanged borrowing conditions. ### Calibration and effects (two-thirds rule example) - R_B example: set at two-thirds of the current rate of charge (the average interest rate paid on a 1:2 PRGT-GRA blending mix). - Benefits to IIRs: - No longer required to meet GRA policy requirements. - Repayment periods somewhat more generous than current blended arrangements. - No GRA interest rate surcharges. - Fiscal/financial effects: - Scarce PRGT subsidy resources conserved: IIR borrowing would generate income for the PRGT endowment when SDRi < 2.0 percent and require fewer subsidy resources than 1:2 PRGT-GRA blending. - Need for PRGT loan resources would increase significantly as IIRs’ financing needs are met entirely from the PRGT, implying substantial increases in credit outstanding and a decline in the reserve coverage ratio unless new resources are provided. ### Legal, operational, and concessionality considerations - Required changes to PRGT rules/design: - Introduce two sets of interest rates within the PRGT with eligibility determined by current blending rules. - Reforms to allow transfer of interest income (net of the cost of payments to the loan provider) to either the subsidy or reserve account of the PRGT. - Transitional arrangements to exempt IIR countries with outstanding PRGT credit from higher interest rates on outstanding loans. - Mechanism to bolster the reserve coverage ratio. - Preliminary legal analysis suggests the first three changes could be approved by the Executive Board with a majority of votes cast. - Concessionality arguments: - Grant Element (GE) approach using the discount rate in the LIC-DSF (5 percent since October 2013). - A zero-interest rate loan under RCF/ECF has a GE of some 32 percent; a zero-interest rate on SCF terms has a GE of some 26 percent. - A loan on RCF/ECF maturities with an interest rate equal to 2/3*(SDRi+1.0) has a GE of about 28 percent at today’s SDRi, declining to 20 percent at SDRi = 2 percent and falling further as SDRi rises. - Lending on concessional terms could be defined as loans with a GE that exceeds a minimum threshold; this would determine a maximum interest rate (R_con) that meets the concessionality requirement. - The IIR rate could be set as the lesser of [⅔*(SDRi+1.0)] and R_con; rising SDRi would shift the rate to R_con over time. - Borrower benefit: PRGT lending at an intermediate rate provides more attractive terms than the GRA and better than the current 1:2 blended arrangements. --- ### Annex VI. Analysis of Debt Sustainability and Capacity to Repay ### Recent debt vulnerability trends (LICs) - Debt vulnerabilities have been increasing in LICs for several years; the pandemic worsened pressures via weakening tax bases and export receipts. - As of end-May 2021: - 42 percent of LICs were assessed to be at high risk of experiencing debt distress. - 14 percent of LICs were in debt distress. - Comparable numbers for end-2016: - 26 percent at high risk of debt distress. - 7 percent in debt distress. ### Analytical and policy tool updates - LIC-DSF upgrade in mid-2018: - Modified statistical methodology to improve prediction accuracy. - New tools for assessing realism of macroeconomic projections. - Greater scope for customized scenarios adapted to country context. - Joint IMF-WB multipronged approach to addressing emerging debt vulnerabilities has been under implementation since late-2018. - Review of the Fund’s Debt Limits Policy completed in October 2020, with reforms to improve debt disclosure and allow better adjustment of debt conditionality to country circumstances; the new policy takes effect on June 30, 2021. ### Implications of increased normal access limits for debt sustainability - Proposed increase in normal access limits affects debt sustainability assessment for programs requesting access above current normal access limits of 100/300 percent of quota but below proposed new limits of 145/435. - For the 28 countries currently eligible for PRGT EA, access within this range would no longer require meeting the PRGT EA criteria (which require reducing debt vulnerabilities to low/moderate risk). - For the 20-plus non-blend countries not currently eligible for EA, access in this range could be met entirely from the PRGT without meeting GRA policy requirements. ### Enhanced scrutiny and documentation requirements (March 2021 staff paper) - New requirements apply to requests for arrangements with access above current normal access limits (100/300) and to all requests for arrangements from countries at high risk of, or in, debt distress. - Program documents are expected to include discussion of: - The structure of public external debt and its projected evolution over time, focusing on the amount and shares of debt owed to the Fund and other senior creditors, informed by tables showing two distinct breakdowns of public external debt: - i) de facto senior debt (debt to the IMF; debt to the World Bank and other international financial institutions; known collateralized debt) and other debt, and - ii) multilateral versus official bilateral versus private debt. - The evolution of projected Fund debt and debt service relative to key economic metrics over the course of the repayment period as compared with other PRGT programs, supported by a set of standardized charts provided by the Finance Department. - Where financing requests would result in comparatively elevated levels of key capacity to repay indicators, the staff report should examine the severity of the implied risks and explain how program design—including access, phasing, and conditionality—seeks to mitigate these risks. - Guidance and templates to implement these requirements are under preparation. *Source: ppea2021053 - Annex IV. Evolution of PRGT Access Limits (IMF).* ### 6. For countries at high risk of debt distress or in debt distress, the core program ### ppea2021053 - 6. For countries at high risk of debt distress or in debt distress, the core program ### Debt vulnerability objectives for high-risk/in-distress countries - Core program objectives should include the achievement of a concrete reduction in debt vulnerabilities over the course of the program and beyond. - Reducing debt vulnerabilities would typically involve reducing breaches of thresholds for the four key indicators in the LIC-DSF over the program period under the baseline scenario. - Staff do not propose a mechanical approach to assessing the projected improvement in debt vulnerabilities, favoring instead an overall assessment of: - the strength of the program; and - any assurances from creditors on new concessional financing or restructuring of existing claims. - Note on indicator behavior: - This need not necessarily involve steady reductions in all indicators for which thresholds are breached; for example, debt service ratios could still spike in individual years, reflecting a bunching of debt repayments. ### Comparative assessment of Fund credit metrics (methodology) - Finance Department methodology allows graphical comparison of evolution of key Fund debt metrics under a proposed program with a control group of PRGT arrangements. - Relevant metrics include projected Fund credit outstanding relative to: - quota; - GDP; and - the aggregate level of public and publicly-guaranteed (PPG) external debt. - Projected annual debt service to the Fund relative to: - fiscal revenues (excluding grants); - exports of goods and services; - all debt service on PPG debt; and - the level of gross international reserves. - Comparative assessment features: - Based on the baseline scenario underpinning the proposed program, but could also include downside scenarios and realism checks. - Guidance will be provided to staff on reflecting Fund debt metrics in capacity to repay assessments. - Control group and data notes: - The control group could be as broad as all PRGT arrangements during 2010–2020, or customized to specific comparator cases (e.g., fragile states, emergency financing, UCT-quality programs). - Underlying data on control groups will be updated regularly (e.g., once a year). - Methodology allows comparison of peak levels of debt service indicators with peak levels in a subset of control group cases (e.g., the top quartile), to identify stress points. ### Illustration (Annex VI Figure 2) — exemplars of graphical comparisons - Four key metrics illustrated for "Country X" compared to all PRGT arrangements (2010–2020): - Total Fund Credit Outstanding as Percent of GDP (T through T+10 plotted against control group interquartile range and median). - Total Fund Credit Outstanding as Percent of PPG external debt (T through T+10). - Debt Service to the Fund as Percent of exports of goods and services (T through T+10). - Debt Service to the Fund as Percent of revenue excl. grants (T through T+10). ### Methodology for estimating PRGT resource needs (Annex VII) — scenario construction and assumptions - Scenarios comprise: - an in-depth country-by-country analysis of potential demand ranges for the crisis period (2020–24); and - illustrative lending envelopes for the post-pandemic decade (2025–34), with PRGT self-sustainability analysis. - Access and blending policy changes assumed in all scenarios: - across-the-board 45 percent increase in normal annual and cumulative access limits to 145 and 435 percent of quota, respectively; - a unified access norm of 145 percent of quota per 3-year arrangement; - removal of a hard cap on PRGT access for countries that do not meet the proposed income threshold for blending on the IDA cutoff; - these access policies assumed unchanged until the next LIC Facilities and Financing Review in 2024/25; - temporary access increases for the RCF and normal annual PRGT access assumed to expire at end-2021. - Scenario implementation details: - Access rules applied to demand projections by country based on existing credit exposures and previous disbursements. - Subject to caps, blenders assumed financed by PRGT/GRA at a 1:2 ratio. - Scale of multiyear financing during the pandemic period (through 2024) calibrated to reflect exceptionally high needs, with average access scaled up to almost twice recent years (and at three times in the High Case). - Access per arrangement differentiated by degree of debt vulnerabilities, blend status, and pre-existing credit exposure; access is a function of both quota and GDP, subject to lower and upper limits. - Near-term projections allow for new EF and augmentations, and accommodate some Fund financing for health-related and vaccine needs. - Demand-share assumptions through 2024: - Baseline: almost two-thirds of eligible LICs (on a quota-weighted basis) request program support (in line with peak demand years during the global financial crisis and 2020). - Low Case: 40 percent (the longer-term average). - High Case: about 80 percent (unprecedented). - Post-crisis decade (2025–34) average annual demand projections: - Baseline and Low Case: SDR 1.65 billion average annual demand (assumption: future access increases calibrated to preserve access in real terms relative to pre-pandemic levels). - High Case: SDR 3 billion average annual lending (calibrated to per-country access in line with GRA arrangements for emerging market countries). - Capacity/supply model translates commitments into disbursements and credit outstanding, calculates subsidization costs and evolution of investment returns on PRGT assets, and estimates PRGT self-sustained lending capacity over time. ### PRGT financing model (Annex VIII) — structure and balances - PRGT endowment-based financing model relies on loan and subsidy resources: - Loan resources provided through bilateral agreements with members and on-lent by PRGT on a passthrough basis to LICs; typically remunerated at the SDR interest rate and secured through the PRGT’s Reserve Account (RA). - Balances in PRGT subsidy accounts and the RA (SDR 3.9 billion and SDR 4.1 billion respectively as of end-April 2021) and any investment earnings are used to cover interest cost of PRGT loans, so borrowers can benefit from concessional (currently zero) interest rates. - Self-sustained model mechanics: - Subsidy account resources would be gradually drawn down to zero, while RA balances would grow over time by investment returns, until RA returns subsidize PRGT lending in perpetuity. - Reimbursement of the GRA: - Framework provides for annual reimbursement of the GRA for PRGT administrative expenses; reimbursement can be temporarily suspended when PRGT resources are insufficient. - Reimbursement can be waived notwithstanding that PRGT contains Special Disbursement Account (SDA) resources; Article V, Section 12(i) requires SDA to reimburse the GRA for administering SDA resources. - Historical suspensions: reimbursement waived FY1998–FY2004 (to fund HIPC contributions) and FY2005–FY2012 (to provide contributions for PRGT). - Staff review of reimbursement practices under trusts funded with SDA resources has been started but delayed due to Covid-19 priorities; staff will present it at the next possible opportunity. - Three-pillar strategy adopted in 2012 to make PRGT lending self-sustaining: - (i) base envelope of SDR 1¼ billion in annual PRGT lending capacity for normal periods; - (ii) contingent measures when financing needs exceed the base envelope (additional bilateral fundraising, suspending GRA reimbursement temporarily, modifying access/blending/interest/eligibility policies); and - (iii) principle of self-sustainability under which future LIC facility modifications should ensure demand can be reasonably met with available resources. - Annual adequacy assessment elements: - (i) short-term demand projections and sensitivity analyses from country desk surveys; - (ii) demand model projecting medium- to longer-term concessional lending based on policy assumptions; - (iii) assessment of available PRGT loan resources under demand scenarios; and - (iv) capacity (“supply”) model calculating self-sustained lending capacity based on subsidy resources and projected demand. - Prior (May 2019) reforms: - generalized one-third increase in access limits and norms; projected average annual demand SDR 1.0–1.7 billion over next decade; self-sustained annual lending capacity projected to reach SDR 1.1–1.4 billion by 2028 (symmetric around target SDR 1¼ billion). - COVID-19 impact: - Pandemic has eroded self-sustained annual lending capacity to the lower end of prior range. - Without fresh subsidy resources, lending capacity projected to fall well below the range under plausible scenarios featuring larger PRGT lending over medium- to longer-term. - Bringing lending capacity up to the “new normal” while preserving the endowment model would require significant injections of new subsidy resources. ### PRGT loan resource mobilization (Annex IX) — 2020 fast-track round outcomes - Fast-track PRGT loan mobilization launched April 2020 secured about SDR 17 billion from 16 PRGT lenders. - These resources expected to cover loan needs under current policies; additional loan resources (almost SDR 13 billion) would be needed on top to cover crisis-related demand under all scenarios, including the High Case. - New features of loan agreements: expanded use of SDRs; broadened lender base; de-earmarking; unification of lenders’ interest rate at SDRi; easing of drawing limits; extended drawdown period (2024–29). - Annex IX Table 1: New PRGT Loan Resources Effected under the 2020 Round (As of June 23, 2021) - Japan: SDR 3,600 Million | USD 5,143 Million | Augmentation | SDR NPA | Encashment: Yes - Germany: SDR 2,534 Million | USD 3,619 Million | New agreement | EUR Loan Agreement | Encashment: No - France: SDR 2,000 Million | USD 2,857 Million | New agreement | SDR Loan Agreement | Encashment: Yes - UK: SDR 2,000 Million | USD 2,857 Million | Augmentation | SDR NPA | Encashment: Yes - China: SDR 1,000 Million | USD 1,429 Million | New agreement | SDR NPA | Encashment: Yes - Italy: SDR 1,000 Million | USD 1,429 Million | New agreement | SDR Loan Agreement | Encashment: Yes - Spain: SDR 750 Million | USD 1,071 Million | Augmentation | EUR Loan Agreement | Encashment: Yes - Australia: SDR 500 Million | USD 714 Million | New agreement | SDR Loan Agreement | Encashment: Yes - Brazil: SDR 500 Million | USD 714 Million | Augmentation | USD NPA | Encashment: Yes - Canada: SDR 500 Million | USD 714 Million | Augmentation | USD Loan Agreement | Encashment: No - Netherlands: SDR 500 Million | USD 714 Million | New agreement | SDR Loan Agreement | Encashment: No - Sweden: SDR 500 Million | USD 714 Million | New agreement | USD Loan Agreement | Encashment: Yes - Switzerland: SDR 500 Million | USD 714 Million | New agreement | EUR Loan Agreement | Encashment: No - Norway: SDR 400 Million | USD 571 Million | New agreement | USD Loan Agreement | Encashment: Yes - Belgium: SDR 350 Million | USD 500 Million | New agreement | EUR Loan Agreement | Encashment: No - Denmark: SDR 300 Million | USD 429 Million | New agreement | EUR Loan Agreement | Encashment: No - Total: SDR 16,934 Million | USD 24,191 Million - All agreements are for the benefit of the General Loan Account, remunerated at the SDR interest rate (with the exception of the UK loan capped at 0.05%) and expire at end-2029. With the exception of Germany, all loans are denominated in SDRs. ### PRGT subsidy resources and Reserve Account (Annex X) — history and current composition - PRGT endowment built over decades from internal resources and donor contributions. - To date members have voluntarily provided about SDR 5.3 billion to subsidy accounts and made close to SDR 55.5 billion available in loan resources. - The Fund contributed about SDR 5.5 billion in internal resources, mostly through recycling of resources originating from the 1976–80 gold sales and non-reimbursement of the GRA. - Funding sources summary: - Subsidy accounts mostly funded by bilateral contributions from economically stronger members, predominantly grants; some contributed concessional loans remunerated below market rate (allowing Trust to save about SDR 0.3 billion in subsidy resources). - 2012–13 windfall gold sales profits distributions facilitated bilateral contributions of about SDR 2.2 billion from a wider base of 152 members. - Fund contributed Trust Fund reflows to PRGT subsidy accounts, including SDR 148 million transferred from the Reserve Account in lieu of non-reimbursement of the GRA during FY2010–12. - Reserve Account fully funded from resources originating from the 1976–80 gold sales; current balance SDR 4.1 billion includes income earned and about SDR 324 million retained from non-reimbursement of the GRA during FY2005–09 and FY2021. *International Monetary Fund — FUND CONCESSIONAL FINANCIAL SUPPORT FOR LICS—RESPONDING TO THE PANDEMIC (selected annexes and excerpts)* ### 2. Solidarity with low-income ### 2. Solidarity with low-income ### Funding strategy and donor contributions - Solidarity with low-income members and burden sharing among donors are core to the PRGT framework since inception. - Proposed concessional financing package relies on a mix of internal and donor resources based on past practice of bilateral contributions being provided mostly by economically stronger members and typically in proportion to their quota shares. - Two-stage funding strategy (first-stage proposals): - Suspend reimbursement to the GRA for PRGT administrative expenses through FY2026, which would retain an additional SDR 0.5 billion in the PRGT Reserve Account and support the PRGT’s self-sustained concessional lending capacity. - Request voluntary bilateral subsidy contributions totaling SDR 2.3 billion from 61 members considered to be in a comparatively stronger economic position (those that currently participate in the IMF’s Financial Transaction Plan (FTP), plus non-FTP members that belong to the G20 or EU, except those that have used Fund resources for BoP needs over the past three years). - This group accounts for about 88 percent of current IMF quotas. - This group in the past have supplied about 94 percent of total bilateral contributions to the PRGT’s subsidy accounts. - Flexibility for donors: - Various options for bilateral subsidy contribution schemes are available, with resources pledged upfront and disbursed over time. - Stage two: - Decision on appropriate longer-term PRGT envelope to be taken up at the second stage of the funding strategy. - Possible additional use of IMF internal resources will be considered during the “stage two” review in 2024/25. ### Historical contributions and key figures (Annex X Table 1) - Total contributions to PRGT subsidy accounts: 6,715 (In SDR million) - Bilateral contributions from members: 5,304 - From 2012–13 windfall gold sales profits distribution: 2,188 - Implicit subsidies: 326 - Contributions from the Fund (SDA): 1,411 - Of which GRA non-reimbursement: 148 - Reserve Account (RA) balance: 4,115 - Of which GRA non-reimbursement: 324 - Memorandum items: - SDA Contributions to the PRG-HIPC Trust: 1,167 - Of which GRA non-reimbursement: 366 - SDA Contributions to the MDRI-I Trust: 1,500 - Bilateral contributions to the MDRI-II Trust: 1,120 ### Bilateral contributions by country groups and illustrative quota-based request (Annex X Table 2 — selected aggregates) - All members (100.00 percent share in total member quota): cumulative PRGT subsidy contributions as of April 30, 2021 = 5,304; illustrative new contributions request based on SDR 2.3 billion target and quota shares = 2,300 - FTP members (83.01 percent share): cumulative contributions = 4,874; illustrative new contributions = 2,172 - G-7 (43.47 percent share): cumulative contributions = 3,077; illustrative new contributions = 1,138 - Other advanced (18.20 percent share): cumulative contributions = 1,290; illustrative new contributions = 476 - Other FTP members (21.34 percent share): cumulative contributions = 508; illustrative new contributions = 558 - Non-FTP members (4.89 percent share): cumulative contributions = 125; illustrative new contributions = 128 - Total from 61 members (87.90 percent share): cumulative contributions = 4,999; illustrative new contributions = 2,300 - Total from other members (12.10 percent share): cumulative contributions = 305 (Note: Annex X Table 2 provides a country-by-country breakdown, including illustrative new contributions based on quota shares for closing the SDR 2.3 billion subsidy gap.) ### PRGT investment strategy and options for contributors (Annex XI) - The PRG Trust Instrument permits borrowing from official lenders: - For on-lending to eligible PRGT borrowers. - For subsidy accounts to benefit from net investment earnings on the proceeds of loans extended at a concessional interest rate. - Borrowings can be in SDRs and currencies; investment risk for investment borrowing is carried by lenders. - Two approved options for members who wish to lend to the PRGT for contributing income earned on investments: (i) Pool investments with PRG Trust assets and share same risk/return profile. - Current long-term investment return target for PRGT assets: achieve 90 bps over the SDR rate. - Realized investment returns are subject to high uncertainty; returns may turn negative, particularly over shorter horizons, leading to potential loss in principal. - Risk of losses at a 10-year maturity is currently estimated at 11 percent. - To avoid credit risk to lenders, investment maturity date could be linked to reaching the pledged contribution amount in NPV terms; investments would remain liquid with possible encashment/early repayment from liquidation proceeds if needed. (ii) Invest in BIS obligations, managed separately from PRGT assets. - BIS obligations consist primarily of deposits with a maximum maturity of 12 months. - Lower risk comes with lower returns, unlikely to significantly exceed the SDR rate; as currently observed, returns on BIS obligations are below the SDR rate. - Current practice and operational notes: - Eight active agreements for the benefit of the PRGT: three for investment in Trust assets and five in BIS obligations. - Members also contribute via deposit and investment agreements for PRG-HIPC and CCR Trusts. - Low interest rate environment has slowed subsidization through investment income and required extensions of contributing members’ agreements. - Large scale lending in SDRs for investment would require operational arrangements for converting SDRs into currencies through VTAs and managing exchange rate and currency conversion costs. - Returns and SDR rate data (Annex XI Table 1 — In percent): - SDRi Rate: 2011 = 0.40, 2012 = 0.11, 2013 = 0.08, 2014 = 0.08, 2015 = 0.05, 2016 = 0.08, 2017 = 0.53, 2018 = 0.93, 2019 = 1.00, 2020 = 0.20, Jan-May 2021 = 0.06, Average (2002-20) = 1.20 - Return on PRGT Assets: 2011 = 1.64, 2012 = 1.03, 2013 = 0.23, 2014 = 0.55, 2015 = 0.51, 2016 = 0.64, 2017 = 0.38, 2018 = 0.66, 2019 = 4.54, 2020 = 4.63, Jan-May 2021 = 1.80, Average (2002-20) = 2.28 - Return on BIS Deposits (selected values shown): 0.84, 1.06, 0.47, 0.03 - Current PRGT portfolio structure (target asset allocation): - 45 percent in liquid and short-term fixed-income instruments - 30 percent in corporate bonds - 5 percent in emerging market government bonds - 20 percent in publicly listed equities ### PRGT—Review of interest rate structure (Annex XII) - Background and objectives: - PRGT interest rate mechanism adopted in 2009 as part of comprehensive reform of the IMF’s concessional facilities. - Objectives of the mechanism: increase concessionality of PRGT financing, preserve Trust resources, avoid permanently zero interest rates, tailor financial terms to LICs’ needs and capacity, and limit fluctuations in concessionality and subsidy costs. - Key features of the mechanism: - Links interest rates on PRGT lending to global interest rates (average SDR interest rate over the most recently observed 12-month period). - Rates set for upcoming two years in biennial reviews. - Original design set SCF rate at 25 basis points above ECF rate; 2019 reform aligned SCF with ECF by: - Setting SCF rate at zero when the SDR rate is below 2 percent. - Reducing the SCF rate by 0.25 percent when the SDR rate is above 2 percent. - Application to date: - Since mechanism establishment, no interest has been charged on PRGT credit. - In 2009 the Executive Board granted interest waivers on all outstanding concessional credit during 2010–16. - Further modifications: - July 2015: enhanced support for PRGT-eligible countries in fragile situations or hit by natural disasters; RCF interest rate set permanently to zero as of July 2015. - June 2019: Executive Board modified the Interest Rate Mechanism and set zero rates on all low-income country lending facilities through end-June 2021 (subsequently extended to end-July 2021). - The final section sets out the proposed interest rate on PRGT lending based on application of the existing mechanism, as modified in 2019, of a zero rate for the ECF, the SCF, and the RCF for the period August 2021–July 2023. *Source: ppea2021053 - 2. Solidarity with low-income* ### 6. In October 2016, the PRGT interest rate mechanism was amended to accommodate ### ppea2021053 - 6. In October 2016, the PRGT interest rate mechanism was amended to accommodate ### Amendments to PRGT interest rate mechanism (2016–2019) - October 2016 amendment: - New threshold: both the ECF and the SCF rate set at zero when the average SDR rate over the most recently observed 12-month period was less than or equal to 0.75 percent. - Effectively kept all PRGT interest rates under the mechanism at zero percent through December 2018. - Interest rate charges on outstanding legacy balances under the ESF were waived until December 2018. - Most Directors requested examination of unifying the interest rate structure for the ECF and SCF as part of the forthcoming LIC Facilities review. - December 2018 Board action: - Postponed deadline for next interest rate review to no later than June 30, 2019 to assess the PRGT interest rate mechanism alongside the LIC Facilities Review. - May 2019 Board amendment: - Aligned interest rates on SCF loans with those on ECF loans to modestly increase concessionality of PRGT financing under the SCF. - Moderate subsidy costs financed within the PRGT’s self-sustaining financing envelope. - Interest on RCF credit remained permanently at zero (as decided in 2015). - Zero percent interest rates under the ECF and SCF applied to outstanding balances of PRGT loans through June 30, 2021. - Waiver of interest rate charges on outstanding legacy balances under the ESF extended until full repayment in October 2020. - Note: For SCF arrangements treated as precautionary, no interest is charged; an availability fee of 0.15 percent applies at the end of each six-month period on available but undrawn credit. ### PRGT interest rates in the economic context (SDR rate trends and concessionality) - SDR interest rate recent levels and history: - Average SDR rate over the last 12 months: 0.08 percent. - SDR rate timeline excerpts: - January 2010: 0.23 percent. - September 2014: 0.05 percent (remained at this level until September 2016). - Reached 1.14 percent by end-March 2019, then declined gradually until the pandemic, after which it fell sharply. - Current (as of text): 0.05 percent. - Degree of concessionality of PRGT loans: - Remains below the traditional benchmark of 35 percent. - Average grant element estimates: - ECF and RCF: 32 percent. - SCF: 26 percent. - Since October 11, 2013, a unified discount rate of 5 percent is used to calculate the grant element of individual loans. ### LICs outlook, risks, and PRGT credit composition - Global and LIC growth: - Global growth in 2020: -3.3 percent. - LICs GDP growth projected in 2021: 4.3 percent. - Key risks and constraints for LICs: - Limited access to vaccines. - Limited fiscal space for major health care responses or livelihood support. - High and rising debt levels. - Climate change and potent natural disasters. - PRGT credit outstanding composition: - Bulk of PRGT credit outstanding is under the RCF following increased emergency financing in response to COVID-19, as well as credit outstanding under the ECF. ### PRGT interest rates for August 2021–July 2023 (application of 2019 mechanism) - With the 2019-modified mechanism: - No interest would be charged on PRGT credit until July 2023. - Because the 12-month average SDR rate is well below the 2 percent threshold, interest on SCF and ECF credit would be zero for the period August 2021–June 2023. - RCF interest rate remains permanently at zero. - Next review of the PRGT interest rate structure to be completed by July 2023, consistent with Section II, Paragraph 4(b) of the PRGT Instrument. ### Proposed PRGT financial structure enhancements (SRA and DIA) — July 1, 2021 - Objectives and roles: - Subsidy Reserve Account (SRA): - Dual purpose: hold and invest PRGT subsidy resources; provide additional backstop to the PRGT Reserve Account (RA) to help manage credit risk. - Complement existing subsidy accounts; receive bilateral grants or investment returns contributed by members to finance PRGT subsidization. - Serve as a second-line backstop for the RA in the event of arrears and provide a medium-term funding bridge toward a self-sustained PRGT endowment model. - Deposit and Investment Account (DIA): - Main vehicle for borrowing SDRs or currency from members to generate investment returns for PRGT subsidization. - Centralize long-term contributions, facilitate liquidity management and an encashment regime. - Contributors’ claims remunerated at an agreed rate below the expected rate of return on the investment. - Members can encash their claims on the DIA in the event they experience balance of payments needs. - PRGT endowment model elements: - Trust assets in Subsidy Accounts and the RA together amount to about SDR 8 billion at end-April 2021. - Current subsidization relies entirely on existing assets in the Subsidy Accounts; these resources would be gradually drawn down to zero while RA balances would grow over time by investment returns. - In steady state, returns on RA assets would subsidize the entire PRGT lending in perpetuity. - Loan resources mobilization: - Fast-track loan mobilization round (covering lending commitments through 2024) has raised about SDR 17 billion in new resources. - Lenders participating in the encashment regime can request early repayment of their claims on the PRGT in case of balance of payments needs. - Use of DIA and SRA linkages: - Investment returns generated in the DIA would be transferred to the SRA for PRGT subsidization. - With consent of contributors, the Fund may decide on the use of investment income in the DIA prior to maturity of deposit and other investment agreements if necessary for subsidy needs. ### Proposed decisions summary (July 8, 2021 supplement) — key reforms and numeric limits - Overall proposed decisions include: - Increase overall annual and cumulative access limits in the PRGT to 145 percent of quota and 435 percent of quota, respectively, and eliminate hard caps on access. - Amend PRGT exceptional access criteria. - Extend the temporary increase of annual access limits under the PRGT (245 percent of quota) until end-December 2021. - Create two new accounts within the PRGT: Subsidy Reserve Account (SRA) and Deposit and Investment Account (DIA). - Extend the deadline for suspension of drawing under loan agreements in the event of liquidity needs of PRGT creditors from June 30, 2024 to June 30, 2029. - Complete the review of PRGT interest rates by July 2023. - Increase the limit for PRGT borrowing. - Modify and consolidate rules on blended access to resources under the PRGT and General Resources Account (GRA). - Decision I — Amendments to the PRGT Instrument (highlights): - Establish new overall annual and cumulative access limits under the PRGT: - Annual access limit: 145 percent of quota. - Cumulative access limit (net of scheduled repayments): 435 percent of quota. - Eliminate the hard cap on exceptional access (Section II, Paragraph 2(a)(A)). - New limits apply to all new financing requests and to existing arrangements under the PRGT, except existing arrangements grandfathered under the Policy Safeguards for High Combined Credit Exposures under the PRGT/GRA (“PS-HCC”) remain subject to PRGT EA thresholds and criteria in place at time of approval of those arrangements. - Carve-out: grandfathered arrangements retain safeguards and even-handed treatment; augmentation ends grandfathering and subjects arrangements to PS-HCC policy and new PRGT access rules. - Extend temporarily increased PRGT annual access limit: - Increased since March 22, 2021 to 245 percent of quota through July 31, 2021; extension of this temporary increase until end-December 2021 is specified. - For financing in place or approved during the extension period, the temporarily increased limit applies to any 12-month period that includes some part of March 22, 2021 to December 31, 2021. *International Monetary Fund — Fund Concessional Financial Support for Low Income Countries—Responding to the Pandemic (supplementary information excerpts, July 1 and July 8, 2021).* ### 2021. For financing approved after December 31, 2021, the annual access limit would return to ### ppea2021053 - 2021. For financing approved after December 31, 2021, the annual access limit would return to ### Amendments to PRGT access limits and exceptional access - Annual access limit: 145 percent of quota (Section II, Paragraph 2(a)(B)(ii)). - Cumulative access limit (net of scheduled repayments): 435 percent of quota. - Trustee may approve access in excess of these limits if all of the specified exceptional-access criteria are satisfied. - Exceptional-access criterion related to income for presumed blending (criterion 3) will be assessed only at the time of approval of exceptional access and applies to requests for an ECF or SCF arrangement or an RCF loan that involves exceptional access, an increase in access resulting in new or augmented exceptional access, or a rephasing of an existing arrangement that results in exceptional access. - Income criterion for blending (Decision IV, paragraph 1(a)): a member meets the income criterion when its GNI per capita has exceeded the IDA operational cutoff by at least 5 percent for two consecutive years; this applies immediately, looking back two years from the date of the decision (example: exceedance in 2019 and 2020 by at least five percent meets the income criterion). - Blended access cap: access to PRGT resources under blending is subject to a cap on access of 145 percent of quota per arrangement and subject to the overall limits on access to the PRGT. ### New PRGT accounts and their purposes - Creation of two new PRGT accounts: - Subsidy Reserve Account (SRA) - Designed to receive grant contributions and transfers of resources derived from net investment earnings from the Deposit and Investment Account (DIA). - Dual purpose: - Subsidize PRGT lending after resources in the General Subsidy Account and earmarked Subsidy Accounts are exhausted. - Provide a second-line backstop to meet obligations to lenders to the PRGT loan accounts (e.g., in case of arrears to the PRGT) when the Reserve Account had been depleted. - SRA is included among the subsidy accounts in the PRGT Instrument. - SRA resources may pay for the difference between interest “due” from PRGT borrowers and the PRGT’s interest payment due to PRGT creditors but may not be used to cover borrowers’ overdue interest payments or interest payments not yet due from borrowers. - Deposit and Investment Account (DIA) - Vehicle for longer-term borrowing from contributors; proceeds invested to generate net investment earnings in excess of interest payable to contributor, if any. - Managing Director authorized to enter into bilateral deposit agreements and other investment agreements with contributors on behalf of the PRGT. - Net investment earnings attributable to contributors will normally be transferred to the SRA at final maturity of the related agreement; Managing Director may agree with individual contributors on earlier transfers. - Contributor may request transfer of its share of net investment earnings to the General Subsidy Account instead of the SRA. - Resources in DIA held separately; investments may be made jointly under mandates that provide clear attribution of relative shares to PRGT accounts. - Encashment regime: contributor may request early repayment of principal upon representation of a balance of payments need; encashment funded from resources in the DIA attributed to the contributor. - Contributor exercising encashment rights must reconstitute principal as soon as possible once balance of payments position improves. - Repayment of principal under deposit/investment agreements (maturity, encashment, termination) made exclusively from resources attributed to that contributor’s deposit/investment and net investment earnings thereon, net of cumulative interest previously paid to the contributor. - In event of accumulated losses in the DIA at final maturity, such losses are attributed to the contributor’s principal amount and no transfers of investment earnings for the contributor to the SRA would take place; accumulated losses at encashment or termination reduce principal to be repaid to the contributor. ### Legal and procedural changes - Provisions regarding the SRA and DIA included in Section IX of the PRGT Instrument as provisions that can only be amended with the consent of affected contributors. - Renumbering to reflect DIA: existing Section IV renumbered as Section IV.A and DIA inserted as Section IV.B. - Extension of Section II, paragraph 4(c) deadline from June 30, 2024 to June 30, 2029 (refers to deadline under which a PRGT creditor with a borrowing agreement concluded after May 31, 2014 may request a suspension of drawings under its borrowing agreement in case of a liquidity need). - Staff view: creation of SRA and DIA does not affect the interests of current subsidy and loan account contributors; consent of current contributors not required for proposed changes to protected provisions. ### Interest rate structure (Decision II) - Review due by July 31, 2021. - Interest rate for PRGT credit outstanding maintained at zero percent. - Based on average SDR interest rate over most recent 12-month period, zero percent interest rate applicable to credit outstanding under the ECF and SCF should be maintained through end-July 2023. - Credit outstanding under the RCF remains at zero percent (in line with Executive Board decision in 2015). ### PRGT borrowing limit (Decision III) - Stage one of funding strategy aims to mobilize additional SDR 12.6 billion in PRGT loan resources. - Decision authorizes Managing Director to confirm, following consultations with creditors, that she does not intend to enter into borrowing agreements for the loan accounts if cumulative commitments under such agreements would exceed SDR 68.0 billion without further consultation with PRGT creditors regarding justification for such borrowing and the adequacy of the Reserve Account (PRGT Borrowing limit). ### Blended access (Decision IV) - Consolidates rules on blending PRGT and GRA resources into single Board decision. - “Presumption” of Blending: - PRGT-eligible members that meet blending criteria and request PRGT financing are required to meet part of their Fund financing needs from the GRA. - PRGT-eligible members that do not meet blending criteria may access PRGT resources exclusively. - Presumed blenders shall access a blend of PRGT and GRA resources in a ratio of one to two of PRGT resources to GRA resources. - For members with first credit tranche resources available, the 1:2 blend of PRGT and credit tranche resources would still apply; GRA phasing and performance criteria apply only to purchases above the first credit tranche. - Blending Criteria summarized: - Income criterion: GNI per capita exceeding IDA operational cutoff by at least 5 percent for two consecutive years. - Even if income criterion met, presumed blending may not apply if member faces debt vulnerabilities limiting market access as specified in decision. ### PRG Trust reimbursement (Decision V) - Suspension of reimbursement of the GRA for the cost of administering the PRGT for FY 2022–2026. - This temporary suspension is a recognized contingency measure under the PRGT’s three-pillar framework and permitted under the Fund’s new income model endorsed in 2008. - Suspension would retain these resources in the PRGT’s Reserve Account. ### Majorities, consent requirements, and protected provisions - Proposed decisions may be adopted by a majority of the votes cast. - Changes to the PRGT Instrument do not require consent of current contributors to the PRGT’s loan and subsidy accounts, per staff view that amendments do not affect contributors’ interests. - Creation of SRA and DIA requires amendments to “protected provisions” listed in Section IX of PRGT Instrument; historical practice permits amendment with consent of contributors if their interests are affected. - Protected provisions cited for amendment: Section I, paragraph 2; Section III, paragraphs 4 and 5; Section IV, paragraphs 4 and 6; and Section IX. *International Monetary Fund — ppea2021053 (excerpt).* ### 3. Section II, Paragraph 2(a)(B) (i) to (iii) shall be replaced with the following: ### ppea2021053 - 3. Section II, Paragraph 2(a)(B) (i) to (iii) shall be replaced with the following: ### Section II — Temporary increase in annual access limit (Applicable Period) - "(a)(B)(i) During the period from March 22, 2021 to December 31, 2021 (the “Applicable Period”), the annual access limit shall be 245 percent of quota for financing approved through December 31, 2021 (the “Eligible Financing”). For the computation of the annual access under the above specified “Eligible Financing”, the annual access limit of 245 percent of quota shall apply for any 12-month period that includes any part of the “Applicable Period”." - Clarifies that the 245 percent of quota annual access limit applies to any 12-month period that includes any part of the Applicable Period. ### Section II — Interaction with prior PRGT arrangements and Policy Safeguards - "(a)(B)(ii) Notwithstanding the increase in access limits set forth in Paragraphs 2(a)(A) and 2(a)(B)(i) above, a member’s access to PRGT resources approved under an arrangement in place prior to September 9, 2020 that was exempted from the application of Policy Safeguards for High Combined GRA and PRGT Credit set forth in Decision No. 16873-(20/91) will remain subject to observance of the access limits and criteria for exceptional access to the PRGT that were in effect at the time of approval of such arrangement; if access under such an arrangement is augmented, the provisions in paragraphs 2(a)(A) and 2 (a)(B)(i) shall apply to such an arrangement." ### Renumbering and cross-reference changes - References in Section II, paragraphs 4(a) and 4(b) changed from "Section IV, paragraph 5" to "Section IV.A, paragraph 5". - References in Section III, paragraphs 1(b)(ii), 1(c)(iii), 1(d)(ii) and 1(e)(ii) changed from "Section V, paragraph 3 of this Instrument" to "Section IV.A, paragraph 4(g) and Section V, paragraph 3 of this Instrument". - In Section III, paragraph 4(b) the reference to "Section IV" replaced with "Section IV.A". - Section IV of the PRGT Instrument shall be renumbered as Section IV.A. - In Section V, paragraph 2(a), the reference to "Section IV" replaced with "Section IV.A". - In Section IX of the PRGT Instrument, the reference to "Section IV" replaced with "Section IV.A" and the words "Section IV.B;" inserted before "Section V". - Section VIII, paragraph 2(a) amended to read: "(a) Termination and liquidation of the Subsidy Accounts shall be made in accordance with the provisions of Section IV.A, paragraph 6. Termination and liquidation of the Deposit and Investment Account shall be made in accordance with the provisions of Section IV.B, paragraph 4." ### Date amendment - In Section III, paragraph 4(c), first sentence, "June 30, 2024" shall be replaced with "June 30, 2029." ### Subsidy Reserve Account — composition (new Section IV.A, paragraph 1(f)) - "(f) The resources held in the Subsidy Reserve Account shall consist of: - (i) the proceeds of donations made to the Trust for the Subsidy Reserve Account; - (ii) the proceeds of loans made to the Trust for the Subsidy Reserve Account; - (iii) transfers from the Deposit and Investment Account in accordance with Section IV.B, paragraph 3 of this Instrument; - (iv) net earnings from investment of resources held in that Account; - (v) payments of overdue principal or interest or interest thereon under Trust loans, and payments of interest under Trust loans to the extent that payment has been made to a creditor from the Subsidy Reserve Account; and - (vi) repayments of the principal under Trust loans, to the extent that resources in the Subsidy Reserve Account have been used to make payments to a creditor due to a difference in timing between scheduled principal repayments to the creditor and principal repayments under Trust loans." ### Subsidy Reserve Account — authorized uses (new Section IV.A, paragraphs 4(f) and 4(g)) - "(f) The Trustee shall draw upon the resources available in the Subsidy Reserve Account to: - (i) pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the facilities of the Trust specified in Section I, Paragraph 1 of the Instrument, provided that resources available in the Subsidy Reserve Account shall be drawn only if there are no other resources available in the relevant Subsidy Accounts for these purposes; or - (ii) to make payments of principal and interest on its borrowing for Trust loans, to the extent that the amounts available from receipts of repayments and interest from borrowers under Trust loans, together with the authorized subsidy under Section IV.A, paragraph 4, are insufficient to cover the payments to creditors as they become due and payable, provided that resources available in the Subsidy Reserve Account shall be drawn upon for these purposes only if there are no other resources immediately available in the Reserve Account." - "(g) Any repayment of principal under Trust loans, to the extent that repayment to a creditor has been made from the Subsidy Reserve Account due to differences in timing between scheduled principal repayments to the creditor and principal repayments under Trust loans, any payments of overdue principal or interest or interest thereon under Trust loans, and any payments of interest under Trust loans to the extent that payment has been made to a creditor from the Subsidy Reserve Account, shall be made to the Subsidy Reserve Account." ### Transfers and final disposition of Subsidy Reserve Account (Section IV.A, paragraph 6 amendments) - End of paragraph 6(b)(i) addition: "Any resources attributable to transfers from the Deposit and Investment Account shall be transferred to that Account." - Paragraph 6(b)(vi) renumbered as 6(vii). New 6(b)(vi): - "(vi) Any resources remaining in the Subsidy Reserve Account shall be used in a manner consistent with paragraph 4(f) of this Section to reduce to the fullest extent possible the interest rate paid by borrowers in accordance with Section II, paragraphs 4(a), (b), and (c) on loans from the PRGT, by means of payments to such borrowers. Any resources remaining after that subsidization and not attributable to the Deposit and Investment Account shall be transferred to the General Subsidy Account, provided that a contributor may request that its share in any remaining resources be returned to it. Any resources attributable to transfers from the Deposit and Investment Account shall be transferred to that Account." ### New Section IV.B — Deposit and Investment Account (structure and key rules) - Purpose and resources (Paragraph 1): - "The purpose of the Deposit and Investment Account is to provide a separate vehicle under which the Trust can borrow resources to generate net investment earnings for the benefit of the Subsidy Reserve Account or, at the request of a contributor, the General Subsidy Account. The resources held in the Deposit and Investment Account shall consist of the proceeds from deposit and other investment agreements with contributors and the net earnings on the investment proceeds." - Borrowing for the Deposit and Investment Account (Paragraph 2): - (a) Trustee/Managing Director may enter into deposit and other investment agreements with contributors to generate net investment earnings; borrowed resources invested per guidelines adopted by the Trustee. - (b) Agreements may provide right for contributor to request early repayment of principal upon representation of a balance of payments need; contributor to reconstitute withdrawn amounts as its balance of payments and reserve position improves. - Use of resources (Paragraph 3): - (a) Resources derived from net investment earnings shall be transferred to the Subsidy Reserve Account at final maturity of the deposit/investment agreement to which they are attributable; Managing Director authorized, with contributor consent, to transfer earlier to meet subsidization needs. - (b) A contributor may prescribe that investment earnings attributable to that contributor be directed to the General Subsidy Account instead of the Subsidy Reserve Account. - Termination arrangements (Paragraph 4): - Upon completion of subsidy operations, Trustee shall wind down the Deposit and Investment Account; contributors repaid principal and any remaining investment earnings or losses attributed to them. - Repayment/payment exclusivity (Paragraph 5): - Repayment of principal and any payment of interest to a contributor on any borrowing for the Deposit and Investment Account shall be made exclusively from resources attributed to that deposit or other investment of this principal amount and the net investment earnings thereon, net of the cumulative interest previously paid to the contributor. ### Section III and IV cross-reference edits related to Subsidy Reserve and Deposit/Investment Accounts - In Section III, paragraph 5(a), references to "Section IV" replaced with "Section IV.A"; insert "Subsidy Reserve Account and" before "Reserve Account"; insert "Section IV.A and" before "Section V". ### Decision II — Review of Interest Rate Structure (adjusted dates) - Managing Director reviewed interest rates for loans under the ECF and SCF. - In Section II, paragraph 4(a) of the PRGT Instrument, the reference to "July 1, 2019" replaced with "August 1, 2021". - In Section II, paragraph 4(b) of the PRGT Instrument, the reference to "July 31, 2021" replaced with "July 31, 2023". ### Decision III — Amendment to PRGT Borrowing Limit - Managing Director authorized to confirm she does not intend to enter into borrowing agreements for PRGT Loan Accounts if cumulative commitments exceed SDR 68.0 billion, except after consultation with all PRGT creditors regarding justification and adequacy of the PRGT’s Reserve Account. ### Decision IV — Blended Access to Financing under the PRGT and the GRA - Definition of "Presumed Blender" and criteria: - Income: member meets income threshold if annual per capita GNI has exceeded the prevailing operational cut-off for IDA assistance by at least 5 percent for two consecutive years; once met, deemed to continue unless per capita GNI falls below 95 percent of the IDA operational cut-off. - Absence of debt vulnerabilities that limit market access: member presumed to blend unless in debt distress or at high risk of debt distress and either (a) does not meet criterion of capacity to access international financial markets on a durable and substantial basis as set forth in Paragraph 1(C)(1)(ii) of Decision No. 14521-(10/3) or (b) is a "small country" or a "microstate" as defined in paragraph 1 (D) of the PRGT Eligibility Decision. - Access approval and mix: - A request by a Presumed Blender for access to PRGT resources shall be approved only in a blend with access to GRA resources. - The mix shall be provided in a ratio of one to two of PRGT resources to GRA resources, subject to a cap on access to PRGT resources of 145 percent of quota per arrangement and subject to the overall limits on access to the PRGT set out in Section II, Paragraph 2 of this Instrument. ### Decision V — PRGT Trust Reimbursement for FY 2022-2026 - Notwithstanding paragraph 3 of Decision No. 8760-(87/176), for financial years FY2022 through FY2026, no reimbursement shall be made to the General Resources Account from the Reserve Account of the PRGT for the cost of administering the PRGT. _Italic: Source — ppea2021053 (Instrument text and proposed decisions as provided in the supplied content)_ ### Section II. Trust Loans ### Section II. Trust Loans ### Eligibility and Conditions for Assistance - Members on the list annexed to Decision No. 8240-(86/56) SAF, as amended, are eligible for assistance from the Trust. - Assistance under the ECF (Extended Credit Facility): - ECF arrangements: single arrangement of no less than three years and up to five years. - ECF arrangements would normally be approved for a period of three years; arrangements up to five years may be approved where appropriate and if the member requests. - Member must present a detailed statement of policies and measures for the first twelve months and indicate how the program advances poverty reduction and growth objectives. - The ECF arrangement prescribes: - total amount of resources committed; - amount to be made available during the first year; - phasing of disbursements during the first year and overall amounts for subsequent years. - Disbursements phased at regular intervals no more than six months apart (one upon approval and at normally regular intervals thereafter). - Performance criteria applicable specifically to each disbursement; monitoring via quantitative benchmarks and structural benchmarks for critical structural reforms. - Structural benchmarks may be targeted for implementation either by a specific date or by the time of a specific review under the ECF arrangement. - Reviews by the Trustee scheduled at intervals that are the same as those applicable to disbursements; Trustee determines phasing and conditions after the first year in the context of reviews. - At each review, the member presents a detailed statement describing progress and policies for the next 12 months or up to the remaining period of the arrangement, and how the program advances poverty reduction and growth objectives. - Pre-approval condition: Trustee must be satisfied that the member has a protracted balance of payments problem and is making an effort to strengthen substantially and sustainably its balance of payments position under a policy program supporting significant progress toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - PRGS/PRSP requirement for completion of second or subsequent reviews: - Trustee shall not complete the second or any subsequent review unless it finds that: - (A) the member has a poverty reduction strategy developed and made publicly available normally within the previous 5 years but no more than 6 years, covering the period up to the completion of the review; and - (B) the poverty reduction strategy has been issued to the Executive Board and has been the subject of a staff analysis in the staff report on a request for an ECF arrangement or a review under an ECF arrangement. - A Poverty reduction strategy issued to the Executive Board on or after May 24, 2019 shall be named Poverty Reduction and Growth Strategy (PRGS). A poverty reduction strategy issued as an Economic Development Document shall be deemed a PRGS. - A PRGS shall comprise: - (a) a document developed on an existing national development plan or strategy that documents its poverty reduction strategy; or - (b) a document newly prepared documenting its poverty reduction strategy. - A PRGS shall be accompanied by a cover letter from the member to the Managing Director and issued to the Executive Board with the cover letter; the cover letter is part of the PRGS. - Extension of deadline for issuance of the PRGS where limited institutional capacity: - Member may request Executive Board approval to extend issuance up until the fourth review; any such request no later than time of request for completion of second review. - Member may request a further extension up until the sixth review provided: - (A) adequate justifications based on persistent limited institutional capacity and other urgent priorities; and - (B) the arrangement has a duration of at least four years or an extension to at least four years is requested. - Any request for additional extension made no later than time of request for completion of the review corresponding to the extended deadline. - Terms I-PRSP, PRSP, PRSP preparation status report and APR have meanings given in Section I, paragraph 1 of the PRG-HIPC Trust Instrument (Annex to Decision No. 11436-(97/10), adopted February 4, 1997, as amended). - Cancellation and automatic termination: - Member may cancel an ECF arrangement at any time by notifying the Fund. - An ECF arrangement approved after adoption of this decision will automatically terminate before its term if no program review has been completed over a period of eighteen months. - Trustee may delay termination by up to three months at authorities’ request where reaching understandings appears imminent; arrangement automatically terminates at end of extended period unless a program review is completed within this period. - After expiration, cancellation, or automatic termination, Trustee may approve additional ECF arrangements in accordance with the Instrument. - Assistance under the SCF (Standby Credit Facility): - SCF arrangements shall range from one to three years. - Member presents detailed statement of policies and measures for the first year and how the program advances poverty reduction and growth objectives; member will state intention to treat the SCF arrangement as precautionary where applicable. - SCF arrangement prescribes total resources committed and phasing of disbursements; if period exceeds one year, arrangement may prescribe amount for first year and phasing during that year. - Disbursements phased at regular intervals no more than six months apart (one upon approval and at approximately regular intervals thereafter). - Performance criteria and monitoring via quantitative benchmarks and structural benchmarks for critical structural reforms. - Trustee reviews scheduled at same intervals as disbursements; Trustee may determine phasing and conditions after the first year in the context of reviews. - Member may request any previously scheduled and undrawn disbursement provided the most recently scheduled review prior to the request has been completed. - Normally, no SCF arrangement shall be approved that could result in a member having had SCF arrangements in place for more than three years out of any six-year period, assessed on a rolling basis; Trustee excludes previously approved SCF arrangements that expired with no disbursement or new SCF arrangements for which Trustee assesses no actual balance of payments need at time of consideration. - Pre-approval conditions for SCF: - (a) member does not have a protracted balance of payments problem and has an actual or potential short-term balance of payments need expected to be resolved within two years and in any event not later than three years; - (b) member’s difficulties are not predominantly caused by withdrawal of donor support; - (c) member is implementing, or committed to implement, policies aimed at resolving the difficulties and achieving or restoring a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction. - Notwithstanding above, no SCF arrangement shall be approved before January 1, 2010 based solely on existence of a potential balance of payments need. - PRGS requirement for second or subsequent review where initial duration exceeds two years: - Trustee shall not complete the second or subsequent review unless finds: - (A) member has a poverty reduction strategy developed and made publicly available normally within previous 5 years but no more than 6 years, covering period up to completion of review; and - (B) poverty reduction strategy has been issued to the Executive Board and subject of staff analysis in staff report on request for an SCF arrangement or a review. - A poverty reduction strategy issued on or after May 24, 2019 shall be named Poverty Reduction and Growth Strategy Financial Services (PRGS) and comprise: - (a) an existing national development plan or strategy document documenting poverty reduction strategy; or - (b) a newly prepared document documenting poverty reduction strategy. - PRGS accompanied by a cover letter to the Managing Director and issued to the Executive Board; the cover letter is part of the PRGS. - Cancellation and automatic termination: - Member may cancel an SCF arrangement at any time by notifying the Fund. - An SCF arrangement with initial duration of more than 24 months or extended beyond 24 months will automatically terminate before its term if no program review has been completed over a period of eighteen months. - Trustee may delay termination by up to three months at authorities’ request where reaching understandings appears imminent; arrangement automatically terminates at end of extended period unless a program review is completed within this period. - Assistance under the RCF (Rapid Credit Facility): - Assistance made available through outright loan disbursements. - Member requesting RCF assistance shall describe in a letter: general policies to address balance of payments difficulties, how policies advance poverty reduction and growth objectives, and intention not to introduce measures that would compound balance of payments difficulties. - Member shall commit to undergoing a safeguard assessment, provide staff access to central bank’s most recently completed external audit reports, and authorize external auditors to hold discussions with staff. - Trustee will approve RCF support only where satisfied member will cooperate in effort to find solutions for balance of payments difficulties. - In exceptional cases, Managing Director may request that member implement upfront measures before recommending Trustee approval of a disbursement. - Preconditions for approving a disbursement under RCF: - (a) member is experiencing an urgent balance of payments need characterized by a financing gap that, if not addressed, would result in immediate and severe economic disruption; - (b) member’s difficulties are not predominantly caused by a withdrawal of donor support; and - (c) normally, member either: - (i) has a balance of payments need expected to be resolved within one year with no major policy adjustments necessary, or - (ii) lacks capacity to implement an upper credit tranche-quality economic program owing to limited policy implementation capacity or the urgent nature of the need. - If member received an RCF disbursement within the preceding three years, additional disbursements may be approved only where Trustee is satisfied that: - (i) need was caused primarily by a sudden and exogenous shock, or - (ii) member has established a track record of adequate macroeconomic policies for a period of normally about six-months prior to the request; - provided that: - (A) effective as of January 1, 2022, a member may not receive more than two disbursements under the RCF during any 12-month period; and - (B) any disbursements between July 13, 2020 and December 31, 2021 shall not count towards the limit set forth in (A). - General Provisions: - A member may not obtain assistance from the Trust under the ECF, SCF or ESF at the same time. - A member may obtain assistance under the RCF when it has an ECF, ESF, or SCF arrangement in place if: - (a) disbursements under the relevant arrangement are delayed due to delays in program implementation, nonobservance of conditions, or delays in reaching new understandings when necessary; and - (b) the member’s balance of payments need giving rise to the RCF request is caused primarily by a sudden and exogenous shock. - Commitments under arrangements under this Instrument may be made for the period through December 31, 2024. - Managing Director shall not recommend, and Trustee shall not approve, a request for an RCF disbursement or an arrangement under this Instrument whenever the member has an overdue financial obligation to the Fund in the General Resources Account, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee, or while the member is failing to meet a repurchase expectation pursuant to Decision No. 7842-(84/165) or is failing to meet a repayment expectation pursuant to Section II, paragraph 3(c) or Appendix I to this Instrument. - Trustee shall not complete a review under an arrangement unless and until all other conditions for the disbursement of the corresponding loan have been met or waived. ### Amount of Assistance - General access limits under Trust facilities (Section I, Paragraph 1(a)): - Normal limits: - annual limit of 100 percent of quota; - cumulative limit of 300 percent of quota, net of scheduled repayments. - Exceptional access (may be approved where member is experiencing an exceptionally large balance of payments need, has a comparatively strong adjustment program and ability to repay, does not have sustained past access to international financial markets, and has income at or below the prevailing operational cutoff for assistance from IDA): - maximum annual limit of 133.33 percent of quota; - maximum cumulative limit of 400 percent of quota, net of scheduled repayments. - Definition of sustained past access to international financial markets: in addition to having income above 80 percent of the IDA operational cutoff, the public debtor has issued or guaranteed external bonds or received disbursements under external commercial loans contracted or guaranteed by the public debtor, as defined in Executive Board Decision No. 14521-(10/3), as amended, during at least two of the past five years in a cumulative amount equivalent to at least 25 percent of the member’s quota. - Alternative formulation of access (paragraph repeats and augments): - Overall access subject to: - annual limit of 145 percent of quota; and - cumulative limit of 435 percent of quota, net of scheduled repayments. - Trustee may approve access in excess if all criteria satisfied: - (1) member is experiencing or has potential to experience exceptional balance of payments pressures on the current account or capital account requiring resources beyond normal limits; - (2) risks to public debt sustainability are adequately contained, evidenced by standards: - I. rigorous analysis indicates high probability that public debt is sustainable in the medium term (generally considered met for countries assessed under LIC-DSF to be at low or moderate overall risk of public debt distress); or - II. where debt is sustainable but not with high probability (includes high risk or in debt distress) or unsustainable ex ante, access in excess of normal limits will be made available only if combination of member’s policies and financing from non-Fund sources, which may include debt restructuring, restores public debt sustainability with high probability (generally considered met for LIC-DSF low or moderate overall risk) either: - (i) within 36 months from Board approval in the case of a new arrangement under this Trust or a loan under the RCF, or within the period of the new arrangement, whichever is longer; or - (ii) within the remaining period of an arrangement where Board approves augmentation or rephasing of access under the arrangement; - (3) member does not meet income criterion for presumed blending as set forth in paragraph 1(a) of Decision No. [new decision on blending] at time of request for resources in excess of access limits in Section II, Paragraph 2(a)(A); and - (4) policy program provides a reasonably strong prospect of success, including institutional and political capacity to deliver adjustment. - Temporary adjustments to access limits (Applicable Periods and Eligible Financing): - (B)(i) During July 13, 2020 to March 21, 2021 (the “Applicable Period”): - normal annual access limit: 150 percent of quota; - exceptional annual access limit: 183.33 percent of quota; - these limits apply to requests for new arrangements or RCFs and to requests for augmentation or rephasing of access approved through March 21, 2021 (the “Eligible Financing”). - For computation of annual access under “Eligible Financing”, the annual access limits of 150 percent of quota and 183.33 percent of quota shall apply for any 12-month period that includes any part of the “Applicable Period.” - (B)(ii) During March 22, 2021 to July 31, 2021 (the “Applicable Period”): - overall access subject to: - (a) normal annual access limit of 245 percent of quota and exceptional annual access limit of 278.33 percent of quota; and - (b) normal cumulative access limit of 435 percent of quota, net of scheduled repayments, and exceptional cumulative access limit of 535 percent of quota, net of scheduled repayments; - these limits apply when a member requests new PRGT resources and any such request is approved through July 31, 2021 (the “Eligible Financing”). - In absence of approval of such Eligible Financing, member’s overall access subject to Section II, Paragraph 2(a)(A) limits, provided that for period from July 13, 2020 to March 21, 2021, annual limits shall be as specified in Paragraph 2(a)B)(i). - For computation of annual access under “Eligible Financing”, annual access limits of 245 percent of quota and 278.33 percent of quota apply for any 12-month period that includes any part of the “Applicable Period”. - New arrangements approved between March 22, 2021 and July 31, 2021 and existing arrangements with additional access approved during same period that involve cumulative access above 300 percent of quota, net of scheduled repayments, or annual access above 100 percent of quota (or above 150 percent of quota for any 12-month period that includes July 13, 2020 to March 21, 2021), will remain subject to the annual and cumulative access limits specified in Section II, Paragraph 2(a)(B)(ii) for the entire duration of the arrangement, unless on or after August 1, 2021 the Fund approves additional access to PRGT resources through augmentation or a new outright RCF loan. - (a)(B)(i) During March 22, 2021 to December 31, 2021 (the “Applicable Period”): - annual access limit shall be 245 percent of quota for financing approved through December 31, 2021 (the “Eligible Financing”). - For computation of annual access under the “Eligible Financing”, annual access limit of 245 percent of quota applies for any 12-month period that includes any part of the “Applicable Period”. - (a)(B)(ii) Notwithstanding increases in access limits in Paragraphs 2(a)(A) and 2(a)(B)(i), a member’s access to PRGT resources approved under an arrangement in place prior to September 9, 2020 that was exempted from Policy Safeguards for High Combined GRA and PRGT Credit (Decision No. 16873-(20/91)) will remain subject to the access limits and criteria for exceptional access that were in effect at time of approval of such arrangement; if access under such an arrangement is augmented, provisions in paragraphs 2(a)(A) and 2(a)(B)(i) shall apply to such arrangement. - RCF-specific access limits (subject to subparagraphs (i) to (iv)): - Annual limit: 50 percent of quota. - Cumulative limit: 100 percent of quota, net of scheduled repayments. - Each disbursement shall not exceed 25 percent of quota except where the member requests assistance under the RCF to address an urgent balance of payments need resulting primarily from a sudden and exogenous shock (including a large natural disaster under (ii) below). - The annual and cumulative access limits under the RCF shall be 80 percent of quota and [text truncated in source]. *Source: ppea2021053 - Section II. Trust Loans* ### 133.33 percent of quota, net of scheduled repayments, respectively, where (a) the member ### 133.33 percent of quota, net of scheduled repayments, respectively, where (a) the member ### Access limits and eligibility - Annual and cumulative access limits under the RCF: - Standard provision: 133.33 percent of quota, net of scheduled repayments. - From June 21, 2021 to December 31, 2021: annual access limit of 130 percent of quota and cumulative access limit of 183.33 percent of quota, net of scheduled repayments. - From April 6, 2020 to December 31, 2021 for assistance addressing an urgent balance of payments need resulting primarily from a sudden and exogenous shock: annual access limit of 100 percent of quota and cumulative access limit of 150 percent of quota, net of scheduled repayments. - Conditions for higher RCF access (133.33 percent of quota): - (a) member requests assistance under the RCF to address an urgent balance of payments need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of the member’s gross domestic product (GDP); and - (b) the member’s existing and prospective policies are sufficiently strong to address the natural disaster shock. - Interaction with other emergency facilities: - Outstanding credit under the rapid-access component of the ESF or outstanding purchases from the General Resources Account under emergency post conflict/natural disaster assistance covered by Decision No. 12341-(00/117) shall count towards the annual and cumulative RCF limits. - Purchases from the General Resources Account under the Rapid Financing Instrument, with effect from July 1, 2015, shall count towards the annual and cumulative limits applicable to access under the RCF. - Exclusions and calculations: - Members who have notified the Trustee that they do not intend to make use of Trust resources shall not be included in calculations of access limits on Trust loans. - Determination of member access: - Access is determined by the Trustee based on assessment of actual or potential balance of payments need, the strength of the member’s adjustment program and capacity to repay the Fund, the amount of the member’s outstanding use of Fund credit, and past record in using Fund credit. - For RCF and ESF assistance, access also takes into account the size and likely persistence of the shock (where applicable, for the RCF). ### Augmentation, reviews, and program conditions - Increases in committed resources: - Amounts committed under an ECF, SCF or ESF arrangement may be increased at the time of any review to meet larger balance of payments needs or to support program strengthening. - Amounts committed under an ECF arrangement shall not be reduced because of substantially more favorable balance of payments developments unless the improvement derives in particular from improvements in the external environment. - Ad-hoc augmentations (ECF and SCF): - Trustee may increase committed resources in an ad-hoc review between scheduled reviews to address acute increases in balance of payments problems, provided the most recent scheduled review associated with the last availability date has been completed. - Member must describe the nature and size of balance of payments difficulties and relevant program information in a letter of intent. - Trustee must be satisfied that the program remains on track to achieve its objectives, that continuous performance criteria are met or a waiver is justified, and that all prior actions have been met. - Requests for augmentation not exceeding 15 percent of quota may be considered on a lapse-of-time basis as provided for in Decision/A/13207, as amended. - Following approval, augmentation will not exceed the amount immediately needed and will become available in a single disbursement, requestable until the next scheduled disbursement availability date. - A program review following an augmentation between scheduled reviews is expected to include a comprehensive review of policies and may not be completed on a lapse-of-time basis. - Any commitment and disbursement are subject to the availability of resources to the Trust. ### Disbursements (Paragraph 3) - General conditions: - Any disbursement is subject to availability of Trust resources. - Disbursements must precede the expiration of the arrangement period. - Rephasing and extensions: - If phased amounts do not become available as scheduled due to delays in program implementation or nonobservance of conditions, the Trustee may rephase those amounts over the remaining arrangement period. - Trustee may extend: - (i) an ECF arrangement period to allow disbursement of rephased amounts or provide additional resources, provided total period does not exceed five years overall; and - (ii) an SCF or ESF arrangement for up to the overall maximum two-year period referred to in Section II, paragraph 1 (c)(1) and Appendix III, respectively, to allow disbursement of rephased amounts or provide additional resources. - Member representation of need: - When requesting a disbursement under the SCF, RCF or ESF, the member shall represent that it has a need because of its balance of payments or reserve position or developments in its reserves. - Trustee shall not challenge this representation prior to providing the disbursement. - If Trustee later determines the disbursement took place in the absence of a need, Trustee may expect the member to repay an amount equivalent to the disbursement, plus accrued interest, normally within 30 days of the Executive Board decision establishing the early repayment expectation. - Failure to repay within the period will prompt the Managing Director to submit a report and proposal to the Executive Board, and interest shall be charged at the rate applicable to overdue amounts under paragraph 4 of Section III. - Timing and suspension: - After qualification for a disbursement, payment is made on the soonest value date for which necessary notifications and payment instructions can be issued by the Trustee. - No disbursement shall be made after the expiration of the period referred to in Section III, paragraph 3. - Disbursements to a qualifying member shall be suspended in all cases specified in Paragraph 1(e)(3) of this Section. - RCF disbursement approval expiration: - Trustee’s approval of an RCF loan disbursement after March 22, 2021 shall automatically expire 60 days after approval if the Trustee has not received the member’s authenticated instructions to request the disbursement. - At the member’s request made prior to the automatic expiration date, the Trustee may delay the expiration for an additional period not exceeding 60 days. ### Terms of Loans (Paragraph 4) - Interest rates and effective dates: - Effective July 1, 2019 August 1, 2021, and subject to Section IV.A, paragraph 5, interest on outstanding balance of Trust loans shall be charged at the rate of zero percent per annum on loans under the ECF, the SCF, the ESF, and the RCF. - Periodic reviews of ECF and SCF interest rates: - Reviews to take account of world interest rates with first review to be completed by July 31, 2021 July 31, 2023, and subsequent reviews every two years thereafter. - Trustee normally determines interest rate on outstanding balances of ECF and SCF loans as follows based on the SDR interest rate (average rate over the most recently observed 12-month period): - If SDR interest rate is less than 2 percent: interest rate established or maintained at zero percent per annum for ECF and SCF loans. - If SDR interest rate is between 2 percent and 5 percent: interest rate established or maintained at 0.25 percent per annum for ECF and SCF loans. - If SDR interest rate is greater than 5 percent: interest rate established or maintained at 0.5 percent per annum for ECF and SCF loans. - Overdue amounts: - Notwithstanding paragraph (a) or any interest rate under paragraph (b), interest at a rate equal to the SDR interest rate shall be charged on amounts of any overdue interest on or overdue repayments of Trust loans. - Currency, repayments, and maturity: - Trust loans shall be disbursed in a freely usable currency as decided by the Trustee. - Repayments and interest shall be paid in U.S. dollars or other freely usable currency as decided by the Trustee. - Managing Director authorized to arrange for SDRs to be used for disbursements or payments of interest or repayments at member request. - Trustee may not reschedule the repayment of loans from the Trust. - Repayment schedules: - ECF, RCF and ESF loans: repaid in ten equal semi-annual installments beginning not later than five and a half years from the date of each disbursement and completed at the end of the tenth year after that date. - SCF loans: repaid in nine equal semi-annual installments beginning not later than four years from the date of each disbursement and completed at the end of the eighth year after that date. ### Availability fee (Paragraph 5) - Charge: - A charge in the amount of 0.15 percent per annum shall be payable on the full amount of disbursements available during each six-month period under an SCF arrangement, or any shorter remaining period, to the extent such available disbursements were not drawn by the member. - Payment: - The charge shall be paid to the SCF Subsidy Account five days after the end of each relevant period. - Payment normally in SDRs but can be in a freely usable currency as decided by the Trustee. - Managing Director to make necessary arrangements for use of SDRs for payment of the availability fee. ### Modifications (Paragraph 6) - Effect: - Any modification of these provisions will affect only loans made after the effective date of the modification. - Modification of the interest rate shall apply to interest accruing after the effective date of the modification. ### Borrowing for the Loan Account (Section III) - Definitions and Loan Account resources: - “Borrowing agreements” comprise loan and note purchase agreements; “Trust borrowing” comprises loans made to the Trust and notes issued by the Trust. - General Loan Account resources: - (i) proceeds of Trust borrowing for the General Loan Account; and - (ii) payments of principal and interest on Trust loans funded with drawings under borrowing agreements, subject to Section IV.A, paragraph 4(g) and Section V, paragraph 3. - ECF, SCF, and RCF Loan Accounts resources follow similar structures with proceeds of Trust borrowing for each Loan Account and payments of principal and interest on Trust loans funded with drawings under borrowing agreements, subject to the same provisions. - Trustee borrowing authority (Paragraph 2): - Trustee may borrow resources for Loan Accounts on terms agreed with creditors; Managing Director of the Trustee is authorized to enter into borrowing agreements and agree to their terms. - Commitments and drawdown periods (Paragraph 3): - Commitments for drawings under borrowing agreements entered into before November 30, 1993 shall extend through December 31, 1997. - Commitments entered into after November 30, 1993 shall extend through December 31, 1999. - Drawdown period under borrowing agreements entered into or amended after September 19, 2001 shall normally extend through December 31, 2018. - Drawdown period under borrowing agreements entered into or amended after May 31, 2014 shall normally extend through December 31, 2029. - Drawdown period may be extended by mutual agreement between Trustee and creditor; Managing Director authorized to conclude such agreements. - Drawings under borrowing agreements (Paragraph 4): - Trustee may draw under borrowing agreements to the General Loan Account for Trust loan disbursements, provided it draws first: - (i) under ECF Loan Account borrowing agreements for ECF and ESF disbursements; - (ii) under SCF Loan Account borrowing agreements for SCF disbursements; and - (iii) under RCF Loan Account borrowing agreements for RCF disbursements. - Before calling on commitments made under new or augmented borrowing agreements after May 31, 2014, Trustee aims to first draw resources available under borrowing agreements entered into before that date, including from the General Loan Account if commitments are considered adequate by the Managing Director. - Drawings on individual creditor commitments shall maintain broad proportionality relative to commitments to each Loan Account, with commitments entered into or augmented after May 31, 2014 only taken into account after earlier agreements have been fully drawn. - Encashment (Paragraph 4(b)): - Trustee may draw under borrowing agreements to any Loan Account to fund early repayment of outstanding Trust borrowing under another borrowing agreement to any Loan Account where: - (i) terms permit drawings to fund such early repayments; and - (ii) creditor requesting early repayment represents that its balance of payments and reserve position justify early repayment and Trustee, giving representation the overwhelming benefit of any doubt, agrees. - Creditor(s) whose agreements were drawn to fund the early repayment obtain the same rights to repayment as the creditor receiving the early repayment, including rights to payments of principal and interest pursuant to Paragraph 5 of Section III. - Drawings for encashment shall have the same effective maturity dates as apply to encashed claims. - Drawings for encashment shall aim to maintain broad proportionality relative to commitments of these creditors. - Suspension of calls on commitments (Paragraph 4(c)): - Calls on commitments shall be suspended temporarily if creditor represents a liquidity need and Trustee agrees, subject to time limits depending on the entry date of the borrowing agreement: - Suspensions not exceeding three months, extendable by agreement for further three-month periods. - No extension that would, in Trustee’s judgment, prevent drawing the full amount of the commitment. - Restoration (Paragraph 4(d)): - Following any suspension, calls will be made thereafter so as to restore as soon as practicable the proportionality of drawings. - Payments of principal and interest on borrowing (Paragraph 5): - Trust payments of principal and interest on borrowing for Loan Accounts shall be made from payments into these accounts by borrowers under Trust loans. - Payments of the authorized subsidy shall be made from the Subsidy Accounts in accordance with Section IV.A, and as required from the Subsidy Reserve Account and Reserve Account in accordance with Section IV.A and Section V. - Interest on outstanding borrowing for Trust loans shall be paid promptly after June 30 and December 31 of each year, unless borrowing agreement modalities require other times. - Interest on outstanding drawings under borrowing agreements providing for disbursements in SDRs will normally be paid promptly after April 30, July 31, October 31, and January 31 of each year. *International Monetary Fund — FUND CONCESSIONAL FINANCIAL SUPPORT FOR LOW INCOME COUNTRIES—RESPONDING TO THE PANDEMIC* ### Section IV.A Subsidy Accounts ### Section IV.A Subsidy Accounts ### Resources - General Subsidy Account resources consist of: - (i) the proceeds of donations made to the Trust for the General Subsidy Account; - (ii) the proceeds of loans made to the Trust for the General Subsidy Account; - (iii) transfers from the Special Disbursement Account in accordance with Section F of Decision No. 14354-(09/79); - (iv) transfers from the Reserve Account in accordance with Section V, Paragraph 5(b)(ii) of this Instrument. - (v) net earnings from investment of resources held in that Account. - ECF Subsidy Account resources consist of: - (i) the proceeds of donations made to the Trust for the PRGF-ESF Subsidy Account and the PRGF Subsidy Account as of January 7, 2010, unless a donor notifies the Trustee that it wishes to transfer the proceeds of its outstanding donation to another Subsidy Account by January 22, 2010; - (ii) the proceeds of loans made to the Trust for the PRGF-ESF Subsidy Account and the PRGF Subsidy Account as of January 7, 2010, unless a lender notifies the Trustee that it wishes to transfer the proceeds of its outstanding loan to another Subsidy Account by January 22, 2010; - (iii) the proceeds of donations made to the Trust for the ECF Subsidy Account; - (iv) the proceeds of loans made to the Trust for the ECF Subsidy Account; - (v) transfers from the Special Disbursement Account in accordance with Decision No. 10531-(93/170); - (vi) transfers from the Special Disbursement Account in accordance with paragraph 5(c) of Decision No. 13588-(05/99) MDRI; - (vii) transfers from the Trust for Special Poverty Reduction and Growth Operations for the Heavily Indebted Poor Countries and Interim ECF Subsidy Operations (PRG-HIPC Trust), in accordance with Section III bis of the Instrument establishing that Trust; and - (viii) net earnings from investment of resources held in that Account. - SCF Subsidy Account resources consist of: - (i) the proceeds of donations made to the Trust for the SCF Subsidy Account; - (ii) the proceeds of loans made to the Trust for the SCF Subsidy Account; - (iii) proceeds from availability fees in accordance with Section II, paragraph 5 of this Instrument; and - (iv) net earnings from investment of resources held in that Account. - RCF Subsidy Account resources consist of: - (i) the proceeds of donations made to the Trust for the RCF Subsidy Account; - (ii) the proceeds of loans made to the Trust for the RCF Subsidy Account; and - (iii) net earnings from investment of resources held in that Account. - ESF Subsidy Account resources consist of: - (i) the proceeds of donations made to the Trust for the ESF Subsidy Account as of January 7, 2010, unless a donor notifies the Trustee that it wishes to transfer the proceeds of its outstanding donation to another Subsidy Account by January 22, 2010; - (ii) the proceeds of loans made to the Trust for the ESF Subsidy Account as of January 7, 2010, unless a lender notifies the Trustee that it wishes to transfer the proceeds of its outstanding loan to another Subsidy Account by January 22, 2010; and - (iii) net earnings from investment of resources held in that Account. - Subsidy Reserve Account resources consist of: - (i) the proceeds of donations made to the Trust for the Subsidy Reserve Account; - (ii) the proceeds of loans made to the Trust for the Subsidy Reserve Account; - (iii) transfers from the Deposit and Investment Account in accordance with Section IV.B, paragraph 3 of this Instrument; - (iv) net earnings from investment of resources held in that Account; - (v) payments of overdue principal or interest or interest thereon under Trust loans, and payments of interest under Trust loans to the extent that payment has been made to a creditor from the Subsidy Reserve Account; and - (vi) repayments of the principal under Trust loans, to the extent that resources in the Subsidy Reserve Account have been used to make payments to a creditor due to a difference in timing between scheduled principal repayments to the creditor and principal repayments under Trust loans. ### Donations - The Trustee may accept donations of resources for any of the Subsidy Accounts on such terms and conditions as may be agreed between the Trustee and the respective donors, subject to the provisions of this Instrument. - To the extent possible, annual contributions should be made before April 30 of each year. - The Managing Director of the Trustee is authorized to accept donations of resources and agree to their terms and conditions with donors to the Subsidy Accounts of the Trust. ### Borrowing - The Trustee may, in exceptional circumstances, borrow resources for any of the Subsidy Accounts from official lenders on such terms and conditions as may be agreed between the Trustee and the lenders, in order: - (a) to prefinance an amount that is firmly committed to be donated to the Trust for the relevant Subsidy Account; repayment of principal and any payments of interest on such borrowing shall be contingent upon the receipt by the relevant Subsidy Account of the donation that has been prefinanced; and - (b) that the relevant Subsidy Account may benefit from net investment earnings on the proceeds of a loan extended at a concessional interest rate; repayment of principal and any payment of interest on such borrowing shall be made exclusively from the proceeds of liquidation of the investment and the earnings thereon. - The Managing Director of the Trustee is authorized to enter into borrowing agreements and agree to their terms and conditions with lenders to the Subsidy Accounts of the Trust. ### Authorized Use of Subsidy Accounts - General Subsidy Account: - (a) The Trustee shall draw upon resources available in the General Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the facilities of the Trust specified in Section I, Paragraph 1 of the Instrument, provided that resources available in the General Subsidy Account shall be drawn upon for these purposes only if there are no other resources immediately available in the ECF Subsidy Account, SCF Subsidy Account, RCF Subsidy Account or ESF Subsidy Account, as the case may be, for these purposes. - Resources in the PRG-HIPC Trust that are transferable to the ECF Subsidy Account shall not be considered resources immediately available in the ECF Subsidy Account. - The Trustee may also draw upon resources available in the General Subsidy Account for transfer to the ENDA/EPCA Subsidy Account, if there are no other resources immediately available in the ENDA/EPCA Subsidy Account for purposes of the subsidies of post-conflict and/or natural disaster emergency assistance purchases provided by that Account. Any such transfers shall be limited to the amounts needed for subsidy payments. - ECF and ESF: - (b) The Trustee shall draw upon resources available in the ECF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the ECF and ESF, provided that resources in the ESF Subsidy Account shall be drawn first, with respect to the interest on ESF loans, before resources in the ECF Subsidy Account are drawn to subsidize ESF loans. - SCF: - (c) The Trustee shall draw upon resources available in the SCF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the SCF. - RCF: - (d) The Trustee shall draw upon resources available in the RCF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the RCF. - ESF: - (e) The Trustee shall draw upon resources available in the ESF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the ESF. - Subsidy Reserve Account: - (f) The Trustee shall draw upon resources available in the Subsidy Reserve Account to: - (i) pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the facilities of the Trust specified in Section I, Paragraph 1 of the Instrument, provided that resources available in the Subsidy Reserve Account shall be drawn only if there are no other resources available in the relevant Subsidy Accounts for these purposes; or - (ii) to make payments of principal and interest on its borrowing for Trust loans, to the extent that the amounts available from receipts of repayments and interest from borrowers under Trust loans, together with the authorized subsidy under Section IV.A, paragraph 4, are insufficient to cover the payments to creditors as they become due and payable, provided that resources available in the Subsidy Reserve Account shall be drawn upon for these purposes only if there are no other resources immediately available in the Reserve Account. - Restitutions to Subsidy Reserve Account: - (g) Any repayment of principal under Trust loans, to the extent that repayment to a creditor has been made from the Subsidy Reserve Account due to differences in timing between scheduled principal repayments to the creditor and principal repayments under Trust loans, any payments of overdue principal or interest or interest thereon under Trust loans, and any payments of interest under Trust loans to the extent that payment has been made to a creditor from the Subsidy Reserve Account, shall be made to the Subsidy Reserve Account. ### Calculation of Subsidy - (a) The amount of the subsidy shall be determined by the Trustee in the light of: - (i) the objective of ensuring that the facilities of the Trust are highly concessional facilities and, to the extent possible, of reducing the rate of interest charged on Trust loans in accordance with Section II, paragraphs 4(a), (b), and (c), as well as the objective of subsidizing, as needed, the rate of charge on purchases from the General Resources Account (“GRA”) in accordance with the terms of the ENDA/EPCA Subsidy Account; - (ii) the rate of interest on resources available to the Loan Accounts and the rate of charge on GRA purchases covered by the ENDA/EPCA Subsidy Account; and - (iii) the availability and prospective availability of resources to the Subsidy Accounts of the Trust and the ENDA/EPCA Subsidy Account. - (b) The Trustee shall keep the operation of the Subsidy Accounts under review. If at any time it determines that resources available or committed are likely to be insufficient to reduce the rate of interest on Trust loans in accordance with Section II, paragraphs 4(a), (b), and (c) throughout the operation of the Trust, and to fund needed transfers to the ENDA/EPCA Subsidy Account to subsidize the rate of charge on GRA purchases in accordance with the terms of that Account, then the Trustee shall seek such additional resources as may be necessary to achieve this objective. - (c) Should adequate additional resources not be forthcoming to reduce the rate of interest on Trust loans in accordance with Section II, paragraphs 4(a), (b), and (c), or to fund needed transfers to the ENDA/EPCA Subsidy Account to subsidize the rate of charge on GRA purchases in accordance with the terms of that Account, then the Trustee shall recalculate the subsidy with a view to reducing those interest rates to the lowest feasible rates and funding those transfers to the maximum extent that could be applied throughout the remaining life of the Trust. - The rate of interest charged on all outstanding loans by the Trust under the relevant facility shall be adjusted accordingly in the succeeding interest periods, and the level of transfers to the ENDA/EPCA Subsidy Account shall be calculated to achieve the new level of subsidization. - Borrowers shall be notified promptly of such adjustments. - Further recalculations and adjustments shall be made in subsequent interest periods, as necessary in light of relevant developments, including the rate of interest on resources available to the Loan Accounts, the rate of charge on purchases covered by the ENDA/EPCA Subsidy Account and the availability of resources to the Subsidy Accounts and the ENDA/EPCA Subsidy Account. - (d) If the interest due to creditors for an interest period has exceeded the interest due by borrowers under the relevant facility, together with the authorized subsidy under paragraph 4 of this Section for that period, and payment to creditors of that difference has been made from the Reserve Account in accordance with Section V, paragraph 2, then an amount equivalent to that difference shall be added to the interest due by the relevant borrowers for the succeeding interest period. - Payment of that amount shall be made to the Reserve Account in accordance with Section V, paragraph 3. - The additional interest due shall not be taken into account in the calculation of the authorized subsidy for that same interest period. ### Termination arrangements - (a) The ESF Subsidy Account shall be terminated after its resources as of January 7, 2010 have been used for subsidy operations in accordance with paragraphs 4(b) and 4(e) of this Section or transferred to other Subsidy Account in accordance with paragraph 1(e) of this Section. - (b) Upon completion of the subsidy operations authorized by this Instrument, the Fund shall wind up the affairs of the Subsidy Accounts. The Fund may also wind up the affairs of any Subsidy Account other than the General Subsidy Account prior to the completion of the overall subsidy operations authorized by this Instrument, if the Fund deems this to be appropriate. In case of termination of a Subsidy Account in accordance with this subparagraph, the remaining resources shall be used as follows: - (i) General Subsidy Account remaining resources shall be used: - (i) to reduce to the fullest extent possible the interest rate paid by borrowers in accordance with Section II, paragraphs 4(a), (b), and (c) on loans from the PRGT, by means of payments to such borrowers, and - (ii) to fund transfers to the ENDA/EPCA Subsidy Account needed to subsidize the rate of charge on any remaining outstanding GRA purchases in accordance with the terms of the ENDA/EPCA Subsidy Account. - Any resources remaining after that subsidization and transfer shall be distributed to the Fund, donors, and creditors that have contributed to the General Subsidy Account, in proportion to their contributions, including donors and creditors of resources transferred from other Subsidy Accounts upon their termination. - The resources representing the Fund’s share in such distribution shall be transferred to the Special Disbursement Account. - Any resources attributable to transfers from the Deposit and Investment Account shall be transferred to that account. - (ii) ECF Subsidy Account remaining resources shall be used to reduce to the fullest extent possible the interest rate paid by borrowers on ECF and ESF loans in accordance with Section II, paragraphs 4(a), (b), and (c), by means of payments to such borrowers. Any resources remaining after that subsidization shall be transferred to the General Subsidy Account, provided that a contributor may request that its share in any remaining resources be returned to it. - (iii) SCF Subsidy Account remaining resources shall be used to reduce to the fullest extent possible the interest rate paid by borrowers on SCF loans in accordance with Section II, paragraphs 4(a), (b), and (c), by means of payments to such borrowers. Any resources remaining after that subsidization shall be transferred to the General Subsidy Account, provided that a contributor may request that its share in any remaining resources be returned to it. - (iv) RCF Subsidy Account remaining resources shall be used to reduce to the fullest extent possible the interest rate paid by borrowers on RCF loans in accordance with Section II, paragraphs 4(a), (b), and (c), by means of payments to such borrowers. Any resources remaining after that subsidization shall be transferred to the General Subsidy Account, provided that a contributor may request that its share in any remaining resources be returned to it. - (v) ESF Subsidy Account remaining resources shall be used to reduce to the fullest extent possible, in accordance with Section II, paragraphs 4(a), (b), and (c), the interest rate paid by borrowers on ESF loans, by means of payments to such borrowers. Any resources remaining after that subsidization shall be transferred to the General Subsidy Account, provided that a contributor may request that its share in any remaining resources be returned to it. - (vi) Subsidy Reserve Account remaining resources shall be used in a manner consistent with paragraph 4(f) of this Section to reduce to the fullest extent possible the interest rate paid by borrowers in accordance with Section II, paragraphs 4(a), (b), and (c) on loans from the PRGT, by means of payments to such borrowers. - Any resources remaining after that subsidization and not attributable to the Deposit and Investment Account shall be transferred to the General Subsidy Account, provided that a contributor may request that its share in any remaining resources be returned to it. - Any resources attributable to transfers from the Deposit and Investment Account shall be transferred to that Account. - (vii) For the purposes of the distributions provided for in this paragraph 6, account will be taken of donations, the net earnings from investment of the proceeds of concessional loans extended to the Subsidy Accounts under paragraph 3(b) above, and the subsidy element of concessional loans extended to the Trust under Section III; the subsidy element associated with such loans shall be calculated as the difference, if positive, between the SDR rate of interest and the interest on such loans, applied to the amount of the loans during the period they were outstanding. *Source: Section IV.A Subsidy Accounts (content unit ppea2021053).* ### Section IV.B Deposit and Investment Account #### Purpose and Resources - The purpose of the Deposit and Investment Account is to provide a separate vehicle under which the Trust can borrow resources to generate net investment earnings for the benefit of the Subsidy Reserve Account or, at the request of a contributor, the General Subsidy Account. - Resources held shall consist of the proceeds from deposit and other investment agreements with contributors and the net earnings on the investment proceeds. #### Borrowing for the Deposit and Investment Account - (a) The Trustee may enter into deposit and other investment agreements for the benefit of the Deposit and Investment Account with the aim of generating net investment earnings from the investment of the resources borrowed. The Managing Director of the Trustee is authorized to enter into deposit and other investment agreements and agree to their terms and conditions with contributors to the Deposit and Investment Account. The borrowed resources shall be invested in accordance with guidelines adopted by the Trustee. - (b) The agreements may provide for the right of a contributor to request the early repayment of the principal amount under its deposit or investment agreement upon representation of a balance of payments need. The contributor shall reconstitute any withdrawn amount as its balance of payments and reserve position improves. #### Use of Resources - (a) Resources in the Deposit and Investment Account derived from net investment earnings shall be transferred to the Subsidy Reserve Account at the final maturity of the deposit and investment agreement such resources are attributable to; provided that, with the consent of the contributor, the Managing Director is authorized to transfer to the Subsidy Reserve Account at an earlier time resources attributable to that contributor’s deposit or investment agreement, to meet the subsidization needs of the Trust. - (b) A contributor may prescribe that investment earnings in the Deposit and Investment Agreement attributable to that contributor’s investment be directed to the General Subsidy Account instead of the Subsidy Reserve Account. #### Termination Arrangements - Upon completion of the subsidy operations authorized by this Instrument, the Trustee shall wind down the affairs of the Deposit and Investment Account. Contributors shall be repaid the principal of their deposits or investments and any remaining investment earnings or losses attributed to it. #### Repayment and Payment of Interest to a Contributor - Repayment of the principal amount and any payment of interest to a contributor on any borrowing for the Deposit and Investment Account, including repayment upon maturity, early repayment in accordance with Section IV.B, paragraph 2(b), or repayment in accordance Section IV.B., paragraph 4, shall be made exclusively from resources attributed to the deposit or other investment of this principal amount and the net investment earnings thereon, net of the cumulative interest previously paid to the contributor. *Source: Section IV.A Subsidy Accounts (content unit ppea2021053).* ### Section V. Reserve Account ### Section V. Reserve Account ### Resources - The resources held in the Reserve Account shall consist of: - (a) transfers by the Fund from the Special Disbursement Account in accordance with Decision No. 8760-(87/176), adopted December 18, 1987, as amended by Decision No. 10531-(93/170), adopted December 15, 1993; - (b) net earnings from investment of resources held in the Reserve Account; - (c) net earnings from investment of any resources held in the Loan Accounts pending the use of these resources in operations; - (d) payments of overdue principal or interest or interest thereon under Trust loans, and payments of interest under Trust loans to the extent that payment has been made to a creditor from the Reserve Account; - (e) transfers by the Fund from the Special Disbursement Account in accordance with Decision No. 10286-(93/23) ESAF, adopted February 22, 1993; and - (f) repayments of the principal under Trust loans, to the extent that resources in the Reserve Account have been used to make payments to a creditor due to a difference in timing between scheduled principal repayments to the creditor and principal repayments under Trust loans. ### Use of resources - (a) Primary use: - The resources held in the Reserve Account shall be used by the Trustee to make payments of principal and interest on its borrowing for Trust loans, to the extent that the amounts available from receipts of repayments and interest from borrowers under Trust loans, together with the authorized subsidy under Section IV.A, paragraph 4, are insufficient to cover the payments to creditors as they become due and payable. - (b) Use for subsidy purposes: - The Trustee may decide to use income from the investment of the resources in the Reserve Account for subsidy purposes by transferring such income to the General Subsidy Account if the Trustee determines that additional subsidy resources are required for the subsidization of outstanding PRGT lending or new lending commitments. - The amount of any transfers shall be decided by the Trustee following consultations with all creditors to the Loan Accounts on the adequacy of the Reserve Account to protect claims of the creditors to the PRGT Loan Accounts. ### Payments to the Reserve Account - Any repayment of principal under Trust loans, to the extent that repayment to a creditor has been made from the Reserve Account due to differences in timing between scheduled principal repayments to the creditor and principal repayments under Trust loans, any payments of overdue principal or interest or interest thereon under Trust loans, and any payments of interest under Trust loans to the extent that payment has been made to a creditor from the Reserve Account, shall be made to the Reserve Account. ### Review of resources - If resources in the Reserve Account are, or are determined by the Trustee likely to become, insufficient to meet the obligations of the Trust that may be discharged from the Reserve Account as they become due and payable, the Trustee shall review the situation in a timely manner. ### Reduction of resources and liquidation - (a) Retransfer of excess: - Whenever the Trustee determines that amounts in the Reserve Account of the Trust exceed the amount that may be needed to cover the total liabilities of the Trust to creditors that are authorized to be discharged by the Reserve Account, the Trustee shall retransfer such excess amount to the Fund’s Special Disbursement Account. - (b) Transfers for Trust Grants or Trust loans: - Notwithstanding (a) above, the equivalent of up to SDR 250 million may be transferred from the Reserve Account to the Special Disbursement Account to be used to provide Trust Grants or Trust loans, as defined in the Instrument to Establish a Trust for Special PRG Operations for the Heavily Indebted Poor Countries and Interim ECF Subsidy Operations. - These transfers will be made only when and to the extent that the Trustee of the Trust established by that Instrument determines that there are no other resources immediately available for this purpose. - (c) Upon liquidation: - Upon liquidation of the Trust, all amounts in the Reserve Account remaining after discharge of liabilities authorized to be discharged by the Reserve Account shall be transferred to the Special Disbursement Account. *Source: ppea2021053 - Section V. Reserve Account* ### 5. A report by the Managing Director to the Executive Board will be issued two months after a ### ppea2021053 - 5. A report by the Managing Director to the Executive Board will be issued two months after a ### Reports and Executive Board Actions on Overdue Obligations - A report by the Managing Director to the Executive Board will be issued two months after a financial obligation has become overdue, and will be given substantive consideration by the Executive Board one month later. - The report will request that the Executive Board limit the member’s use of Trust resources. - A brief factual statement noting the existence and amount of arrears outstanding for more than three months will be posted on the member’s country-specific page on the Fund’s external website. - The statement will indicate that the member’s access to the Fund’s resources, including Poverty Reduction and Growth Trust and HIPC resources, has been and will remain suspended for as long as such arrears remain outstanding. - A press release will be issued following the Executive Board decision to limit the member’s use of the Trust resources. A similar press release will be issued following a decision to lift such limitation. - Periods between subsequent reviews of reports on the member’s arrears by the Executive Board will normally not exceed six months. - The Managing Director may recommend advancing the Executive Board’s consideration of the reports regarding overdue obligations. - The Managing Director may recommend postponing for up to one-year periods the Executive Board’s consideration of a report regarding a member’s overdue obligations in exceptional circumstances where the Managing Director judges that there is no basis for an earlier evaluation of the member’s cooperation with the Fund. ### Annual Report and Financial Statements - The Annual Report and the financial statements will identify those members with overdue obligations to the Trust outstanding for more than six months. ### Removal from the list of PRGT-eligible countries - When a member’s longest overdue financial obligation has been outstanding for six months, the Executive Board will review the situation of the member and may remove the member from the list of PRGT eligible countries. - Any reinstatement of the member on the list of PRGT eligible countries will require a new decision of the Executive Board. - The Fund shall issue a press release upon the decision to remove a member from the list of PRGT eligible countries. A similar press release shall be issued upon reinstatement of the member on the list. - Information contained in such press releases, where pertinent, shall be included in the Annual Report for the year concerned. ### Declaration of noncooperation with the Trust - A declaration of noncooperation with the Trust may be issued by the Executive Board whenever a member’s longest overdue financial obligation has been outstanding for twelve months. - The decision to issue a declaration would be based on an assessment of: - (i) the member’s performance in meeting its financial obligations to the Trust, taking account of exogenous factors that may have affected the member’s performance; - (ii) whether the member had made payments to creditors other than the Fund while continuing to be in arrears to the Trust; and - (iii) the preparedness of the member to adopt comprehensive adjustment policies. - The Executive Board may at any time terminate the declaration of noncooperation in view of the member’s progress in the implementation of adjustment policies and its cooperation with the Fund in the discharge of its financial obligations. - Upon a declaration of noncooperation, the Fund could also decide to suspend the provision of technical assistance. - The Managing Director may limit technical assistance provided to a member, if in his judgment that assistance was not contributing adequately to the resolution of the problems associated with overdues to the Trust. - The Fund shall issue a press release upon the declaration of noncooperation and upon the termination of the declaration. The information contained in such press releases shall be included in the Annual Report(s) for the year(s) concerned. ### Additional background information — metadata - Approved By: Seán Nolan and Christian Mumssen - Prepared by the Strategy, Policy, and Review Department and the Finance Department. - July 12, 2021 ### I. Use of Additional Borrowing Space Following Temporary Increases in PRGT Access Limits - Recap of PRGT access limits: - The normal annual/cumulative access limits under the PRGT were set at 100/300 percent of quota in May 2019. - On July 13, 2020, the normal annual access limit (NAAL) to PRGT resources was increased on a temporary basis to 150 percent of quota. - On March 22, 2021, the NAAL was increased further to 245 percent of quota while the normal cumulative access limit (NCAL) was increased to 435 percent of quota, with both increases initially set to expire at end-June 2021, later extended to end-July 2021. - From July 13, 2020 through end-June 2021, Executive Board approvals included: - six requests for new PRGT arrangements, - three requests for augmentation of access under existing PRGT arrangements, and - thirteen requests for support under the Rapid Credit Facility (RCF). - Use of additional borrowing space observations: - Maximum annual access exceeded the pre-pandemic NAAL of 100 percent of quota in four of the six requests for new arrangements, albeit by no more than 20 percent of quota in three of the four cases (Afghanistan, Madagascar and Kenya). - In the fourth case (Sudan), the large initial disbursement was linked to the clearance of arrears to the Fund in the context of the HIPC and beyond HIPC/MDRI debt relief. - Maximum annual access exceeded 100 percent of quota in one of the three augmentation cases: an augmentation of the ECF arrangement with Mauritania in September 2020, in an amount equivalent to 15.7 percent of quota, brought annual access under the PRGT to 115.7 percent of quota. Mauritania’s access to the RCF in April 2020 had been limited to 74.3 percent of quota. - Maximum annual access exceeded 100 percent of quota as a result of RCF requests in five of the thirteen cases (Chad, Madagascar, Malawi, Cameroon and Benin), by a maximum of 23 percent of quota: all five countries had pre-pandemic UCT arrangements. - Conclusion: - Use of the additional borrowing space created by the temporary increase in PRGT access limits has been modest in scale and aligned with the objectives of this policy change: - (i) three countries that had received emergency financing in the early stages of the pandemic were able to move ahead with new arrangements with somewhat higher levels of initial access; and - (ii) six countries that had borrowed under pre-pandemic arrangements were provided with additional access to address the pandemic, five via the RCF and one via an augmentation. - An unplanned benefit was the ability to provide Sudan with a large disbursement of concessional resources to facilitate the arrears clearance operation. ### II. IMF Financial Support for LICs in a Comparative Context, 2017–2022 - Scope and data notes: - This note compares IMF lending to LICs during 2017–2022 with trends in financial support to LICs provided by the World Bank, the African Development Bank (AfDB), and the Asian Development Bank (AsDB). - Projections for 2021–22 are IMF staff projections, informed by published financial information and projections from the other institutions. - Data presented are on the financing commitments made by each institution during the relevant calendar year. - The normal lag between commitments and disbursements did not apply to Fund financial support to LICs in 2020 because the bulk of that support was provided via the Fund’s emergency financing (EF) instruments, and EF approvals usually lead to full disbursement within a few days. - Main takeaways: - Fund financing commitments to LICs surged in 2020, accounting for almost one-quarter of total financing to LICs from the four IFIs, up from an annual average of 8 percent of total financing during 2017–2019. - The annual level of Fund financing commitments is expected to ease somewhat by 2022, accounting for about 18 percent of total projected IFI financing. - The Fund share of total IFI disbursements during 2020 was likely significantly higher than the estimated 24 percent share of IFI commitments, given the central role of fast-disbursing emergency financing in Fund support during this year. - With the projected shift back to multi-year arrangements in 2021–22, the Fund share of disbursements will be lower than its share of new commitments in these years, since most of the Fund financing commitments made in 2020 were disbursed immediately. - The combined level of financing for LICs from all four IFIs is expected to reach some $56 billion in 2021. - Financing is projected to fall slightly in 2022, but could be significantly higher with enhanced shareholder support for IFI concessional lending and grant finance. - Notes on eligibility and projections: - Eligibility definitions used for comparison: - IMF—all PRGT-eligible countries; - WB—all IDA-eligible countries, excluding Pakistan and Nigeria; - AsDB—all countries currently eligible for concessional loans or grants, excluding Pakistan; - AfDB—all countries eligible for African Development Fund (ADF) resources. - Figures/projections are for calendar years; WB financing in S2 2022 is assumed to be 10 percent higher than in S2 2021. - 2021–2022 figures are IMF staff projections. Projections for the IMF include PRGT and GRA commitments, and projections for the World Bank include both IDA and IBRD loan commitments. - Underestimation of likely commitments by the AsDB and the AfDB in 2021–22 would imply that the Fund’s share of total commitments is overstated. *Source: ppea2021053 — FUND CONCESSIONAL FINANCIAL SUPPORT FOR LOW INCOME COUNTRIES—RESPONDING TO THE PANDEMIC—ADDITIONAL BACKGROUND INFORMATION (July 12, 2021).* --- _Source: https://www.imf.org/-/media/files/publications/pp/2021/english/ppea2021053.pdf_