## TARGETED MODIFICATION OF STREAMLINED PROCEDURES FOR APPROVAL OF SUCCESSOR FLEXIBLE CREDIT LINE AND PRECAUTIONARY AND LIQUIDITY LINE ARRANGEMENTS

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### Executive summary
- 2023 Review of the Flexible Credit Line (FCL), the Short-Term Liquidity Line (SLL), and the Precautionary and Liquidity Line (PLL) introduced streamlined procedures dropping the requirement for an informal consultation with the Executive Board for approval of successor FCL and PLL arrangements when several requirements were met (¶70, Reform 1).
- Implementation revealed an unintended drafting consequence: the requirement refers to predecessor arrangements having “expired” by reaching the end of the approved term, and does not explicitly cover the standard “cancel and request” practice of cancelling a predecessor arrangement shortly before expiration while simultaneously requesting a successor arrangement.
- Staff proposes a targeted modification to the FCL and PLL decisions to:
  - explicitly include predecessor arrangements that are cancelled before expiration in the specification of the requirements that allow use of the streamlined procedures; and
  - clarify the timing language to “no later than three months from the date of expiration.”

### Issue identified
- Standard practice: members commonly cancel an existing FCL or PLL arrangement shortly before its scheduled expiration and simultaneously request a successor arrangement to ensure seamless back-to-back coverage.
- Drafting gap: the streamlined procedures currently refer to predecessor arrangements having “expired” (reached the end of the approved term) and therefore may not cover cases where the predecessor arrangement is cancelled shortly antes of expiration even when all other requirements are satisfied.
- Examples cited:
  - Mexico: 2019 FCL arrangement was requested 6 days before the scheduled expiration of the 2017 FCL arrangement; 2021 FCL requested 2 days before the scheduled expiration of the 2019 FCL; 2023 FCL requested 3 days before the scheduled expiration of the 2021 FCL arrangement.
  - Colombia’s 2024 FCL did not face the issue because the new arrangement was approved on the last business day of the previous (2022) FCL arrangement.
- Staff observed the issue after approval of Mexico’s 2023 FCL arrangement.

### Staff assessment and safeguards
- Staff view: a member’s cancellation of the predecessor arrangement should not preclude the use of streamlined procedures when cancellation does not reflect a deterioration in member circumstances and is made in the context of a request for a successor arrangement.
- Existing safeguards retained in the targeted modification:
  - All reviews under the prior arrangement must have been completed.
  - The member must have made no purchases under the previous arrangement (no actual balance of payments need at time of request).
  - Member’s economic circumstances (including fundamentals and institutional policy frameworks) and external risks must not have changed significantly since the last completed review.
  - Requested access under the successor arrangement must not exceed that of the previous arrangement.
  - Documentation on the successor request must be issued to the Executive Board for its consideration no later than three months from the date of expiration of the prior arrangement.

### Proposed decision (high level)
- Adopt a decision, by a majority of votes cast, to amend the PLL and FCL decisions to:
  - explicitly permit use of the streamlined procedures when a predecessor FCL or PLL arrangement was cancelled before expiration in the context of a simultaneous request for a successor arrangement; and
  - replace the phrase “within three months of the expiration of the term” with “no later than three months from the date of expiration” to remove ambiguity about the timing window.
- Specific amendments proposed:
  - Amendment to Paragraph 6(b)(1) of the Decision on Precautionary and Liquidity Line Arrangements, Decision No. 15017-(11/112), to read: the documentation on the request has been issued to the Executive Board for its consideration no later than three months from the date of expiration of a prior PLL arrangement under paragraph 5(a)(i) or paragraph 5(a)(iii).
  - Amendment to Paragraph 6(a)(iii)(1) of the Decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/20), to read: the documentation on the request has been issued to the Executive Board for its consideration no later than three months from the date of expiration of a prior FCL arrangement under paragraph 5(b)(i) or paragraph 5(b)(iii).

### Redlined clarifications (key operational language preserved)
- PLL Decision: successor PLL arrangements of one to two years for a member not having an actual balance of payments need at the time of the request may be exempted from an informal consultation where:
  - documentation is issued to the Executive Board no later than three months from the date of expiration of the prior PLL arrangement under paragraph 5(a)(i) or 5(a)(iii);
  - no purchases were made under the prior PLL arrangement;
  - all reviews pursuant to paragraph 3(b) under the prior PLL arrangement were completed;
  - management has decided that the member’s economic circumstances and external risks have not changed significantly since the last completed review under the prior PLL arrangement;
  - requested access under the successor PLL arrangement is not greater than the approved access under the prior PLL arrangement.
- FCL Decision: successor FCL arrangements for a member not having an actual balance of payments need at the time of the request may be exempted from an informal consultation where:
  - documentation is issued to the Executive Board no later than three months from the date of expiration of the prior FCL arrangement under paragraph 5(b)(i) or 5(b)(iii);
  - no purchases were made under the prior FCL arrangement;
  - all reviews pursuant to paragraph 5(a) in the prior FCL arrangement were completed;
  - management has decided that the member’s economic circumstances and external risks have not changed significantly since the last completed review in the prior FCL arrangement;
  - requested access under the successor FCL arrangement is not greater than the approved access under the prior FCL arrangement.
- Additional preserved FCL provisions:
  - Staff will provide Executive Directors a concise staff note including (I) a rigorous assessment of the member’s actual or potential need for Fund resources and repayment capacity, and (II) an assessment of the impact on Fund liquidity where contemplated access would exceed 575 percent of quota or SDR 10 billion, whichever is lower.
  - Minimum circulation periods apply; Executive Board generally prepared to consider a request within 48 to 72 hours after circulation in exceptional circumstances.

### Administrative and preparatory details
- Staff report completed on June 13, 2024 for Executive Board consideration on June 28, 2024.
- Document prepared by Legal and Strategy, Policy, and Review Departments. Team: Martin Cihak (lead), Alex Culiuc, Hyunmin Park, Martha Woldemichael (all SPR), and Gabriela Rosenberg (LEG). Research assistance: Shelley Li. Administrative assistance: Merceditas San Pedro-Pribram and Ryan Tonra.
- Approved by Rishi Goyal and Yan Liu.
- Publication: July 2024.

### Reporting and Audit Requirements
- For as long as Fund credit is outstanding under this Decision, the member will also provide staff with copies of annual audited financial statements and management letters, together with an authorization to discuss audit findings with the external auditor.

*International Monetary Fund — Policy Paper (Section 1)*

### Section 1

### TARGETED MODIFICATION OF STREAMLINED PROCEDURES FOR APPROVAL OF SUCCESSOR FLEXIBLE CREDIT LINE AND PRECAUTIONARY AND LIQUIDITY LINE ARRANGEMENTS

### Executive summary
- 2023 Review of the Flexible Credit Line (FCL), the Short-Term Liquidity Line (SLL), and the Precautionary and Liquidity Line (PLL) introduced streamlined procedures dropping the requirement for an informal consultation with the Executive Board for approval of successor FCL and PLL arrangements when several requirements were met (¶70, Reform 1).
- In implementing the new procedures, staff observed an unintended drafting consequence: the requirement refers to predecessor arrangements having “expired” by reaching the end of the approved term, and does not explicitly cover the standard “cancel and request” practice of cancelling a predecessor arrangement shortly before expiration while simultaneously requesting a successor arrangement.
- Staff proposes a targeted modification to the FCL and PLL decisions to explicitly include predecessor arrangements that are cancelled before expiration in the specification of the requirements that allow use of the streamlined procedures, and to clarify the timing language to “no later than three months from the date of expiration.”

### Issue identified
- Standard practice: members commonly cancel an existing FCL or PLL arrangement shortly before its scheduled expiration and simultaneously request a successor arrangement to ensure seamless back-to-back coverage.
- Drafting gap: the streamlined procedures currently refer to predecessor arrangements having “expired” (reached the end of the approved term) and therefore may not cover cases where the predecessor arrangement is cancelled shortly before expiration even when all other requirements are satisfied.
- Examples cited:
  - Mexico: 2019 FCL arrangement was requested 6 days before the scheduled expiration of the 2017 FCL arrangement; 2021 FCL requested 2 days before the scheduled expiration of the 2019 FCL; 2023 FCL requested 3 days before the scheduled expiration of the 2021 FCL arrangement.
- Staff observed the issue after approval of Mexico’s 2023 FCL arrangement; Colombia’s 2024 FCL did not face the issue because the new arrangement was approved on the last business day of the previous (2022) FCL arrangement.

### Staff assessment and safeguards
- Staff view: a member’s cancellation of the predecessor arrangement should not preclude the use of streamlined procedures when cancellation does not reflect a deterioration in member circumstances and is made in the context of a request for a successor arrangement.
- Existing safeguards retained in the targeted modification:
  - All reviews under the prior arrangement must have been completed.
  - The member must have made no purchases under the previous arrangement (no actual balance of payments need at time of request).
  - Member’s economic circumstances (including fundamentals and institutional policy frameworks) and external risks must not have changed significantly since the last completed review.
  - Requested access under the successor arrangement must not exceed that of the previous arrangement.
  - Documentation on the successor request must be issued to the Executive Board for its consideration no later than three months from the date of expiration of the prior arrangement.

### Proposed decision (high level)
- Adopt a decision, by a majority of votes cast, to amend the PLL and FCL decisions to:
  - Explicitly permit use of the streamlined procedures when a predecessor FCL or PLL arrangement was cancelled before expiration in the context of a simultaneous request for a successor arrangement.
  - Replace the phrase “within three months of the expiration of the term” with “no later than three months from the date of expiration” to remove ambiguity about the timing window.
- Specific amendments proposed:
  - Amendment to Paragraph 6(b)(1) of the Decision on Precautionary and Liquidity Line Arrangements, Decision No. 15017-(11/112), to read: the documentation on the request has been issued to the Executive Board for its consideration no later than three months from the date of expiration of a prior PLL arrangement under paragraph 5(a)(i) or paragraph 5(a)(iii).
  - Amendment to Paragraph 6(a)(iii)(1) of the Decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/20), to read: the documentation on the request has been issued to the Executive Board for its consideration no later than three months from the date of expiration of a prior FCL arrangement under paragraph 5(b)(i) or paragraph 5(b)(iii).

### Redlined clarifications (summary of key operational language preserved)
- PLL Decision: successor PLL arrangements of one to two years for a member not having an actual balance of payments need at the time of the request may be exempted from an informal consultation where:
  - documentation is issued to the Executive Board no later than three months from the date of expiration of the prior PLL arrangement under paragraph 5(a)(i) or 5(a)(iii);
  - no purchases were made under the prior PLL arrangement;
  - all reviews pursuant to paragraph 3(b) under the prior PLL arrangement were completed;
  - management has decided that the member’s economic circumstances and external risks have not changed significantly since the last completed review under the prior PLL arrangement;
  - requested access under the successor PLL arrangement is not greater than the approved access under the prior PLL arrangement.
- FCL Decision: successor FCL arrangements for a member not having an actual balance of payments need at the time of the request may be exempted from an informal consultation where:
  - documentation is issued to the Executive Board no later than three months from the date of expiration of the prior FCL arrangement under paragraph 5(b)(i) or 5(b)(iii);
  - no purchases were made under the prior FCL arrangement;
  - all reviews pursuant to paragraph 5(a) in the prior FCL arrangement were completed;
  - management has decided that the member’s economic circumstances and external risks have not changed significantly since the last completed review in the prior FCL arrangement;
  - requested access under the successor FCL arrangement is not greater than the approved access under the prior FCL arrangement.
- Additional preserved FCL provisions:
  - Staff will provide Executive Directors a concise staff note including (I) a rigorous assessment of the member’s actual or potential need for Fund resources and repayment capacity, and (II) an assessment of the impact on Fund liquidity where contemplated access would exceed 575 percent of quota or SDR 10 billion, whichever is lower.
  - Minimum circulation periods apply; Executive Board generally prepared to consider a request within 48 to 72 hours after circulation in exceptional circumstances.

### Administrative and preparatory details
- Staff report completed on June 13, 2024 for Executive Board consideration on June 28, 2024.
- Document prepared by Legal and Strategy, Policy, and Review Departments. Team: Martin Cihak (lead), Alex Culiuc, Hyunmin Park, Martha Woldemichael (all SPR), and Gabriela Rosenberg (LEG). Research assistance: Shelley Li. Administrative assistance: Merceditas San Pedro-Pribram and Ryan Tonra.
- Approved by Rishi Goyal and Yan Liu.
- Publication: July 2024.

*International Monetary Fund — Policy Paper (Section 1)*

### Section 2

### ppea2024033 - Section 2

### Reporting and Audit Requirements

- For as long as Fund credit is outstanding under this Decision, the member will also provide staff with copies of annual audited financial statements and management letters, together with an authorization to discuss audit findings with the external auditor.

*Source: ppea2024033 - Section 2*

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_Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024033.pdf_