## ppea2024047 ## Source details **Canonical URL:** [ppea2024047](https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024047.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2024/english/ppea2024047.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2024/english/ppea2024047.pdf.json) --- ### EXECUTIVE SUMMARY — Overview and key statistics - IMF scaled-up support to low-income members after COVID-19; concessional financing under the Poverty Reduction and Growth Trust (PRGT) reached unprecedented levels. - Financing with partners (including the World Bank) provided lifelines to LICs to meet urgent financing needs, protect macroeconomic stability, and avoid more disruptive adjustment, accompanied by Fund policy advice and enhanced capacity building. - Key statistics: - Average annual PRGT lending commitments since pandemic onset: SDR 5.5 billion. - Pre-pandemic average annual PRGT lending (preceding decade): about SDR 1.2 billion. - Total PRGT credit outstanding at end-2023: SDR 18.3 billion. - Projected self-sustained lending capacity without changes: about SDR 1 billion a year by 2027. - Staff-proposed long-term self-sustained PRGT lending envelope: SDR 2.7 billion per year. - Poorest LICs continuing interest-free lending: 31 out of the total 69 LICs. - Proposed return of access norm: 145 percent of quota. - Proposed PRGT normal access annual and cumulative limits: 200 and 600 percents of quota. - Proposed additional resources generated via GRA net income/reserves and other measures: SDR 5 .9 billion (in 2025 present value terms). - Proposed further five-year suspension of PRGT administrative expenses reimbursement to the GRA. ### PRGT financial strain, demand, and lending envelope calibration - Recent trends and pressures: - Annual lending commitments averaged SDR 5.5 billion during 2020-2023, compared with about SDR 1.2 billion during 2010-2019. - Outstanding PRGT credit has tripled; PRGT credit is provided at a zero percent interest rate historically. - SDRi context: averaged less than ¼ percent in 2020 and reached an average of over 3¾ percent in 2023. - Envelope calibration and scenarios: - Staff proposes a long-term self-sustained annual PRGT lending envelope corridor of SDR 2.5-3.0 billion, with a central policy scenario of SDR 2.7 billion per year. - Medium-term (2025-2029) average lending under central scenario: SDR 3.2 billion on a subsidy-use basis. - Short-term demand (2024): new PRGT commitments could reach about SDR 7 billion; new Board approved commitments in 2024 stood at SDR 3.5 billion by end August. - Long-term demand estimate range (Annex III): between SDR 2.0 and 3.4 billion annually; central scenario long-term lending from 2030: SDR 2.7 billion. - Sensitivity: large nominal programs and nominal access growth each represented SDR 0.3 billion sensitivities in long-term demand. ### Proposed lending policy changes — overview and timing - Timing: - Lending policy changes effective January 1, 2025. - New interest rate mechanism effective May 1, 2025. - Main policy adjustments: - Revert access norm to 145 percent of quota (pre-temporary increase level). - Maintain PRGT normal access annual and cumulative limits at 200 and 600 percent of quota, respectively. - Strengthen and streamline safeguards by consolidating High Access Procedures and Enhanced Safeguards into a single Strengthened Policy Safeguards (SPS) framework (SPS1, SPS2, SPS3), with stock trigger unchanged at 300 percent of quota. - Maintain flexibility for exceptional access; per-arrangement cap for presumed blenders aligned with norm. ### Tiered interest rate mechanism — design and impacts - Design and tiers: - Replace current interest rate mechanism with a tiered PRGT interest rate structure across all PRGT facilities (ECF, RCF, SCF). - Tier 1 (lowest income): 0 percent. - Tier 2A (presumed blenders): 70 percent of the prevailing SDRi (0.7 * SDRi). - Tier 2B (non-presumed blenders with debt vulnerabilities): 40 percent of the prevailing SDRi (0.4 * SDRi). - PRGTi linked to SDRi and updated weekly; applied to PRGT commitments under new arrangements and new RCF loans approved after May 1, 2025; outstanding balances and arrangements approved before the effective date excluded. - Expected fiscal/subsidy impacts: - Under staff central lending scenario and SDRi projections, subsidy savings of about SDR 2.3 billion in end-2025 present value terms from the new mechanism. - Subsidy savings account for about one quarter of total resource needs associated with indefinitely keeping current zero rates. - If waiver on current mechanism lifted in 2025, savings would be about 30 percent of the subsidy gap. - Debt service and DSA implications: - Maximum impact on debt service costs for the median Tier 2A and Tier 2B countries peak below 0.3 percent of government revenues in 2032-33 under extreme access scenarios. - Stress tests (two-standard-deviation SDRi shock) project Tier 2A max additional debt service about 0.29 percent of revenues and Tier 2B about 0.39 percent. ### Access norms, limits, and safeguards detail - Access norm: - Staff proposes reset of norm to 145 percent of quota to anchor average arrangement sizes consistent with the SDR 2.7 billion envelope. - In real terms, the proposed norm represents 2.1 percent of the projected 2025 median LIC GDP, compared to an average 1.6 percent of median LIC GDP during 2010-19. - Access limits: - Maintain AAL at 200 percent of quota and CAL at 600 percent of quota to preserve flexibility for larger BoP needs. - Presumed blenders face a per-arrangement cap aligned with the norm (145 percent). - Strengthened Policy Safeguards (SPS): - Flow triggers linked to the norm: access above 125 percent of the norm triggers ES1A and ES1B; access above 150 percent of the norm triggers SPS2 and an informal Board meeting. - Stock trigger: 300 percent of quota unchanged (subject to proportional revision when GRQ reforms take effect). - De minimis threshold increased from 15 percent of quota to 25 percent of quota for countries with low or moderate risk of debt distress (revert to 15 percent upon general effectiveness of quota increases under 16th GRQ). ### Financing proposals to close the PRGT subsidy gap - Subsidy need and proposed financing: - To sustain SDR 2.7 billion annual lending envelope, additional subsidy resources of SDR 6.3 billion required. - Proposed interest rate framework yields potential subsidy savings of SDR 2.3 billion; total subsidy resource gap falls from SDR 9.1 billion to SDR 6.8 billion in end-2025 PV terms. - Anticipated additional bilateral subsidy contributions projected to raise subsidy resources by about SDR 0.5 billion (NPV), reducing remaining subsidy gap to SDR 6.3 billion. - Staff financing proposal: - Use a distribution of GRA net income and/or general reserves via a Multi-Year Distribution Plan (MYDP) and establishment of an Interim Placement Administered Account (IPAA) to facilitate bilateral contributions. - MYDP cumulative maximum distribution amount: SDR 6.9 billion. - Sufficient assurances threshold: aggregate assurances of SDR 6.21 billion (90 percent of SDR 6.9 billion) required to make principal available to members. - Interest income on IPAA transferred quarterly to PRGT Subsidy Reserve Account. - Staff proposes a further five-year suspension of PRGT administrative expenses reimbursement to the GRA (FY27-FY31), expected to generate SDR 0.5 billion nominal (SDR 0.4 billion in 2025 PV terms), leaving a residual subsidy need of SDR 5.9 billion. - Option of limited gold sales could be revisited in the medium- to longer term if demand exceeds projections. - Loan resources and borrowing limit: - Total loan resources stand at about SDR 43 billion; uncommitted resources (net of encashment buffer) about SDR 24 billion (end-Aug 2024). - Staff proposes to increase PRGT cumulative borrowing limit by SDR 16 billion (from SDR 71 billion to SDR 87 billion) to accommodate the US loan contribution agreement and medium-term needs. ### Proposed refinements to PRGT investment strategy - Split PRGT investment assets into two portfolios: - Long-term portfolio (majority): target a slightly higher margin of 100 bp above the SDRi on average over a 10-year horizon; proposed asset allocation (Long-Term Portfolio): SDFI 40%, Global Government Bonds 10%, Global Corporate Bonds 30%, Global Equities 20%. - Short-term portfolio (transitory balances): invested to meet projected subsidy costs and expenses; SDFI and liquidity components, with maximum maturity up to one year for liquidity component. - Institutional changes: - Create a Long-Term Investment Account (LTIA) to centralize contributor resources invested in the long-term strategy; establishment requires PRGT Instrument revision and 70 percent approval where applicable. - Clarify two investment options; LTIA centralizes long-term investments while PRGT Deposit and Investment Account (DIA) remains for SDFI strategy. ### Monitoring, reviews, contingency measures, and implementation timetable - Monitoring and reviews: - Annual reviews of PRGT resource adequacy to track lending capacity and demand. - Targeted mid-term review after 3 years to assess borrower experience with the new interest rate mechanism; next comprehensive Review of PRGT Facilities and Finances on the standard 5-year cycle. - Ad-hoc review trigger: - Triggered if demand projections deviate significantly from the self-sustained lending envelope or available resources fall short of sustaining SDR 2.5-3.0 billion corridor. - Potential contingency measures: tightening access limits and norms, increasing interest rates, additional bilateral fundraising, or further use of internal resources (e.g., further suspension of GRA reimbursement). - Implementation dates: - Lending policy changes effective January 1, 2025. - New interest rate mechanism effective May 1, 2025. ### Eligibility, blending policy, graduation, and targeted adjustments - Blending and tiering: - Staff proposes country tiering based on the 2021 blending policy: Tier 1 (not meeting income criterion for blending), Tier 2A (presumed blenders, required to blend 1:2 PRGT:GRA), Tier 2B (higher-income non-presumed blenders with debt vulnerabilities). - Transitional arrangement to mitigate GDP rebasing cliff effects: postpone application of income criterion where rebasing would raise GNI per capita above 105 percent of IDA cutoff until three consecutive years of rebased data obtained. - Eligibility and graduation adjustments: - Include non-IDS recent debt issuance data where IDS lag would otherwise prevent meeting market access tests. - Reinstate mandatory assessment of Serious Short-Term Vulnerabilities (SSTV) for all PRGT-eligible countries prior to graduation. - Staff proposes adding the Syrian Arab Republic to PRGT-eligible list; no countries proposed for graduation at this time. - PS-HCC adjustment: - Align PS-HCC debt sustainability criterion with GRA EA for LICs meeting the GRA EA market access criterion (GRA EA3); effective immediately for financing requests subject to PS-HCC. ### Facility usage, SCF reflections, and program design emphasis - Facility usage patterns: - Pandemic shifted emphasis to Emergency Financing (EF) in 2020; by 2021 ECF and ECF/EFF blends regained status as workhorse instruments. - At Aug 1, 2024: 30 ECFs and ECF/EFF blends in place. - SCF usage limited historically; precautionary SCF can be catalytic for frontier market LICs. - SCF proposals: - Promote precautionary use of the SCF through outreach and information sharing; no immediate policy changes to SCF proposed. - Program design: - Continued emphasis on strong program design and reform content, including domestic resource mobilization, debt management, protection of social spending, and governance improvements. ### Demand scenarios, methodology, and sensitivity (Annex III highlights) - Methodology: - Medium-term demand anchored on external GFN projections and assumed evolution of PRGT share in GFN; starting point for 2024 share estimated at 5 percent (consistent with SDR 7 billion in new lending commitments). - Long-term demand model uses probabilities of access, access levels, trend growth of per-country access, blending status, and graduation. - Scenario outcomes: - Low demand scenario: medium-term average SDR 2.3 billion; long-term SDR 2.0 billion. - Central policy scenario: medium-term SDR 3.2 billion; long-term SDR 2.7 billion; credible long-term range SDR 2.5-3.0 billion. - High demand scenario: medium-term SDR 3.8 billion; long-term SDR 3.4 billion. - Sensitivities (Central Scenario; in SDR billion): - Baseline long-term demand: 2.7 - Access growth start in 2026 instead of 2028: 3.0 (+0.30) - Access growth start in 2030 instead of 2028: 2.52 (-0.21) - No effect from higher distance norm/access limits: 2.54 (-0.19) - No adjustment for large nominal access cases: 2.43 (-0.30) - No countries graduate over next decade: 2.88 (+0.15) - No SCFs precautionary: 2.91 (+0.18) ### Enterprise risk assessment and mitigation - Main risks identified: - Business risk — analytical accuracy: underestimation of demand if shocks intensify; mitigation via annual resource adequacy reviews and ad-hoc reviews (Box 6). - Financial risk — credit: tiered interest rates increase debt service for Tier 2 countries; staff assessment sees limited DSA impacts and proposes monitoring and a targeted review in 3 years. - Operational risk: HR constraints to implement changes; mitigations include reprioritization, hiring, and communication. - Reputational and geopolitical risks: distribution of GRA reserves/net income and charging interest on PRGT credit could be controversial; communication strategy emphasized. - Risks of inaction: - Without new subsidy contributions, PRGT self-sustained capacity projected to fall to about SDR 1 billion by 2027, severely limiting concessional support to LICs. - Box 6 — Mitigating measures for insufficient PRGT resources: - Demand-constraining: tighten access limits/norms or restore hard caps. - Increase lending capacity via internal resources (further suspension of reimbursement), gold sales, additional bilateral fundraising, higher interest rates, or eligibility suspension — each with significant limitations. *Source: ppea2024047 — 2024 PRGT Review—Reform Proposals (selected excerpts).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overview - The IMF significantly scaled-up support to its low-income members in response to the COVID-19 pandemic and subsequent major shocks, with concessional financing under the Poverty Reduction and Growth Trust (PRGT) reaching unprecedented levels. - Financing, together with partners including the World Bank, provided lifelines to low-income countries (LICs) to meet urgent financing needs, protect macroeconomic stability, and avoid more disruptive adjustment, accompanied by Fund policy advice and enhanced capacity building. ### PRGT financial strain and borrower demand - Annual lending commitments have risen to an average of SDR 5.5 billion since the onset of the pandemic, compared with about SDR 1.2 billion during the preceding decade. - Outstanding PRGT credit, which is provided at a zero percent interest rate, has tripled, while funding costs at the SDR interest rate (SDRi) have risen sharply. - In the absence of policy changes and additional subsidy resources, the PRGT’s self-sustained lending capacity is projected to decline to about SDR 1 billion a year by 2027, well below expected demand. - Staff projects that demand for PRGT financing will remain significantly above pre-pandemic levels even as lending should decline from recent highs as LICs gradually recover. ### Proposed long-term PRGT lending envelope and calibration - Staff proposes a long-term self-sustained annual PRGT lending envelope of SDR 2.7 billion per year. - This envelope is down substantially from recent levels, but is still more than twice the pre-crisis average, reflecting continued balance of payments (BoP) pressures in a more shock-prone world. - The envelope is calibrated to continue providing vital BoP support to LICs while supporting strong economic policies and catalyzing fresh financing from other sources. - The Review emphasizes that resolving the imbalance between expected demand and sustainable supply will require recalibration of lending policies as well as additional resources. ### Key lending policy changes proposed - Tiered interest rate mechanism: - Introduce a differentiated PRGT interest rate structure to enhance targeting of scarce PRGT resources to the poorest LICs. - The poorest LICs (31 out of the total 69 LICs) would continue to benefit from interest-free lending, while higher-income LICs would be charged a positive, but still concessional, interest rate. - Access norms and limits: - Return the access norm to the 145 percent of quota that was effective before the temporary increase in December 2023. - Maintain the annual and cumulative limits for PRGT normal access at 200 and 600 percents of quota, respectively, to allow flexibility in calibrating Fund support. - The lower access norm would help anchor the average size of future arrangements at a level reflecting LICs’ recovery, domestic revenue mobilization efforts, policy adjustment, and buffer rebuilding. - Safeguards and risk management: - Strengthen and streamline safeguards by consolidating the current High Access Procedures and Enhanced Safeguards into a single, coherent framework centered around the access norm to mitigate risks without overburdening the Fund's policy framework. ### Financing proposals to close the PRGT funding gap - To help close the PRGT funding gap, the Review proposes a distribution of IMF internal resources in the context of a historically strong financial position of the GRA. - Taking into account additional bilateral subsidy contributions, the proposed interest rate mechanism, and a proposed further five-year suspension of PRGT administrative expenses reimbursement to the GRA, an additional SDR 5 .9 billion (in 2025 present value terms) would be generated through contributions facilitated by a distribution of GRA net income and/or reserves. - The option of using limited gold sales could be revisited in the medium- to longer term if demand from LICs exceeds projections. - The PRGT’s investment strategy would also be refined. ### Monitoring, reviews, and contingency measures - Staff will carefully monitor the evolution of lending capacity and the impact of policy changes on borrowers’ needs and financing costs. - Annual reviews of PRGT resource adequacy will provide a framework to review trends in PRGT loan demand and resources. - If resources fall short or demand exceeds expectations, the Board could introduce contingency measures in the context of an ad-hoc PRGT review. - Staff proposes a targeted mid-term review after 3 years to assess early experience with the new interest rate mechanism, prior to the next comprehensive Review of PRGT Facilities and Finances on the standard 5-year cycle. ### Other targeted policy adjustments - Targeted adjustments are proposed to: - The PRGT eligibility framework. - The Policy Safeguards for High Combined Credit Exposure (PS-HCC). - The Cumulative Access Limits of the Rapid Credit Facility (RCF). - The policy on Poverty Reduction Strategies. - Continued attention to strong program design and reform content (including domestic resource mobilization and debt management) will be essential for PRGT arrangement success; the Fund will examine best practices in the forthcoming Review of Program Design and Conditionality (RoC). ### Key statistics and numerical highlights - Average annual PRGT lending commitments since pandemic onset: SDR 5.5 billion. - Pre-pandemic average annual PRGT lending (preceding decade): about SDR 1.2 billion. - Outstanding PRGT credit: has tripled (provided at a zero percent interest rate). - Projected self-sustained lending capacity without changes: about SDR 1 billion a year by 2027. - Staff-proposed long-term self-sustained PRGT lending envelope: SDR 2.7 billion per year. - Poorest LICs continuing interest-free lending: 31 out of the total 69 LICs. - Proposed return of access norm: 145 percent of quota. - Proposed PRGT normal access annual and cumulative limits: 200 and 600 percents of quota. - Proposed additional resources generated via GRA net income/reserves and other measures: SDR 5 .9 billion (in 2025 present value terms). - Proposed further five-year suspension of PRGT administrative expenses reimbursement to the GRA. *Source: EXECUTIVE SUMMARY, 2024 PRGT—REFORM PROPOSALS* ### 4. Staff proposals reflect the guidance provided by Executive Directors in a series of ### 4. Staff proposals reflect the guidance provided by Executive Directors in a series of informal engagements. ### Taking stock: the role of the Fund in LICs and recent trends in PRGT lending - The paper draws on: a series of informal engagements with Executive Directors; a mission chief survey; and suggestions from the April 2024 IMF-WB Joint Event on Policy Action in LICs and the Role of the International Community. - The paper’s organization: - Next section: discussion of the distinct role of the Fund in providing balance of payment (BoP) support, and recent trends in Fund lending to LICs and implications for PRGT facilities and lending capacity. - Third section: presents the annual SDR 2.7 billion self-sustained PRGT lending envelope. - Fourth section: staff’s proposed lending policy changes. - Fifth section: proposal to mobilize resources in support of the envelope and refinements to the PRGT’s investment strategy. - Sixth section: other targeted reforms. - Conclusion: discussion of enterprise risks. - Annexes: technical details underpinning staff’s proposals. ### A. The Fund’s multifaceted engagement with LICs - Mandate and focus: - The Fund helps LICs achieve, maintain or restore macroeconomic stability, create an environment conducive to inclusive growth and development, and improve living standards including through poverty reduction. - Since 2020, LICs required urgent support in navigating challenges from the COVID-19 pandemic, the war in Ukraine, and global monetary tightening (see IMF, 2024). - Integrated approach (three dimensions): - Policy advice: - Intensive engagement on policies and reform priorities to support macroeconomic stability and inclusive growth. - Post-2020 surveillance focused first on sustaining critical spending (including protection of vulnerable households and firms) and maintaining buffers, then on tightening macroeconomic policies to reduce debt-related vulnerabilities and address high inflation. - Capacity development (CD): - CD spending increased by over 40 percent between FY22 and FY23. - Technical assistance and training have become more closely integrated with policy advice and financing activities, with a focus on central banks, ministries of finance, and statistical agencies. - Financing: - The Fund significantly increased financial support; concessional financing through the PRGT is an important component. - Engagement tailored to country-specific needs: - FCS (Fragile and Conflict-affected States): - UCT-quality programs with FCS should sharpen focus on distributional aspects of macroeconomic adjustment, and on pace and timing of structural reforms given political economy dynamics and institutional capacities. - Where UCT-quality programs are not feasible, engagement can be through Staff Monitored Programs (SMPs) and emergency financing (EF). - SDS (Small Developing States): - SDS guidance notes the need for comprehensive approaches covering climate change, gender equality, inclusive growth, governance, and digitalization. - Calls for leveraging instruments such as the Resilience and Sustainability Facility (RSF) alongside GRA and PRGT lending, and strong partnerships with the World Bank and other IFIs. - Working closely with others: - Collaboration with the World Bank typically spans policy advice, CD, and lending (Annex II). - Cooperation with Regional Development Banks, UN family members (including World Food Programme and World Trade Organization), and bilateral donors on shared topics and country-specific programs. ### B. The Fund’s lending to LICs: role and recent trends - The Fund’s unique role in addressing BoP problems: - Fund assistance provides temporary financing to address BoP problems to smooth adjustment and mitigate economic and social impacts of reforms. - Financing is provided under both the GRA and the PRGT on a temporary basis and under safeguards. - Core features of PRGT lending: - Addressing BoP problems, especially protracted ones: - The Extended Credit Facility (ECF) supports members with a protracted BoP problem to make significant progress towards a stable and sustainable macroeconomic position. - The ECF allows for longer-term engagement, more gradual adjustment, and recognizes successive arrangements may be necessary. - Catalyzing financial support from other sources: - Fund arrangements boost credibility of LICs’ macroeconomic policy frameworks and are expected to catalyze financing from multilateral and bilateral donors, and the private sector where relevant. - Supporting poverty reduction and growth: - Country ownership, poverty reduction, and growth objectives are prominent dimensions; macro framework, conditionality and fiscal targets are derived from or made consistent with national poverty reduction strategies (PRS). - Providing subsidized financial support: - Concessional lending began in the mid-1970s; since 2009 the PRGT interest rate structure and adjustment mechanism has been waived by the IMF Executive Board and interest rates have been continuously kept at zero for all members (Annex VI). - Targeting support to the poorest members: - Policies to manage access include restricting eligibility for PRGT financing (Annex IX), imposing access limits and norms (Annex IV), and limiting access by higher-income LICs through access caps and PRGT/GRA blending requirements (Annex V). - Distinction from development financing: - Fund financing is not earmarked to specific spending areas or development projects, comes exclusively in the form of loans and must be repaid, and can be partly or fully saved rather than spent when reserves are low. - Trends and metrics in PRGT lending: - Pre-COVID-19: - PRGT lending volumes were broadly in line with available resources under the self-sustained framework adopted in 2012. - PRGT lending covered, on average, 1.7 percent of LICs’ Gross Financing Needs (GFN) and was mainly countercyclical. - Annual disbursements under the PRGT ranged between SDR 0.5 billion and SDR 1.6 billion; annual lending commitments averaged around SDR 1.2 billion, broadly in line with the PRGT’s estimated self-sustained capacity of SDR 1¼ billion. - COVID-19 and subsequent years: - PRGT lending increased significantly in 2020—covering 9.4 percent of LICs’ GFN (12.9 percent including GRA resources). - Over 2021-23, PRGT lending averaged 2.8 percent of GFN (4.2 percent including GRA resources). - Annual new lending commitments under all PRGT facilities averaged SDR 5.5 billion during 2020-2023, almost five times the level realized in the pre-pandemic decade (2010-2019). - Total PRGT credit outstanding reached SDR 18.3 billion at end-2023—about three times the pre-pandemic average. - Coverage definitions and notes: - The share of Fund lending in LICs’ GFN amounted to around 2 percent when including financing under the GRA. - GFN are defined as current account deficit plus external debt amortization; country sample covers PRGT-eligible countries in each year. - Solidarity and fundraising: - Over 40 PRGT contributors supported the 2021 fundraising targets for PRGT loan and subsidy resources (SDR 12.6 billion and SDR 2.3 billion, respectively), successfully met in 2023. - SDR channeling from economically stronger members to the PRGT helped mobilize support. - Following the 2021 loan fundraising round, the U.S. Congress authorized a US$21 billion loan for the PRGT. - Twenty advanced and emerging economy members contributed loan resources under the 2020 and 2021 rounds; forty-five PRGT partners provided or pledged subsidy contributions under the 2021 round. - Data coverage: - Figures and data run up to end-August 2024 where noted; country lists are defined as those eligible for PRGT resources in each year. *International Monetary Fund — 2024 PRGT Review—Reform Proposals (excerpt).* ### 16. The pandemic caused a temporary move towards EF, but the ECF and ECF/Extended ### 16. The pandemic caused a temporary move towards EF, but the ECF and ECF/Extended Fund Facility (EFF) blends had regained their status as workhorse instruments by 2021 ### Pandemic impact and facility usage - Prior to the pandemic, most PRGT support was provided through ECF arrangements: 22 out of 25 programs approved during the 2016-2019 period. - Stand-by Credit Facility (SCF) arrangements and the Rapid Credit Facility (RCF) were used only occasionally before 2020. - At the peak of the pandemic (2020) emphasis shifted temporarily to Emergency Financing (EF) under the RCF or combined RFI and RCF for blenders. - 34 countries out of the total 51 PRGT-eligible countries that received EF in 2020-21 subsequently resumed or transitioned to UCT-quality programs. - Only seven EF requests have been approved since January 2022. - As of August 1, 2024: - 30 ECFs and ECF/EFF blends were in place. - Five of these arrangements were with countries that did not receive EF during the pandemic. ### Financing share and catalytic role of the Fund - For the median country, Fund financing typically covered between 30-40 percent of the total residual BoP financing gaps in the years following the pandemic. - This share was slightly higher than the long-term median that includes tranquil periods; however, 2023 saw a reversion of this trend. - Broader evidence: - Additional Fund disbursements of one percentage point (pp) of GDP in the context of IMF financing arrangements were associated with additional official development assistance of 2¾ pp of GDP, about half from multilateral donors. - Countries that received IMF EF during the pandemic were often also recipients of higher COVID-related financial commitments from other financial institutions including the World Bank. ### Program outcomes and implementation challenges - Emerging evidence suggests PRGT-supported programs helped LICs cope with recent shocks by sustaining crucial spending and maintaining buffers amid tight financial conditions. - A recent study finds the IMF’s strong financial support to LICs led to stronger recoveries from the pandemic and limited economic losses. - Remaining challenges: - Meeting program targets, including on social spending, has remained a challenge. - The overall pace of fiscal and external adjustment in LICs has been gradual. - Completion of structural reforms has faced challenges due to socio-economic fragilities and institutional weaknesses in many LICs. - The upcoming RoC will present a more comprehensive analysis and consider options to further underpin strong economic policies and reforms. ### Implications for PRGT facilities and finances - The PRGT facilities architecture is considered sufficiently flexible to meet different types of BoP needs: - The Fund stepped up EF during the pandemic and returned to UCT-quality programs thereafter. - SCF usage declined consistent with its short-term support role amid protracted BoP needs. - The Food Shock Window under the RCF and RFI (created in 2022 until end-March 2024) demonstrated the architecture can be temporarily adjusted for specific shocks. - As of August 2024, 12 PRGT-eligible FCS have on-track UCT-quality programs under the PRGT (one more implementing a Staff Monitored Program). - SDS have relied much less than other LICs on IMF EF and UCT arrangements in recent years. ### PRGT funding trajectory and simulation results - Under current trends, the PRGT’s self-sustained lending capacity would fall to about SDR 1 billion per year by 2027. - Despite the first-stage PRGT fundraising launched in 2021, PRGT subsidy account resources could be fully committed by around 2027. - Simulation assumptions and results: - The simulation assumes annual new PRGT lending commitments will be around SDR 7 billion in 2024 and in line with the central policy scenario until 2026. - From 2027 onwards new commitments are assumed at somewhat below SDR 1 billion. - Subsidy Accounts’ resources could be fully earmarked by 2027; new lending commitments would need to fall to self-sustained capacity (below SDR 1 billion) to avoid eroding the Reserve Account. - The SDR interest rate context: averaged less than ¼ percent in 2020 and reached an average of over 3¾ percent in 2023. - Conditional timing note from the text: - Existing subsidy resources would be committed by 2026 if lending is at an average annual volume of about SDR 5 billion, or 2028 if lending is at an average volume of about SDR 3 billion (based on assumed average annual lending from 2024 to 2026 and 2024 to 2028 respectively). ### PRGT lending envelope: demand projections and calibration - Staff projects LICs’ baseline external gross financing needs (GFN) to increase from US$154 billion in 2024 to US$173 billion in 2028, totaling around US$820 billion for 2024-28. - Staff expects demand for PRGT financing to decline from recent peaks but remain well above pre-pandemic average due to: - Persistent significant vulnerabilities and post-pandemic scarring sustaining demand. - A more shock-prone world with higher frequency and magnitude of shocks (extreme weather, climate disasters, violent conflicts, commodity price fluctuations, trade diversion). - Heterogeneity among LICs: - Thirty-one of the 69 LICs are classified as the poorest LICs (not meeting the income criteria for blending), with limited financing options and protracted structural FX gaps. - IDA operational cutoff: US$1,335 for FY2025. - PRGT-eligible members’ GNI per capita in 2023 ranged from US$240 to over US$11,000, with a median of US$1,610. - Staff calibrated a lending envelope using scenario analysis (bottom-up 2024 projections; medium-term 2025-29 projections based on external GFN; long-term estimates on access likelihood and magnitude). - Proposed long-term PRGT annual lending envelope: - A corridor of SDR 2.5-3.0 billion per year, with a central policy scenario of SDR 2.7 billion. - The SDR 2.7 billion central scenario is intended to: - Meet future demand with sufficiently high probability. - Be feasible given a credible PRGT funding strategy. - Accommodate temporary episodes of high demand for UCT-quality programs; EF for urgent BoP needs; average access in line with the proposed norm; a buffer for large programs; periodic adjustments of access norms and limits; and assumed graduation of some countries as GNI per capita grows. - The proposed envelope is more than twice the pre-pandemic level. *Source: ppea2024047 - 16. The pandemic caused a temporary move towards EF, but the ECF and ECF/Extended Fund Facility (EFF) blends had regained their status as workhorse instruments by 2021 (IMF).* ### 28. Staff plans to carefully monitor the evolution of borrowing and lending capacity and ### 28. Staff plans to carefully monitor the evolution of borrowing and lending capacity and ### Monitoring of borrowing and lending capacity and resource adequacy - Staff will carefully monitor the evolution of borrowing and lending capacity and propose measures as necessary to preserve the self-sustained model. - The PRGT’s financing model is sufficiently flexible to accommodate temporary periods of extraordinary demand, but lending capacity is sensitive to risks including: - lower investment returns; and - average financing needs exceeding the base envelope by a substantial margin for an extended period. - Staff will carefully review demand and supply trends in the context of the annual reviews of the adequacy of PRGT resources. ### Safeguard: ad-hoc review trigger and potential policy responses - An ad-hoc review would be triggered should demand projections deviate significantly from the self-sustained lending envelope. - Trigger conditions include indications that demand could exceed a corridor around the self-sustained long-term annual lending capacity of SDR 2.5-3.0 billion for a protracted period, or if available resources fall short of what is needed to sustain this level of lending. - An ad-hoc review would consider a range of policy options and contingency measures under the three-pillar PRGT framework. - Potential policy options and contingency measures include: - additional measures to constrain demand such as tightening access limits and norms or restoring hard caps; - increasing interest rates; - boosting or sustaining lending capacity through additional bilateral fundraising; and/or - further use of internal resources, such as through a further suspension of GRA reimbursement. - The appropriate measures would depend on the nature of the challenges. ### Future PRGT lending envelope (staff estimates and calibration) - Staff's proposed lending envelope would converge to SDR 2.7 billion in the long term. - The dark orange area in staff estimates is calibrated to reflect shocks to key assumptions underpinning projected average access but not a combination of shocks or persistent deviations in access frequency. - For methodology and assumptions, see Box 2 and Annex III (as cited in the source). ### Box 2 — PRGT demand estimates and central policy scenario: methodology - Medium-term demand estimates are anchored on external GFN projections and the assumed evolution of the share of PRGT lending in GFN, starting from 2024 demand estimates. - The starting point is the share of PRGT lending in GFN in 2024, estimated at 5 percent, consistent with the projection of around SDR 7 billion in new lending commitments for 2024. - Medium-term projections (5 years out) assume a gradual decrease in the share of PRGT disbursements in GFN, with low, high and central scenarios created by varying that decrease. - Annual demand for PRGT financing is calculated by applying for each year the assumed share of PRGT disbursements in GFN to the corresponding WEO GFN projection. - Long-term demand projections reflect assumptions about: - the probability of countries accessing PRGT resources; - access levels; - trend growth of per-country access levels over time; and - blending status and graduation from PRGT eligibility. - Long-term demand is defined as the model’s projected average demand over the next decade and is used in all scenarios as projected annual average lending from 2030 onwards. ### Box 2 — Unconstrained demand corridor: scenario results - Low demand scenario: - Assumes return to pre-pandemic patterns; medium-term annual demand would average SDR 2.3 billion and long-term annual demand would be SDR 2.0 billion. - High demand scenario: - Assumes sustained elevated demand; medium-term annual average demand would be SDR 3.8 billion and long-term annual average demand would be SDR 3.4 billion. - Central policy scenario: - Medium-term lending envelope estimated at SDR 3.2 billion on a subsidy-use basis. - Long-term lending envelope estimated at SDR 2.7 billion on a subsidy-use basis (reflecting that some demand for SCFs will be precautionary). - Sensitivity analysis suggests a credible long-term lending capacity range between SDR 2.5 billion to SDR 3.0 billion. - Specific sensitivities noted include: - impact of large nominal programs (SDR 0.3 billion in annual demand); and - nominal access growth (SDR 0.3 billion). ### Lending policy changes: overview and timing - Staff proposes differentiated lending terms to better reflect heterogeneity across LICs and to act as an automatic stabilizer to reduce the drain on PRGT resources from interest rate subsidies. - Staff proposes reverting the PRGT access norm to 145 percent of quota (the level that prevailed before the temporary increase in 2023). - The PRGT annual (AALs) and cumulative access limits (CALs) would be maintained at their current levels: - AALs: 200 percent of quota; - CALs: 600 percent of quota. - The reduced norm is intended as a key lever to ensure PRGT lending stays within the targeted envelope while unchanged access limits allow flexibility for justified exceptional access. - Recalibrating PRGT safeguards would help mitigate risks associated with higher credit exposure and reinforce the anchoring role of the new norm. - Timing: - Lending policy changes: effective January 1, 2025. - New interest rate mechanism: effective May 1, 2025 (to reduce significant operational risks). ### Introducing a differentiated PRGT interest rate structure (price approach) - Rationale: - LICs are heterogeneous: the poorest LICs face high, long-lasting financing needs with limited market access and weak buffers; frontier market LICs have better access to markets and stronger institutions. - Charging better-off LICs a positive interest rate tied to the SDRi would: - better target concessionality; and - act as an automatic stabilizer reducing pressure on PRGT resources from subsidizing interest rates. - The proposed PRGT tiered interest rate structure (price approach) would align with the existing tiered PRGT access structure (volume approach). ### Staff proposal: country tiering based on the blending policy - Assessment: - Staff considers the PRGT blending policy effective for targeting limited concessional resources to the poorest LICs and adequate to remain the basis for tiering. - The 2021 blending reforms established three groups of LICs and enhanced focus on the poorest. - Blending policy uses income as primary criterion; for countries above the income cutoff, debt vulnerabilities and past market access and small/micro state status are considered. - Country tiers under the proposed approach: - Tier 1 (“the lowest income”): - PRGT-eligible countries that do not meet the income criterion for blending (see Box 3). - Not required to blend and are eligible for PRGT exceptional access with no cap. - Tier 2 (“the higher-income”): PRGT-eligible members that meet the income criterion for blending, divided into: - Tier 2A (“the higher-income, presumed blenders”): - Do not face elevated debt vulnerabilities that limit market access. - Required to blend PRGT and GRA resources at a 1:2 ratio. - Subject to a per-arrangement cap at the norm and a hard cap on total PRGT volume at the normal access limits. - Not eligible for exceptional access under the PRGT. - Tier 2B (“the higher-income, non-presumed blenders”): - Face debt vulnerabilities that limit market access and tend to have higher economic vulnerabilities than Tier 2A. - Not required to blend, but are subject to a hard cap on total PRGT volume at the normal access limits and are not eligible for PRGT exceptional access. ### Blending criteria (Box 3) and operational details - Under current blending policy (reformed 2021), countries are presumed to blend if they: - meet the income criterion for blending (GNI per capita exceeded the IDA operational cutoff by at least 5 percent for two consecutive years and does not fall below 95 percent of the cutoff thereafter); and - do not have debt vulnerabilities that limit market access. - A country is deemed to have debt vulnerabilities limiting market access if it is: - in debt distress; or - at high risk of debt distress and either (a) has had limited past market access as specified under the blending policy or (b) is a small/micro state. - The blending framework focuses primarily on per capita income but also accounts for debt vulnerabilities’ impact on market access. ### Stability of country tiers and cliff effects (Box 4) - Staff’s application of current blending rules to historical data shows movements between groups would have been infrequent. - Key findings: - Over 75 percent of countries would have stayed in the same country grouping between 2019 and 2023. - Looking over a longer period, changes would have occurred in only 5.5 percent of all country-year observations (2009–2023), mostly induced by changes in debt vulnerability assessments and market access status. - Income-induced changes would have been mostly movements from Tier 1 to Tier 2A. - Only 0.5 percent of changes—affecting four countries (Myanmar, Tajikistan, Yemen and Zambia)—would have involved multiple changes between tiers due to income changes. - Staff plans to monitor risks of cliff effects closely and periodically update the Board on developments. *Source: IMF staff estimates and proposals as presented in the 2024 PRGT—Reform Proposals content unit.* ### 34. A transitional arrangement is proposed to mitigate the “cliff effect” and prevent ### ppea2024047 - 34. A transitional arrangement is proposed to mitigate the “cliff effect” and prevent ### Transitional arrangement to mitigate the “cliff effect” - Trigger and postponement: - Where GDP rebasing would increase GNI per capita above 105 percent of the IDA operational cut‑off, the application of the income criterion (and potential application of the interest rate mechanism and the blending policy) would be postponed until GNI per capita data are obtained for three consecutive years starting from the official release date of the rebased GDP series. - Retroactive application: - The transitional arrangement will be applied retroactively to all countries that rebased their GDP since the onset of the COVID-19 pandemic in 2020 and subsequently exceeded the 105 percent GNI per capita of the IDA operational cut‑off. - For these countries the three-year transition period would start to apply from the effective date of the new interest rates mechanism. - Exception: - The transitional arrangement would not apply to countries that already exceeded 105 percent of the IDA operational cut‑off in the year prior to the official release date of the rebased GDP series. ### Interest rate tiering proposal and calibration - General design: - Replace current interest rate mechanism with a new tiered interest structure applying to all PRGT facilities (ECF, RCF, and SCF). - No differentiation by facility type. - Link PRGT interest rates to the SDRi with a mechanism to adjust more frequently (weekly updates tied to SDRi recalculation). - Tier definitions and rates (post-reform): - Tier 1 (lowest income): interest rate set at 0 percent. - Tier 2 (higher income): - Tier 2A (presumed blenders): interest rate set at 70 percent of the prevailing SDRi. - Tier 2B (non-presumed blenders): interest rate set at 40 percent of the prevailing SDRi. - Rationale for calibration: - Tier 2A rate (70 percent of SDRi) set below the GRA interest rate (SDRi plus basic margin) which applies to the GRA portion of blended financing. - Tier 2B rate (40 percent of SDRi) is lower to account for more pronounced debt vulnerabilities and generally weaker macroeconomic performance. - The SDRi linkage provides an automatic stabilizer and mitigates interest rate risk from global financial conditions. - The SDRi is based on 3-month instruments; ECF/EFF average terms are 5 years, so PRGT rates linked to SDRi will be substantially below 5-year market rates. ### Expected fiscal and subsidy impacts - Subsidy savings and resource implications: - Under the proposed central lending scenario and SDRi projections, the new mechanism would generate subsidy savings of about SDR 2.3 billion in end-2025 present value terms. - This would account for about one quarter of the total resource needs associated with indefinitely keeping the current zero rates for all PRGT borrowers. - Subsidy savings would account for a higher fraction of the subsidy gap (about 30 percent) if the waiver on the application of the current interest rate mechanism was lifted in 2025. - Distributional and concessionality effects: - Poorest LICs retain interest-free lending (Tier 1 at 0 percent). - PRGT borrowing costs for Tier 2 remain more favorable than GRA terms and well below market financing. - The proposal reduces the share of scarce subsidy resources used for wealthier PRGT-eligible members. ### Operational modalities and implementation timing - Legal and operational scope: - Basic framework established in the PRGT Instrument; country groupings periodically updated by staff. - A country’s tier reassessed at time of request for financing under a new arrangement or under the RCF. - Effective date and transition: - Staff proposes applying new terms only to PRGT commitments under new arrangements and to new RCF loans approved after the effectiveness date (May 1, 2025). - To reduce adverse effects on debt sustainability, the new PRGT interest rates would apply only to credit under new arrangements or new disbursements under the RCF approved after the effective date; existing outstanding balances and disbursements under arrangements approved before the effective date would be excluded. - Rate update and billing: - PRGT lending rates would float with the SDRi and be updated weekly; the updated PRGTi applied to all post-reform commitment balances as of each respective Monday following the previous Friday’s recalculation of the SDRi. - Interest paid by PRGT borrowers after the end of each IMF financial quarter, aligned with PRGT lenders’ interest payment schedule and the GRA/SDR Department billing cycle. ### Impact assessment on members’ finances and debt sustainability - Near-term and scaled impact: - Application only to new commitments minimizes near-term impact by excluding existing stock of PRGT credit outstanding. - Maximum impact on debt service costs for the median Tier 2A and Tier 2B countries would be manageable, peaking below 0.3 percent of government revenues in 2032-33 under the most extreme access scenario. - Stress testing: - Even combining a maximum access scenario with an extreme SDRi shock results in moderate impacts on the debt service ratio to government revenues. - Stress tests reflect low probability extreme-case scenarios; impacts on debt dynamics, debt risk ratings, and sustainability assessments would remain limited. - Interaction with potential IDA term changes: - Including potential changes in IDA terms does not materially alter the benign assessment of the proposed interest tiering. - Joint IMF–WB simulations indicate concerned countries are not expected to experience a significant deterioration in their debt sustainability outlook due to the policy changes under consideration. ### Access norms, limits, and program design - Access norm recalibration: - Recalibrate the access norm to anchor the size of future arrangements and help maintain PRGT lending volumes aligned with the proposed self-sustained lending envelope. - Maintain PRGT AAL and CAL at levels that allow the Fund to provide sufficient support to LICs with higher needs. - Program design emphasis: - Continued attention to strong program design and reform content is essential: well-targeted conditionality, ownership and reform implementation, fiscal adjustment composition, domestic resource mobilization, protection of priority areas including social spending and growth-enhancing public investment, sequencing of structural reforms, and improvement in public financial management and governance. - Access determination principles: - Access to IMF resources determined case-by-case using standard criteria: (i) size of the BoP need; (ii) strength of the adjustment program; (iii) capacity to repay; and (iv) IMF credit outstanding and track record of past use. - Except for presumed blenders subject to the per-arrangement access cap, the access norm provides indicative guidance and is neither a hard ceiling nor a floor. *Source: IMF staff estimates.* ### 47. Staff proposes to move the access norm back to the level prevailing before the ### 47. Staff proposes to move the access norm back to the level prevailing before the ### Access norm and access limits - Staff proposes the norm would be set at 145 percent of quota to guide access under PRGT arrangements and anchor the proposed lending envelope. - For presumed blenders, the per arrangement cap on the use of PRGT resources would be reduced to 145 percent of quota. - In real terms, the proposed norm represents 2.1 percent of the projected 2025 median LIC GDP, compared to an average 1.6 percent of median LIC GDP during 2010-19 based on the applicable past norms. - Staff proposes that the PRGT access limits be maintained at current levels: the AAL at 200 percent of quota and the CAL at 600 percent of quota. - Keeping limits at current levels while moving the norm to 145 percent of quota is intended to: - Provide flexibility to respond to larger BoP needs. - Anchor overall lending volume to available resources. - Empirical evidence and recent experience: - Among twelve PRGT arrangements with access above the norm approved since 2021, four were larger than 250 percent of quota. - A forward-looking analysis indicates that returning AAL and CAL to 145 and 435 percent of quota, respectively, would leave some countries with limited borrowing space, particularly non-presumed blenders. - Ten non-presumed blenders would have less than 250 percent of quota of remaining borrowing space if they were to request a new arrangement today or after expiration of their current program (this calculation assumes a 3-year duration and accounts for repayments that would free up borrowing space during the follow-up arrangement). - Any access decision in a financing request would remain subject to access policy considerations including a country’s capacity to repay and debt sustainability, the strength of the program, and the size of the BoP need. - Keeping pace between the PRGT and GRA access limits: - Would maintain a strong signal of the Fund’s commitment to supporting its poorest members amid increased needs. - Would reduce operational complexity in blended arrangements. - The role of the norm: - The norm historically performed well in anchoring access. - Average and median access levels have fluctuated around the norm with the business cycle, rising above the norm after major global shocks. - Recent large arrangements above the norm contributed significantly to higher PRGT demand. - Reaffirming the guiding role of the norm is crucial to mitigate risks to the IMF, including through modifications to safeguards. ### Strengthening and streamlining PRGT safeguards (Staff proposal) - Rationale: - Elevated levels of outstanding PRGT credit, pronounced debt vulnerabilities in many LICs, and the proposed significant increase in the lending envelope imply larger risks to the Fund, underscoring the importance of strengthening safeguards. - Staff proposes a single coherent framework—“Strengthened Policy Safeguards (SPS)”—by consolidating the current High Access Procedures (HAP) and Enhanced Safeguards for Debt Sustainability and Capacity to Repay (ES). - The SPS would be subdivided into three categories: SPS1, SPS2, and SPS3. The Exceptional Access (EA) framework would remain unchanged. - Key design elements: - Link flow triggers of the SPS to the PRGT access norm and simplify their calculation; flow triggers applied on a per-arrangement basis so they adjust automatically with the norm. - Access above 125 percent of the applicable norm would trigger SPS1, requiring: - ES1A: a granular discussion of the composition and evolution of a country’s debt. - ES1B: an enhanced analysis of the country’s Capacity to Repay the Fund. - Access above 150 percent of the norm would activate SPS2, which requires an informal Board meeting and inclusion of ES1A and ES1B in the informational requirements. - All ES requirements continue to apply for countries at high risk of, or in, debt distress, which trigger SPS3. - The stock trigger for the new safeguard would remain unchanged at 300 percent of quota (subject to later proportional revision when GRQ reforms take effect). - Flow triggers would no longer account for disbursements under past arrangements or EF. - Specific triggers and comparisons (triggers shown in percent of quota): - SPS1: Flow (access per arrangement) 125% of the norm (181); Stock (credit outstanding) 300. - SPS2: Informal Board meeting when Flow (access per arrangement) 150% of the norm (218); Stock (credit outstanding) 300. - SPS3 (for countries High/in distress): Granular discussion of debt composition and evolution + Enhanced CtR analysis + Explicit program objective to reduce debt vulnerabilities; Stock (credit outstanding) 300. - Current framework examples (for comparison) include flow triggers of 100 and stock triggers of 300, and for some informal Board meeting thresholds flow of 240/200 and stock 300/600 depending on facility. - Additional safeguard adjustments: - Strengthening Executive Board oversight by requiring granular debt composition analysis (ES1A) and enhanced Capacity to Repay analysis (ES1B) in informational requirements for informal Board discussions when SPS2 is triggered or when the stock trigger is met. - The de minimis threshold for application of the SPS would be increased from 15 percent of quota per arrangement to 25 percent of quota for countries with low or moderate risk of debt distress (this threshold will be revised downward to 15 percent of quota at the time of the general effectiveness conditions for quota increases under the 16th GRQ). - New DSAs are required for all new program requests and when there are significant changes; DSA-related triggers would no longer apply. - Expected effects: - The proposals would strengthen the Fund’s risk management for the PRGT while streamlining safeguards. - The expected number of programs subject to closer scrutiny would be comparable to the current framework despite lower flow triggers under SPS1 and SPS2 for ECF arrangements. - The scope of policy changes is limited: EA criteria, the level of the stock trigger for the new SPS, and requirements for countries in debt distress or high risk thereof would remain unchanged. - The proposals do not change the role of the norm as guidance and do not make the norm a ceiling, floor, or entitlement. ### Implementation timetable and monitoring - Implementation dates: - New interest rate mechanism to be implemented on May 1, 2025. - The rest of the changes to lending policies to be implemented on January 1, 2025. - Monitoring and review: - Staff will closely monitor the impact of policy changes on PRGT lending volumes and propose additional measures if needed to maintain the Trust’s self-sustained capacity. - Trends and projections in lending volumes will be reviewed in the context of annual reviews of the adequacy of PRGT resources. - A targeted review after 3 years is proposed to assess early borrower experience with the new interest rate mechanism and the underlying country groupings, prior to the next comprehensive Review of PRGT Facilities and Finances expected to follow the standard 5-year cycle. - Interaction with the 16th GRQ: - Upon effectiveness of general conditions for the quota increases under the 16th GRQ, staff proposes to reduce the access norm to 100 percent of quota. - Staff proposes that the annual and cumulative access limits be reduced to 135 and 405 percent of quota respectively at that time. - The SPS stock trigger would be revised downward proportionally from 300 to 200 at the same time. - Preserving the value of the norm in SDR terms: setting the norm at 97 percent of the new quota would preserve the value in SDR terms; rounding to 100 percent of the new quota would increase annual long-term demand estimates by SDR 71 million on average. ### Financing and subsidy needs - To accommodate a long-term PRGT annual lending envelope of SDR 2.7 billion, additional subsidy resources of SDR 6.3 billion will be required. - Proposed changes to the PRGT interest rate framework are projected to yield potential subsidy savings of SDR 2.3 billion. - Accounting for those savings, the total subsidy resource gap falls from SDR 9.1 billion to SDR 6.8 billion in end-2025 present value terms. - Anticipated additional bilateral subsidy contributions are projected to raise subsidy resources by about SDR 0.5 billion in net present value terms, reducing the remaining subsidy gap to SDR 6.3 billion. - Other financing notes: - PRGT loan resources are adequate to meet expected demand in the near to medium-term thanks to loan contributions provided by 17 PRGT lenders under the 2021 fundraising round and a recent significant loan authorized by the United States. - Staff proposes to increase the PRGT cumulative borrowing limit to accommodate the loan contribution agreement with the United States. - Staff proposes extending the suspension of the reimbursement of PRGT administrative expenses to the GRA for another five years. *Source: ppea2024047 - 47. Staff proposes to move the access norm back to the level prevailing before the (IMF PRGT review — extracted content).* ### 62. In the absence of a net income or reserve distribution that could facilitate bilateral ### ppea2024047 - 62. In the absence of a net income or reserve distribution that could facilitate bilateral ### Subsidy gap, near-term fundraising prospects, and staff financing proposal - Finding: In the absence of a net income or reserve distribution that could facilitate bilateral contributions, prospects for bilateral fundraising are limited in the near term given budget constraints and competing fundraising initiatives, including the parallel IDA replenishment process. - Finding: Gold sales are not a feasible option in the near term; the option could be revisited in the medium- to long-term if demand from LICs exceeds projections. - Staff proposal to close remaining subsidy gap of SDR 6.3 billion using two financing sources: - (i) an extension of the suspension of the reimbursement of PRGT administrative expenses to the GRA beyond FY26; and - (ii) new subsidy contributions facilitated by a distribution of GRA net income or GRA general reserves (Table 5). - Proposal detail on administrative-cost reimbursement suspension: - Current suspension runs from FY21 to FY26. - Staff proposes a further suspension for a period of five years, covering FY27-FY31. - Expected generation: SDR 0.5 billion in nominal subsidy resources (or SDR 0.4 billion in 2025 present value (PV) terms). - Residual subsidy need after this measure: SDR 5.9 billion. - Governance and voting requirements for distributions: - A distribution of GRA net income would require a majority of the votes cast. - A distribution of the general reserves would require a 70 percent majority of the total voting power. - Projected impact on PRGT reserves and lending capacity if financing package implemented: - Would support a self-sustained lending capacity of SDR 2.7 billion. - Staff projects the reserve coverage ratio would fall to around the 20 percent indicative benchmark before recovering thereafter, initially supported by inflows of investment earnings under proposed distribution modalities and later by transfer of resources equivalent to the principal of the distribution itself (less any leakage). ### Loan resources: history, current stock, and proposed limit increase - Historical mobilization since pandemic onset: - PRGT had only SDR 8.4 billion in freely available loan resources at onset (net of encashment buffer and undrawn commitments under existing PRGT programs). - April 2020 fast-track mobilization: approved immediate mobilization of SDR 12.5 billion; mobilized SDR 16.9 billion from 16 PRGT lenders. - July 2021 Stage 1 fundraising target SDR 12.6 billion; mobilized SDR 14.7 billion from 17 lenders. - Included SDR 3.65 billion in loans provided at a fixed low rate of remuneration, generating implicit subsidy savings. - United States Congress authorized a loan in the amount of US$21 billion (about SDR 16 billion) for the PRGT. - Current loan resources and coverage: - Total loan resources stand at about SDR 43 billion. - Uncommitted resources (net of an encashment buffer) currently stand at about SDR 24 billion (Table 6). - These loan resources would meet possible new lending commitments through 2029 under the central demand scenario, and 2027 under the high demand scenario. - Proposed change to borrowing limit: - Staff proposes to increase the PRGT cumulative borrowing limit by SDR 16 billion, raising the limit from SDR 71 billion currently to SDR 87 billion. - Rationale: accommodate the loan contribution agreement with the United States and meet expected demand over the medium to long term. - Note: The proposed increase is not expected by itself to lead to higher-than-expected levels of lending or to materially impact PRGT reserve coverage. - Procedural proposals on PRGT Instrument timeframes: - Staff proposes to keep unchanged: commitment period (until end-2029), drawdown period (until end-2034), and the temporary suspension mechanism for drawings (until end-June 2034). - These deadlines would also apply to bilateral borrowing agreements that envisage a longer drawdown period; possible future extensions could accommodate longer-horizon borrowing agreements. Key numeric breakdown (as reported in text and Table 6) - End-Feb 2020: - Undrawn loan resources (A): 13.84 - PRGT lending commitments (B): 2.3 - Uncommitted loan resources (C = A-B): 11.5 - Encashment buffer (D): 3.1 - Uncommitted loan resources net of encashment buffer (E = C-D): 8.4 - End-Aug 2024: - Undrawn loan resources (A): 34.1 - PRGT lending commitments (B): 6.8 - Uncommitted loan resources (C = A-B): 26.3 - Encashment buffer (D): 11.9 - Uncommitted loan resources net of encashment buffer (E = C-D): 14.4 - Footnotes and specific loan details: - End-August 2024 includes the $21 billion loan authorized by the United States Congress in March 2024. - Undrawn loan resources net of undrawn commitments under existing arrangements. - Encashment buffer calculated as 20% percent of credit outstanding and undrawn commitments from lenders in the encashment regime. ### Proposed refinements to the PRGT investment strategy and operational accounts - Motivation: Greater lending and higher interest rate environment increased dependence on subsidies generated from longer-term investment returns; need for additional liquidity flexibility for potential lending shocks and timing mismatches between subsidy outflows and inflows. - Staff proposal: separate PRGT’s investment assets into two portfolios reflecting different investment horizons: - Long-term portfolio: majority of PRGT balances; continue to be invested in a long-term investment strategy with a similar risk profile to the current one. - Short-term portfolio: remaining balances expected to be more transitory; invested to meet projected subsidy costs and other expenses over the short- to medium-term horizon. - Allocation across the two portfolios to be reviewed regularly and adjusted as necessary. - Long-term strategy refinements: - Target a slightly higher margin of 100 bp above the SDRi on average over a 10-year horizon. - Adjust fixed-income allocations to benefit from higher long-term bond yields and improve diversification: - Reduce allocation to short duration fixed-income (SDFI) and liquidity components to increase allocation to global corporate bond component. - Replace the emerging market (EM) bonds allocation with an enlarged and more diversified global government bond component. - Allocation to equities to remain unchanged at 20 percent. - Staff analysis note: an average return margin of 90 bp over the SDRi remains a reasonable long term assumption for modeling PRGT’s lending capacity; the short-term tranche lower return is offset by the 10 bp increase in the long-term tranche target. - Proposed asset allocation (long-term strategy) — Current and Proposed: - Current Asset Allocation: - Short-Duration Fixed-Income (SDFI) and Liquidity: 60% - EM Bonds: 5% - Global Corporate Bonds: 15% - Global Equities: 20% - Proposed Asset Allocation: - SDFI: 40% - Global Government Bonds: 10% - Global Corporate Bonds: 30% - Global Equities: 20% - Institutional and governance changes: - Proposed revisions to the Guidelines for Investing PRG, RS, PRG-HIPC and CCR Trust Assets (TA Guidelines); approval required by a 70 percent majority of the total voting power. - Proposed revisions would not change existing investment options approved by the Board for contributor investments for the benefit of the PRGT. - Clarifications: - First investment option (permanent assets) to be clarified as PRGT's long-term investment strategy; refinements apply to temporary resources invested in this strategy. - Second investment option (SDFI strategy) centralized in the PRGT Deposit and Investment Account (DIA) remains unchanged. - Establishment of a new Long-Term Investment Account (LTIA): - Purpose: centralize contributor resources invested in the long-term strategy and pool them with PRGT long-term investments. - Rationale: PRGT aggregate investment assets will be invested across two portfolios; LTIA required to centralize member resources pooled only with PRGT investments in the long-term investment strategy. - Current resources contributed by members for investment under the long-term strategy: around SDR 1.1 billion currently and expected to continue to increase. - LTIA would complement the DIA (established in 2021) which is invested in the SDFI strategy. - Investments in LTIA would be subject to greater investment risk and volatility in line with the long-term strategy; encashment expected to be liquid based on market value at time and maximum remuneration would continue to be SDRi. - Establishment of the LTIA would require a revision to the PRGT Instrument. - Implementation and disclosure: - Refinements reflected in proposed revisions to the TA Guidelines; amended TA Guidelines will be published in line with past practice. - Staff will work with existing contributors whose investment agreements would be centralized in the LTIA. ### Other targeted reforms (overview from section opening) - Immediate-effect proposals (listed as a package in the section header): - Updating the list of PRGT-eligible countries and two minor adjustments to the PRGT eligibility and graduation framework. - Extension of the temporarily higher cumulative access limits (CALs) under the RCF. - Targeted adjustment to the Policy Safeguards for High Combined Credit Exposure (PS-HCC) pending completion of the ongoing evaluation by the Independent Evaluation Office. - Stand-alone review of the PRS policy in 2025. - Presentation of findings on the experience with precautionary SCF arrangements. - Note: These reforms are presented as immediate-effect items; detailed proposals and analysis are in the subsequent text and annexes of the source document. *Source: IMF staff estimates and proposals presented in the 2024 PRGT—Reform Proposals chapter excerpt.* ### 78. The PRGT eligibility framework, important to target concessional resources to the LICs ### 78. The PRGT eligibility framework, important to target concessional resources to the LICs ### A. PRGT eligibility — assessment and proposed adjustments - Staff view: the current eligibility framework "remains broadly adequate" but would benefit from two minor adjustments to decisions on potential graduation from the PRGT (see Annex IX). - Risks motivating adjustments: - Failure to graduate countries with market access due to lags in updating the WB’s International Debt Statistics (IDS) database, causing some countries that satisfy past market access tests based on actual recent market borrowing to be omitted. - Premature graduation of countries with serious short-term vulnerabilities (SSTV), noting that: - In 2015, the need for an SSTV assessment was removed for countries whose GNI per capita exceeds the income graduation threshold by a large margin; mandatory SSTV assessment was retained only for countries with “IDA-grant only” or “IDA loan -grant mix” status. - IDA terms have since evolved, "with more space given to loans rather than grants."57 - Non-economic disruptive shocks (wars, climate events) increase the risk that higher incomes do not make LICs immune to severe SSTV impacts. - Staff proposals: - Adjust the time span and data sources for measuring the market access criterion in certain circumstances: - Include debt issuance data from sources other than IDS for recent periods not covered by IDS where such inclusion would imply a revised assessment of the past market access test for entry or graduation, including where past market access would otherwise not be satisfied due to the IDS lag. - Restore mandatory assessments of SSTV for all PRGT-eligible countries: - Remove all exceptions to carrying out an SSTV assessment to better align with a more shock-prone environment and limit risks of premature graduation (and/or possible reversals). - Shield PRGT policies from further evolution of IDA policies and acknowledge higher probability and diversity of non-economic disruptive shocks. - Application of revised framework: - Assessment indicates only the Syrian Arab Republic meets the criteria to be added to the PRGT-eligible list: - The WB published the latest GNI data for Syria in 2021, showing its GNI per capita has dropped to a level making it eligible for the PRGT. - All countries meeting the income and/or market access graduation criterion (based on relevant income and market access data) face SSTV warranting retention of PRGT eligibility. - No other changes to the PRGT eligibility list are warranted based on the revised criteria. - Quota-based threshold adjustments once the 16th GRQ take effect: - Proposed revision of market access thresholds for entry and graduation: - From "25 percent and 50 of quota, respectively, to 20 and 3 5 perc ent of a member’s quota under the 16th GRQ (see Annex XIII)." - Proposed revision of the minimum annual issuance threshold: - From "2 percent of quota" to "1.5 percent of quota of a member’s quota under the 16th GRQ." - Rationale: ensure broad stability of market access thresholds in SDR terms, which is also used for determining blending status. - Footnote context: - 57: "As part of IDA20, countries with higher income and at moderate risk of debt distress have been moved from 50/50 grant/loan allocation to 100 percent loan allocation." - 58: Restoring SSTV assessments would include "members with GNI per capita above 50 percent of the graduation threshold as was the case before 2015." ### B. Adjusting the PS-HCC - Motivation: - Need for a targeted adjustment to the PS-HCC while the Independent Evaluation Office (IEO) evaluation of Exceptional Access policy (covering PRGT EA, GRA EA, and PS-HCC) is ongoing and expected to complete by end- 2024. - Concern: for PRGT-eligible countries with significant market access, the PS-HCC imposes a more stringent debt sustainability requirement than the GRA EA framework, which may be incoherent with the PS-HCC objective to "provide the same quality of safeguards to Fund resources that is provided by meeting the GRA EA criteria".59 - Risk: a PRGT-eligible country with market access might seek additional GRA financing to trigger the GRA EA only to avoid the PS-HCC, even if GRA financing is higher cost. - Staff proposal: - Align the PS-HCC debt sustainability criterion with that under the GRA EA for LICs that meet the GRA EA market access criterion (GRA EA3). No change for countries that do not meet GRA EA3. - Specific condition: - Where public debt is considered sustainable but not with a high probability,60 and the member has prospects of gaining or regaining private capital market access within a timeframe and on a scale that would enable meeting IMF obligations (including to the PRGT), combined access above current PS-HCC thresholds would be justified if financing from non-Fund sources improves debt sustainability and sufficiently enhances safeguards for Fund resources. - Implementation: - Change would become effective immediately for all financing requests subject to the PS-HCC policy, including ongoing programs. - Footnotes: - 59: See "Policy Safeguards For Countries Seeking Access To Fund Financial Support That Would Lead To High Levels Of Combined GRA-PRGT Exposure (Executive Summary)." - 60: Under PS-HCC, public debt is generally considered sustainable with high probability for countries assessed under the LIC-DSF when the country has a low or moderate overall risk of public debt distress. ### C. Extending temporarily the current Cumulative Access Limits (CALs) for the RCF - Motivation: - June 2023 extension of higher CALs under the RCF preserved LICs’ borrowing space for Emergency Financing (EF) under PRGT: - For the Exogenous Shock Window (ESW) and the Large Natural Disaster Window (LNDW), CALs were kept at "150 and 183.3 percent of quota respectively"—50 percent of quota above pre-pandemic levels. - An increase of 25 percent of quota to the ESW CAL was preserved for countries that accessed the now-elapsed Food Shock Window (FSW) through RCF. - These temporary higher CALs were extended until completion of the 2024 PRGT Review. - Outcomes since extension: - Extension did not lead to prolonged reliance on EF or impede transition back to UCT arrangements. - As discussed in paragraph 16, most PRGT-eligible countries resumed or transitioned to UCT-quality programs or did not request follow-up Fund support. - Only 3 out of 51 countries had no UCT-quality programs but received additional EF since 2022, of which 2 under the FSW. - Since the June 2023 extension, only 1 RCF was approved (as of end-August, 2024). - Risk of abrupt reversion: - Reverting RCF CALs to pre-pandemic levels upon completion of the 2024 PRGT Review would significantly contract LICs’ EF borrowing space. - Most LICs have EF borrowing space at or above 50 percent of quota at current higher CALs; reversion would substantially reduce borrowing space. - As of end-2024, most of the 38 non-presumed blenders that accessed the RCF since the pandemic would be left with an RCF borrowing space at zero or well below 50 percent of quota, since repayments begin only at end of 2025 (Annex XI). - This could constrain the Fund’s capacity to provide urgent BoP support where UCT arrangements are not necessary or feasible. - Staff proposal: - Extend the RCF CALs until end-December 2025 to allow review before that date, taking into account the upcoming Review of RFI CALs and the general review of GRA access limits. - Coordination and recalibration: - Staff has noted interactions between RCF and RFI limits and the need to address progressive erosion of EF when scaled to GDP or external financing needs. - If the quota increase under the 16th GRQ becomes effective before end-December 2025, RCF CALs will be revised down to: - "70 percent of quota for the regular window, 105 percent of quota for the ESW, and to 125 percent of quota for the LNDW" to broadly preserve their SDR level. - Annual access limits under the RCF would be reduced to: - "35 percent of quota for the RCF regular window and the ESW, and to 55 for the LNDW," while the per arrangement cap would be resized to "17.5 percent of quota" once the 16th GRQ quota increase becomes effective (see Annex XIII). - Footnote 61: "The adjusted limits are rounded up from the value that would be needed to exactly preserve the SDR value of limits after the 16th GRQ quota increase. The expected impact on PRGT demand can be accomodated within the estimated lending envelope." ### D. Promoting the precautionary use of the SCF - Motivation: - Precautionary use of the SCF provides multiple benefits similar to GRA precautionary facilities: - Provides immediate financing if shocks materialize and signals to markets that risks are limited. - Program conditionality can create policy space to manage diverse external shocks. - Particularly relevant for frontier market countries to sustain market access or catalyze external support (Annex XII). - Empirical observations: - Since 2010, "21 percent of quota allotments under PRGT precautionary arrangements were ultimately drawn." - Precautionary arrangements can reduce the need for drawing PRGT arrangements by improving market access and external support. - Increased precautionary SCF use could help frontier markets insure against shocks and accelerate graduation to the GRA while containing PRGT resource needs. - Staff proposal: - Increase outreach to better highlight SCF benefits and facilitate its use: - Survey results (Annex XII. Figure 3) indicate frontier market benefits of precautionary arrangements might not be fully internalized. - Propose increased information sharing on available PRGT lending tools, their benefits, and tailored support for facility use to address knowledge gaps and promote SCF precautionary use. - No immediate policy changes proposed to facilitate precautionary SCF use: - Mission chiefs cited prevalence of actual and protracted BoP needs as primary reason for limited take-up. - Any policy changes would require comprehensive analysis of implications across other precautionary facilities. ### E. Streamlining the requirements on Poverty Reduction Strategies (PRS) - Motivation: - PRGT-supported programs aim to enable members with BoP problems to make progress towards, restore, or maintain a stable and sustainable macroeconomic position consistent with poverty reduction. - The PRS policy was introduced to strengthen program design linkage to poverty reduction and foster ownership. - The Fund’s approach to supporting poverty reduction through PRGT programs has not been comprehensively assessed since 2015; a comprehensive assessment is warranted.62 - Mission chief feedback indicates a need to streamline PRS procedural requirements while strengthening program links to poverty reduction: - Around a fifth of surveyed mission chiefs63 identified challenges with current requirements seen as administratively cumbersome, unevenly enforced, and adding little to program design by relying on often overly ambitious documents.64 - Suggestion: greater use of the Staff Report to demonstrate authorities have credible development and PRSs in place. - Staff proposal: - Conduct a stand-alone review of the Fund’s PRS policy: - Take stock of PRS role in LICs and Fund-supported programs, experience with current PRS policy implementation, and current WB approach to assessing PRSs. - Ensure PRGT-supported programs continue to support economic policy and reform agendas rooted in country-owned PRSs. - Explore ways to streamline procedures, ensure congruence with other development partners, and enhance domestic ownership of PRSs. - Contextual notes: - Currently, a Poverty Reduction and Growth Strategy (PRGS) is required under PRGT arrangements with an initial duration of more than two years. - WB no longer requires a PRGS for IDA financing, though Country Partnership Frameworks remain anchored on national development strategies. - Survey of mission chiefs (September 2023) received responses from 39 mission chiefs covering 42 PRGT countries, informing these recommendations. ### Enterprise risk analysis (selected risks and mitigation) - Staff identified enterprise risks with potentially large impact across main reform pillars and proposes prudent mitigations. - Lending policy proposals — enterprise risks: - Business risk — Analytical accuracy: - Future PRGT financing demand may be underestimated in staff's central scenario if unexpected external shocks increase BoP needs. - Mitigation: annual reviews of PRGT resource adequacy and periodic Reviews of PRGT Facilities and Finances to reassess lending demand versus self-sustained lending capacity and propose contingencies (Box 6). - Financial risk — Credit: - Reform options for tiered interest rates could increase debt service for Tier 2A and 2B countries to the Fund, potentially affecting repayment capacity and Fund credit risk. - Staff assessment of containment: - The poorest LICs (almost half of PRGT-eligible countries) would retain zero-interest rate borrowing. - LICs affected by interest rate reform generally rely less on Fund finances and are accustomed to more expensive market borrowing. - Debt sustainability impact of proposed interest rate changes, including on IDA rates, would likely be very limited. - Further steps: - Impact will be assessed in periodic Reviews of PRGT Facilities and Finances. - Borrower impacts to be assessed in a targeted PRGT review in three years; further reforms proposed if credit risk is unacceptable. - Operational risk: - Human capital risks linked to resource constraints in applying proposed PRGT changes due to existing HR pressures. - Mitigations: reprioritization of workstreams and hiring, better communication to help staff navigate changes, or reallocating functional department support. *Italic: Source — ppea2024047 - 78. The PRGT eligibility framework, important to target concessional resources to the LICs* ### 97. Enterprise risks assessment for strengthening PRGT finances, regarding mobilizing ### Enterprise risks assessment for strengthening PRGT finances, regarding mobilizing internal resources and the investment portfolio ### Financial and operational risks from proposed mobilization measures - Operational income and cashflow may arise from suspending the reimbursement of the GRA for PRGT administrative expenses, and the possible distribution of GRA net income/general reserves. - Implications could affect both the GRA (e.g., the speed of the accumulation of precautionary balances may be affected) and the PRGT (e.g., the timing of transfers to the PRGT may be affected by conditions in the GRA). - Key mitigant: the Fund’s diversified income model. - Any distribution of GRA resources would depend on a holistic assessment of the adequacy of precautionary balances and the Fund’s financial position. - Taking into account the impact of the proposed policy changes discussed in the Review of Charges and the Surcharge Policy― Reform Proposals (forthcoming), estimated projected net income of the General Resources Account generated during FY2025 to 2029 could allow for possible distributions, to members, of SDR 6.9 billion cumulatively, while preserving the capacity to further increase precautionary balances by about SDR 1.6 billion. - Further details referenced in the accompanying Board paper on GRA reserve distribution. ### Risks to the investment portfolio - Investment returns are subject to market risk which could lead to lower-than-expected resources for PRGT lending and jeopardize the self-sustainability of the PRGT. - Mitigant: an appropriate investment policy established for the specific purpose, risk tolerance, and horizon of the underlying assets, including performance monitoring and reporting at the Investment Oversight Committee and the Board. ### Reputational and business risks - Reputational Risk: Charging positive interest rates on PRGT members could be controversial; advocates for LICs will likely object to the Fund asking PRGT-eligible member countries to pay interest on PRGT financing. - Communication strategy under development to: - Emphasize continued provision of zero-interest rate loans to the poorest countries. - Emphasize enhanced volumes of support that reforms will enable for comparatively better-off LICs. - Stress that support for better-off LICs will remain on terms considerably more favorable than commercial rates. - Highlight that the access norm is expected to adequately cover prospective demand for concessional financing, while access limits will provide flexibility for countries facing larger needs. - Business risk – Geopolitical Tensions: Distribution of GRA reserves or income, and sale of gold, would be controversial among member states; an effective and inclusive communication strategy is important to minimize this risk. ### Staff conclusion on risks from action - Staff assesses the enterprise risks associated with inaction are more significant in impact and likelihood than the risks associated with the policy proposals. - With already elevated PRGT financing needs and a more shock prone world, keeping the current policy mix would lead to insufficient PRGT resources with a much higher likelihood, and could prevent the Fund from fulfilling its mandate. - Staff have proposed mitigating strategies for risks associated with the proposals; remaining risks have a low probability to occur. - Main mitigant of inaction risks would be severe rationing of concessional credit, requiring considerable changes to the access policy (see Box 6). LIC members can also request financing under the GRA—with less favorable lending terms. ### Enterprise risks assessment from not implementing reform proposals - Financial Risk – adequacy and liquidity of Fund resources: - In the absence of new bilateral subsidy contributions at the scale proposed, the PRGT’s annual self-sustained commitment capacity would fall to about SDR 1 billion by 2027. - This would severely limit the IMF’s capacity to support LIC members with concessional financing. - Business risk – Member engagement: The scenario would hinder the Fund fulfilling its mandate of supporting LICs in a shock prone world. - Reputational risks – objectivity and credibility: Fund’s credibility will be at risk due to increased concerns over evenhandedness in program engagement. - Strategic risk: Over time, risks could include weakening of the global safety net, a shift away from borrowers to other sources of financing, and weakening of multilateralism. ### Box 6 — Mitigating Measures for Insufficient PRGT Resources (summary) - Demand-constraining policy responses: - Tightening access limits and norms or restoring hard caps. - Measures to increase lending capacity (each with limitations and likely significant reductions in the PRGT lending envelope): - Internal resources: a further five-year extension of the suspension of the reimbursement of PRGT expenses to the GRA would reduce PRGT outflows by about SDR 100 million a year, enabling lending to be around SDR 400-500 million a year higher for the duration of the suspension, but still leave capacity well short of anticipated demand. - Gold sales: sale of a relatively small portion of the Fund’s gold holdings could provide significant resources, but is unlikely to garner required political support in the near term; could be revisited in the medium to longer term if demand from LICs exceeds projections. - Additional bilateral fundraising (not linked to a distribution): scope is limited given tight budget constraints, donor fatigue, and competing fundraising initiatives (IDA21, RST, CCRT), though prospect of PRGT lending falling to SDR 1 billion a year could catalyze some donor support. - Further increasing interest rates: could increase capacity and constrain demand, particularly for Tier 1 countries, but scope limited by debt sustainability implications and the PRGT’s concessional mandate. - Suspension of PRGT eligibility for a subgroup of countries (e.g., graduating all countries above the IDA operational income cutoff): would be at odds with decades of practice aimed at guarding against reversals and ensuring concessionality for vulnerable countries. - If above measures are insufficient, severe measures to constrain demand would be needed, including: - Reintroduction of hard caps on exceptional access under the PRGT. - Introduction of per-arrangement caps beyond presumed blenders. - Reductions in access limits and/or the norm (including a lower norm for countries with higher credit exposure). - Increasing the portion of GRA financing in blended arrangements. - Modifying eligibility policies to accelerate graduation. - Note: Staff is already recommending a lowering of the PRGT norm to 145 percent of quota in the baseline. ### Issues for discussion (as presented) - Do Directors support the proposed changes to PRGT lending policies? - Do Directors support the financing proposals to close the gap in PRGT subsidy resources? - Do Directors support the proposed approach for managing PRGT loan resources? - Do Directors agree with the proposed refinements to the investment strategy to support greater variability in cash flows under the new financing framework? - Do Directors agree with the changes to the graduation criteria from the PRGT-eligible list and the clarification of the market access criterion? - Do Directors agree with the list of PRGT-eligible countries? - Do Directors agree with the adjustment to the PS-HCC framework? - Do Directors support maintaining the RCF CAL at current levels until end-2025, with a downward revision of all RCF access limits related to the 16th GRQs increases as proposed? - Do Directors support having a standalone PRS review? *Source: ppea2024047 - Enterprise risks assessment for strengthening PRGT finances (selected excerpts).* ### 4. Social Spending. The IMF engages with its members on macrocritical social spending issues, ### 4. Social Spending. The IMF engages with its members on macrocritical social spending issues, ### Social spending collaboration and role - The IMF engages with members on macrocritical social spending issues, designing broad policy frameworks and providing country-specific support. - The IMF and the World Bank (WB) collaborate closely to ensure consistency of policy messages and improve traction, leveraging the WB’s experience in designing and implementing social spending schemes. ### Climate change and resilience (cross-cutting with social outcomes) - LICs face significant risks from climate change, including increased vulnerability to extreme weather events, food insecurity, and economic instability. - The institutions’ Enhanced Cooperation Framework for Climate Action aims to support country authorities to bring together development partners, the private sector and civil society to address the effects of climate change. - IMF instruments and inputs: - Resilience and Sustainability Trust (RST): provides financial support to LICs alongside policy advice and capacity development to build climate resilience and integrate climate risks into macroeconomic frameworks. - Climate Policy Diagnostics and Climate Macroeconomic Assessment Programs (CMAP): IMF inputs to lending operations. - WB instruments and inputs: - Country Climate and Development Reports (CCDR): important inputs for lending operations. - Long-term financing and technical assistance for climate-resilient infrastructure projects and renewable energy initiatives. - Option for some members to include Climate Resilient Debt Clauses (CRDCs) in IBRD loans and IDA credits permitting the borrower to defer debt service payments of the loan for up to two years, following the occurrence of a pre-specified natural disaster. ### Governance - The IMF and the WB collaborate to strengthen governance in LICs, often focusing on enhancing public financial management, including public procurement and transparency. - The two institutions jointly assess compliance with international transparency standards in 12 policy areas through the Standards and Codes Initiative. - The IMF closely collaborates with the WB on governance diagnostic missions to identify and address governance challenges in a broader array of areas. ### Key numeric snapshot and figure labels (as presented) - 24.5 - 17.5 - 13.2 - 1.5 - 5 - 6.7 - 2.8 - 2.3 - 0 - Labels: AEs EMEs LIDCs; Potential-actual taxes (with EMEs institutions); Potential-actual taxes; Actual taxes ### Annex III — Estimating Demand for PRGT Financing: methodology and projections - Long-term demand estimate range: between SDR 2.0 and 3.4 billion annually. - Medium-term demand could be about SDR 0.4 billion higher consistent with gradual adjustment to recent shocks. - Central scenario long-term lending estimate: between SDR 2.5-3.0 billion; medium-term demand could be about SDR 0.5 billion higher. - Short-, medium-, and long-term definition: - Short-term: 2024. - Medium-term: 2025 to 2029. - Long-term: from 2030 (projected average demand over the next decade assumed to reflect average annual lending from 2030). ### Short-term demand (2024) - New PRGT commitments could reach about SDR 7 billion in 2024. - New Board approved PRGT commitments in 2024 stood at SDR 3.5 billion by end August. - Projected disbursements in 2024 used for medium-term anchoring: SDR 5.2 billion (including disbursement from existing commitments and projected new commitments of around SDR 7 billion in 2024), representing 5 percent of the projected external GFN. ### Medium-term demand methodology and observations - Medium-term demand anchored on PRGT lending share of countries’ external GFN (sum of current account deficit and external debt amortization). - Historical share of aggregate PRGT disbursements in total GFN: relatively stable at or below 2% between 2011 and 2019; increased dramatically in 2020 due to RCF EF during COVID-19. - For 2024, starting point share corresponds to PRGT disbursements of SDR 5.2 billion equal to 5 percent of projected external GFN. - Medium-term projections assume gradual decrease in PRGT share of GFN over next 5 years towards longer-term level. - Aggregate GFN decreases in 2027-28 due to assumption that several PRGT countries will graduate from the PRGT and are thus dropped from the sample. ### Long-term demand methodology - Model assumptions: 1. Probability of countries accessing PRGT resources each year. 2. Access levels per facility. 3. Trend growth of per country access levels over time to avoid erosion of access in real terms. 4. Blending status and graduation from PRGT eligibility. - Access per PRGT-eligible country is assumed to grow by 6.25 percent from 2028 onwards based on average historical and projected growth of nominal GDP of PRGT-eligible countries. - Number of PRGT-eligible countries assumed to fall from 70 to 62 countries by the end of 2034, while number of presumed blenders remains broadly unchanged. ### Large nominal programs and buffer - Scenarios include a buffer of SDR 0.3 billion in annual demand to reflect that large nominal arrangements could increase demand beyond model assumptions. - Historical average new commitments: - Annual Average (2010-2023): Actual commitments 1.39; Counterfactual commitments at average PRGT quota and applicable norm 1.04; Difference 0.35 (in SDR billion). - Annual Average (2010-2019): Actual 0.86; Counterfactual 0.82; Difference 0.04. - Annual Average (2021-2023): Actual 3.46; Counterfactual 1.87; Difference 1.59. - Observed deviation is driven by a few large programs between 2021 and 2023. ### Demand scenarios and quantitative outcomes - Low demand scenario: - Medium-term average annual demand: SDR 2.3 billion. - Long-term lending: SDR 2.0 billion. - Assumptions: share of PRGT disbursements in GFN declines to pre-pandemic average by 2029; small increase in frequency of EF requests; example: average three-year ECF access at 135 percent of quota compared to past average about 120 percent of quota (2010-2023). - High demand scenario: - Medium-term annual average demand: SDR 3.8 billion. - Long-term demand: SDR 3.4 billion. - Assumptions: share of PRGT disbursements declines only to pandemic-period average (2021-23); external GFN assumed 10 percent higher than WEO projections; about one-third of PRGT-eligible countries access an ECF/SCF simultaneously; frequency of EF doubles compared to pre-pandemic period; typical three-year ECF access of 200 percent of quota. ### Central lending envelope (staff proposal and assumptions) - Central estimate long-term lending from 2030: SDR 2.7 billion. - Long-term lending range from 2030: between SDR 2.5 and 3.0 billion. - Medium-term (2025-2029) average lending: SDR 3.2 billion. - Central scenario assumptions: - Access policies: annual and cumulative access limits remain aligned with current GRA access limits (200/600 percent of quota), norm reset to 145 percent of quota (pre-2023 temporary increase in access limits). - Elasticity of average access levels to distance between access limits and norms estimated at 0.1, implying on average 10 percent higher ECF/SCF arrangement size for non-blenders. - Short- to medium-term projections: share of PRGT disbursements in GFN consistent with midpoint between 2010-19 and 2021-23 averages; augment commitments by 10 percent for demand attributed to non-blenders to reflect increased access levels relative to the norm. - Long-term projections: average access under a three-year ECF close to 190 percent of quota instead of 145 percent of quota; more than two-thirds of this increase reflects assumption on large nominal programs; program likelihood between low and high scenarios; coverage of temporary but not sustained periods of high demand. - Sensitivity: modifying key assumptions (start date of access growth, effect of norm/access distance, adjustment for large nominal access cases, graduation assumptions, precautionary nature of SCFs) typically adds or subtracts broadly SDR 0.3 billion to estimated long-term demand. ### Sensitivity table highlights (Central Scenario; in SDR billion) - Baseline long-term demand: 2.7 - Access growth to start in 2026 instead of 2028: 3.0 (difference +0.30) - Access growth to start in 2030 instead of 2028: 2.52 (difference -0.21) - No effect from higher distance norm/access limits: 2.54 (difference -0.19) - No adjustment for large nominal access cases: 2.43 (difference -0.30) - No countries graduate over next decade: 2.88 (difference +0.15) - No SCFs will be precautionary: 2.91 (difference +0.18) *International Monetary Fund — ppea2024047 (4. Social Spending; Annex III: Estimating Demand for PRGT Financing)* ### 1. Access norms have emerged as a distinctive feature of the Fund’s concessional ### 1. Access norms have emerged as a distinctive feature of the Fund’s concessional ### Role and operational principles of access norms - Access norms guide efficient use of scarce PRGT concessional resources and help calibrate program access in contexts of protracted BoP problems common in LICs. - Norms: - Are neither ceilings nor floors and should not be viewed as entitlements. - Do not replace case-by-case judgment; actual access is determined based on i) the member’s BoP need, ii) the strength of the program and the member’s capacity to repay, and iii) the member’s outstanding Fund credit and record of past use. - Other policies (e.g., access limits and caps) also govern access levels and together allow tailored support while preserving PRGT resource efficiency. ### Annex IV. Box 1 — Access limits and caps as safeguards for PRGT resources - Normal access limits (annual and cumulative) serve as a key pillar of the safeguards framework by: - Triggering higher scrutiny and policy requirements under the EA framework for eligible countries. - Limiting access for other countries. - Access caps: - Provide further constraints on PRGT resource use. - In 2021, hard caps were abolished for the poorest LICs (those eligible for EA framework, currently 31 out of the 69 PRGT-eligible countries) but maintained for the others. - Hard caps (at normal access limits) apply to all countries that meet the income criterion for presumed blending when a new financing request (including augmentation/rephasing) is made. - Presumed blenders are also constrained by a per-arrangement cap aligned with the access norm. ### Historical evolution of access norms and key milestones - Access norms introduced in 1987 under the ESAF and adjusted at least 10 times to reflect: - Shifts in global economic conditions. - Evolving Fund concessional financing architecture. - Outcomes of successive General Reviews of Quotas. - Key historical elements: - Initial norms set in percent of quota; subsequent adjustments addressed erosion relative to GDP and trade. - Introduction of tiered norm structure (1999 and extended in 2004) with lower access norms for successive arrangements; reformed with PRGT creation in 2009 to reduce complexity and use two tiers based on credit outstanding. - In 2021, a unified norm of 145 percent of quota was introduced for three-year ECF arrangements and eighteen-month SCF arrangements. - A temporary increase to 200 percent of quota was approved on December 8, 2023, as part of temporary increase in PRGT access limits. ### Empirical effects: Norms as anchoring device and recent deviations - During 2010-23, median program access across all PRGT arrangements approved for non-presumed blenders was equal to the norm. - Considerable variance around the norm observed across the economic cycle: - Median and average program access deviated above the norm during shocks (e.g., 2017 commodity price decline; COVID-19 pandemic; war in Ukraine). - Median program access remained at or below the norm in calmer episodes. - Recent large deviations: - Since 2019 and the Covid-19 pandemic, a few countries with quotas exceeding SDR 300 million requested UCT-quality programs with access surpassing the norm by over 100 percent of their respective quotas. - These cases resulted in additional PRGT commitments totaling SDR 5.4 billion above what would have resulted from access at the norm. - These cases highlight the norm’s advisory role and motivate staff to include a buffer in future PRGT demand estimates for above-norm cases, especially for countries with large quotas. ### Proposal: Reaffirming the role of the access norm and reverting to 145 percent of quota - Rationale: - Norms have anchored median PRGT arrangement sizes while requiring periodic adjustments to account for erosion and major crises. - Changes since 2020 increased the ratio between the norm and demand metrics above their 2010-19 averages; an upward move accommodated extraordinary shock-related needs. - Proposal specifics: - Revert the access norm for 3-year ECFs and 18-month SCFs to 145 percent of quota. - Expected outcome: keep the norm scaled to economic variables at a level larger than before the pandemic but more conservative relative to recent elevated norms, better aligning future lending with PRGT supply constraints while accommodating a more shock-prone world. - Measurement note: - Ratios are calculated by dividing the unweighted average access norm applied to the median quota of the PRGT-eligible sample by the median value of the respective economic indicator of the same sample. ### Flexibility in individual cases and relationship to access limits - Historical evolution of the distance between the norm and the CAL: - In 1987, the norm-to-CAL ratio was 3/4, offering limited room above the norm. - Over time the distance widened and the ratio stabilized at 1/3 since PRGT establishment in 2009, providing greater flexibility to support higher-need cases while anchoring median access. - Staff proposal on norms and access limits: - Reduce the norm to 145 percent of quota while maintaining PRGT access limits at 200/600 percent of quota. - This is expected to slightly increase the average size of PRGT-funded programs for non-presumed blenders compared to a scenario where norm and limits both return to 145/435 percent of quota and their distance remains unchanged. - Historical evidence: when norm and access limits moved together, program access increased with the norm but additional borrowing space from higher access limits was only partially used. - Empirical finding: average program size historically remained below 50 percent of available borrowing space in various periods; only a handful of PRGT countries reached CALs. - Elasticity estimate: the elasticity of the deviation of mean access from the median access in response to changes in the distance between limits and the norm is estimated at 0.1 for concessional arrangements, using a sample of non-blenders over the 1988-2020 period. ### Blending policy (Annex V) — background, criteria, and staff assessment - Background and evolution: - Blending rules and access caps have been used historically to prioritize PRGT concessional resources for the poorest LICs and to signal transition toward market access. - 2009 reforms encouraged systematic blending for higher-income LICs; 2015 review changed standard blending ratio from 1:1 to 1:2 to partly offset a 50 percent increase in access levels and reflect increased market access by presumed blenders. - Until 2021, all PRGT-eligible countries had hard caps; poorest LICs were eligible for PRGT exceptional access beyond normal limits but with a cap. - 2021 refinements: - Blending rules made more robust and less complex. - Adjustments to the income threshold and market access threshold to avoid frequent flipping of blending status. - Access caps removed for the poorest LICs (roughly half of PRGT-eligible countries), allowing full PRGT financing, including beyond normal access limits, if PRGT exceptional access criteria are fulfilled. - Higher-income PRGT-eligible non-presumed blenders remain subject to caps (equal to the normal annual and cumulative access limits); presumed blenders face an additional per-arrangement cap, set at the unified norm. - Criteria for presumed blending (Annex V. Box 1): - A country is presumed to blend if it (i) meets the income criterion for blending and (ii) does not have debt vulnerabilities that limit access to international financial markets. - Income criterion: GNI per capita exceeded the IDA operational cutoff by at least 5 percent for two consecutive years; once met, maintained unless income per capita falls below 95 percent of the IDA operational cutoff. - Debt vulnerability criterion: deemed to have debt vulnerabilities that limit market access if assessed to be (i) in debt distress or (ii) at high risk of debt distress and either (a) has had limited past market access as specified under the blending policy or (b) is a small/micro state. - Staff assessment and targeting outcomes: - Staff assesses the current blending policy has been effective in targeting PRGT concessional resources to the poorest LICs and remains adequate. - Since July 2021, the GRA's share in the Fund’s overall financial support to LICs amounted to 30 percent, representing 9 blended arrangements totaling SDR 13.9 billion commitments (SDR 6 billion from the GRA) out of 42 total PRGT arrangements amounting to SDR 19.9 billion. - As of July 2024, there are 20 presumed blenders: - Three countries removed from the July 2021 list due to worsened debt risk ratings: Comoros, Ghana, and Lao PDR. - Four countries added: Cabo Verde, Mauritania, Federated States of Micronesia (due to improved debt risk rating), and Kyrgyz Republic (met income criterion and has moderate risk of debt distress). - Tajikistan met blending income criterion in 2024 but was exempted from blending due to high risk of debt distress and limited market access. - The absence of reversals on meeting the income criterion since the 2021 policy changes underscores enhanced stability of the framework. *Source: ppea2024047 - 1. Access norms have emerged as a distinctive feature of the Fund’s concessional* ### Annex V. Table 2. Countries Whose Blending Status has Changed Since the 2021 Review ### Annex V. Table 2. Countries Whose Blending Status has Changed Since the 2021 Review ### Blending ratio and rationale - The current 1:2 PRGT-to-GRA blending ratio, set in 2015, was assessed appropriate in the subsequent PRGT reviews (2018-19 and 2021). - Staff view: the current blending ratio remains appropriate despite challenging market conditions. - Rationale: - Increasing the PRGT share would amplify subsidy costs amid strained PRGT resources. - Expanding the GRA component could render the share of PRGT financing so small as to become meaningless. ### Evolution of GNI per capita and re-classification cases - Staff analyzed the evolution of GNI per capita across LICs from 2009 through 2023 and identify six cases where a country that met the income criterion later fell below 95 percent of the IDA cutoff level: Yemen, Tajikistan, Sudan, Zambia, Lesotho, and Myanmar. - Of these six cases, three (Yemen, Sudan, and Myanmar) reflect large declines in income levels linked to serious internal conflict that warrant re-classification to lower-income status. ### Changes in blending status (table entries preserved as in source) - Comoros — Size: Small — Removed 2021 — 2020 GNI/Capita 1,450 — Risk of debt distress (May 2021) Moderate — 2022 GNI/Capita 1,610 — Risk of debt distress (March 2024) High - Lao PDR — Removed 2022 — 2020 GNI/Capita 2,480 — Risk of debt distress (May 2021) High — 2022 GNI/Capita 2,120 — Risk of debt distress (March 2024) In debt distress - Ghana — Removed 2023 — 2020 GNI/Capita 2,230 — Risk of debt distress (May 2021) High — 2022 GNI/Capita 2,340 — Risk of debt distress (March 2024) In debt distress - Kyrgyz Republic — Added 2024 — 2020 GNI/Capita 1,160 — Risk of debt distress (May 2021) Moderate — 2022 GNI/Capita 1,700 — Risk of debt distress (March 2024) Moderate - Mauritania — Added 2022 — 2020 GNI/Capita 1,640 — Risk of debt distress (May 2021) High — 2022 GNI/Capita 2,150 — Risk of debt distress (March 2024) Moderate - Micronesia, Fed. States of — Micro Added 2023 — 2020 GNI/Capita 4,070 — Risk of debt distress (May 2021) High — 2022 GNI/Capita 4,150 — Risk of debt distress (March 2024) Moderate - Cabo Verde — Size: Small Added 2022 — 2020 GNI/Capita 3,060 — Risk of debt distress (May 2021) High — 2022 GNI/Capita 4,280 — Risk of debt distress (March 2024) Moderate --- ### Annex VI. Interest Rates Under the PRGT: Evolution Over Time and Staff Proposal ### Evolution and historical context - The PRGT interest rate mechanism was adopted in 2009 to increase concessionality, preserve PRGT resources, avoid permanently zero interest rates, tailor terms to LICs’ needs, and limit fluctuations in concessionality. - Before 2009, concessional lending was at a uniform rate of 50 basis points (bp). - Since 2009 no positive interest rate has been charged on PRGT credit; the Executive Board granted interest waivers covering 2010–16, and between 2016 and 2023 interest rates remained at zero based on prevailing low global interest rates. - In June 2023 the Board postponed the review of the mechanism for two years and kept rates at zero pending the 2024 PRGT Review. ### Shortcomings of applying the current mechanism - Current mechanism differentiates rates across lending facilities but not across borrowers. - Weak pass-through from the SDRi to PRGT lending rates due to wide SDRi threshold bands and biennial reviews. - RCF loan rate permanently set to zero in 2015, further weakening the link between PRGT borrowing cost and lending rates. ### Staff’s proposed tiered interest rate mechanism (summary) - Objective: differentiate interest rates consistent with the blending policy so PRGT resources and most favorable terms focus on the poorest LICs. - Two main groups: - Tier 1 (lowest income): interest-free lending (0 percent). - Tier 2 (higher income): positive interest rate, divided into two subgroups: - Tier 2A (presumed blenders; meet market access criterion): 70 percent of SDRi (expressed as 0.7 * SDRi). - Tier 2B (non-presumed blenders; do not meet market access criterion): 40 percent of SDRi (expressed as 0.4 * SDRi). - Annex VI. Table 3 (staff’s proposal, in percent): Tier 1 = 0; Tier 2A = 0.7 * SDRi; Tier 2B = 0.4 * SDRi. ### Operational modalities (staff proposal) - Effective date for the new PRGT interest rate terms: May 1, 2025. - Application: - Differentiated interest rates apply only to PRGT commitments under new arrangements approved after May 1, 2025. - A country’s tier at the time of program approval determines the interest rate terms applied to all disbursements under that arrangement, including augmentations and extensions. - Credit from disbursements under existing arrangements at the time of effectiveness (and any future disbursements under those arrangements) would not be subject to the new terms. - PRGT interest rates would be updated weekly with the SDRi; adjustments would be automatic (as with GRA Basic Rate of Charge). ### Subsidy savings from the staff proposal - Staff’s calibration and baseline assumptions imply the proposal could lower subsidy needs by SDR 2.3 billion. - For comparison, application of the current mechanism (assuming waiver lifted in July 2025) could generate SDR 1.3 billion. - Assumptions noted in Annex VI. Table 4 footnote: - Assumes an average lending envelope of the SDR 3 bn in 2025-34 and SDR 2.7 bn thereafter. - Assumes resumption of PRGT reimbursement to the GRA for administrative expenses in FY2027. - Annex VI. Table 4 (Subsidy Savings; SDR billion and Percent of Subsidy Needs): - Central Proposal: A Floating PRGTi with More Differentiation — 2.3 SDR billion — 25 percent - Alternative 1: A Fixed Band — 2.4 SDR billion — 26 percent - Alternative 2: A Floating PRGTi with Less Differentiation — 2.3 SDR billion — 25 percent - Memorandum Item — Application of the Current Mechanism — 1.3 SDR billion — 14 percent - Subsidy needs are estimated at SDR 9.1 bn, assuming zero interest rates for all PRGT facilities (estimates in 2025 NPV terms representing one-time injection to finance the Trust in perpetuity). ### Alternative interest rate mechanisms explored - Alternative 1: A fixed band — applies different fixed interest rates by tier with adjusted SDRi bands. - Fixed-band rates (Annex VI. Table 3): - SDRi < 0.5: Tier 1 = 0; Tier 2A = 0.50; Tier 2B = 0 - 0.5 ≤ SDRi < 2.5: Tier 1 = 0; Tier 2A = 1.00; Tier 2B = 0.25 - 2.5 ≤ SDRi < 4.5: Tier 1 = 0; Tier 2A = 3.00; Tier 2B = 0.50 - SDRi ≥ 4.5: Tier 1 = 0; Tier 2A = 5.00; Tier 2B = 1.00 - Alternative 2: A floating interest rate with less differentiation — Tiers 2A and 2B charged the same PRGT interest rate: - Alternative 2 rate: Tier 1 = 0; Tier 2A/Tier 2B = 0.55 * SDRi ### Assessment of alternatives (Annex VI. Table 5 summary) - Staff’s proposal pros: - Differentiates across LICs; stronger link with market rates; better aligns PRGT borrowing and lending rates; can be automatic; provides higher concessionality than other IMF lending instruments. - Con: exposes borrowers to some interest rate volatility. - Alternative 1 pros/cons: - Pros: differentiates across LICs; shields borrowers from excessive fluctuations; greater predictability. - Cons: weaker pass-through from SDRi; greater interest rate risk for PRGT finances; requires more Board involvement if not automatic; to generate subsidy savings may require relatively higher rate on Tier 2A. - Alternative 2 pros/cons: - Pros: simpler structure; similar to staff’s proposal. - Cons: differentiates less; potentially greater impact on Tier 2B’s debt vulnerabilities. --- ### Annex VII. Financial Impact of the New Interest Rate Mechanism on PRGT Countries ### Overall assessment - Staff’s analysis suggests the reform would have a limited and manageable impact on debt service costs, even under extreme scenarios. - A joint analysis with the World Bank estimates the combined impact of anticipated changes in IDA and PRGT lending terms on select members’ DSAs and concludes the impact would be limited. ### Impact on grant elements - The proposed mechanism preserves PRGT concessionality relative to the GRA: - Tier 1 countries: interest rate set to 0 percent (unchanged grant element). - Tier 2A and Tier 2B: reduction in the grant element of their PRGT loans (larger cuts for Tier 2A), but PRGT loans remain significantly more favorable than GRA and commercial lending. - Annex VII. Table 1 (summary lines preserved from source): - PRGT interest rates coefficients: 0.0, 0.4, 0.7 (coefficients to the SDRi). - Example grant element figures shown for RCF, ECF, SCF under varying PRGT interest rates and blends; grant elements decline as PRGT interest rates increase but remain favorable relative to GRA. *Source: IMF data (content unit: Annex V. Table 2 and Annexes VI–VII as provided in the source PDF).* ### Annex VII. Figure 1. Current Interest Rate on Commercial Loans 1/ ### Annex VII. Figure 1. Current Interest Rate on Commercial Loans 1/ ### Current interest rate context - SDRi is 3 percent (its medium- and long-term average projections). - Sources: Country authorities and IMF staff estimates. - 1/ The rate for each country is the average commercial interest rates reported in the most recent DSA file. ### Impact of the Tiered Interest Rate on Debt Service Costs - The proposed reform will increase the effective interest rate on PRGT credits—and consequently, debt service—gradually as disbursements from new commitments replace pre-reform credits. - IMF staff analysis finds the impact on debt service remains limited and manageable even under extreme scenarios. - Key projected peaks for representative median countries: - Tier 2A representative: yearly additional debt service peaks at 0.23 percent of government revenues in 2033. - Tier 2B representative: yearly additional debt service peaks at 0.27 percent of government revenues in 2032. ### Simulations, scenarios, and calibration assumptions - Representative countries: - The representative country in Tier 2A and Tier 2B is the country corresponding to the median PRGT credit outstanding at end-2023 excluding countries without Fund credit for each subgroup. - Access calibration and shock scenarios: - For the representative Tier 2A country there is only one shock scenario with the access calibrated at 90 percent of quota for the PRGT and 180 percent of quota for the GRA in order to maintain the long-term combined GRA and PRGT credit outstanding just below the GRA CAL of 600 percent of quota. - For Tier 2B there are two access scenarios: - (i) access at the norm (145 percent of quota) with repeated arrangements, and - (ii) access at 255 percent of quota, which maintain the long-term IMF credit outstanding just below the CAL of 600 percent of quota. - SDRi sensitivity: - The standard deviation of SDRi for the period 2000 to April 2024 is estimated at 1.52 percent. - A larger shock—equivalent to two standard deviations—was applied to the SDRi over a three-year period from 2026 to 2029. - Under this two-standard-deviation shock, maximum projected additional debt service (as percent of government revenues) is: - Tier 2A: about 0.29 percent, - Tier 2B: about 0.39 percent. ### Policy implications and complementary measures - The analysis highlights the benefit of the proposed policy change: affected countries experience modest increases in debt service under standard and extreme scenarios while enabling a larger lending envelope for LICs. - Complementary Fund-supported reforms, such as those focused on domestic revenue mobilization, will enhance macroeconomic stability and further mitigate the impact of these policy changes on member countries. ### Combined effect of proposed PRGT and IDA lending-term changes on public debt vulnerabilities - Exposure and tiering: - LICs with the highest exposure to Fund credit (exceeding 10 percent of their total external debt) are predominantly Tier 1 countries, which would not be subject to changes in PRGT lending terms according to the IMF staff proposal. - Some of these high-exposure countries could still be affected by IDA policy changes. - Debt-vulnerability assessment framework: - Sensitivity to PRGT and IDA changes gauged by closeness of solvency and liquidity indicators to the four applicable external debt burden thresholds set by the Debt Sustainability Framework for LICs (LIC-DSF). - Solvency indicators: PV of PPG external debt-to-exports and PV of PPG external debt-to-GDP ratios. - Liquidity indicators: PPG external debt service-to-exports and PPG external debt service-to-revenue ratios. - Relevant projection horizons: - For low- or moderate-risk countries: first 10 forecast years. - For high-risk countries: between the 5th and the 10th forecast years. - Countries already in debt distress are excluded from this analysis. ### Stress-test results and IDA interactions - Extreme stress-test (borrowing the maximum additional amount possible under current lending policies in a single instance) results: - Most countries would remain below the four applicable external debt burden thresholds. - Two Tier 2A and three Tier 2B countries could possibly breach the most binding external debt thresholds under this extreme scenario. - IDA proposed changes (current WB staff proposal highlights): - Key changes include: 1) limiting grants to maintain IDA’s long term financial sustainability; 2) offering choice between higher concessionality or higher volumes for some grant-recipient countries with grants as default for these countries; and 3) option of floating-rate loans for some borrowers with limited debt sustainability concerns, with possibility to opt for fixed-rate loans with trade-offs in financing volume. - These IDA changes would not apply to IDA-eligible small states. - Combined PRGT and IDA effect: - It is unlikely any additional countries would breach the most binding external debt thresholds under the proposed IDA lending-term changes. - Simulations for countries potentially affected by both PRGT and IDA changes show deterioration in solvency and liquidity indicators but no new breaches of external debt burden thresholds are expected. - Risk mitigant: borrower countries are unlikely to accept terms that worsen their debt outlook. - Most countries potentially affected by IDA lending-term changes are in Tier 1, not impacted by PRGT changes. - Details of proposed IDA changes are still being finalized. ### PRGT safeguards activation and recent trends - Evolution and purpose: - PRGT safeguards preserve concessional resources and mitigate credit risks to the Fund. - Exceptional Access (EA) introduced prior to 2009; HAP safeguards introduced in 2009; 2019 PRGT Review introduced a stock trigger as part of the HAP; PS-HCC introduced in 2020; Enhanced Safeguards (ES) introduced March 2021 and elaborated July 2021. - Recent activation statistics and observations: - Since 2015, 11 country requests led to use of the HAP, of which 9 translated into a PRGT arrangement. - Following March 2021, the ES were triggered for 19 arrangements, out of which 14 were linked to the debt risk rating criterion. - 54 percent of LICs were at high risk of, or in, debt distress at the end of 2023. - Four countries met the ES flow trigger but not the HAP flow trigger since March 2021. - PRGT EA cases include: Ethiopia (2019), Somalia (2020), and Chad (2021). - One PS-HCC case: Ghana (2023). *Source: IMF staff calculations and analysis as presented in Annex VII and Annex VIII of the provided content.* ### Annex VII table 5 for the details of the information requirement for ### ppea2024047 - Annex VII table 5 for the details of the information requirement for ### Proposed Strengthened Policy Safeguards (SPS) framework - Staff proposes consolidating the current HAP and ES into a single coherent framework for high access—the “Strengthened Policy Safeguards (SPS)”. - SPS is divided into three categories: SPS1, SPS2, and SPS3 (see Annex VIII. Table 3). - Objective: preserve the respective objectives of HAP and ES while enhancing operational efficiency by harmonizing and streamlining triggers. Key numeric trigger rules and thresholds (preserved exactly as in source): - Flow triggers linked to the PRGT access norm and specified as a multiple of the norm: - Access above 125 percent of the norm triggers ES1A (granular discussion of debt composition and evolution) and ES1B (enhanced capacity to repay analysis). - Access above 150 percent of the norm necessitates an informal Board meeting; ES1A and ES1B included in informational requirement at this threshold. - Stock trigger remains unchanged at 300 percent of quota. - De minimis threshold for application of high access safeguards increased from 15 percent of quota per arrangement to 25 percent of quota per arrangement. - For ECF arrangements (representing 88 percent of the PRGT arrangements approved since 2010), SPS would be activated at lower access levels than in the current policy; for SCF arrangements, triggers activate at slightly higher access levels. SPS content and required informational elements: - SPS1 (ES1A and ES1B): Granular discussion of composition and evolution of debt; Enhanced CtR analysis informed by cross‑country comparisons of metrics of Fund exposure. - SPS2 (HAP+ES1A and ES1B): Same as SPS1 with stronger triggers. - SPS3 (ES1A, ES1B, ES2): Granular discussion + Enhanced CtR analysis + Explicit program objective to reduce debt vulnerabilities; applies for debt risk ratings High/in distress. ### Changes to Board oversight and informational requirements - Strengthened Executive Board oversight: inclusion of ES1A and ES1B in informational requirements underpinning informal Board discussions when reaching 150 percent of the norm; the same requirements triggered by the unchanged 300 percent of quota stock trigger. - Information requirements harmonized with those required when the PS-HCC applies (see Annex VIII. Table 6). Annex VIII. Table 6 — Proposed harmonization highlights (preserving wording and order): - PS-HCC current items summarized and mapped to PRGT EA/HAP current items and New Proposal harmonizing the two and adding the ES requirement for the SPS. - Notable proposed additions under the New Proposal include: - "An enhanced CtR analysis informed by cross-country comparisons of metrics of Fund exposure (ES1B) including relevant charts and CtR table." - "A more granular discussion of the composition and evolution of debt, with a particular focus on external debt that is more difficult to restructure (ES1A)." - "In SPS cases with high risk or in debt distress, have explicit program objective to reduce debt vulnerabilities." ### Calibration, robustness checks, and retrospective application - Proposed flow triggers calibrated to strengthen the risk-based approach while complementing unchanged stock triggers with flow triggers per new arrangement. - For a 3-year ECF (18-month SCF), annualized flow trigger comparisons preserved as stated: - "For a 3-year ECF (18-month SCF), the annualized flow trigger for SPS1 is approximately 60 percent (121 percent) of quota, compared to 100 percent of quota per year for the ES." - "The annualized flow trigger for SPS2 is 73 percent (145 percent) of quota, compared to 80 percent of quota for the HAP." - Applying the proposed framework to programs approved since March 2021: - "The application at program approval of the stock and flow triggers for SPS2 to all programs approved since March 2021 would have brought under Executive Board scrutiny the same countries that triggered the HAP." - "For SPS1, the application of the new threshold would not have captured two countries that triggered the ES flow trigger—Tanzania and Rwanda, both at moderate risk of debt distress with less than 200 percent of quota PRGT credit outstanding—but would have brought Uganda under the ES." Additional projection/numeric assessments preserved exactly: - Current stock trigger: 300 percent of quota. - Note on stock trigger population: "Currently, Chad is above the stock trigger and 24 countries are less than 145 percent of quota (the norm) below the stock trigger." - Projection: "Based on current arrangements and active requests, staff projects that Ethiopia and Uganda would be above the stock trigger in 2030, while another 19 countries would be less than 145 percent of quota below the stock trigger." ### Examples and operational details (Annex VIII. Table 5 and related examples) - The Annex provides illustrative cases of SPS application with specific program characteristics (facility, duration in months, access in % of quota, applicable norm, SPS1 met?, SPS2 met?, comments). - Examples preserve specific numeric norms and outcomes, including references to prorated norms and capping rules: - Examples reference norms such as "181", "218", "193", "242", "290", "302", "363", "254", "326" and program access values like "180", "250", "300", with annotations on prorating norms to differing durations (e.g., "Norm is prorated to 48 months"; "Norm is prorated to 60 months"; "Norm is capped at 193 (pro-rated norm for a 24 month SCF)"). - Operational notes preserved: - "Applicable norm is unchanged" and "Applicable norm prorated to 42 months", "Applicable norm prorated to 54 months". - Example augmentation scenarios: "50 percent of quota ECF augmentation to cases I and III without extension" and "50 percent of quota ECF augmentation to cases I and III with 6 months extension of the arrangement". ### PRGT eligibility review (summary points) - The Review of the PRGT eligibility framework and list of PRGT-eligible members was last completed in 2020 and is normally carried out every two years; the 2022 Review was initiated but postponed. - Staff assesses the current eligibility framework remains generally appropriate and proposes two targeted adjustments related to: - "(1) the time period and sources of the data used to assess market access and (2) the framework for assessing serious short-term vulnerabilities (SSTV) when considering higher-income countries’ potential graduation." - Based on the revised eligibility framework, staff proposes to add the Syrian Arab Republic to the list of PRGT-eligible countries. - No graduation from PRGT eligibility is proposed at this time. - Background notes preserved: - The PRGT eligibility framework was adopted in 2010, ringfencing concessional resources for members with income levels below a certain threshold and considering durable and substantial market access and presence of SSTV. - Graduation criteria set higher standards than entry criteria to limit risk of premature graduation. - The PRGT eligibility criteria and list have been reviewed in 2010, 2012, 2013, 2015, 2017, and 2020 with methodological refinements detailed in the source. *Source: IMF staff estimates.* ### 4. The PRGT eligibility framework continues to maintain broad alignment with the WB’s ### 4. The PRGT eligibility framework continues to maintain broad alignment with the WB’s ### Alignment with IDA eligibility framework - The PRGT eligibility framework continues to maintain broad alignment with the WB’s IDA eligibility framework. - Both frameworks are based on the IDA operational cutoff (i.e., the GNI per capita cutoff level set by the WB—US$ 1,335 since July 1, 2024), and have special provisions for small states, with the PRGT framework having also additional provisions for microstates. - As of July 202 4, seventy-seven countries are eligible to receive IDA resources, while sixty-nine are eligible under the PRGT. The two lists are aligned except in eight cases. - PRGT eligibility does not affect a country’s ability to access financing under the GRA; IDA-eligible countries can access IBRD financing only if assessed to be IBRD-creditworthy. ### Current criteria for entry and graduation from PRGT eligibility (summary of Annex IX. Box 1) - Entry: A member would be added to the list of PRGT-eligible countries if: - i. its annual per capita gross national income, based on the latest available qualifying data, is (a) below the operational International Development Association (ID) cutoff, or (b) less than twice the IDA operational cutoff for small countries (countries with population below 1.5 million but not less than 200,000), or (c) less than five times the IDA operational cutoff for microstates (countries with population below 200,000); and - ii. the sovereign does not have the capacity to access international financial markets on a durable and substantial basis. The market access criterion for entry is assessed using the same tests as for graduation except that market access under the first alternative test exists where bond issuance or disbursements under commercial loans during at least two of the last five years are equivalent to a cumulative amount of at least 25 percent of quota. - Graduation — Income Criterion: The country’s annual per capita GNI: - has been above the IDA operational cutoff for at least the last five years (for which qualifying data are available); and - has not been on a declining trend in the same period (comparing the first and final years of the available data); and - is currently (a) at least twice the operational IDA cutoff, or (b) at least three times the IDA operational cutoff for small countries, or (c) at least six times the IDA operational cutoff for microstates. - Graduation — Market Access Criterion: The sovereign has the capacity to access international financial markets on a durable and substantial basis, as measured by one of two tests: - Public sector issuance or guaranteeing of external bonds or by disbursements under public and publicly guaranteed external commercial loans in international markets during at least three of the last five years for which data are available, in a cumulative amount over that period equivalent to at least 50 percent of the country’s quota at the Fund at the time of the assessment. External bonds and commercial loans issued or contracted in markets not integrated with broader international markets do not qualify, including loans or bonds subsidized or guaranteed (partially or fully) by official external entities (including foreign governments and foreign public sector entities as well as international organizations), and loans from foreign state-owned banks. - A country would also be deemed to meet the market access criterion if there were convincing evidence that the sovereign could have tapped international markets on a durable and substantial basis, even though the scale or duration of actual public-sector borrowing fell short of the specified thresholds (case-specific assessment considering volume and terms of recent actual borrowing and sovereign credit rating). - Both tests take into account bonds/loans issued, contracted, or guaranteed by non-sovereign public-sector debtors where such borrowing is assessed as an indicator of the sovereign’s creditworthiness. - Safeguards before graduation under market access criterion: - annual per capita GNI is above the IDA operational cutoff; and - annual per capita GNI has not been on a declining trend during the last five years for which qualifying data are available. - Absence of serious short-term vulnerabilities (SSTV): In addition to meeting at least one of the above criteria, the country should not face serious short-term vulnerabilities, in particular absence of risks of a sharp decline in income or of a loss of market access, limited debt vulnerabilities as indicated by the latest Debt Sustainability Analysis (DSA), and confirmation that overall debt vulnerabilities have remained limited since the DSA was conducted. - For a member whose annual per capita GNI exceeds the applicable income graduation threshold by 50 percent or more, graduation from PRGT eligibility will not be subject to the assessment of serious short-term vulnerabilities. However, an assessment by the Executive Board of serious short-term vulnerabilities will be required where such members have “IDA grant-only” or “IDA loan-grant mix” status at the World Bank, in which case graduation will depend on an assessment that the member does not have such serious short-term vulnerabilities. (This paragraph is proposed for deletion in this Review.) ### Proposed changes and refinements (staff assessment and proposals) - Staff assesses the current PRGT eligibility framework to remain generally appropriate while proposing two targeted adjustments to account for data lags in the evaluation of the market access criterion, and to better reflect recent developments in the global environment and recent adjustments in IDA policies. - Relevant time period and data sources in the application of the market access criterion: - The current approach (adopted in the 2020 Eligibility Review) uses WB’s IDS data over the most recent five-year period for which complete annual data exist as the primary data source for assessing past market access. IDS data is reported only with a significant lag; IDS publishes complete annual data every December for the previous calendar year, producing a lag ranging from a minimum of 12 months to 23 months. - The lag in IDS data availability can lead to situations where countries could be wrongly assessed as not meeting the past market access criterion despite more recent market access. - Proposal 1 — Include non-IDS debt issuance data for recent periods not covered by IDS when such inclusion would satisfy the past market access test for entry or graduation and where past market access would otherwise not be satisfied due to the lag in IDS data availability. - Implementation would differentiate between two cases: - Countries that tapped the markets more recently than reported by IDS data, and which would meet the market access criterion based on the more recent information. For these countries, the applicable five-year period for assessing past market access shall include the calendar year of the issuance not covered by IDS that causes the country to meet the market access criterion plus the preceding four years. Dealogic would become the primary source of data for the period not covered by IDS, together with any other information on the member borrowing available to staff. Staff would confirm all market access data with the country authorities. - For all other countries, the applicable five-year period to assess past market access shall continue to be the most recent five-year period for which IDS data is available. - De minimis borrowing continues to be excluded from the “duration” threshold: if issuance or guarantee in a single year totals less than two percent of the member’s quota at the time of the assessment, that year shall not count towards meeting the graduation duration threshold; such amounts continue to count against the cumulative market access issuances (“scale” threshold). - For practicability, the market access assessment will have a cutoff date of two months before the issuance of the paper for the Board meeting for which the assessment is relevant; market access data becoming available after that date will not be included. - Rationale: This limited modification to the 2020 change aims to address borderline cases where countries would fail to be considered for graduation under the market access criterion only due to lack of timely IDS data, and to provide a clearer measurement than the "could have tapped" test. The proposed refinement is expected to affect only a small number of countries and is consistent with preserving concessional resources for the most vulnerable members. - Proposal 2 — Reinstate the requirement to assess and confirm the absence of SSTV for all eligible countries: - Staff assesses that the exemption from assessing SSTV for LICs with annual per capita GNI exceeding the graduation threshold by at least 50 percent has become obsolete. The current context of heightened uncertainty and a more shock-prone environment calls for greater scrutiny when considering potential graduation. - Staff proposes to reinstate the requirement to assess SSTV in all cases to limit risks of premature graduation (and/or possible reversals), including for higher income LICs, given the elevated uncertainty and diversity of non-economic disruptive shocks (wars, climate events). - Reinstating SSTV assessment for all cases would shield PRGT policies from further evolution of IDA policies (e.g., changes in IDA grant/loan mixes) and re-align the PRGT eligibility framework with its original design. ### Assessment of the list of countries eligible for PRGT entry and graduation - Staff proposes to add the Syrian Arab Republic to the list of PRGT-eligible countries. - Syria meets the income threshold for PRGT eligibility. Its GNI per capita was US$560 in 20 21, the latest available data. The data show that per capita GNI peaked at US$2,610 in 2011 and fell to the lowest point of US$560 in 20 21. - Syria does not have the capacity to access international financial markets on a durable and substantial basis as defined by the market access criterion: 1) Syria has not accessed international financial markets in the past five years according to WB IDS data, and 2) there is no convincing evidence that it could do so, given that it is in a state of default on international debt, it is subject to extensive economic sanctions, and it is not rated by credit rating agencies. *International Monetary Fund — 2024 PRGT REVIEW—REFORM PROPOSALS (Annex IX. Box 1 and accompanying text)* ### 15. Seventeen countries meet the market access criterion, the income criterion, or both ### 15. Seventeen countries meet the market access criterion, the income criterion, or both ### Overview - Seventeen countries meet the market access criterion, the income criterion, or both and could be considered for possible graduation. - Nine of these countries are not considered for graduation at this time due to their significant debt vulnerabilities—DSA assessment of high risk of external debt distress or debt distress (listed in black in Annex IX. Table 1). - The remaining eight countries that are not currently at risk of debt distress or in debt distress are not proposed for graduation after assessing their risks to face SSTV, including, but not limited to, the risk of a sharp decline in income, or of a loss of market access. The assessment for these countries (listed in blue in Annex IX. Table 2) includes information on the criteria met, the current economic outlook, including risks faced, and Fund engagement. ### Financing implication - The financial implications of the proposals are fully reflected in staff’s estimates on future PRGT finances presented in the PRGT review. - Staff’s projected future lending demand, the envisaged target for the self-sustained lending envelope, and the associated financing needs have taken into account the implications of the proposals of this eligibility review, including: - a) the adjustments to the time period and sources of the data used to assess market access; - b) the modification of the framework for assessing SSTV; - c) that no country is proposed for graduation from PRGT eligibility at this time; and - d) the addition of the Syrian Arab Republic to the list of PRGT-eligible countries. ### Assessments of countries that meet the graduation criteria and are not at high risk of debt distress or in debt distress - Bangladesh - Background: growth momentum moderated due to import compression and monetary tightening; inflationary pressures remain elevated. Sudden reversal of the financial account intensified pressures on FX reserves and the exchange rate. Authorities kept the fiscal deficit in check and moved to greater exchange rate flexibility. Social unrest led to an unexpected change in government in August. Bangladesh has ECF -EFF and RSF arrangements approved in January 2023. Bangladesh is at low risk of external debt distress. - Assessment: Staff proposes to maintain Bangladesh’s PRGT eligibility given the presence of SSTV that could result in a sharp decline of its income. - Income criterion: Bangladesh meets the income criterion for graduation. Its 2023 GNI per capita was US$2,860, or 114.2 percent above the IDA cutoff threshold and 7.1 percent above the relevant income graduation threshold. - Market access criterion: Bangladesh does not meet the market access criterion for graduation, not having accessed international markets in the last five years. - SSTV: Exposed to significant SSTV, heightened by uncertainty from the change in government after massive public uprising. Risks include spillovers from high international commodity and food prices, global financial tightening, potential disorderly adjustment from failure to maintain new exchange rate regime, problems in the banking system including elevated NPLs, domestic security concerns, refugee-related expenditure from the Rohingya crisis, amplified political uncertainty, and extreme weather events. - Benin - Background: Economy dependent on traditional exports (cotton, cashew) and main trade partner Nigeria. Macroeconomic performance remained strong in 2022 and 2023 but faces regional headwinds (border closure with Niger, declining BCEAO reserves). Benin is under an ECF-EFF arrangement approved in July 2022 and an RSF arrangement approved in December 2023. Benin did not issue bonds in 2022 nor 2023 and re-entered international capital markets in February 2024 with a US$750 million Eurobond. Benin is at moderate risk of external debt distress. - Assessment: Staff proposes to maintain Benin’s PRGT eligibility given the presence of SSTV that could result in a loss of market access, heightened debt vulnerabilities and a sharp decline of its income. - Income criterion: Benin does not meet the income criterion for graduation, having a 2023 GNI per capita of US$1,440, or 7.9 percent above the IDA cutoff threshold and 46.1 percent below the relevant income graduation threshold. - Market access criterion: Benin meets the market access criterion by a substantial margin. It accessed international markets in five of the last five years in an amount equivalent to 2,0 32.1 percent of its IMF quota. - SSTV: Risks to future market access from regional security uncertainty, GNI per capita only 7.9 percent above PRGT eligibility threshold making it vulnerable to reverse graduation, lack of diversification, rain-dependent agriculture, shallow financial market, weak banking sector profitability, poor credit quality, and elevated credit concentration. - Cabo Verde - Background: Robust 2023 performance with strong real GDP growth, record primary fiscal surplus, low inflation, and prudent reserves protecting the peg. Public debt on a downward path but still very high and above pre-pandemic levels. Financial sector remains resilient. ECF arrangement approved June 2022; RSF in January 2024. Cabo Verde is at moderate risk of external debt distress. - Assessment: Staff proposes to maintain Cabo Verde’s PRGT eligibility given the presence of SSTV that could result in a sharp decline of its income and heightened debt vulnerabilities. - Income criterion: Cabo Verde meets the income criterion for graduation, with a 2023 GNI per capita of US$4,280, or 60.3 percent above the IDA cutoff threshold and 6.9 percent above the relevant income graduation threshold. - Market access criterion: Cabo Verde does not meet the market access criterion, having accessed international markets in three of the last five years for an amount equivalent only to 22.3 percent of its IMF quota. - SSTV: Significant risks from small economy size, lack of export diversification, weakened demand in major tourism markets, exposure to external price shocks, fiscal risks from failure to advance SOE reforms, financial stability risks from large sovereign exposures and high NPLs, extreme vulnerability to climate shocks, one of the most water-scarce countries in the world, and high risk of overall public debt distress. - Côte d’Ivoire - Background: Agriculture-reliant economy and concentrated coastal areas highly exposed to climate shocks. Economy remained resilient despite global environment but vulnerable to climate events and regional spillovers and migrants’ influx. Agricultural production declined sharply due to adverse weather (cocoa largest in world). Risks include weak external demand, tightening financial conditions, repeated weather shocks and disease outbreaks. ECF -EFF arrangement approved May 2023; RSF approved April 2024. Raised around US$2.6bn through Eurobond issuances in January 2024. Côte d’Ivoire is at moderate risk of external debt distress. - Assessment: Staff proposes to maintain Côte d’Ivoire’s PRGT eligibility given the presence of SSTV that could result in a sharp decline of its income, loss of market access, and heightened debt vulnerabilities. - Income criterion: Côte d’Ivoire meets the income criterion for graduation, with 2023 GNI per capita of US$2,670, or 100 percent above the IDA cutoff threshold and exactly equal to the relevant income graduation threshold. - Market access criterion: Côte d’Ivoire meets the market access criterion by a substantial margin. It accessed international markets in five of the last five years in an amount equivalent to 1,295.9 percent of its IMF quota. - SSTV: Risks to future market access from regional security uncertainty, fragmentation, and possible weaker-than-anticipated recovery in pooled regional FX reserves; dependence on commodity exports (especially cocoa) exposing to price swings and crop failures; public debt increase with external debt growing as share of total debt; potential deterioration of debt vulnerability metrics if revenue mobilization underperforms; exports and market financing shocks could significantly harm external debt sustainability. - Honduras - Background: GDP per capita growth lagged regional peers over past decade due to low investment and extreme weather. 2023 outperformed expectations driven by strong domestic demand and high public investment. Inflation peaked in 2022 but declined to central bank's target range by end-2023; fiscal deficit outperformed targets. Under ECF-EFF arrangements approved September 2023. Issued a 10-year US$600 million bond in June 2020; authorities plan to return to international markets. Honduras is at low risk of external debt distress. - Assessment: Staff proposes to maintain Honduras’ PRGT eligibility given the presence of SSTV that could result in a sharp decline of its income. - Income criterion: Honduras meets the income criterion for graduation, with a GNI per capita of US$2, 900 in 2023, which is 117.2 percent above the IDA cutoff threshold and 8 .6 percent above the relevant income graduation threshold. - Market access criterion: Honduras does not meet the market access criterion for graduation, as it only accessed international markets in one of the last five years, in an amount equivalent to 172.5 percent of its current IMF quota. - SSTV: Projected growth deceleration driven by lower US growth affecting maquila exports and remittances. Significant risks from long-standing social challenges, very high poverty and inequality, crime, weak governance, corruption, high informality, reliance on remittances, export concentration, structural issues in energy sector, high vulnerability to climate shocks requiring substantial adaptation investment, and exposure to high volatility and potentially large shocks that could impact income and debt position. - Moldova - Background: After a weak recovery in 2023 from spillovers of the war in Ukraine and energy price shock, growth appears to be accelerating while uncertainty is receding. Projections point to relatively robust medium-term growth as structural reforms for EU accession progress. Since end-2023, inflation remained within the target band, fiscal deficit lower than expected, and current account deficit improved from a 2022 peak. ECF-EFF and RSF arrangements approved January 2022 and December 2023, respectively. Moldova is at low risk of external debt distress. - Assessment: Staff proposes to maintain Moldova’s PRGT eligibility given the presence of SSTV that could result in a sharp decline of its income. - Income criterion: Moldova meets the income criterion for graduation by a significant margin, with 2023 GNI per capita US$6,110, which is 357.7 percent above the IDA cutoff threshold and 128.8 percent above the relevant income graduation threshold. - Market access criterion: Moldova does not meet the market access criterion for graduation, not having accessed international markets in the last five years. - SSTV: Continued risks from the war in Ukraine (Transnistria, refugees, exchange rate). New energy shocks would weaken the outlook, worsen fiscal and external balances, and strain households. Political tensions (linked to upcoming elections) could reverse reform and EU accession momentum, lead to spending overruns, and weigh on external support. Insufficient progress on anti-corruption and governance reforms would undermine business environment and growth. Vulnerability to extreme weather is also a risk. - Senegal - Background: Resilient economy with higher real growth in 2023 driven by strong agricultural and tertiary-sector activity. Medium-term growth supported by hydrocarbon exports. Fiscal deficit improving since 2022; current account deficit expected to narrow with start of export-oriented hydrocarbon production. ECF-EFF and RSF arrangements approved June 2023. Issued US$750 million in Eurobonds in June 2024. Senegal is at moderate risk of external debt distress. - Assessment: Staff proposes to maintain Senegal’s PRGT eligibility given the presence of SSTV that could result in a sharp decline in income, in a loss of market access and in heightened debt vulnerabilities. - Income criterion: Senegal does not meet the income criterion for graduation, with 2023 GNI per capita US$1,660, which is 24.3 percent above the IDA cutoff threshold and 37.8 percent below the relevant income threshold for graduation. - Market access criterion: Senegal meets the market access criterion for graduation by a substantial margin. It accessed international markets in five of the last five years in an amount equivalent to 817.4 percent of its IMF quota. - SSTV: Notably vulnerable to potential tightening of financial conditions that may impede future market access, shocks to prices of key global commodities, regional security challenges, and delays in reforms. Domestic risks include renewed social discontent, negative spillovers from neighboring unrest, delays in start of oil and gas production, and more intense droughts and floods damaging agriculture. Materialization of such risks could affect public finances and economic policy quality, causing loss of market access and a decline in income. - Uzbekistan - Background: Robust economy with improving real growth in 2023 driven by structural reforms and increases in financial flows. Medium-term growth supported by strong domestic demand, energy price reforms, and privatization of SOEs. Fiscal deficit increased in 2023 and current account deficit widened due to strong investment growth. Issued US$660 million in Eurobonds in October 2023 and US$1.5 billion in Eurobonds in May 2024. Uzbekistan is at low risk of external debt distress. - Assessment: Staff proposes to maintain Uzbekistan’s PRGT eligibility given the presence of SSTV that could result in a sharp decline of its income and a loss of market access. - Income criterion: Uzbekistan does not meet the income criterion for graduation, as its 2023 GNI per capita is US$2,360, which is 76.8 percent above the IDA cutoff threshold and 11.6 percent below the relevant income threshold for graduation. - Market access criterion: Uzbekistan meets the market access criterion for graduation, having accessed international markets in four of the last five years in an amount equivalent to 723.8 percent of quota. - SSTV: Faces significant risks of a loss of market access and a decline in per capita income below the entry threshold. External risks include geoeconomic spillovers, commodity price volatility, and an abrupt global slowdown. Domestic risks include slower-than-planned fiscal consolidation, weaker bank balance sheets, or materialization of contingent liabilities from state banks, SOEs, and public-private partnerships. Materialization of such risks could affect public finances and policy quality, causing loss of market access and a decline in income. *Source: ppea2024047 - 15. Seventeen countries meet the market access criterion, the income criterion, or both* ### Annex IX. Box 2. PRGT Graduation Criteria ### Annex IX. Box 2. PRGT Graduation Criteria ### Overview - Graduation from the PRGT is based on demonstrating sustained income levels, market access, and absence of serious short-term vulnerabilities. - The flowchart logic referenced in the source describes a combination of income and market access criteria, with consideration of debt vulnerabilities.1 ### Income criterion - GNI per capita (Atlas method) has been above the World Bank's IDA operational cutoff for the last five years.2 - GNI per capita is equal to or higher than five years ago. - GNI per capita is currently at least twice the World Bank's IDA operational cutoff. - For small countries (population below 1.5 million but not less than 200,000), GNI per capita is currently at least three times the IDA operational cutoff. - For microstates (population below 200,000), GNI per capita is currently at least six times the IDA operational cutoff. - The World Bank operational cutoff is $1,335 in FY25. The operational cutoff is revised on an annual basis every July.2 ### Market access criterion - Public external bonds issuance (guarantee) or external commercial loans disbursement in at least 3 of the last 5 years in a cumulative amount exceeding 50 percent of the country's quota OR convincing evidence that the country could have tapped international markets on a durable and substantial basis. - Market access criterion outcomes feed into the flowchart logic: combinations of income and market access (Yes/No) determine progression toward graduation. ### Debt vulnerabilities and short-term risks - An external debt distress classification of high or in debt distress, or an assessment of heightened overall risk of debt distress, based on the latest DSA for LICs, would normally indicate the presence of debt vulnerabilities.3 - Absence of serious short-term vulnerabilities comprising the risk of a sharp decline in income, loss of market access, and/or debt vulnerabilities is required for graduation. ### Flowchart decision points (as presented) - Income criterion met? Yes/No. - Market access criterion met? Yes/No. - If income and market access combinations produce affirmative paths, and absence of serious short-term vulnerabilities is established, then PRGT Graduation follows. - The flowchart includes intermediate checks such as whether GNI per capita is equal to or higher than five years ago and whether current GNI per capita exceeds multiples of the IDA operational cutoff for small countries and microstates. *Source: Annex IX. Box 2. PRGT Graduation Criteria, ppea2024047.* ### Annex XII. Reflections on the Use of the Stand-by Credit Facility ### Annex XII. Reflections on the Use of the Stand-by Credit Facility ### Purpose and Features of the SCF - The SCF provides concessional financing to LICs with actual or potential short-term BoP needs, and can be used on a precautionary basis. - The purpose of an SCF arrangement is to assist eligible member countries in implementing economic programs aimed at achieving, maintaining, or restoring a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - A stable and sustainable macroeconomic position should be typically achieved during the 12-36 months duration of an SCF arrangement. - Precautionary use of the SCF is meant to provide countries that do not have an actual BoP need at the time of the request access to immediate financing in case such BoP need materializes, providing upfront assurance to markets and other stakeholders. ### Recent Use and Statistics (2010–2023) - Thirteen SCFs were approved between 2010 and 2023, totaling commitments of SDR 1.673 billion upon approval. - Total drawings to date amount to SDR 0.72 billion. - Seven out of the 13 SCF arrangements were used by blenders (SBA-SCF). - Eight arrangements were precautionary (SDR 1.1 billion). - Two of those precautionary arrangements (Tanzania 2012 and Honduras 2019) eventually saw drawings, accounting for 21 percent of the total allotted quota since 2010. - The eight precautionary SCF arrangements primarily aimed at strengthening market confidence, catalyzing financing, and facilitating external adjustment, while providing needed financing in case of external shocks. - The five non-precautionary SCF arrangements resulted from: - temporary external shocks from adverse Terms-of-Trade changes (Mozambique, Rwanda and Solomon Islands), - climate events (Rwanda), - the COVID-19 pandemic (Senegal). ### Role within the PRGT Facilities Architecture - The SCF plays a unique and useful role by providing concessional support to PRGT-eligible members to address short-term BoP needs, with experience suggesting such needs tend to arise particularly in frontier markets. - Specific features maintaining SCF relevance (including compared to the Policy Coordination Instrument (PCI), launched in 2017): - A precautionary SCF arrangement provides a stronger signal of insurance to donors and investors compared with a PCI, with stronger potential to impact positively sovereign borrowing costs, catalyze external financing, and strengthen reserves. - The catalytic role has been confirmed by increased net official development assistance (ODA) and official aid in actual cases of use of precautionary SCF arrangements. - Complementarity across instruments: several PRGT-eligible countries started with a PCI and later transitioned to a disbursing SCF arrangement (Tanzania 2012, Mozambique 2015, Rwanda 2016 and 2023, and Senegal 2021). ### Reasons for Less Frequent Use in Recent Years - Decline in number of SCF arrangements likely explained by: - A more difficult global environment giving rise to more protracted BoP needs across LICs. - Availability of alternatives for policy signaling in the Fund’s toolkit, including the PCI. - Additional factors cited: - Increased market access of more advanced LICs in the pre-pandemic period at comparably low interest rates reduced recourse to Fund financing for frontier market countries. - The sizeable shocks experienced by LICs since the start of the Covid-19 pandemic increased the prevalence of protracted BoP needs, making ECF arrangements the appropriate instrument given its longer arrangement duration, more affordable terms, and more flexibility on adjustment path and timing. - Mission chiefs cited difficulty in distinguishing between short-term and protracted BoP needs, favoring ECF choice. ### Mission Chief Survey Findings - The survey was directed at 8 country teams with firsthand SCF experience (encompassing all 13 past or ongoing SCF arrangements) and another 30 country teams that requested a new program since 2021; 21 country teams responded (turnout of 60 percent). - Survey results broadly confirmed the SCF’s importance within the PRGT facilities architecture. - The prevalence of protracted BoP needs was cited by mission chiefs of PRGT-eligible countries as the primary reason for not selecting the SCF. - Despite selection challenges, the majority of survey respondents viewed the SCF (including its precautionary use) as a valuable component of the PRGT lending toolkit. ### Costs and Fees (precautionary SCF) - Precautionary SCF arrangements involve an availability fee of 0.15 percent of undrawn amounts (reimbursed for portions that are drawn). - Presumed blenders requesting a precautionary SBA-SCF would also be subject to SBA commitment fees: - 0.15 percent on committed amounts up to 115 percent of quota, - 0.30 percent on committed amounts between 115 and 575 percent of quota, - 0.60 percent on committed amounts exceeding 575 percent of quota. - If the SCF remains precautionary no subsidy resources are used. Only if amounts are drawn does the interest rate differential start to be subsidized. ### Staff View and Policy Recommendation - Staff is of the view that the SCF continues to play an important role in the PRGT facilities architecture. - Recommendation: - Promote knowledge of the SCF among IMF staff and member countries to increase familiarity and appropriate use. - No policy changes to the SCF seem warranted at this stage. *Source: IMF staff analysis in Annex XII. Reflections on the Use of the Stand-by Credit Facility (ppea2024047).* ### INTRODUCTION AND BACKGROUND __________________________________________________________ 5 ### INTRODUCTION AND BACKGROUND ### Context and objectives - The Fund’s financial position is strong, with the SDR 25 billion target for precautionary balances (PBs) having been reached in late FY2024 and the income outlook robust. - The objective is to restore PRGT self-sustainability and facilitate members’ bilateral contributions to the PRGT by distributing General Resources Account (GRA) resources to generate additional PRGT subsidies. - To support a self-sustained PRGT annual lending envelope of SDR 2.7 billion, the residual subsidy gap stands at about SDR 5.9 billion (in 2025 present value terms), taking into account: - potential savings from the proposed interest rate framework, - a further suspension of reimbursement of the PRGT to GRA for administrative costs, and - possible additional bilateral contributions. - Directors have indicated broad support for using GRA resource distributions to facilitate additional bilateral contributions, subject to high-level assurances for such contributions (equivalent to 90 percent of distribution amounts). ### Membership consultations and guiding principles - Consultations indicate it may take time for members to provide individual assurances; members requested a mechanism that allows more time while ensuring budget neutrality over time. - Overarching principles guiding the proposal: - Have the entire membership agree on a viable solution for PRGT self-sustainability. - Ensure members have sufficient time to complete domestic processes to commit their share/equivalent amounts of the GRA distribution for PRGT subsidies. - Ensure that distributions become available to members only once assurances for PRGT subsidy contributions equal at least 90 percent of the maximum cumulative distribution amounts ("sufficient assurances"). - Provide maximum flexibility for members on how to provide their contributions when distribution amounts become available. - Ensure PRGT remains financially viable during any interim period before sufficient assurances are received. --- ### THE PROPOSED DISTRIBUTION FRAMEWORK ### Legal basis and precedents - Article XII, Section 6 of the Articles of Agreement: - Requires the Fund to determine annually what part of its net income shall be placed to General or Special Reserve or distributed. - Permits the Fund to decide at any time to distribute any part of the General Reserve; such distributions must be made to all members in proportion to their quotas. - A distribution of net income requires an Executive Board decision by a majority of votes cast; a general reserve distribution requires a 70 percent majority of total voting power (6(d)). - Distributions are to be made in SDRs, though either the Fund or the member may decide a distribution be made in the member’s own currency (6(e)). - Precedent: 2012 and 2013 partial distributions of the General Reserve attributed to profits from the 2009–2010 gold sale were made to facilitate bilateral PRGT subsidy contributions; effectiveness was conditional on assurances from members equivalent to at least 90 percent of the aggregate distribution amount. ### Key design elements - The Framework comprises: - A multi-year distribution plan (MYDP) establishing a maximum cumulative distribution amount. - An interim administered account, the Interim Placement Administered Account (IPAA), to hold annual placements from the GRA until distributions become available to members. - Principal in the IPAA would be held in SDRs and made available to members according to quota shares once sufficient assurances are received. - In the interim, interest income from the IPAA would be periodically transferred to the PRGT’s Subsidy Reserve Account to support PRGT financing needs. ### Multi-year Distribution Plan (MYDP) - Executive Board approval is proposed for an MYDP with a maximum cumulative distribution amount of SDR 6.9 billion to facilitate additional PRGT subsidy resources. - Rationale: the residual PRGT subsidy gap of SDR 5.9 billion (2025 present value terms) corresponds to a cumulative total of SDR 6.9 billion assuming a 10 percent leakage rate. - Placements to the IPAA: - Would be made through a series of annual transfers from the GRA into the IPAA. - Each placement of GRA net income into the IPAA would require a separate Executive Board decision with a majority of votes cast; placements from the General Reserve would require a 70 percent majority of total voting power. - Annual amounts and timing would be subject to Board approval and depend on the adequacy of the GRA’s financial position, PBs, and income outlook. - Example profile: - The targeted nominal cumulative amount could be reached through five annual distributions of about SDR 1.38 billion, assuming 10 percent leakage. - Timeframe to reach SDR 6.9 billion may be adjusted up or down depending on actual GRA income and PB outcomes. ### Interim Placement Administered Account (IPAA) — structure and modalities - Key elements of the proposed IPAA: - The IPAA would be an Administered Account under Article V, Section 2(b), administered by the Fund as Administrator and subject to Executive Board oversight; resources and investment returns would be legally owned by the Fund and administered per the IPAA instrument. - Placements from the GRA to the IPAA and balances in the IPAA would be held in SDRs. - Interest on IPAA balances would accrue at the SDRi rate and be transferred periodically to the PRGT’s Subsidy Reserve Account. - A member’s share in principal would be made available for disposition based on quota shares only after sufficient assurances have been received. - Resources in the IPAA would be “encumbered” until sufficient assurances are provided, reflecting uncertainty about timing and availability. - The IPAA would have a time limit of 5 years for holding resources; after 5 years the Executive Board could decide, by a majority of votes cast, to extend the time limit or return the aggregate distribution amount to GRA. - If sufficient assurances for the cumulative maximum distribution amount are reached before the cumulative placements to the IPAA are complete, principal in the IPAA would be made available to members and subsequent placements would be passed through immediately to members, provided sufficient assurances remain in place. ### PRGT contribution assurances and member modalities - Members will be requested to provide a single assurance for the PRGT: - The assurance may consent to direct transfer of their full share of the cumulative distribution to the PRGT, or pledge an equivalent (or different) amount from other sources. - Sufficient assurances are defined as aggregate assurances of SDR 6.2 billion, i.e., 90 percent of the total SDR 6.9 billion to be distributed. - Once received, assurances would be assumed to remain valid unless a member provides notice to amend or withdraw its commitment; members may renew or withdraw at any time. - A member’s assurance does not legally guarantee later contribution of the full or any amount previously committed, but provides a reasonable basis to proceed with distribution. - Process after PRGT Review decisions: - Following approval, all members would receive a letter from the Managing Director seeking their commitment for new PRGT contributions facilitated by the distributions. - Staff would periodically update the Executive Board on progress; the Managing Director would inform the Executive Board once sufficient assurances have been received, at which point resources would be made available to members in line with their instructions. --- ### FINANCIAL FLOWS AND ESTIMATES (Table summary) - 2025 - 2030 (IMF staff estimates) - Transfer of GRA resources to IPAA (cumulative): 6.9 - Transfer of interest income from IPAA to PRGT (cumulative): 0.6 - Transfer of Principal from IPAA to PRGT: 6.2 - Sum of transfer from IPAA to PRGT (nominal): 6.8 - Sum of transfer from IPAA to PRGT (in 2025 present value): 5.9 - Assumptions underlying table estimates: - Assumes 5 annual placements of SDR 1.38 billion into the IPAA following the end of the IMF's financial year. - Quarterly transfers of interest income to the PRGT. - Assumes that 90% of the total principal in the IPAA (SDR 6.9 billion) will be transferred to the PRGT after five years. --- *Source: INTRODUCTION AND BACKGROUND, “PROPOSAL FOR A DISTRIBUTION FRAMEWORK FOR GRA RESOURCES” (IMF).* ### 13. As under the 2012 and 2013 general reserve distributions, members would be provided ### 13. As under the 2012 and 2013 general reserve distributions, members would be provided ### Distribution modalities and member options - Members would be provided a broad range of modalities to direct their share in the distribution once the assurances of SDR 6.2 billion have been reached. - Consistent with past practices, the Managing Director would contact each member’s Governor of the Fund, who would then communicate to the Fund the member’s preferences regarding the treatment of its share of the reserve or net income distribution, once it is available, subject to sufficient assurances being received. - Members could be offered to choose among three basic options: - i) direct transfer of their share from the IPAA to the PRGT‘s Subsidy Reserve Account (SRA); - ii) temporary placement of their share in an Interim Administered Account (IPAA); and - iii) distribution to other accounts designated by members (see Annex III for more details). - Distributions under each of the three options would normally be implemented by using SDRs, except that, as for the 2012 and 2013 general reserve distributions, a member’s own currency would be used for distributions to members with overdue repurchase obligations to the GRA. - Member preferences can be communicated via response to the MD’s letter (see Annex I for more details). - Members not in a position to contribute to the sufficient assurances would receive their full share of the conditional distribution upon release of the distribution. ### Annex I — Modalities to facilitate members’ subsidy contributions to the PRGT - A range of modalities could be offered to accommodate members’ preferences and differences in their domestic approval processes thereby facilitating members’ voluntary bilateral subsidy contributions to the PRGT. - Basic options for channeling members’ share from the IPAA (or an equivalent amount) to the PRGT: - Direct transfer from the IPAA to the PRGT: members instruct the Fund to transfer their share of the resources in the IPAA to the Subsidy Reserve Account (SRA). - Temporary placement in an Interim Administered Account: members request their share be placed temporarily in an interim account to be administered by the Fund, pending further instructions; such placement could be combined with a pledge to contribute the share to SRA after domestic processes are resolved. - Placement to SDR Account, or any other account identified by member, possibly combined with a pledge: members could directly transfer all or part of their shares into their SDR account, possibly combined with a pledge to provide grants or other pledges of a similar magnitude at another time. - Members would be consulted well in advance of any distribution. Members could specify allocation of their share to more than one purpose. - The Managing Director would contact each member’s Governor, who would communicate the member’s preferences; responses would help ascertain whether sufficient assurances are in place to make principal resources from the IPAA available to members. ### Issues for discussion (as posed) - Do Directors agree with the proposed framework for GRA distributions to generate critical PRGT subsidy while giving members sufficient time to complete domes processes? - Do Directors support the proposed multiyear GRA distribution plan with a maximum cumulative distribution amount and an annual distribution subject to the adequacy of the GRA financial position? - Do Directors support the proposed establishment of the Interim Placement Administered Account and its terms? ### Context within the 2024 PRGT review and proposed Board decisions - The paper sets forth proposed decisions to implement staff proposals in “2024 Review of the Poverty Reduction and Growth Trust Facilities and Financing—Reform Proposals” (SM/24/252) and Supplement 1 (SM/24/252, Sup. 1), and implements proposals in the Companion Paper (Review of the Poverty Reduction and Growth Trust Investment Strategy (EBS/24/104)). - Ten decisions are proposed for adoption by the Executive Board (Decision I through Decision X), including: - Decision I: amendments to the PRGT (tiered interest rate structure; modification of overall normal and cumulative access limits; extension of temporarily-higher cumulative access limits under the RCF; reduction of access limits and quota-based thresholds upon effectiveness of quota increases under the 16th General Review of Quotas); creation of the LTIA. - Decision II: changes to the blending policy (new regime for GNI per capita changes following GDP rebasing; per arrangement cap on access to PRGT financing set at the PRGT access norm). - Decision III: require assessment of serious short-term vulnerabilities in all cases prior to graduation from PRGT eligibility. - Decision IV: add the Syrian Arab Republic to the PRGT eligibility list. - Decision V: amend PS-HCC debt sustainability criterion to align with the GRA EA policy for LICs that meet the GRA EA market access criterion. - Decision VI: increase the limit applicable to the Managing Director’s authority to receive loan account resources to the Trust to an amount of SDR 87 billion. - Decision VII: revise Investment Guidelines to separate PRGT investment assets into two portfolios, including a long-term investment portfolio. - Decision VIII: amend decision on investment of temporary resources to centralize long-term investment strategy resources in the LTIA. - Decision IX: create the Interim Placement Administrative Account (IPAA) under Article V, Section 2(b) for interim placement of GRA net income/reserves pending assurances from members regarding new PRGT subsidy contributions. - Decision X: framework decision on distribution of GRA net income and/or reserves to facilitate contributions to the PRGT’s subsidy accounts. ### Key numerical and timing elements preserved from the text - SDR 6.2 billion (assurances threshold for distributions). - Three basic member options: direct transfer to SRA; temporary placement in IPAA; distribution to other accounts (SDR account or other). - Distributions normally implemented using SDRs; member’s own currency used for members with overdue repurchase obligations to the GRA. - Proposed Decision I applies new interest rate mechanism to PRGT loans approved on or after May 1, 2025. - Outstanding balances and arrangements in place as of April 30, 2025 would not be affected by the new interest rate mechanism. - Tiered interest rate regimes: - Tier 1: zero percent interest. - Tier 2A: interest charged at 70 percent of the SDR interest rate per annum. - Tier 2B: interest charged at 40 percent of the SDR interest rate per annum. - Effective January 1, 2025, proposed overall access limits: annual limit of 200 percent of quota and cumulative limit of 600 percent of quota. - Extend temporarily-higher cumulative access limits under the RCF until end-December 2025. - Reduce temporary 200 percent of quota per arrangement cap to 135 percent of quota upon determination that general conditions for effectiveness of quota increases under the 16th General Review of Quotas have been met (if before January 1, 2025). - Transitional provision for GDP rebasing: change of tiers requires reaching the income threshold for two consecutive years not including the year in which the rebased GDP is released. - Proposed Decision VI increases PRGT borrowing limit by SDR 16 billion, from SDR 71 billion to SDR 87 billion. - Dates and references preserved: October 7, 2024; March 11, 2020; December 31, 2024. *Source: PROPOSAL FOR A DISTRIBUTION FRAMEWORK FOR GRA RESOURCES (ppea2024047).* ### 13. Amendment to Investment Guidelines and Decision on the Investment of Temporary ### 13. Amendment to Investment Guidelines and Decision on the Investment of Temporary ### Amendment to Investment Guidelines and Investment of Temporary Resources - Proposed Decision VII amends the existing Investment Guidelines to separate the PRGT’s investment assets into two portfolios to reflect different investment horizons. - The revised Investment Guidelines are set in Annex II to this Supplement. - Adoption requirement: a majority of 70 percent of the total voting power is required under Article V, Section 12(h) of the Fund’s Articles of Agreement regarding investment of SDA assets. - Proposed Decision VIII amends the existing decision on the Investment of Temporary Resources to Generate Income for the Fund’s Trusts to clarify that contributor resources to the PRGT that are to be invested in the long-term investment strategy are to be centralized in the LTIA. ### Distribution Framework: Interim Placement Administered Account (IPAA) and Multi-Year Distribution Plan (MYDP) - Decisions IX and X implement staff proposals in Supplement 1 for a GRA resource distribution framework, including: - A Multi-Year Distribution Plan (MYDP). - Establishment of an Interim Placement Administered Account (IPAA). - Decision IX: - Establishes the IPAA on the terms in Attachment II pursuant to Article V, Section 2(b). - Authorizes prescribed holders and participants to conduct SDR operations necessary to give effect to the IPAA under Article XXVII, Section 3. - Sets the MYDP to provide for distributions from the Fund’s GRA net income and/or reserves in a cumulative amount of SDR 6.9 billion to be held in the IPAA on an interim basis, pending sufficient assurances equivalent to 90 percent of the cumulative distributions amount, SDR 6.21 billion, of contributions by members for new subsidy contributions to the PRGT. - Key features of the proposed IPAA instrument: - a. GRA resources placed to the account will be made available to members upon notification by the Managing Director to the Executive Board that sufficient financing assurances representing commitments of SDR 6.21 billion in new subsidy contributions to the PRGT have been received. If this notification is not sent within 5 years of the first placement of resources to the IPAA, the Board may decide to extend the period or return the resources to the GRA (paragraph 5). - b. Interest earned on resources placed to the IPAA will be transferred on a quarterly basis to the PRGT’s Subsidy and Reserve Account (paragraph 6). - c. The IPAA provides for the possibility of amendment of its terms by a decision of the Executive Board, except that certain key provisions also require acceptance of all members of the Fund to the amendment (paragraph 10). - Footnotes and clarifications within the IPAA context: - Any placement of net income or general reserve distribution would include the shares of members without a recognized government for Fund purposes. - Any new contributions made by members to the PRGT Subsidy and Reserve Account after the date of the effectiveness of the proposed decisions IX and X would count towards meeting the target for new subsidy resources. ### Majorities and Consent Requirements - Proposed decisions, except Proposed Decision VII, may be adopted by a majority of the votes cast. - With respect to changes to the PRGT Instrument, the proposed changes do not require the consent of current contributors to the PRGT’s loan and subsidy accounts because: - Creation of the LTIA requires amendments to several “protected provisions” listed in Section IX of the PRGT instrument. - Although protected provisions are set out as not amendable, practice interprets that the Fund (as Trustee) may amend them but amendments require the consent of contributors to the extent their interests are affected. - The proposed creation of the LTIA does not affect the interests of current subsidy and loan account contributors; it creates a new source of funding for the SRA or the General Subsidy Account and does not affect use of existing subsidy contributions. - Consequently, consent of current contributors is not required for the proposed changes to protected provisions. - No special majority is prescribed for authorization of SDR transactions with the IPAA. - Proposed Decision VII specifically: - Requires support from 70 percent of the total voting power because it modifies the Investment Guidelines and impacts SDA resources, invoking Article V, Section 12(h). - Decisions IX and X are proposed on the understanding that they are acceptable to all Fund members. ### Proposed Decisions — Key Amendments to the PRGT Instrument (selected highlights) - Decision I amends the Instrument to Establish the Poverty Reduction and Growth Trust (PRGT Instrument) with effecting changes including, but not limited to: 1. Section I, paragraph 2: adds a Long-Term Investment Account and specifies that Trust resources shall be held separately in Loan Accounts, Subsidy Accounts, a Deposit and Investment Account, and a Long-Term Investment Account. 2. Section II, paragraph 2(a)(A): With effect from January 1, 2025, overall access subject to (i) an annual limit of 200 percent of quota; and (ii) a cumulative limit of 600 percent of quota, net of scheduled repayments, provided these percentages shall be immediately reduced to 135 percent of quota and 405 percent of quota, respectively, upon an Executive Board determination that the two general conditions for the effectiveness of quota increases under the Sixteenth General Review of Quotas specified in paragraph 3 of the Board of Governors Resolution No. 79-1, adopted December 15, 2023, have been met. 3. Deletion: With effect from January 1, 2025, Section II, paragraphs 2(a)(B)(iii)(I) and (a)(B)(iii)(II) shall be deleted. 4. Section II, paragraph 2(b): multiple revisions, including adding subparagraph (vi) that sets alternative access limits if the Executive Board determines the Sixteenth General Review conditions have been met on or prior to December 31, 2025: - (I) RCF annual and cumulative access limits changed to 35 and 70 percent of quota, respectively. - (II) RCF maximum limit on a disbursement changed to 17.5 percent. - (III) Annual and cumulative access limits for members experiencing urgent needs from natural disasters changed to 55 and 125 percent of quota, respectively. - (IV) Cumulative access limit for members experiencing urgent needs from a sudden and exogenous shock changed to 105 percent of quota. - (V) Cumulative access limit specified for members that have received financing under the RCF under paragraph (b)(iv) changed to 122.5 percent of quota. 5. Section II, paragraph 2(h): the percentage of quota for Executive Board consideration of requests for augmentations on a lapse-of-time basis shall change from 15 to 10 percent of quota upon the Executive Board determination that the Sixteenth General Review conditions have been met. 6. Section II, Paragraph 4(a) and (b): interest and tiering structure - (a) Interest on outstanding balances of Trust loans, and credit under ECF and SCF arrangements and under the RCF approved through April 30, 2025, charged at a rate of zero percent per annum. - (b) For loans approved on or after May 1, 2025, interest rates specified by tier: - (i) Tier 1: zero percent per annum for members that do not meet the income criterion for presumed blending at the time of Board approval. - (ii) Tier 2A: 70 percent of the SDR interest rate per annum for members that meet the income criterion for presumed blending and do not face debt vulnerabilities as defined in the Blending Decision. - (iii) Tier 2B: 40 percent of the SDR interest rate per annum for members that meet the income criterion for presumed blending but face debt vulnerabilities. - (iv) GDP rebasing approach: members not meeting the income criterion and whose GNI per capita does not exceed the IDA operational cutoff by at least 5 percent as of the year before a new rebased GDP is published shall not be deemed to meet the income criterion until annual GNI per capita exceeds the cutoff by at least 5 percent for two consecutive years (not including the year of official rebased GDP release). Transitional rule for members completing GDP rebasing after March 11, 2020 and not later than April 30, 2025: the income criterion will be met when annual GNI per capita has exceeded the prevailing IDA operational cutoff by at least 5 percent for two consecutive years after, and not including, 2025. - (v) Interest payment due promptly at the end of each IMF financial quarter, aligned with PRGT lenders billing cycles and the GRA and SDR Department. 7. Section II, Paragraph 6: deletion of the phrase “provided that modification of the interest rate shall apply to interest accruing after the effective date of the modification”. 8. Section IV.A paragraph 1(a): resources held in the General Subsidy Account shall consist of specified items including transfers from the Long-term Investment Account. 9. Section IV.A, paragraph 1(f)(iii): clarifies transfers from the Deposit and Investment Account and the Long-Term Investment Account. 10. Section IV.A, paragraph 6(b)(i): specifies use of remaining resources in the General Subsidy Account to reduce borrower interest rates and to fund transfers to the ENDA/EPCA Subsidy Account; remaining resources to be distributed to the Fund, donors, and creditors proportionally, with the Fund’s share transferred to the Special Disbursement Account; resources attributable to transfers from the Deposit and Investment Account or the Long-Term Investment Account to be transferred to the respective account. 11. Section IV.A, paragraph 6(b)(vi): specifies use of remaining resources in the Subsidy Reserve Account to reduce borrower interest rates; remaining resources not attributable to the Deposit and Investment Account or the Long-Term Investment Account to be transferred to the General Subsidy Account with options for contributors to request return of their share; resources attributable to transfers from the Deposit and Investment Account or the Long-Term Investment Account to be transferred to said Accounts, respectively. *International Monetary Fund — 2024 REVIEW OF THE PRGT FACILITIES AND FINANCING—PROPOSED REFORMS—PROPOSED DECISIONS* ### 12. Section IV of the PRGT Instrument shall be amended to include the following new section C to ### ppea2024047 - 12. Section IV of the PRGT Instrument shall be amended to include the following new section C to ### Section IV.C. Long-Term Investment Account — Purpose and Resources - Purpose: provide a separate vehicle under which the Trust can pool and centralize borrowed resources for generating investment earnings under a long-term investment strategy for the benefit of the Subsidy Reserve Account, or at the request of a contributor, the General Subsidy Account. - Resources: shall consist of the proceeds from long-term investment agreements with contributors and the net earnings on the investment proceeds. ### Section IV.C. Long-Term Investment Account — Borrowing for the Long-Term Investment Account - (a) Trustee authority: - The Trustee may enter into investment agreements with the Long-Term Investment Account with the aim of generating long-term net investment earnings from the investment of the resources borrowed (“Long Term Investment Agreements”). - The Managing Director of the Trustee is authorized to enter into Long-Term Investment Agreements and agree to their terms and conditions with contributors to the Long-Term Investment Account. - The borrowed resources shall be invested in accordance with guidelines adopted by the Trustee. - (b) Early repayment right: - Agreements may provide for the right of a contributor to request the early repayment of the principal amount under its Long-Term 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. ### Section IV.C. Long-Term Investment Account — Use of Resources - (a) Transfer of net investment earnings: - Resources in the Long-Term Investment Account derived from net investment earnings shall be transferred to the Subsidy Reserve Account at the final maturity of the investment agreement such resources are attributable to. - 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 Long-Term Investment Agreement, to meet the subsidization needs of the Trust. - (b) Contributor direction: - A contributor may prescribe that investment earnings in the Long-Term Investment Agreement attributable to that contributor’s investment be directed to the General Subsidy Account instead of the Subsidy Reserve Account. ### Section IV.C. Long-Term Investment Account — Termination Arrangements - Upon completion of the subsidy operations authorized by this Instrument, the Trustee shall wind down the affairs of the Long-Term Investment Account. - Contributors shall be repaid the principal of their investment and any remaining investment earnings or losses attributed to it. ### Section IV.C. Long-Term Investment Account — Repayment and Interest - Repayment of the principal amount and any payment of interest to a contributor on any borrowing for the Long-Term Investment Account, including: - repayment upon maturity, - early repayment in accordance with Section IV.C, paragraph 2(b), - or repayment in accordance with Section IV.C, paragraph 4, shall be made exclusively from resources attributed to the investment of this principal amount and the net investment earnings thereon, net of the cumulative interest previously paid to the contributor. ### Amendments referencing Section IV.C - Section VIII, Paragraph 2(a) amended to add: - Termination and liquidation of the Long-Term Investment Account shall be made in accordance with the provisions of Section IV.C, paragraph 4. - Section IX amended to insert the words “Section IV.C;” before the words “Section V”. ### Decision II — Amendments to Blending Policy Decision (key revisions) - Decision No. 17082-(21/71) revisions: - Paragraph 1(a) (income threshold): - A member meets the income thresholds for presumed blending if its annual per capita gross national income (GNI) has exceeded the prevailing operational cutoff for assistance from the International Development Association (IDA) by at least 5 percent for two consecutive years (the “income threshold”). - Special rule for rebased GDP publication: where a member does not meet the income criterion and its GNI per capita does not exceed the IDA operational cutoff by at least 5 percent as of the year before a new rebased GDP is published, it shall not be deemed to have met the income criterion until the member’s annual GNI per capita has exceeded the prevailing IDA operational cutoff by at least 5 percent for two consecutive years, not including the year in which the official rebased GDP data is released. - Transitional period: for a member which completed its GDP rebasing after March 11, 2020 and not later than April 30, 2025, the income criterion will be met when the member’s annual GNI per capita has exceeded the prevailing IDA operational cutoff by at least 5 percent for two consecutive years after, and not including, 2025. - Paragraph 2 (effective January 1, 2025): - A request by a Presumed Blender for access to PRGT resources shall be approved only in a blend with access to resources in the General Resources Account (GRA). - The mix of PRGT and GRA resources shall be provided in a ratio of one to two of PRGT resources to GRA resources, subject to a per arrangement cap on access to PRGT resources set at the norm applicable to ECF and SCF arrangements and subject to the overall limits on access to the PRGT set out in Section II, Paragraph 2 of this Instrument. - Paragraph 3 (immediate effect — cap change): - The cap on access to PRGT resources of 200 percent of quota per arrangement shall be reduced to 135 percent of quota immediately upon an Executive Board determination that the general conditions for the effectiveness of quota increases under the Sixteenth General Review of Quotas specified in paragraph 3 of the Board of Governors Resolution No. 79-1 (December 15, 2023) have been met. - Additional change: - With effect from January 1, 2025, paragraph 3 of Decision No. 17082-(21/71) shall be deleted. ### Decision III — Amendments to Eligibility to Use the Fund's Facilities for Concessional Financing - Decision No. 14521-(10/3) revisions: - Deletion: - The last two sentences of subparagraph B (3) of paragraph 1 beginning with “For a member whose annual per capita GNI” and ending with “such serious short-term vulnerabilities.” are deleted. - Revision to subparagraph C (1) of paragraph 1: - The issuance or guarantee by a public debtor of external bonds in international markets, or disbursements under external commercial loans contracted or guaranteed by a public debtor in international markets that (i) for the purposes of subparagraph (A) occurred during at least two of the last five years for which qualifying data are available (the “entry duration threshold”), and has been in a cumulative amount equivalent to at least fifty percent of the member’s quota in the Fund at the time of the assessment (the “entry scale threshold”) provided that (a) if the member’s quota increase under the Fourteenth General Review of Quotas has become effective, the cumulative amount shall be equivalent to at least 25 percent of the member’s quota, and provided further that, if the member’s quota increase under the Sixteenth General Review of Quotas has become effective, such cumulative amount shall be equivalent to at least 20 percent of the member’s quota and (b) if the amount of issuance or guarantee of external bonds and of disbursements under external commercial loans in a single year for which qualifying data are available totals less than two percent of the member’s quota in the Fund at the time of the assessment, or less than 1.5 percent of quota if the member’s quota increase under the Sixteenth General Review of Quotas has become effective, that year shall not count towards meeting the entry duration threshold, or (ii) for the purposes of Paragraph (B)(2), occurred during at least three of the last five years for which qualifying data are available (the “graduation duration threshold”), and has been in a cumulative amount equivalent to at least one hundred percent of the member’s quota in the Fund at the time of the assessment (the graduation scale threshold”), provided that (a) if the member’s quota increase under the Fourteenth General Review of Quotas has become effective, the cumulative amount shall be equivalent to at least 50 percent of the member’s quota and provided further that if the member’s quota under the Sixteenth General Review of Quotas has become effective, such cumulative amount shall be equivalent to at least 35 percent of the member’s quota and (b) if the amount of issuance or guarantee of external bonds and of disbursements under external commercial loans in a single year for which qualifying data are available totals less than two percent of the member’s quota at the time of the assessment, or less than 1.5 percent of quota if the member’s quota increase under the Sixteenth General Review of Quotas has become effective that year shall not count towards meeting the graduation duration threshold, or ### Decision IV — PRGT-eligibility List - Amendment: - The list annexed to Decision No. 8240-(86/56) SAF shall be amended by adding the Syrian Arab Republic to the list. ### Decision V — Policy Safeguards for High Combined GRA and PRGT Credit - Paragraph 3(b)(A)(II) amended to specify conditionality for access above HCC Thresholds: - Where public debt is assessed to be sustainable but not with high probability (including cases where overall risk of public debt distress is assessed to be high or in debt distress) or unsustainable ex ante, access to resources in excess of the HCC Thresholds will only be made available if the combination of the member’s policies and financing from sources other than the Fund, which may include debt restructuring, restores public debt sustainability with high probability: - (i) within 36 months from Board approval in the case of a new Fund arrangement, purchase under the RFI or loan under the RCF, or within the period of the new arrangement, whichever is longer, or - (ii) within the remaining period of an arrangement, in cases where the Board approves a request for an augmentation or a rephasing of access under the arrangement; - Provided further conditions where debt is sustainable but not with high probability and the member has prospects of gaining or regaining access to private capital markets; BUFF/16/9, Corr. 1 will apply in applying the more flexible standard. ### Decision VI — PRGT Cumulative Borrowing Limit - Authorization: - The Managing Director, having consulted with all creditors of the PRGT, is authorized to confirm that she does not intend to enter into borrowing agreements for the Loan Accounts of the PRGT if the cumulative commitments under such agreements exceed SDR 87.0 billion, except after consultation with all PRGT creditors regarding the justification for such additional borrowing and the adequacy of the PRGT’s Reserve Account in relation thereto. ### Decision VII — Guidelines for Investing PRG, RS, PRG-HIPC, and CCR Trusts’ Assets (selected provisions) - General provisions: - Investment Assets: resources of each Trust available for investment shall be subject to these Guidelines. - Managing Director responsibilities include establishing decision-making and oversight arrangements, measures to avoid conflicts of interest, adopting responsible investing principles that incorporate ESG considerations, and establishing risk control measures and monitoring mechanisms. - The Managing Director shall consult with the Executive Board regarding key conflicts of interest policies and responsible investment principles and arrangements. - Annual reports to the Executive Board on investment activities of the Trusts; ad hoc reports as warranted. - External asset managers: Investment Assets shall be managed by external managers, except for (a) investments in obligations of the Bank for International Settlements (BIS) and central bank deposits, and (b) other Investment Assets on an interim basis following termination of an external asset manager and pending transfer. - Selection of external asset managers: only of the highest professional standards and proven skills and track record. - Custody: Managing Director shall establish adequate measures for safekeeping and custody. - Audit: Investment Assets shall be audited by the Fund’s external auditors and included in the annual financial statements of the Fund. - Review: Executive Board shall review these Guidelines and relevant conflict of interest policies at least every five years. - Investment of PRG Trust Assets: - Objectives: (a) generate income to support self-sustaining operations of the PRG Trust, (b) provide security to lenders to the PRG Trust, and (c) provide adequate liquidity for the PRG Trust’s operational needs. - Portfolios: - Long-Term Portfolio objective: generate a margin of 100 basis points above the three-month SDR rate, over a long-term investment horizon of at least 10 years. - Short-Term Portfolio objective: enhance returns and provide liquidity to meet short-term operational needs over a short to medium-term horizon. - Specific allocation between Long-Term and Short-Term Portfolios to be determined by the Managing Director. - Target asset allocation for the Long-Term Portfolio: - (a) 40 percent in a short duration fixed-income component, - (b) 30 percent in a component of corporate bonds, - (c) 10 percent in a component of global government bonds, - (d) 20 percent in a component of global equities. *International Monetary Fund — 2024 REVIEW OF THE PRGT FACILITIES AND FINANCING—PROPOSED REFORMS—PROPOSED DECISIONS* ### 15. The Short-Term Portfolio shall be invested in a liquidity component designed to meet the ### 15. The Short-Term Portfolio shall be invested in a liquidity component designed to meet the ### Eligible Investments and Investment Management - Short-Term Portfolio composition: - A liquidity component designed to meet the short-term disbursement needs of the PRG Trust. - A short duration fixed-income component. - The specific allocation between these two components to be established by the Managing Director. - Liquidity component constraints: - Limited to BIS deposits and central bank deposits. - Maximum maturity of up to one year. - Denominated in SDR or currencies included in the SDR basket. - Short duration fixed-income component (paragraph 17 / 32): - Shall consist of two tranches: a shorter-duration Tranche 1 and a longer-duration Tranche 2. - Maximum average duration of 3 years. - Tranche 1: - Assets shall be managed actively. - Eligible asset classes: Group 1 and Group 2 asset classes. - Tranche 2: - Managed according to a buy-and-hold investment approach. - Eligible asset classes: Group 1 asset classes. - Asset transfers between Tranche 1 and Tranche 2 and allocation of future inflows/outflows to be determined by the Managing Director. - Group 1 asset classes (limited to): - A. debt obligations issued by national governments of members or their central banks. - B. debt obligations issued by national agencies of members. - C. debt obligations issued by supranational institutions. - D. obligations issued by the BIS, including without limitation deposits with the BIS and MTIs. - All denominated in SDR or the currencies included in the SDR basket. - Group 2 asset classes (limited to): - A. debt obligations issued by national governments of members, or their central banks denominated in non-SDR currencies selected by the Managing Director or, upon authorization by the Managing Director, by external managers, provided that any currency selection shall be based on ex-ante criteria determined by the Managing Director. - B. debt obligations denominated in SDR or the currencies included in the SDR basket, comprising: (I) securities issued by subnational governments; (II) mortgage-backed and other asset-backed securities; (III) covered bonds; and (IV) short-dated unsecured corporate bonds. - C. cash-equivalent investments with maturities of one year or less, denominated in SDR or the currencies included in the SDR basket. - Group 2 allocation limit: - Up to the maximum 40 percent of the total value of the short duration fixed-income component may be invested in Group 2 asset classes. - Breach of this limit shall require prompt action to bring the short duration fixed-income component back within the established limit. - Additional eligible arrangements and management: - Managing Director to establish parameters for corporate bond, global government bond and global equity components, and for duration and currency requirements for corporate bond and global government bond components. - On an exceptional basis, Managing Director may permit inclusion of debt obligations issued by national governments of members or their central banks in the corporate bond component. - Corporate bonds, global government bonds, and global equities shall be managed passively, with the exception of emerging market equities which may be managed actively. - Residual cash balances may be held temporarily uninvested, or in short-term instruments sponsored by the custodian(s) or an affiliate. ### Rebalancing - Allocation of the Investment Assets in the Long-Term Portfolio of the PRG Trust shall be rebalanced at least annually to minimize deviation from the allocation targets under paragraph 14, or more frequently in the event of significant deviation. - Managing Director to establish modalities for rebalancing. ### Minimum Credit Ratings - Except for obligations of the BIS, central bank deposits, uninvested cash balances and equities, all assets in which the PRG Trust invests must have a credit rating equivalent to at least BBB- for corporate bonds and BBB+ for all other assets (based on Standard & Poor’s long-term rating scale) by a major credit rating agency at the time of acquisition. - Managing Director may establish higher credit ratings for eligible individual asset classes. - For assets not directly rated, the Managing Director may determine whether a credit rating may be inferred in a manner consistent with market practice. ### Divestment - Any eligible investment that ceases to meet the rating threshold or otherwise becomes ineligible after acquisition shall be divested within three months. - Exception: corporate bonds which fail to meet the rating threshold after acquisition may be divested or continue to be retained in accordance with modalities established by the Managing Director. ### Limits on Investment Activities - Managing Director shall establish adequate safeguards against short selling and financial leverage. - Derivatives: - May be used for managing interest rate risk, currency hedging, or reducing costs in the context of portfolio balancing, benchmark replication and market access. - Currency composition of the liquidity, short duration fixed income, corporate bond, and global government bond components shall be aligned with, or hedged to, the SDR basket composition. ### Investment of Assets of the RS Trust - Objectives: - To generate income to support RS Trust operations. - To provide security for RS Trust loans. - To provide adequate liquidity for the RS Trust’s withdrawal needs. - Composition: - Investment Assets of the RS Trust invested in liquidity and short duration fixed-income components. - Specific allocation between components to be established by the Managing Director. - Liquidity component: - Managed to meet the operational needs of the RS Trust. - Limited to BIS deposits and central bank deposits, maximum maturity up to one year, denominated in SDR or currencies included in the SDR basket. - Short duration fixed-income component objectives: - Achieve investment returns in SDR terms that exceed the 3-month SDR interest rate by a margin of 50 basis points over time. - Minimize the frequency and extent of negative returns and underperformance over an investment horizon of three to four years. - Short duration fixed-income component management (mirrors PRG Trust structure): - Two tranches (Tranche 1 active; Tranche 2 buy-and-hold), maximum average duration of 3 years. - Group 1 and Group 2 definitions and Group 2 limit of up to the maximum 40 percent apply. - Residual cash balances may be held temporarily uninvested, or in short-term instruments sponsored by the custodian(s) or an affiliate. ### Minimum Credit Ratings (RS Trust) - Except for obligations of the BIS, central bank deposits, and uninvested cash balances, all assets in which the RS Trust invests must have a credit rating equivalent to at least BBB- for corporate bonds and BBB+ for all other assets (based on Standard & Poor’s long-term rating scale) by a major credit rating agency at the time of acquisition. - Managing Director may infer credit ratings for unrated assets consistent with market practice. - Divestment rule: assets that cease to meet the rating threshold or become ineligible after acquisition shall be divested within three months, except corporate bonds may be divested or retained per modalities established by the Managing Director. ### Limits on Investment Activities (RS Trust) - Managing Director to establish safeguards against short selling and financial leverage. - Derivatives may be used for managing interest rate risk, currency hedging, or reducing costs in the context of portfolio balancing, benchmark replication and market access. - Currency composition of the liquidity and short duration fixed-income components shall be aligned with, or hedged to, the SDR basket composition. ### Other Trust Assets (PRG-HIPC and CCR Trusts) - Investment objectives: - Invested to enhance returns subject to liquidity requirements while limiting the risk of impairment of capital over an investment horizon of no more than three years. - Eligible investments: - Invested in a liquidity component and an investment component; specific allocation determined by the Managing Director. - Liquidity component limited to BIS deposits and central bank deposits with maximum maturity up to one year, denominated in SDR or SDR basket currencies. - Investment component limited to: - Marketable obligations issued by a member or a national official financial institution of a member denominated in SDR. - Marketable obligations issued by a member or by a national official financial institution of a member whose currency is in the SDR basket and denominated in that member’s currency. - Marketable obligations issued by international financial organizations denominated in SDR or in a currency in the SDR basket. - Deposits with a commercial bank, a national financial institution of a member, or an international financial institution denominated in SDR or in a currency in the SDR basket. - Investment component maximum average duration of three years. - Investment management: - Liquidity component managed to meet operational needs. - Investment component managed actively except for obligations of the BIS and central bank deposits managed by the Managing Director. - Currency composition: - Investment Assets of the PRG-HIPC and CCR Trusts shall be rebalanced periodically to the SDR basket composition. - Minimum credit ratings: - Except for obligations of the BIS, central bank deposits and uninvested cash balances, all assets must have a credit rating equivalent to at least A (based on Standard & Poor’s long-term rating scale) by a major credit rating agency at the time of acquisition. - For unrated assets, Managing Director may infer a rating consistent with market practice. - Divestment: - Any eligible investment that ceases to meet the rating threshold shall be divested within three months. - Limits on investment activities: - Managing Director shall establish safeguards against short selling and financial leverage. - Derivatives shall be prohibited except for forwards entered into for purposes of currency hedging with eligible issuers under paragraph 42. ### Use of Currencies - Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used. - When an exchange of currencies is involved, investment shall be made with the consent of the issuers of such currencies. *Source: 2024 REVIEW OF THE PRGT FACILITIES AND FINANCING—PROPOSED REFORMS—PROPOSED DECISIONS (excerpts provided).* ### 2. In accordance with Article XVII, Section 3, the Fund prescribes that: ### 2. In accordance with Article XVII, Section 3, the Fund prescribes that: ### Prescriptions for SDR transfers and recording - (a) An SDR Department participant or a prescribed holder, by agreement with an SDR Department participant or a prescribed holder and at the instruction of the Fund, may transfer SDRs to that participant or prescribed holder in effecting a transfer to or from the IPAA, or in effecting a payment due to or by the Fund in connection with financial operations under the IPAA. - (b) Operations pursuant to these prescriptions shall be recorded in accordance with Rule P-9. ### Instrument to Establish the Interim Placement Administered Account (IPAA) — Purpose - Purpose: hold placements of the Fund’s net income and/or reserves in accordance with the distribution policy adopted by the Fund under Decision No. [Proposed Decision X]- (the “Distribution Policy”), pending the receipt of sufficient assurances in accordance with paragraph 5(a) from members of their willingness to contribute resources to the subsidy accounts of the Poverty Reduction and Growth Trust (PRGT), established by Decision No. 8769-(87/176) ESAF, as amended. ### Resources of the Account (Paragraph 2) - Resources consist of: - (a) direct transfers to the Account pursuant to placements, made by the Fund, of net income and/or reserves from the General Resources Account in accordance with the Distribution Policy; and - (b) net earnings from interest earned on the Resources placed to the Account. ### Unit of Account (Paragraph 3) - The SDR shall be the unit of account. ### Media of payment and exchange of resources (Paragraph 4) - (a) Payments made by the Account shall be made in SDRs or such other media as may be determined by the Fund. - (b) All transactions to and from this Account involving SDRs shall be made in accordance with such arrangements as may be made by the Fund for the holding and use of SDRs. ### Use of the Resources of the Account (Paragraph 5) - (a) Amounts placed to the Account from the General Resources Account shall be held pending notification by the Managing Director to the Executive Board that the Fund has received assurances for new PRGT subsidy contributions equivalent to at least SDR 6.21 billion. Upon such notification, the Resources in the Account shall be made available to members in accordance with their quota shares at the time of each placement and disposed of in line with member instructions, including: - direct transfers to the PRGT; - transfers to an interim administered account to hold such resources pending further instructions; - transfers to the account of the member in the SDR Department; or - any other account identified by the member. - (b) If the notification in paragraph 5(a) is received before the maximum cumulative distribution amount under the Distribution Policy is placed to the Account, any Resources placed in the Account after the notification shall be passed on to the members in accordance with their quota shares and disposed of per member instructions. - (c) If the notification in paragraph 5(a) has not been sent by the fifth anniversary of the first placement to this account pursuant to the Distribution Policy, the Resources held in the Account at that time shall be returned to the General Resources Account by no later than the end of the financial year in which the anniversary occurs, provided that the Executive Board may, by a majority of votes cast, decide to extend this period for such period as it considers appropriate. ### Authority to Transfer Interest Income (Paragraph 6) - Interest income earned on the Resources held in the Account shall be transferred on a quarterly basis from the Account to the Subsidy Reserve Account (SRA) of the PRGT. ### Administration of the Account (Paragraph 7) - (a) Assets held in the Account are held in the name of the Fund and shall be kept separate from assets and property of all other accounts of, or administered by, the Fund. Assets of other accounts shall not be used to discharge liabilities, obligations or losses of the Account; nor shall the assets of the Account be used to meet liabilities, obligations or losses of other accounts, except as provided in this Instrument. - (b) The Fund shall maintain separate financial records and financial statements for the Account. Financial statements shall be expressed in SDRs and prepared in accordance with accounting principles followed by the Fund. - (c) The external audit firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions conducted through the Account. The audit shall relate to the financial year of the Fund. - (d) The Fund shall report on the resources and position of the Account in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the audit report of the external audit firm on the Account. - (e) Subject to the provisions of this Instrument, the Fund, in administering the Account, shall apply, mutatis mutandis, the same rules and procedures as apply to operations of the General Resources Account of the Fund. - (f) The Managing Director is authorized: - (i) to make all arrangements, including the establishment of accounts in the name of the Fund, with such depositories as she deems necessary to carry out the operations of the Account; and - (ii) to take all other measures she deems necessary to implement the provisions of this Instrument. ### Fees (Paragraph 8) - No charge shall be levied in respect of the services rendered by the Fund in the administration, operation, and termination of this Account. ### Period of Operation and Liquidation (Paragraph 9) - The Account shall be terminated by the end of the fiscal year in which the last placement to the Account in accordance with the Distribution Policy has been made and its resources have been disposed of in accordance with paragraph 5. ### Amendments (Paragraph 10) - The provisions of this Instrument may be amended only by a decision of the Fund; provided that any changes to paragraphs 5(a), 6, 9 and 10 shall require a decision of the Fund and that they are acceptable to all members. ### Settlement of Questions (Paragraph 11) - Any questions arising under this Instrument between a member and the Fund shall be settled by mutual agreement. ### Decision X. GRA Resource Distribution Framework - 1. The Fund adopts the General Resources Account (GRA) Resource Distribution Framework (Framework), consisting of a Multi-Year Distribution Plan (MYDP) and the establishment of the Interim Placement Administered Account (IPAA). - 2. The Fund approves the MYDP for a cumulative amount equivalent to SDR 6.9 billion for distributions of net income or general reserve. Such distributions are to start when the Executive Board considers the FY 25 annual income disposition, and thereafter would take place on an annual basis until the cumulative amount reaches SDR 6.9 billion. - 3. Any distribution contemplated under the MYPD is subject to a decision to be adopted by the Executive Board in the context of the annual disposition of net income and/or a decision to reduce the general reserve confirming that, in the opinion of the Executive Board, the income position, reserve position and precautionary balances of the Fund justify a distribution of net income and/or a reduction of the general reserve. - 4. All distributions made pursuant to this decision shall be placed to the IPAA subject to the terms of the IPAA Instrument. ### Annex I — Redlined Decisions (extracts relevant to access limits) - With effect from January 1, 2025, the overall access of each eligible member to the resources of the Trust under all facilities of the Trust as specified in Section I, Paragraph 1(a) shall be subject to: - (i) an annual limit of 145 200 percent of quota; and - (ii) a cumulative limit of 435 600 percent of quota, net of scheduled repayments, - provided that these percentages of quota shall be immediately reduced to 135 percent of quota and 405 percent of quota, respectively, upon an Executive Board determination that the two general conditions for the effectiveness of quota increases under the Sixteenth General Review of Quotas specified in paragraph 3 of the Board of Governors Resolution No. 79-1, adopted December 15, 2023, have been met. - A reduction in access limits under this subparagraph shall not cause members to be subject to the exceptional access criteria set forth in subparagraphs (1)-(4) below of this paragraph if they were not subject to such criteria when the access limits were reduced. Exceptional access will apply if, after the reduction in access limits, the Executive Board approves access to PRGT resources (i) under a new arrangement, (ii) through augmentation of access under an arrangement that was in place before the reduction in access limits or (iii) through an outright loan under the RCF, in an amount that would cause the member to exceed the overall annual or cumulative access limits in place at that time. The Trustee may approve access in excess of these limits if all of the following criteria are satisfied: ... *Source: ppea2024047 - 2. In accordance with Article XVII, Section 3, the Fund prescribes that:* ### Section I, Paragraph 1(a) shall be subject to (i) an annual limit of 200 percent of quota; and (ii) a ### ppea2024047 - Section I, Paragraph 1(a) shall be subject to (i) an annual limit of 200 percent of quota; and (ii) a ### Access limits for Section I, Paragraph 1(a) - Subject to (i) an annual limit of 200 percent of quota; and (ii) a cumulative limit of 600 percent of quota, net of scheduled repayments. ### Temporary increase expiration and exceptional access to the PRGT - The expiration of the temporary increase in access limits set forth in Section II, paragraph 2(a)(B)(iii)(I) shall not cause members to be subject to the observance of the criteria for exceptional access to the PRGT after December 31, 2024 if they were not subject to such criteria as of that date, unless after December 31, 2024: - the Executive Board approves access to PRGT resources under a new arrangement, or - through an augmentation of access under an arrangement that was in place on December 31, 2024, or - through an outright disbursement under the RCF, in an amount that would cause the member to exceed the overall annual or cumulative access limits in place at that time. ### RCF access limits and special windows (Section II, paragraph 2(b)) - Standard RCF access: - Annual limit: 50 percent of quota. - Cumulative limit: 100 percent of quota, net of scheduled repayments. - Disbursement cap: - Each disbursement shall not exceed 25 percent of quota except where assistance addresses an urgent balance of payments need resulting primarily from a sudden and exogenous shock (including a large natural disaster under (ii) below). - Natural disaster window (conditional): - Annual access limit: 80 percent of quota. - Cumulative access limit: 133.33 percent of quota, net of scheduled repayments, where: - (a) the 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. - For the period from June 21, 2021 to December 31, 2021, the above annual access limit shall be 130 percent of quota. - For the period June 21, 2021 to the date of the Executive Board decision completing the next Comprehensive Review of PRGT Facilities in 2024/2025, December 31, 2025 the above cumulative access limit shall be 183.33 percent of quota, net of scheduled repayments. - Urgent balance of payments need due to sudden and exogenous shock: - Annual access limit for period April 6, 2020 to December 31, 2021: 100 percent of quota. - Cumulative access limit for period April 6, 2020 to the date the Executive Board decision completing the next Comprehensive Review of PRGT facilities in 2024/25; December 31, 2025: 150 percent of quota, net of scheduled repayments. - Acute food insecurity / cereal/fertilizer price / cereal exports window (subparagraph (iv)): - From September 30, 2022 to March 32, 2024, Fund may approve financing up to 50 percent of quota; such access is fully additional to the annual access limits under subparagraph 2(b). - A member’s access under this subparagraph increases the cumulative access limit in subparagraph 2(b)(iii) to 175 percent of quota until the date of the Executive Board decision completing the next Comprehensive Review of PRGT Facilities in 2024/25 December 31, 2025. - Qualifying conditions (one of): 1. acute food insecurity as defined by FAO and WFP or a major food crisis per the United Nations Global Report on Food Crisis (UNGRFC), based on the most recent publicly available data; or 2. increased prices of cereal or fertilizer imports that negatively impact the member’s external current account where such negative impact amounts to at least 0.3 percent of GDP over a 12-month period, as specified in more detail in SM/22/229; or 3. cereal exports shortfalls where projected negative shock to cereal exports, benchmarked against the previous year, exceeds 0.8 percent of projected GDP for the compensable year. - Credit counting toward RCF limits: - 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 limits applicable to access under the RCF. - With effect from July 1, 2015, any purchases from the General Resources Account under the Rapid Financing Instrument shall count towards the annual and cumulative limits applicable to access under the RCF. ### Adjustments contingent on Sixteenth General Review of Quotas determination (effect if determined on or prior to December 31, 2025) - If Executive Board determines general conditions for effectiveness of quota increases under the Sixteenth General Review of Quotas (paragraph 3 of Board of Governors Resolution No. 79-1 (December 15, 2023)) have been met on or prior to December 31, 2025, the following changes apply: - (I) Annual and cumulative RCF limits (Section II, paragraph (b)) changed to 35 and 70 percent of quota, respectively. - (II) Maximum limit on a disbursement under the RCF (Section II, paragraph (b)(i)) changed to 17.5 percent of quota. - (III) Annual and cumulative access limits for natural disaster cases (Section II, paragraph (b)(ii)) changed to 55 and 125 percent of quota, respectively. - (IV) Cumulative access limit for urgent balance of payments needs from sudden and exogenous shocks (Section II, paragraph (b)(iii)) changed to 105 percent of quota. - (V) Cumulative access limit specified in subparagraph 2(b)(iii) for members that have received financing under subparagraph (b)(iv) changed to 122.5 percent of quota. ### Augmentations and ad-hoc increases under ECF/SCF arrangements - Trustee may increase amount of resources committed to a qualifying member under an ECF or SCF arrangement in an ad-hoc review between scheduled reviews where underlying balance of payments problems are so acute augmentation cannot await next scheduled review. - Trustee will not approve augmentation at an ad-hoc review if the scheduled review associated with the most recent availability date preceding the augmentation request has not been completed. - Support for augmentation requires a letter of intent describing nature and size of balance of payment difficulties and relevant implementation information, including exogenous developments. - Before approving augmentation, Trustee must be satisfied program remains on track to achieve objectives, member is in compliance with continuous performance criteria or a waiver of nonobservance is justified, and all prior actions have been met. - Requests for augmentation of access that do not exceed 15 percent of quota would be considered for approval on a lapse-of-time basis as provided for in Decision/A/13207, as amended. - Following Trustee approval, augmentation will not exceed the amount immediately needed and will become available in a single disbursement, requestable until the availability date of the next scheduled disbursement under the arrangement. - Program review following an augmentation between scheduled reviews would be expected to include comprehensive review of policies; such review may not be completed on a lapse-of-time basis. ### Availability of resources - Any commitment shall be subject to the availability of resources to the Trust. ### Terms of Loans (Paragraph 4) - Interest rate provisions: - Effective August 1, 2021, and subject to Section IV.A, paragraph 5, interest on the 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. - Interest on outstanding balances of Trust loans, and credit under ECF and SCF arrangements and under the RCF approved through April 30, 2025, shall be charged at a rate of zero percent per annum. - Periodic reviews of interest rates for ECF and SCF loans: - First review to be completed by July 31, 2025, and subsequent reviews every two years thereafter. - In such reviews, and subject to Section IV.A, paragraph 5, interest rate normally determined by Trustee as follows based on 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. - Notwithstanding paragraph (a) or 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. - Interest rates on loans approved on or after May 1, 2025 (subject to Section IV.A, paragraph 5): - Tiering based on Blending Decision criteria: - Tier 1: For an eligible member that does not meet the income criterion for presumed blending (paragraph 1(a) of Decision No. 17082-(21/71), July 14, 2021) at time of Board approval, interest on all loans under the arrangement and on the Trust loan under the RCF shall be charged at zero percent per annum. - Tier 2A: For an eligible member that meets the income criterion for presumed blending and does not face debt vulnerabilities limiting access to international financial markets (paragraph 1(b) of the Blending Decision), interest shall be charged at 70 percent of the SDR interest rate per annum. - Tier 2B: For an eligible member that meets the income criterion for presumed blending but faces debt vulnerabilities that limit access to international financial markets, interest shall be charged at 40 percent of the SDR interest rate per annum. - GDP rebasing approach: - Where a member does not meet the income criterion for presumed blending and its GNI per capita does not exceed the IDA operational cutoff by at least 5 percent as of the year before a new rebased GDP is published, it shall not be deemed to have met the income criterion until the member’s annual GNI per capita has exceeded the prevailing IDA operational cutoff by at least 5 percent for two consecutive years, not including the year in which the official rebased GDP data is released. - Transitional period: for a member that completed GDP rebasing after March 11, 2020 and not later than April 30, 2025, the income criterion will be met when the member’s annual GNI per capita has exceeded the prevailing IDA operational cutoff by at least 5 percent for two consecutive years after, and not including, 2025. - Interest payment schedule: - Interest payment shall be due promptly at the end of each IMF financial quarter, in line with the schedule of interest payments to PRGT lenders and with the billing cycle of the GRA and SDR Department. - Currency, repayment, and other loan terms: - Trust loans shall be disbursed in a freely usable currency as decided by the Trustee. - Repayment and interest payments shall be in U.S. dollars or other freely usable currency as decided by the Trustee. - Managing Director authorized to make arrangements under which, at the request of a member, SDRs may be used for disbursements to the member or for payment of interest or repayments of loans by the member to the Trust. - The Trustee may not reschedule the repayment of loans from the Trust. - Repayment schedules: - Trust loans under the ECF, RCF and ESF shall be 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. - Trust loans under the SCF shall be 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. - Modifications: - Any modification of these provisions will affect only loans made after the effective date of the modification, provided that modification of the interest rate shall apply to interest accruing after the effective date of the modification. ### Subsidy Accounts (Section IV.A) - General Subsidy Account resources shall consist of: - (i) proceeds of donations made to the Trust for the General Subsidy Account; - (ii) 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; - (vi) transfers from the Deposit and Investment Account in accordance with Section IV.B, paragraph 3 of this Instrument and transfers from the Long-term Investment Account in accordance with Section IV.C, paragraph 3 of this Instrument. - Subsidy Reserve Account resources shall consist of: - (i) proceeds of donations made to the Trust for the Subsidy Reserve Account; - (ii) 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 and transfers from the Long-Term Investment Account in accordance with Section IV.C, 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; - (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. - Termination and use of remaining resources: - Upon completion of subsidy operations, Fund shall wind up affairs of Subsidy Accounts; Fund may wind up any Subsidy Account other than General Subsidy Account earlier if deemed appropriate. - Remaining resources in the General Subsidy Account 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 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 or from the Long-Term Investment Account shall be transferred to that account. - Remaining resources in the Subsidy Reserve Account shall be used in a manner consistent with paragraph 4(f) 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 or the Long-Term 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 or the Long-Term Investment Account shall be transferred to that Account. *Italic: Content derived from ppea2024047 - Section I, Paragraph 1(a) shall be subject to (i) an annual limit of 200 percent of quota; and (ii) a (source PDF).* ### Section IV.B. Deposit and Investment Account ### Section IV.C. Long-Term Investment Account ### Purpose and Resources - The purpose of the Long-Term Investment Account is to provide a separate vehicle under which the Trust can pool and centralize borrowed resources for generating investment earnings under a long-term investment strategy for the benefit of the Subsidy Reserve Account, or at the request of a contributor, the General Subsidy Account. - Resources held in the Long-Term Investment Account shall consist of the proceeds from long-term investment agreements with contributors and the net earnings on the investment proceeds. ### Borrowing for the Long-Term Investment Account - The Trustee may enter into investment agreements with the Long-Term Investment Account with the aim of generating long-term net investment earnings from the investment of the resources borrowed (“Long Term Investment Agreements”). - The Managing Director of the Trustee is authorized to enter into Long-Term Investment Agreements and agree to their terms and conditions with contributors to the Long-Term Investment Account. - Borrowed resources shall be invested in accordance with guidelines adopted by the Trustee. - Agreements may provide for the right of a contributor to request the early repayment of the principal amount under its Long-Term 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 - Net investment earnings in the Long-Term Investment Account shall be transferred to the Subsidy Reserve Account at the final maturity of the investment agreement to which such resources are attributable. - 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 Long-Term Investment Agreement to meet the subsidization needs of the Trust. - A contributor may prescribe that investment earnings in the Long-Term 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 Long-Term Investment Account. - Contributors shall be repaid the principal of their investment and any remaining investment earnings or losses attributed to it. ### Repayment of Principal and Payment of Interest - Repayment of the principal amount and any payment of interest to a contributor on any borrowing for the Long-Term Investment Account, including repayment upon maturity, early repayment in accordance with Section IV.C, paragraph 2(b), or repayment in accordance with Section IV.C, paragraph 4, shall be made exclusively from resources attributed to the investment of this principal amount and the net investment earnings thereon, net of the cumulative interest previously paid to the contributor. ### Section VIII. Period of Operation and Liquidation (selected provisions) - The Trust established by this Instrument shall remain in effect for as long as is necessary, in the judgment of the Fund, to conduct and to wind up the business of the Trust. - Termination and liquidation of the Long-Term Investment Account shall be made in accordance with the provisions of Section IV.C, paragraph 4. - All other resources, if any, shall be used to discharge any liabilities of the Trust, other than those incurred under Section IV.A, and any remainder shall be transferred to the Special Disbursement Account of the Fund. ### Blended Access to Financing under the PRGT and the GRA — Key Provisions (redlined text) - A member included in the list annexed to Decision No. 8240-(85/56) SAF is a “Presumed Blender” if it meets the income and debt vulnerability criteria below. - Income criterion: - A member meets the income thresholds for presumed blending if its annual per capita gross national income (GNI) has exceeded the prevailing operational cutoff for assistance from the International Development Association (IDA) by at least 5 percent for two consecutive years (the “income threshold”). - Transitional rule: for a member which completed its GDP rebasing after March 11, 2020 and not later than April 30, 2025, the income criterion will be met when the member’s annual GNI per capita has exceeded the prevailing IDA operational cutoff by at least 5 percent for two consecutive years after, and not including, 2025. - Once a member has met the income threshold, it shall be deemed to continue to meet the threshold unless its annual per capita GNI falls below 95 percent of the IDA operational cut-off. - Debt vulnerability criterion: - A member that meets the income threshold shall be presumed to blend unless it faces debt vulnerabilities that limit its access to international financial markets. - A member is considered to face debt vulnerabilities that limit market access if it is (i) in debt distress or (ii) at high risk of debt distress and either (a) does not meet the criterion of capacity to access international financial markets on a durable and substantial basis for the purpose of graduation from the PRGT eligibility as set forth in Paragraph 1(C)(1)(ii) of Decision No. 14521-(10/3), adopted January 11, 2010, as amended (the “PRGT Eligibility Decision”) or (b) is a “small country” or a “microstate” as defined in paragraph 1 (D) of the PRGT Eligibility Decision. - Access mix and caps: - A request by a Presumed Blender for access to PRGT resources shall be approved only in a blend with access to resources in the General Resources Account (GRA). - 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 a per arrangement cap on access to PRGT resources set at the norm applicable to ECF and SCF arrangements and subject to the overall limits on access to the PRGT set out in Section II, Paragraph 2 of this Instrument. - Temporary cap increase: - During the period from December 7, 2023 to December 31, 2024, the cap on access to PRGT resources per arrangement specified above shall be increased to 200 percent of quota. - The expiration of the temporary increase shall not affect commitments under existing arrangements that were approved prior to such expiration. - The cap of 200 percent of quota per arrangement shall be reduced to 135 percent of quota immediately upon an Executive Board determination that the general conditions for the effectiveness of quota increases under the Sixteenth General Review of Quotas specified in paragraph 3 of the Board of Governors Resolution No. 79-1 (December 15, 2023) have been met. ### Policy Safeguards for Countries Seeking Access to Fund Financial Support that would Lead to High Levels of Combined GRA and PRGT Exposures — Key Provisions (redlined text) - General rule: - The Fund will not approve financing requests in the GRA or under the PRGT in an amount above the High Combined GRA and PRGT Credit Thresholds (HCC) unless criteria in paragraph 3 and procedural requirements in paragraph 4 are met. - Applies to: (i) a new arrangement in the GRA or under the PRGT; (ii) a purchase under the Rapid Financing Instrument (RFI) or a loan under the Rapid Credit Facility (RCF); (iii) an augmentation of access under an arrangement in the GRA or under the PRGT; (iv) a rephasing of scheduled purchases or disbursements under an arrangement approved after September 9, 2020 when access under the arrangement has not previously exceeded the thresholds specified in paragraph 2. - Definition of HCC: - HCC arises when a member’s annual or cumulative access (net of scheduled repurchases and repayments) to the sum of resources in the GRA and under the PRGT exceeds, in quota terms, the equivalent of the annual or the cumulative limit (net of scheduled repurchases) applicable to access by members to GRA resources set forth in paragraph 2 of Decision No. 14064-(08/18), adopted February 22, 2008, as amended (the “HCC Thresholds”). - The HCC Thresholds shall adjust automatically to any changes in the access limits set forth in Decision No. 14064-(08/18), as amended (the “GRA Access Decision”). - Criteria that must be satisfied for HCC access: (a) The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current account or capital account, resulting in a need for Fund financing that cannot be met without giving rise to access in excess of the HCC Thresholds. (b) Risks to the sustainability of public debt are adequately contained, evidenced by standards below: - For members subject to the Bank-Fund Debt Sustainability Framework for Low-Income Countries (LIC-DSF): I. A rigorous and systematic analysis indicates a high probability that the member's public debt is sustainable in the medium term. This is generally considered to be met for countries assessed under the LIC-DSF to be at low or moderate overall risk of public debt distress; or II. Where the member’s public debt is assessed to be sustainable but not with high probability (including cases where the member’s overall risk of public debt distress is assessed to be high or in debt distress), or where the member’s debt is assessed to be unsustainable ex ante, access in excess of the HCC Thresholds will only be made available if the combination of the member’s policies and financing from sources other than the Fund, which may include debt restructuring, restores public debt sustainability with high probability (generally considered to be met for countries assessed under the LIC-DSF to be at low or moderate overall risk of public debt distress) (i) within 36 months from Board approval in the case of a new Fund arrangement, purchase under the RFI or loan under the RCF, or within the period of the new arrangement, whichever is longer, or (ii) within the remaining period of an arrangement, in cases where the Board approves a request for an augmentation or a rephasing of access under the arrangement; provided that, in cases where the member’s public debt is assessed to be sustainable but not with high probability and the member has prospects of gaining or regaining access to private capital markets within a timeframe and on a scale that would enable the member to meet its obligations falling due to the Fund (including to the PRGT) combined access above the proposed thresholds will be made available if the combination of the member’s policies and financing from sources other than the Fund, which may include debt restructuring, although it may not restore sustainability with high probability, improves debt sustainability and sufficiently enhances the safeguards for Fund resources (including PRGT resources). In applying the more flexible standard where debt is sustainable but not with a high probability, BUFF/16/9, corr. 1 will apply. - For members subject to assessments under the Debt Sustainability Framework for Market Access Countries: - This criterion will be met where a rigorous and systematic analysis indicates that the same debt sustainability requirements that apply to exceptional access in the GRA, set forth in paragraph 3(b) of the GRA Access Decision and in BUFF/16/9 (1/27/2016), are met. (c) The member’s policy program provides a reasonably strong prospect of success, including the member’s adjustment plans and its institutional and political capacity to deliver that adjustment. *Source: ppea2024047 - Section IV.B. Deposit and Investment Account (selected sections included: Section IV.C; Sections VIII; Blended Access; Policy Safeguards).* ### 1. The following criteria for entry and graduation shall, respectively, guide Executive Board ### 1. The following criteria for entry and graduation shall, respectively, guide Executive Board decisions to add members to, and remove members from, the list annexed to Decision No. 8240-(86/56) SAF, as amended (the “PRGT-eligibility list”) ### (A) Criteria for entry - A member will be added to the PRGT-eligibility list if: - (i) its annual per capita gross national income (“GNI”), based on the latest available qualifying data, is: - (a) below the International Development Association (“IDA”) operational cut-off; or - (b) less than twice the IDA operational cut-off if the member qualifies as a “small country” under subparagraph (D); or - (c) less than five times the IDA operational cut-off if the member qualifies as a “microstate” under subparagraph (D); and - (ii) the sovereign does not have capacity to access international financial markets on a durable and substantial basis as defined in subparagraph (C). ### (B) Criteria for graduation - A member will be removed from the PRGT-eligibility list if it meets either or both the income and market access criteria specified in (1) and (2) below, and does not face serious short-term vulnerabilities as specified in (3) below: - (1) Income Criterion: - the member’s annual per capita GNI: - (i) has been above the IDA operational cut-off for at least the last five years for which qualifying data are available; - (ii) has not been on a declining trend over the same period, comparing the first and last relevant annual data; and - (iii) based on the latest qualifying annual data, is: - (a) at least twice the IDA operational cut-off; or - (b) at least three times the IDA operational cut-off if the member qualifies as a “small country” under subparagraph (D); or - (c) at least six times the IDA operational cut-off if the member qualifies as a “microstate” under subparagraph (D). - (2) Market Access Criterion: - (i) the sovereign has the capacity to access international financial markets on a durable and substantial basis as defined in subparagraph (C); - (ii) the member’s annual per capita GNI is above 100 percent of the IDA operational cut-off based on the latest qualifying annual data; and - (iii) the member’s annual per capita GNI has not been on a declining trend over the last five years for which qualifying data are available, comparing the first and last relevant annual data. - (3) Absence of serious short-term vulnerabilities: - the member does not face serious short-term vulnerabilities, which shall require in particular: - (i) the absence of risks of a sharp decline in the member’s income, or of a loss of its market access (where relevant); - (ii) limited debt vulnerabilities as indicated by the most recent debt sustainability analysis, including, for members whose debt has been assessed under the Debt Sustainability Framework for Low-Income Countries, an external debt distress classification of moderate or less and does not face a heightened overall risk of debt distress reflecting significant vulnerabilities related to domestic debt and/or private external debt; and - (iii) confirmation that overall debt vulnerabilities remain limited, taking into account developments and prospects since the most recent debt sustainability analysis. - Exception: - For a member whose annual per capita GNI exceeds the applicable income graduation threshold in (1) above by 50 percent or more, graduation from PRGT eligibility will not be subject to the assessment of serious short-term vulnerabilities defined in this subparagraph (3). - Such an assessment by the Executive Board will however be required if the member has an “IDA-grant only” or “IDA loan-grant mix” status at the World Bank, in which case graduation will depend on an assessment that the member does not have such serious short-term vulnerabilities. ### (C) Evidence of capacity to access international financial markets (for subparagraphs (A) and (B)(2)) - Capacity shall be evidenced by either: - (1) Issuance/guarantee or disbursements in international markets: - For entry assessment: - occurred during at least two of the last five years for which qualifying data are available (the “entry duration threshold”), and - has been in a cumulative amount equivalent to at least fifty percent of the member’s quota in the Fund at the time of the assessment (the “entry scale threshold”), - provided that: - (a) if the member’s quota increase under the Fourteenth General Review of Quotas has become effective, the cumulative amount shall be equivalent to at least 25 percent of the member’s quota and provided further that, if the member’s quota increase under the Sixteenth General Review of Quotas has become effective, such cumulative amount shall be equivalent to at least 20 percent of the member’s quota; and - (b) if the amount of issuance or guarantee of external bonds and of disbursements under external commercial loans in a single year for which qualifying data are available totals less than two percent of the member’s quota in the Fund at the time of the assessment, or less than 1.5 percent of quota of the member’s quota increase under the Sixteenth General Review of Quotas has become available, that year shall not count towards meeting the entry duration threshold. - For graduation assessment: - occurred during at least three of the last five years for which qualifying data are available (the “graduation duration threshold”), and - has been in a cumulative amount equivalent to at least one hundred percent of the member’s quota in the Fund at the time of the assessment (the “graduation scale threshold”), - provided that: - (a) if the member’s quota increase under the Fourteenth General Review of Quotas has become effective, the cumulative amount shall be equivalent to at least 50 percent of the member’s quota and provided further that if the member’s quota under the Sixteenth General Review of quotas has become effective, such cumulative amount shall be equivalent to at least 35 percent of the member’s quota; and - (b) if the amount of issuance or guarantee of external bonds and of disbursements under external commercial loans in a single year for which qualifying data are available totals less than two percent of the member’s quota at the time of the assessment, or less than 1.5 percent of quota if the member’s quota increase under the Sixteenth General Review has become effective, that year shall not count towards meeting the graduation duration threshold. - (2) Convincing evidence that the sovereign could have tapped international markets as specified under (1) above even though actual issuance/guarantee/disbursements fell short of the duration and/or scale thresholds: - Determinations shall be case-specific and take into account relevant factors, including the volume and terms of recent external borrowing or guaranteeing of external borrowing in international markets, and the sovereign credit rating where one exists. - Additional definitions and clarifications for subparagraph (C): - (i) “public debtor” includes the sovereign (national government) and other public borrowers (political subdivisions, agencies, autonomous public bodies, public corporations) when such borrowing is assessed as an indicator of sovereign creditworthiness; borrowing by a public corporation will generally not be assessed as an indicator of the sovereign’s creditworthiness where such borrowing is based on the public corporation’s own balance sheet and is not guaranteed by the sovereign. - (ii) “external bonds” are those issued in international capital markets and “external commercial loans” are commercial loans contracted in international markets by residents of a member with nonresidents, provided that bonds issued and loans contracted in markets that are not integrated with broader international market, including loans or bonds subsidized or guaranteed (partially or fully) by official external entities (including foreign governments and foreign public sector entities as well as international organizations), and loans from foreign state-owned banks, shall not qualify. - (iii) bonds and commercial loans guaranteed by a public debtor shall be obligations of a private debtor whose repayment is guaranteed by a public debtor. ### (D) Population-based definitions - “Small country”: population below 1.5 million. - “Microstate”: population below 200,000. ### (E) Data sources and qualifying data timing - Assessments of per capita GNI will normally be based on World Bank data using the ATLAS methodology, but other data sources may be used in exceptional circumstances, including data estimated by Fund staff in the absence of World Bank data. - Qualifying data for the purposes of these criteria shall be data in respect of which the most recent observation relates to a calendar year that is not more than 30 months in the past at the time of the assessment. ### Effectiveness, transitional, and special provisions (paragraphs 2–5) - Paragraph 2 — Effective date and transitional protection: - Executive Board decisions to remove a member pursuant to the graduation criteria shall become effective five months after their adoption (the “effectiveness date”), - provided that such decisions shall not affect any arrangement under the PRGT or any program subject to assessment and endorsement by the Fund under a policy support instrument (“PSI”) that are in existence as of the effectiveness date. - Any such arrangement or PSI may continue until expiration or termination, and may be extended or access augmented where appropriate in accordance with applicable policies on extension or augmentation. - Paragraph 3 — Outstanding PRGT resources: - Notwithstanding removal from the PRGT-eligibility list, any outstanding PRGT resources disbursed to such member shall remain subject to the terms of the PRGT. - In Section II, paragraph 4(c) of the PRGT, the reference to “as such list may be amended from time to time,” shall be deleted. - Paragraph 4 — Subsidies for post conflict and natural disaster purchases: - The term “eligible recipients” under paragraph 7(a) of Decision No. 12481-(01/45) shall include members that, at the time of their removal from the PRGT-eligibility list pursuant to this decision, have outstanding post conflict or natural disaster purchases for which subsidies may be provided, for as long as such purchases remain outstanding. - In subparagraph 7(d) of Decision No. 12481-(01/45), as amended, references to “qualifying PRGT-eligible members” shall be replaced with references to “PRGT-eligible members,” and the second sentence shall be deleted. - Paragraph 5 — Review cadence and interim decisions: - It is expected that the criteria for entry and graduation set forth in this decision shall be reviewed every two years. - It is expected that the PRGT-eligibility list shall be reviewed and updated every two years on the basis of the then applicable criteria, provided however that: - (i) decisions on entry of members that meet the entry criteria may be adopted in the interim period between reviews; - (ii) notwithstanding paragraph 1, decisions may be adopted in the interim period for re-entry of members previously removed as a sanction for overdue obligations, so long as such a member at the time of re-entry does not meet the criteria for graduation specified in subparagraph 1(B); - (iii) decisions may be adopted in the interim period for graduation of members that meet the criteria for graduation in subparagraph 1(B), at the request of such a member. *International Monetary Fund — 2024 REVIEW OF THE PRGT FACILITIES AND FINANCING—PROPOSED REFORMS—PROPOSED DECISIONS* --- _Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024047.pdf_