## Executive Summary (_081606a)

## Source details

**Canonical URL:** [Executive Summary (_081606a)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_081606a.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_081606a.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_081606a.pdf.json)

---

### Overview and Recommendation
- Reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations.
- Proposes to extend the availability of the rights approach by another year, to end‑August 2007.
- Rights approach deemed potentially important for arrears clearance for the three eligible members: Liberia, Somalia, and Sudan.
- A draft decision to extend the availability of the rights approach to end‑August 2007 is provided for Board approval.

### Aggregate Developments (through end-June 2006)
- Total arrears to the Fund declined by SDR 109 million since the last review, to SDR 1,888 million.
- Decline largely reflects Zimbabwe’s full settlement of its arrears to the General Resources Account (GRA) in February 2006; Sudan’s monthly payments in excess of obligations falling due also contributed.
- Composition of total arrears to the Fund:
  - GRA: 87 percent
  - Trust Fund: 6 percent
  - PRGF-ESF Trust: 4½ percent
  - SDR Department: 2 percent
  - Structural Adjustment Facility (SAF): ½ percent
- Overdue currency valuation adjustments of 10 members amounted to SDR 1.9 billion at end-June 2006; protracted arrears cases accounted for SDR 1.4 billion (73 percent) of that total.
- Total burden-shared deferred charges amounted to SDR 864 million as of end-June 2006, a net increase of SDR 12 million from a year earlier.

### Protracted Arrears Cases (four members)
- Four members remained in protracted arrears to the Fund: Liberia, Somalia, Sudan, and Zimbabwe.
- The three members with arrears dating back to the mid-1980s—Liberia, Somalia, and Sudan—account for 96 percent of total arrears to the Fund; Sudan alone accounts for 56 percent.
- Specific end-June 2006 arrears by member (in millions of SDRs):
  - Sudan: 1,052
  - Liberia: 522
  - Somalia: 229
  - Zimbabwe: 85
  - Other: 0.1

### Cross‑institutional Arrears (as of end‑June 2006)
- Protracted arrears cases’ outstanding arrears to other IFIs (in millions of SDRs; as of end-June 2006):
  - To the World Bank Group: 944
  - To the African Development Bank Group: 523
  - Total across Fund, World Bank, AfDB: 3,354
- Country breakdown (in millions of SDRs; as of end-June 2006):
  - Liberia: Fund 522; World Bank 306; AfDB 157; Total 985
  - Somalia: Fund 229; World Bank 98; AfDB 41; Total 368
  - Sudan: Fund 1,052; World Bank 257; AfDB 111; Total 1,420
  - Zimbabwe: Fund 85; World Bank 283; AfDB 213; Total 581

### Fund Strategy and Assessment
- No changes proposed to the Fund’s strengthened cooperative strategy on arrears; strategy remains broadly effective for both short-term and protracted arrears.
- Strategy comprises three elements: prevention, intensified collaboration (including the rights approach), and remedial measures.
- Prevention has generally worked well in avoiding new arrears or facilitating quick clearance of short‑term arrears.

### Assessment of Cooperation and Payments — Case Summaries
- Liberia:
  - Cooperation has improved significantly.
  - Authorities increased monthly payments to the Fund from US$50,000 to US$60,000 in November 2005.
  - Performed under a staff‑monitored program (SMP) for February–September 2006; noted commitment to policy adjustment and reform.
  - Executive Board (April 26, 2006) commended authorities’ resolve; Board decided that track record under the SMP would be taken into account when deciding on de‑escalation of remedial measures.
- Sudan:
  - Cooperation on economic policies and payments remained broadly satisfactory.
  - Sudan accounts for over one half of total arrears to the Fund.
  - Executive Board (May 2006) commended prudent macroeconomic policies and structural reforms; welcomed increased payments to the Fund in 2006.
  - Sudan made payments to the Fund totaling US$30.2 million in 2005 and committed to increase payments to US$45 million in 2006.
  - Directors urged minimizing nonconcessional borrowing and equal treatment of all creditors in any debt restructuring/HIPC operations.
- Zimbabwe:
  - Fully settled arrears to the GRA in February 2006, but substantial arrears to the PRGF-ESF Trust remain outstanding (SDR 85 million at end-June 2006).
  - Cooperation remained weak; Board decisions suspending voting and related rights, ineligibility to use general resources, and remedial measures related to PRGF-ESF Trust arrears remain in place.
  - Remedial measures include removal from PRGF-ESF-eligible list, declaration of noncooperation, and suspension of technical assistance.
- Somalia:
  - Continued security problems and inadequate economic and financial information precluded a full assessment of cooperation with the Fund.
  - Board has postponed review of Somalia’s overdue financial obligations since October 1990; Fund staff continues monitoring and engagement where possible.

### Short‑term Arrears and Remedial Actions
- Thirteen members (22 instances) incurred short‑term arrears (less than six months) during the period under review; most were settled before remedial measures were applied.
- In two instances the Executive Board was notified of the occurrence of arrears.

### Financial Impact and Operational Notes
- Deferred GRA charges impose an ongoing cost borne by the membership through burden‑sharing via adjustments to the rate of charge and the rate of remuneration.
- Arrears to the Trust Fund reduced resources that would have accrued to the Reserve Account of the PRGF‑ESF Trust for low‑income members; SDR 75.7 million from the Reserve Account since 2001 was drawn to meet payment obligations to Trust lenders.

### Conclusion and Proposal
- Proposes to extend the availability of the rights approach for another year, to end‑August 2007, given its potential importance for arrears clearance for Liberia, Somalia, and Sudan.
- No changes proposed to the overall strengthened cooperative strategy on overdue financial obligations.

### Proposed decision and operative text
- Proposal: extend the availability of the rights approach until end‑August 2007.
- Draft decision text (as reported): “The Fund has reviewed progress under the strengthened cooperative strategy with respect to overdue financial obligations to the Fund as described in EBS/06/111. The Fund reaffirms its support for the strengthened cooperative strategy and agrees to extend the availability of the rights approach until end‑August 2007.”
- Adoption mechanism noted: the draft decision “may be adopted by a majority of the votes cast.”

### Major protracted‑arrears cases and aggregate figures (as of June 30, 2006)
- Countries listed with protracted overdue financial obligations: Liberia, Somalia, Sudan, Zimbabwe.
- Appendix: Table 7 — Total overdue (SDR millions) by country:
  - Liberia: 521.8
  - Somalia: 228.9
  - Sudan: 1,052.4
  - Zimbabwe: 84.7
  - Total: 1,887.7
- Appendix: Table 9 — Deferred GRA charges of countries with protracted arrears, FY 2002–2007 (as of June 30, 2006), totals by member (selected):
  - Angola: 233.6
  - Belarus: 201.9
  - Djibouti: 2.5
  - Liberia: 267.9
  - Samoa: 0.4
  - Somalia: 120.1
  - Sudan: 526.3
  - Suriname: 74.7
  - Turkmenistan: 8.2
  - Zimbabwe: 465.6
  - Total: 1,901.2
- Appendix: Table 8 — Balances and net deferrals, selected snapshot (in millions of SDRs):
  - Total (Apr. 30, 2002 through Jun. 30, 2006): 977.0; 19.7; 996.7; 15.6; 1,012.3; 22.6; 1,034.9; 10.1; 1,045.0; 4.8; 1,049.8

### Remedial measures timetable — General Department and SDR Department (Annex I)
- Immediately: Staff sends a cable urging prompt payment; member not permitted use of Fund resources until arrears cleared.
- 2 weeks: Management communicates to Governor stressing seriousness and urging settlement.
- 1 month: Managing Director notifies the Executive Board that an obligation is overdue.
- 6 weeks: Managing Director notifies member that a complaint will be issued unless settled; may recommend communications to selected or all Fund Governors.
- 2 months: A complaint regarding overdue obligations is issued to the Executive Board.
- 3 months: Brief factual statement noting existence and amount of arrears is posted on Fund external website; Board gives substantive consideration; Board usually limits member’s use of general resources and may suspend use of SDRs; press release follows Board decision.
- 6–12 months: Executive Board will review its decision on limitation within three months, with possibility of a second review.
- Up to 12 months: Declaration of ineligibility will be considered to take effect not more than twelve months after emergence of arrears; communications to all Fund Governors and heads of selected international financial institutions to be considered at same time.
- Up to 15 months: Declaration of noncooperation will be considered within three months after dispatch of communications; technical assistance may be suspended upon declaration.
- Up to 18 months: Decision on suspension of voting and representation rights will be considered within three months after the declaration of noncooperation.
- Up to 24 months: Procedure on compulsory withdrawal will be initiated within six months after the decision on suspension.

### Remedial measures timetable — PRGF and ESF Trust (Annex II)
- Immediately: Staff sends a cable urging payment; member’s access to Fund resources, including Trust resources, is suspended.
- 2 weeks: Management communicates to Governor stressing seriousness and urging settlement.
- 1 month: Managing Director notifies the Executive Board that an obligation to the Trust is overdue.
- 6 weeks: Managing Director notifies member that a report concerning the arrears will be issued to the Executive Board; may recommend communications to selected or all Fund Governors.
- 2 months: A report is issued by the Managing Director to the Executive Board requesting limitation of the member’s use of PRGF‑ESF Trust Resources.
- 3 months: Report is given substantive consideration by the Executive Board; factual statement noting existence and amount of arrears is posted on the member’s country‑specific page; press release follows Board decision to limit use of Trust resources.
- 6 months: Executive Board reviews its decision on limitation and may remove the member from the list of PRGF‑ESF‑eligible countries; press release follows removal or reinstatement.
- 12 months: A declaration of noncooperation with the PRGF‑ESF Trust may be issued by the Executive Board depending on assessment of the member’s settlement efforts; upon declaration, technical assistance could be suspended. The Managing Director may also limit technical assistance if it is not contributing adequately to resolution of arrears.

### Selected process and sanctions mechanics noted in appendices
- A complaint is issued by the Managing Director when a member falls into arrears to the Fund for two months or more; complaint may lead to: declaration of ineligibility to use Fund resources, suspension of voting rights, and compulsory withdrawal depending on persistence.
- Overdue obligations to the PRGF‑ESF Trust are separate from those to the General and SDR Departments and are not breaches under the Articles of Agreement; remedial measures for PRGF‑ESF include removal from PRGF‑ESF eligible list, declaration of noncooperation, and suspension of technical assistance.
- Notes on special charges and adjustments:
  - Includes special charges on overdue Trust Fund obligations (equivalent to SDR 19.7 million as of June 30, 2006) and additional interest on overdue SAF/PRGF obligations (equivalent to SDR 7.4 million as of June 30, 2006).
  - Adjustments of SDR 9.1 million resulting from SCA‑2 refunds for members in protracted arrears were applied to reduce outstanding charges.

*Source: Executive Summary (content unit _081606a - Executive Summary).*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and Recommendation
- This paper reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations and proposes to extend the availability of the rights approach by another year, to end-August 2007.
- The rights approach remains potentially important for arrears clearance for the three eligible members: Liberia, Somalia, and Sudan.
- A draft decision to extend the availability of the rights approach to end-August 2007 is provided for Board approval.

### Aggregate Developments (through end-June 2006)
- Total arrears to the Fund declined by SDR 109 million since the last review, to SDR 1,888 million.
- The decline largely reflects Zimbabwe’s full settlement of its arrears to the General Resources Account (GRA) in February 2006; Sudan’s monthly payments in excess of obligations falling due also contributed.
- The majority of total arrears to the Fund (87 percent) was to the GRA; the remainder was to the Trust Fund (6 percent), the PRGF-ESF Trust (4½ percent), the SDR Department (2 percent), and the Structural Adjustment Facility (SAF) (½ percent).
- Overdue currency valuation adjustments of 10 members amounted to SDR 1.9 billion at end-June 2006; the protracted arrears cases accounted for SDR 1.4 billion (73 percent) of that total.
- Total burden-shared deferred charges amounted to SDR 864 million as of end-June 2006, a net increase of SDR 12 million from a year earlier.

### Protracted Arrears Cases (four members)
- Four members remained in protracted arrears to the Fund: Liberia, Somalia, Sudan, and Zimbabwe.
- The three members with arrears dating back to the mid-1980s—Liberia, Somalia, and Sudan—account for 96 percent of total arrears to the Fund; Sudan alone accounts for 56 percent.
- Specific end-June 2006 arrears by member (in millions of SDRs):
  - Sudan: 1,052
  - Liberia: 522
  - Somalia: 229
  - Zimbabwe: 85
  - Other: 0.1

### Cross-institutional Arrears (as of end-June 2006)
- Protracted arrears cases’ outstanding arrears to other IFIs (in millions of SDRs; as of end-June 2006):
  - To the World Bank Group: 944
  - To the African Development Bank Group: 523
  - Total across Fund, World Bank, AfDB: 3,354
- Country breakdown (in millions of SDRs; as of end-June 2006):
  - Liberia: Fund 522; World Bank 306; AfDB 157; Total 985
  - Somalia: Fund 229; World Bank 98; AfDB 41; Total 368
  - Sudan: Fund 1,052; World Bank 257; AfDB 111; Total 1,420
  - Zimbabwe: Fund 85; World Bank 283; AfDB 213; Total 581

### Fund Strategy and Assessment
- No changes are proposed to the Fund’s strengthened cooperative strategy on arrears; the strategy remains broadly effective for both short-term and protracted arrears.
- The strategy comprises three elements: prevention, intensified collaboration (including the rights approach), and remedial measures.
- Prevention has generally worked well in avoiding new arrears or facilitating quick clearance of short-term arrears.

### Assessment of Cooperation and Payments — Case Summaries
- Liberia:
  - Cooperation has improved significantly.
  - Authorities increased monthly payments to the Fund from US$50,000 to US$60,000 in November 2005.
  - Performed under a staff-monitored program (SMP) for February–September 2006; noted commitment to policy adjustment and reform.
  - Executive Board (April 26, 2006) commended authorities’ resolve; Board decided that track record under the SMP would be taken into account when deciding on de-escalation of remedial measures.
- Sudan:
  - Cooperation on economic policies and payments remained broadly satisfactory.
  - Sudan accounts for over one half of total arrears to the Fund.
  - Executive Board (May 2006) commended prudent macroeconomic policies and structural reforms; welcomed increased payments to the Fund in 2006.
  - Sudan made payments to the Fund totaling US$30.2 million in 2005 and committed to increase payments to US$45 million in 2006.
  - Directors urged minimizing nonconcessional borrowing and equal treatment of all creditors in any debt restructuring/HIPC operations.
- Zimbabwe:
  - Fully settled arrears to the GRA in February 2006, but substantial arrears to the PRGF-ESF Trust remain outstanding (SDR 85 million at end-June 2006).
  - Cooperation remained weak; Board decisions suspending voting and related rights, ineligibility to use general resources, and remedial measures related to PRGF-ESF Trust arrears remain in place.
  - Remedial measures against Zimbabwe include removal from PRGF-ESF-eligible list, declaration of non-cooperation, and suspension of technical assistance.
- Somalia:
  - Continued security problems and inadequate economic and financial information precluded a full assessment of cooperation with the Fund.
  - Board has postponed review of Somalia’s overdue financial obligations since October 1990; Fund staff continues monitoring and engagement where possible.

### Short-term Arrears and Remedial Actions
- Thirteen members (22 instances) incurred short-term arrears (less than six months) during the period under review; most were settled before remedial measures were applied.
- In two instances the Executive Board was notified of the occurrence of arrears.

### Financial Impact and Operational Notes
- Deferred GRA charges impose an ongoing cost borne by the membership through burden-sharing via adjustments to the rate of charge and the rate of remuneration.
- Arrears to the Trust Fund reduced resources that would have accrued to the Reserve Account of the PRGF-ESF Trust for low-income members; SDR 75.7 million from the Reserve Account since 2001 was drawn to meet payment obligations to Trust lenders.

### Conclusion and Proposal
- The Fund proposes to extend the availability of the rights approach for another year, to end-August 2007, given its potential importance for arrears clearance for Liberia, Somalia, and Sudan.
- No changes are proposed to the overall strengthened cooperative strategy on overdue financial obligations.

*Source: Executive Summary (content unit _081606a - Executive Summary).*

### 11.      It is proposed that the availability of the rights approach be extended for

### 11. It is proposed that the availability of the rights approach be extended for another year, to end‑August 2007

### Proposed decision and operative text
- Proposal: extend the availability of the rights approach until end‑August 2007.
- Draft decision text (as reported): “The Fund has reviewed progress under the strengthened cooperative strategy with respect to overdue financial obligations to the Fund as described in EBS/06/111. The Fund reaffirms its support for the strengthened cooperative strategy and agrees to extend the availability of the rights approach until end‑August 2007.”
- Adoption mechanism noted: the draft decision “may be adopted by a majority of the votes cast.”

### Major protracted‑arrears cases and aggregate figures (as of June 30, 2006)
- Countries listed with protracted overdue financial obligations: Liberia, Somalia, Sudan, Zimbabwe.
- Appendix: Table 7 — Total overdue (SDR millions) by country:
  - Liberia: 521.8
  - Somalia: 228.9
  - Sudan: 1,052.4
  - Zimbabwe: 84.7
  - Total: 1,887.7
- Appendix: Table 9 — Deferred GRA charges of countries with protracted arrears, FY 2002–2007 (as of June 30, 2006), totals by member (selected):
  - Angola: 233.6
  - Belarus: 201.9
  - Djibouti: 2.5
  - Liberia: 267.9
  - Samoa: 0.4
  - Somalia: 120.1
  - Sudan: 526.3
  - Suriname: 74.7
  - Turkmenistan: 8.2
  - Zimbabwe: 465.6
  - Total: 1,901.2
- Appendix: Table 8 — Balances and net deferrals, selected snapshot (in millions of SDRs):
  - Total (Apr. 30, 2002 through Jun. 30, 2006): 977.0; 19.7; 996.7; 15.6; 1,012.3; 22.6; 1,034.9; 10.1; 1,045.0; 4.8; 1,049.8 (interpreted as sequential balance and net deferrals columns across years, source Finance Department).

### Remedial measures timetable — General Department and SDR Department (Annex I)
- Immediately: Staff sends a cable urging prompt payment; member not permitted use of Fund resources until arrears cleared.
- 2 weeks: Management communicates to Governor stressing seriousness and urging settlement.
- 1 month: Managing Director notifies the Executive Board that an obligation is overdue.
- 6 weeks: Managing Director notifies member that a complaint will be issued unless settled; may recommend communications to selected or all Fund Governors.
- 2 months: A complaint regarding overdue obligations is issued to the Executive Board.
- 3 months: Brief factual statement noting existence and amount of arrears is posted on Fund external website; Board gives substantive consideration; Board usually limits member’s use of general resources and may suspend use of SDRs; press release follows Board decision.
- 6–12 months: Executive Board will review its decision on limitation within three months, with possibility of a second review.
- Up to 12 months: Declaration of ineligibility will be considered to take effect not more than twelve months after emergence of arrears; communications to all Fund Governors and heads of selected international financial institutions to be considered at same time.
- Up to 15 months: Declaration of noncooperation will be considered within three months after dispatch of communications; technical assistance may be suspended upon declaration.
- Up to 18 months: Decision on suspension of voting and representation rights will be considered within three months after the declaration of noncooperation.
- Up to 24 months: Procedure on compulsory withdrawal will be initiated within six months after the decision on suspension.

### Remedial measures timetable — PRGF and ESF Trust (Annex II)
- Immediately: Staff sends a cable urging payment; member’s access to Fund resources, including Trust resources, is suspended.
- 2 weeks: Management communicates to Governor stressing seriousness and urging settlement.
- 1 month: Managing Director notifies the Executive Board that an obligation to the Trust is overdue.
- 6 weeks: Managing Director notifies member that a report concerning the arrears will be issued to the Executive Board; may recommend communications to selected or all Fund Governors.
- 2 months: A report is issued by the Managing Director to the Executive Board requesting limitation of the member’s use of PRGF‑ESF Trust Resources.
- 3 months: Report is given substantive consideration by the Executive Board; factual statement noting existence and amount of arrears is posted on the member’s country‑specific page; press release follows Board decision to limit use of Trust resources.
- 6 months: Executive Board reviews its decision on limitation and may remove the member from the list of PRGF‑ESF‑eligible countries; press release follows removal or reinstatement.
- 12 months: A declaration of noncooperation with the PRGF‑ESF Trust may be issued by the Executive Board depending on assessment of the member’s settlement efforts; upon declaration, technical assistance could be suspended. The Managing Director may also limit technical assistance if it is not contributing adequately to resolution of arrears.

### Selected process and sanctions mechanics noted in appendices
- A complaint is issued by the Managing Director when a member falls into arrears to the Fund for two months or more; complaint may lead to: declaration of ineligibility to use Fund resources, suspension of voting rights, and compulsory withdrawal depending on persistence.
- Overdue obligations to the PRGF‑ESF Trust are separate from those to the General and SDR Departments and are not breaches under the Articles of Agreement; remedial measures for PRGF‑ESF include removal from PRGF‑ESF eligible list, declaration of noncooperation, and suspension of technical assistance.
- Notes on special charges and adjustments:
  - Appendix Table notes: includes special charges on overdue Trust Fund obligations (equivalent to SDR 19.7 million as of June 30, 2006) and additional interest on overdue SAF/PRGF obligations (equivalent to SDR 7.4 million as of June 30, 2006).
  - Adjustments of SDR 9.1 million resulting from SCA‑2 refunds for members in protracted arrears were applied to reduce outstanding charges.

*Source: Finance Department (content as presented in the supplied IMF document).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_081606a.pdf_