## _121208a - Executive Summary

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---

### Scope
- Focus: two key features of the financial terms and maturities of high access to the Fund’s General Resources Account (GRA): surcharges and time-based repurchase expectations (TBRE).
- Components of cost of high-access Fund credit:
  - (i) the basic rate of charge (adjusted for burden sharing) — not addressed in this paper.
  - (ii) surcharges — the focus of this paper.
- Definitions and purpose:
  - Surcharges and the TBRE policy were introduced to mitigate credit risks and safeguard the revolving nature of Fund resources.
  - For the purpose of this paper, access is defined to be “high” if it exceeds the thresholds that trigger surcharges.

### Experience and assessment
- Overall assessment:
  - Surcharges and TBRE have helped meet stated objectives: they have allowed a considerable build up of precautionary balances and, together with repurchase expectations, have contributed to early repayments (though stigma effects have also played a role).
- Complexity:
  - The policies are complex, difficult to understand, and vary across lending instruments.
- Historical context and demand:
  - Directors in the 2005 Review asked staff to propose alignment of surcharges across GRA facilities and to abolish the TBRE policy.
  - Demand for Fund credit fell to historical lows after the 2005 Review and resurged in mid-2008 amid global financial turmoil.
  - From 2005 until mid-2008 the external environment was benign, global liquidity plentiful, and borrowing terms favorable, producing only three requests for exceptional access (Uruguay and Turkey in mid-2005 and Liberia in early 2008); no member used SRF resources in that period.
- Repurchases and TBRE effects:
  - April 2005–June 2007: about two-thirds (65.6 percent) of repurchases adhered to the expectations schedule (compared to 44.1 percent in January 2003–March 2005).
  - July 2007–November 2008: the ratio increased to 100.0 percent (noting small sample of outstanding credit).

### Reform aims and high-level proposal
- Aim:
  - Simplify the cost structure of high-access Fund lending and reduce misalignment across facilities.
  - Replace the TBRE policy (administrative shortening of maturities) with a price incentive (time-based surcharge) to discourage prolonged use of resources and thereby lengthen actual maturities relative to TBRE.
- Core elements of staff proposal (credit tranches and the SLF):
  - Remove the existing 100 basis point surcharge for access between 200 and 300 percent of quota.
  - Maintain a surcharge of 200 basis points for credit outstanding above 300 percent of quota.
  - Introduce an additional time-based surcharge of 100 basis points when credit outstanding remains above 300 percent of quota for more than three years.
- Visual summary (as described in source):
  - Current schedule: tiered level- and time-based elements including a 100 bps step for 200–300% of quota and 200 bps over 300% of quota, and SRF time-based steps up to 500 bps.
  - Proposed schedule: single level-based surcharge for > 300% of quota plus a time-based surcharge after t+36 months.

### Staff single-tier with time-varying surcharges (credit tranches) — mechanics
- Trigger and rates:
  - Credit outstanding below 300 percent of quota: not subject to surcharges.
  - Credit outstanding above 300 percent of quota: subject to a surcharge of 200 basis points.
  - Outstanding credit that remains above 300 percent of quota for more than three years: subject to a surcharge of 300 basis points (i.e., an additional time-based surcharge of 100 basis points applies when credit outstanding remains above 300 percent of quota for more than three years).
- Practical illustration (Box 1):
  - Example: a 24-month arrangement with access of 800 percent of quota for a member with quota SDR 1300 million.
  - Disbursement: one-third disbursed upfront; rest in eight equal quarterly purchases.
  - Surcharges triggered after the second purchase when outstanding credit exceeds 300 percent of quota.
  - Surcharge pattern: 200 basis points levied on outstanding credit above 300 percent of quota for the following 36 months; additional 100 basis points applicable from the 39th month to the 60th month.

### Cost and simulations — net effect on borrowing costs
- Net effects:
  - Removal of the existing 100 basis point level-based surcharge at 200 percent of quota tends to lower the cost of borrowing.
  - Introduction of a time-based surcharge tends to raise costs for the same repayment schedule.
- Staff simulations (typical credit-tranche arrangements):
  - Proposed surcharge system would tend to lower borrowing costs for typical credit-tranche arrangements when access is below 800 percent of quota (under the obligations schedule).
  - Under the expectations schedule, break-even occurs at 1100 percent of quota.

### Table 6 results (selected figures preserved exactly)
- Surcharge Income Under Current and Proposed Systems (in SDR millions)
  - 400 percent of quota
    - Country A 58.4 25.5 -56.4 97.4 51.5 -47.1
    - Country B 134.7 58.8 -56.4 224.7 118.8 -47.1
  - 800 percent of quota
    - Country A 330.4 292.0 -11.6 473.4 473.4 0.0
    - Country B 762.5 673.8 -11.6 1,092.5 1,092.5 0.0
  - 1200 percent of quota
    - Country A 639.0 645.1 1.1 886.0 984.8 11.1
    - Country B 1,474.7 1,488.8 1.0 2,044.7 2,272.5 11.1

- Interpretation:
  - Under the expectations schedule, the proposed system yields lower income for 400 percent and 800 percent of quota; marginally higher at 1200 percent.
  - Under the obligations schedule, break-even at 800 percent of quota: proposed yields lower income for access below 800 percent and higher income above 800 percent.

### Reserve accumulation scenarios (Figure 8 summary)
- Assumptions: All scenarios assume SDR 40 billion of credit outstanding (credit tranches terms).
- Outcomes:
  - If access levels average 500 percent of quota (Scenario 2), proposed system tends to result in a slightly lower pace of reserve accumulation than current system.
  - If access levels average 1000 percent of quota (Scenario 3), proposed system tends to result in a slightly faster pace of reserve accumulation than current system.
- Scenarios note: Scenarios 2–3 assume SDR 10 billion in credit outstanding is not subject to surcharges.

### TBRE policy and early repayments
- Introducing a time-based step strengthens the case for abolishing the TBRE policy.
- Comparison of Table 6 columns:
  - For access of 1,200 percent of quota repaid under the obligations schedule, members would pay significantly more surcharges under the proposed schedule.
  - If countries repay earlier (shift forward repayment by about one year as in expectations), they would pay significantly less surcharges at 400 percent and 800 percent, and essentially the same at 1200 percent.

### Implications for GRA facilities: SLF, SRF, and EFF
- SLF:
  - Staff proposes applying the new system of surcharges to SLF purchases.
  - Surcharges apply only to credit outstanding from SLF purchases.
  - Because SLF maturity is three months, the proposed time-based surcharge would never be triggered; proposed schedule would unambiguously reduce SLF cost.
  - Table 7 (SLF Purchases, in SDR millions)
    - 300 percent of quota
      - Country A 9.8 0.0 ...
      - Country B 22.5 0.0 ...
    - 500 percent of quota
      - Country A 48.8 39.0 -20
      - Country B 112.5 90.0 -20
- SRF and EFF — alignment issues:
  - Full alignment across GRA facilities would simplify the system but may be inappropriate because facilities address different balance of payments problems with different maturities and terms.
  - Implications of full alignment:
    - SRF: proposed schedule would lower SRF cost significantly (time-based surcharge never triggers), potentially creating arbitrage (SRF cheaper than credit tranches).
    - EFF: applying proposed schedule could levy highest surcharge for a much longer period on high-access EFF users.
  - Implications of not aligning:
    - SRF: maintaining existing surcharges preserves cost differential; demand for SRF may remain low.
    - EFF: without the proposed schedule, EFF would lack a time-based incentive for early repayment; elimination of TBRE would extend EFF repayment period by three years on average without incentivizing early repurchases.
  - Partial alignment option:
    - Apply proposed schedule to SRF and EFF but with different time triggers (example: SRF trigger shorter than 36 months; EFF trigger longer than 36 months).
    - Partial alignment preserves some distinguishing cost features but undermines simplicity.
  - Staff view:
    - Simplifying and aligning surcharges would be best achieved through elimination of the SRF, and possibly also the EFF, given limited perceived usefulness of SRF and limited cases conforming to the SRF “V-shaped” crisis profile.

### SRF and EFF specific proposals
- SRF:
  - Staff propose elimination of the SRF because it has not been a useful instrument in recent years and the type of “V-shaped” crises it was designed for have become less frequent.
- EFF:
  - Low recent usage suggests that the EFF may also be eliminated, or at least not used as a vehicle to provide high access for members with balance of payments difficulties.

### Rationale and operational considerations
- Objectives preserved:
  - Reform retains price incentives to moderate large and/or prolonged use of Fund resources and to encourage early repayment.
  - Surcharges continue to generate income to build the Fund’s precautionary balances.
- TBRE abolition:
  - Replacing TBRE with a time-based surcharge shifts incentives from an administrative expectation to explicit pricing, lengthening loan maturities relative to current practice.
- Scope of application:
  - Proposal applies to lending in the credit tranches and under the Short-term Liquidity Facility (SLF) as explicitly specified.

### Governance, voting, and decisions required
- Voting requirements:
  - Modifications to surcharges require the support of 70 percent of the total voting power.
  - The abolishment of the TBRE policy would require a majority of the vote cast.
  - Elimination of the SRF or the EFF would require a majority of the votes cast.
- Issues for Directors (items for discussion):
  - Should the TBRE policy be abolished and is a time-based surcharge sufficient replacement?
  - Does the staff proposal strike an appropriate balance between early repayment incentives and not unduly deterring members from seeking support?
  - Is the proposed system adequate to build precautionary balances?
  - Views on aligning surcharges across facilities and on the future role of the SRF and the EFF.

*Source: _121208a - Executive Summary, https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2008/_121208a.pdf.*

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

### _121208a - Executive Summary ......................................................................................................

### Scope
- Focus: two key features of the financial terms and maturities of high access to the Fund’s General Resources Account (GRA): surcharges and time-based repurchase expectations (TBRE).
- Components of cost of high-access Fund credit:
  - (i) the basic rate of charge (adjusted for burden sharing) — not addressed in this paper.
  - (ii) surcharges — the focus of this paper.
- Definitions and purpose:
  - Surcharges and the TBRE policy were introduced to mitigate credit risks and safeguard the revolving nature of Fund resources.
  - For the purpose of this paper, access is defined to be “high” if it exceeds the thresholds that trigger surcharges.

### Experience and Assessment
- Overall assessment:
  - Surcharges and TBRE have helped meet stated objectives: they have allowed a considerable build up of precautionary balances and, together with repurchase expectations, have contributed to early repayments (though stigma effects have also played a role).
- Complexity:
  - The policies are complex, difficult to understand, and vary across lending instruments.
- Historical context:
  - Directors in the 2005 Review asked staff to propose alignment of surcharges across GRA facilities and to abolish the TBRE policy.
  - The global financial landscape changed dramatically since 2005: demand for Fund resources dropped to historic lows, then resurged in recent months.
- Relation to other work:
  - Proposed modifications reflect developments and are informed by the new income model and ongoing work on precautionary balances and access limits.

### Reform Aims and High-level Proposal
- Aim:
  - Simplify the cost structure of high-access Fund lending and reduce misalignment across facilities.
  - Replace the TBRE policy (administrative shortening of maturities) with a price incentive (time-based surcharge) to discourage prolonged use of resources and thereby lengthen actual maturities relative to TBRE.
- Core elements of staff proposal (credit tranches and the SLF):
  - Remove the existing 100 basis point surcharge for access between 200 and 300 percent of quota.
  - Maintain a surcharge of 200 basis points for credit outstanding above 300 percent of quota.
  - Introduce an additional time-based surcharge of 100 basis points when credit outstanding remains above 300 percent of quota for more than three years.
- Visual summary (as described in source):
  - Current schedule: tiered level- and time-based elements including a 100 bps step for 200–300% of quota and 200 bps over 300% of quota, and SRF time-based steps up to 500 bps.
  - Proposed schedule: single level-based surcharge for > 300% of quota plus a time-based surcharge after t+36 months.

### Cost and Simulations
- Net effect on borrowing costs:
  - Removal of the existing level-based surcharge at 200 percent of quota tends to lower the cost of borrowing.
  - Introduction of a time-based surcharge tends to raise costs (for the same repayment schedule).
  - Staff simulations indicate the proposed surcharge system would tend to lower borrowing costs for typical credit-tranche arrangements when access is below 800 percent of quota.

### Implications for GRA Facilities
- Alignment across facilities:
  - Full alignment of the proposed surcharge schedule across all GRA facilities would:
    - Make the SLF and the SRF much less expensive than at present (time-based surcharge would not apply given short maturities).
    - Make the EFF more expensive for access levels well above 300 percent of quota.
- Alternatives:
  - If the current surcharge structure for SLF/SRF/EFF were maintained, then:
    - Demand for the SRF would likely remain low because of its very high cost.
    - The EFF would lack a time-based incentive for early repayment.

### Proposal on SRF and EFF
- SRF:
  - Staff propose elimination of the SRF because it has not been a useful instrument in recent years and the type of “V-shaped” crises it was designed for have become less frequent.
- EFF:
  - Low recent usage suggests that the EFF may also be eliminated, or at least not used as a vehicle to provide high access for members with balance of payments difficulties.

### Rationale and Operational Considerations
- Objectives preserved:
  - The reform retains price incentives to moderate large and/or prolonged use of Fund resources and to encourage early repayment.
  - Surcharges continue to generate income to build the Fund’s precautionary balances.
- TBRE abolition:
  - Replacing TBRE with a time-based surcharge shifts incentives from an administrative expectation to explicit pricing, lengthening loan maturities relative to current practice.
- Scope of application:
  - The proposal applies to lending in the credit tranches and under the Short-term Liquidity Facility (SLF) as explicitly specified.

*Source: _121208a - Executive Summary, https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2008/_121208a.pdf.*

### 9.      Demand for Fund arrangements, including those with high access, declined

### 9.      Demand for Fund arrangements, including those with high access, declined

### Decline in demand and market context (2005–mid-2008)
- Demand for Fund credit fell to historical lows after the 2005 Review, diminishing concerns about prolonged use and the need to strengthen safeguards on the revolving nature of Fund resources.
- From 2005 until mid-2008:
  - The external environment was extremely benign.
  - Global liquidity was plentiful.
  - Borrowing terms for emerging market countries were very favorable.
- Consequences:
  - The cost differential between borrowing from the market and the Fund narrowed substantially.
  - During those years there were only three requests for arrangements involving exceptional access: Uruguay and Turkey in mid-2005 and Liberia in early 2008.
  - No member used SRF resources in that period.

### Evidence from spreads, Fund credit outstanding, and country cases
- Spread evidence:
  - Figures referenced show adjusted EMBIG spreads and the narrowing wedge between market yields and Fund cost of borrowing (Figures 2 and 4).
- Fund GRA credit outstanding:
  - Figure 3 illustrates Fund GRA credit outstanding, 1983–November 2008 (in billions of SDRs, end of period).
- Exceptional access activity and timing:
  - Table 3 lists Fund arrangements with exceptional access, January 1995–November 2008.
  - Since mid-2008, the global environment deteriorated (see below), reversing the earlier decline in demand.

### Advance and early repurchases (2000s)
- Many members with high levels of outstanding Fund credit made large advance repurchases during the 2005–2008 benign period.
- Key factors behind large repurchases:
  - Benign global financial market conditions.
  - Incentives for early repayments embedded in the TBRE policy and in the surcharges.
  - Additional factors in some cases: stigma associated with borrowing from the Fund and perceived positive signalling from fully repaying the Fund.
- Table 4: Examples of large users and repurchase timing (selected):
  - Argentina: 2006 — Total advance/early repurchases SDR 6,655; Fund credit outstanding following last advance repurchase SDR 0.
  - Brazil: 2000, 2002, 2005 — Total advance/early repurchases SDR 20,786; Fund credit outstanding following last advance repurchase SDR 0.
  - Turkey: 2002 — Total advance/early repurchases SDR 4,483; Fund credit outstanding following last advance repurchase SDR 13,643.
  - Other listed countries include Indonesia, Korea, Mexico, Russia, Thailand, Uruguay (with corresponding years and SDR amounts).

### Repurchase expectations and TBRE policy effects
- TBRE policy contributed to shorten repayment periods:
  - April 2005–June 2007: about two-thirds (65.6 percent) of all repurchases adhered to the expectations schedule (compared to 44.1 percent in January 2003–March 2005).
  - July 2007–November 2008: the ratio increased to 100.0 percent (noting the number of countries with outstanding Fund credit was significantly lower).
- Table 5 (Repurchases Under Expectations Schedule, 2003–2008) key figures:
  - January 2003–March 2005:
    - Arising repurchases: SDR 15,883
    - Extended repurchases: SDR 8,886 (55.9 percent)
    - Repurchases met: SDR 6,997 (44.1 percent)
  - April 2005–June 2007:
    - Arising repurchases: SDR 13,847
    - Extended repurchases: SDR 4,757 (34.4 percent)
    - Repurchases met: SDR 9,090 (65.6 percent)
  - July 2007–November 2008:
    - Arising repurchases: SDR 1,766
    - Extended repurchases: SDR 0
    - Repurchases met: SDR 1,766 (100.0 percent)
- Co-existence of two repurchase schedules (expectations and obligations) created confusion:
  - Public misunderstanding led some to view extensions as de facto rescheduling of Fund credit.
  - Differences in repurchase expectations policy for the SRF and credit tranches compounded confusion.
  - Within the Fund, questions were raised about the appropriate benchmark to assess a member’s balance of payments position when considering a switch to the obligations schedule, especially in follow-up arrangements.

### Sharp increase in demand amid 2008 turmoil
- The recent turmoil in global financial markets (mid-2008 onward) sharply increased demand for Fund arrangements involving high access.
  - Since mid-2008, access to international capital markets became more expensive and challenging for many members.
  - Deleveraging hit members heavily dependent on external financing or with other vulnerabilities particularly hard.
- September–November 2008:
  - The Fund approved arrangements involving exceptional access for five members: Georgia, Hungary, Iceland, Pakistan, and Ukraine.
  - Total commitments for these approvals: SDR 28 billion.

### IV. A new system of surcharges — Guiding principles and options
- Guiding principles for surcharge reform:
  - Simplify the current system.
  - Support members’ efforts to correct external imbalances that led to significant deterioration.
  - Preserve cooperative nature of the Fund and its preferred creditor status.
  - Maintain the role of surcharges in protecting the Fund against credit risk by accumulating reserves and helping preserve the revolving character of Fund resources.
- Options for reform considered:
  - Purely level-based system.
  - Time-based system for outstanding credit above a certain threshold.
  - Hybrid system combining level- and time-based features.
- Comparative features:
  - Time-based surcharges: provide strong incentives to repay as soon as external conditions improve; discourage prolonged use.
  - Level-based surcharges: link cost to scale of resources; discourage excessively large borrowings.

### Staff preference and rationale
- Staff preference: a hybrid system combining benefits of time- and level-based approaches.
  - Hybrid would discourage prolonged use and mitigate credit risks from large-scale arrangements.
  - A time-based element would broadly conform with a recommendation of the Committee of Eminent Persons regarding pricing of Fund credit.
- Design considerations for hybrid to avoid excessive complexity:
  - Number and thresholds of level-based surcharges.
  - Number and duration of time-based surcharges.
  - Overall cost of high access.

### Staff proposal: single-tier with time-varying surcharges (credit tranches)
- Core features:
  - Apply surcharges when a member’s outstanding credit is above a certain threshold (expressed in terms of quota).
  - Members maintaining such outstanding credit for a longer period are charged more than those that repurchase early.
- Concretely, for the credit tranches staff proposes a single-tier schedule with time-varying surcharges:
  - Credit outstanding below 300 percent of quota: not subject to surcharges.
  - Credit outstanding above 300 percent of quota: subject to a surcharge of 200 basis points.
  - Outstanding credit that remains above 300 percent of quota for more than three years: subject to a surcharge of 300 basis points (i.e., an additional time-based surcharge of 100 basis points applies when credit outstanding remains above 300 percent of quota for more than three years).
- Design illustrations:
  - Figure 5.B presents the proposed new surcharge schedule (in basis points, over time in months).
  - Box 1 provides a practical illustration: a 24-month arrangement with access of 800 percent of quota for a member with quota SDR 1300 million:
    - One-third disbursed upfront; rest in eight equal quarterly purchases.
    - Surcharges triggered after the second purchase (one quarter after approval) when outstanding credit exceeds 300 percent of quota.
    - Surcharge pattern in the example:
      - 200 basis points levied on outstanding credit above 300 percent of quota for the following 36 months.
      - An additional 100 basis points applicable from the 39th month to the 60th month.
    - Charts depict evolution of outstanding credit (SDR million), applicable surcharges (basis points), and implied surcharge income (SDR million).

### Advantages and disadvantages of the staff proposal
- Tier structure:
  - Single-tier (level-based) surcharge schedule: simpler to administer and easier to understand than the existing two-tier schedule.
  - Downside: cannot price-differentiate among different levels of high access and may not fully mitigate incremental credit risks associated with higher access bands.
- Time-based incentive:
  - Objective: establish price-based mechanism to mitigate risk of prolonged use and facilitate elimination of the TBRE policy.
  - Staff chose a single step adjustment (rather than multiple smaller steps) for simplicity.
  - Choice of three years as trigger for the step increase was guided by replicating, via price incentives, the one-year reduction in repayment period attained by the TBRE policy (mid-point of SBA repurchase expectations schedule is 3 ⅛ years).
- Alignment of thresholds with access limits:
  - The proposed access threshold that triggers surcharges (300 percent of quota) equals the cumulative access limit that currently defines exceptional access under the credit tranches and the EFF.
  - If access limits increase (as proposed in a companion paper), alignment may disappear; currently level-based surcharges (and SRF surcharges) apply within the current cumulative access limit.

### Size of surcharges and empirical considerations
- Staff judgment on surcharge magnitudes informed by comparison of Fund surcharge ceilings and market costs:
  - Historically, the wedge between the maximum level of surcharges and the median cost of market borrowing for members with high-access arrangements has been very large at approval, remained large for up to 24 months after approval, and narrowed more rapidly starting in the third year (Figure 6).
- Staff conclusion:
  - Setting the second (duration-triggered) level of surcharges at 300 basis points three years after approval could provide adequate incentives to induce early repayments of Fund credit outstanding.

### V. Implications of reform proposals — Precautionary balances
- Role of surcharge income:
  - Income from surcharges plays a key role in contributing to the Fund’s precautionary balances, helping to mitigate higher credit risk associated with high-access arrangements.
  - Income from surcharges was the most important contributor to the increase in precautionary balances during 2002–05.
- Going forward under the new income model:
  - Pace of accumulation of precautionary balances will continue to be driven by:
    - The number of arrangements involving high access.
    - The structure of surcharges.
  - However, if low demand for SRF resources persists and most future high-access arrangements are not subject to SRF surcharges, the pace of accumulation of precautionary balances is likely to be considerably slower than during the 2002–05 build up.

*Source: IMF staff paper excerpt — “9. Demand for Fund arrangements, including those with high access, declined”*

### 23.      Will the proposed schedule of surcharges yield higher or lower surcharge

### 23.      Will the proposed schedule of surcharges yield higher or lower surcharge income than the current system?

### Comparison of proposed vs. current surcharge income
- Proposed system: time-based surcharge steps of 200/300 basis points; current system: level-based surcharges of 100/200 basis points.
- Under the proposed system, surcharges start to apply at a higher level of credit outstanding.
- Outcome depends on arrangement parameters: amount of access (in percent of quota), phasing of purchases, size of the initial purchase, and whether repurchases follow the expectations or the obligations schedule.
- Staff estimates for “typical” high access arrangements:
  - Surcharge income under the proposed schedule would tend to be lower than under the existing system for arrangements with access below 800 percent of quota (under the obligations schedule).
  - Under the expectations schedule, the break-even occurs at 1100 percent of quota.
- Table 6: surcharge income for hypothetical exceptional access SBAs (two countries, no prior credit outstanding; quota assumptions in notes: SDR 1,300 million for country A and SDR 3,000 million for country B). One-third disbursed upon approval, remaining two-thirds evenly disbursed in eight quarterly installments. Expectations and obligations repurchase schedules as defined in Table 2.

- Table 6. Surcharge Income Under Current and Proposed Systems (in SDR millions) 1/
  - Columns labeled: (1) Current surcharges, (2) Proposed surcharges, (2) - (1) Change, in percent, (3) Current surcharges, (4) Proposed surcharges, (4) - (3) Change, in percent
  - 400 percent of quota
    - Country A 58.4 25.5 -56.4 97.4 51.5 -47.1
    - Country B 134.7 58.8 -56.4 224.7 118.8 -47.1
  - 800 percent of quota
    - Country A 330.4 292.0 -11.6 473.4 473.4 0.0
    - Country B 762.5 673.8 -11.6 1,092.5 1,092.5 0.0
  - 1200 percent of quota
    - Country A 639.0 645.1 1.1 886.0 984.8 11.1
    - Country B 1,474.7 1,488.8 1.0 2,044.7 2,272.5 11.1
  - Source: Finance Department, IMF.
  - Notes: SBA with access of: 1/ Current level-based schedule and proposed schedule as shown in Figure 5. Calculations based on a hypothetical 24-month SBA where one-third of the committed resources is disbursed upon approval, and the remaining two-thirds are evenly disbursed in eight quarterly installments. Expectations and obligations repurchase schedules as defined in Table 2. The quotas of countries A and B are assumed to be SDR 1300 million and SDR 3000 million, respectively.

- Interpretation of Table 6 and Figure 7:
  - If repayments follow the expectations schedule (columns (1)–(2)), the proposed system yields lower income than the current system for arrangements of 400 percent and 800 percent of quota; surcharge income is marginally higher at 1200 percent of quota.
  - If repayments follow the obligations schedule (columns (3)–(4)), the break-even occurs at 800 percent of quota: proposed system yields lower income for access below 800 percent and higher income for access above 800 percent.
  - Figure 7 (arrangements repaid under obligations schedule) shows distribution of surcharge income over time for 800 percent and 1200 percent access: where credit outstanding at outset is above the 300 percent of quota threshold, the time-based surcharge under the proposed system applies for a longer period and surcharge income would typically be higher than currently for follow-on arrangements.

### Reserve accumulation scenarios
- Overall pace of reserve accumulation: not expected to be substantially affected by the proposed change.
- For given level of Fund credit outstanding:
  - If access levels average 500 percent of quota (Scenario 2 of Figure 8), the proposed surcharge system would tend to result in a slightly lower pace of reserve accumulation than the current system.
  - If access levels average 1000 percent of quota (Scenario 3 of Figure 8), the proposed surcharge system would result in a slightly faster pace of reserve accumulation than the current system.
- Figure 8 scenarios (in SDR millions):
  - All scenarios assume SDR 40 billion of credit outstanding (credit tranches terms).
  - Scenarios 2–3 assume that SDR 10 billion in credit outstanding is not subject to surcharges.
  - Scenario 1: basic rate of charge on all outstanding credit, with margin of 100 basis points.
  - Scenario 2a: current surcharge system; access averaging 500 percent of quota.
  - Scenario 2b: proposed surcharge system; access averaging 500 percent of quota.
  - Scenario 3a: current surcharge system; access averaging 1000 percent of quota.
  - Scenario 3b: proposed surcharge system; access averaging 1000 percent of quota.

### TBRE policy and early repayments
- Introducing a time-based step strengthens the case for abolishing the TBRE policy.
- Comparison of Column (1) and Column (4) in Table 6: for access of 1,200 percent of quota, members would pay significantly more surcharges under the proposed schedule when repaid under the obligations schedule (the obligations schedule will be the only schedule for all arrangements following elimination of TBRE).
- If countries repay earlier (shift forward repayment by about one year, as in expectations schedule):
  - They would pay significantly less surcharges in arrangements of 400 percent and 800 percent of quota.
  - They would pay essentially the same in arrangements of 1200 percent of quota.

### Short-term Liquidity Facility (SLF)
- Staff proposes applying the new system of surcharges to SLF purchases.
- Surcharges would apply only to credit outstanding resulting from SLF purchases, not from other arrangements.
- Because SLF maturity is three months, the proposed time-based surcharge would never be triggered; applying the proposed schedule would unambiguously reduce the cost of SLF borrowing.
- Table 7. Surcharge Income Under Current and Proposed Systems: SLF Purchases (in SDR millions) 1/
  - Proposed schedule / Current schedule / Change, in percent
  - 300 percent of quota
    - Country A 9.8 0.0 ...
    - Country B 22.5 0.0 ...
  - 500 percent of quota
    - Country A 48.8 39.0 -20
    - Country B 112.5 90.0 -20
  - Notes: Calculations done for two hypothetical SLF purchases equivalent to 300 and 500 percent of quota. Assumed full amount disbursed upon approval, renewed twice, fully repurchased at end of 9-month period. Quotas assumed SDR 1300 million and 3000 million for countries A and B, respectively.

### Supplemental Reserve Facility (SRF) and Extended Fund Facility (EFF) — alignment issues
- Aligning surcharges across GRA facilities would simplify the surcharge system but may be inappropriate because facilities address different balance of payments problems with different maturities, repayment terms, and monitoring procedures.
- Implications of full alignment:
  - SRF: applying proposed schedule would lower cost of SRF significantly because the time-based surcharge would never apply given SRF short maturity; could create arbitrage (SRF cheaper than credit tranches).
  - EFF: longer repayment period—applying proposed schedule would levy the highest surcharge for a much longer period on high-access EFF users, an undesirable outcome.
- Implications of not aligning:
  - SRF: maintaining existing surcharges preserves large cost differential between SRF and high-access credit tranches; demand for SRF may remain low.
  - EFF: if proposed system not applied to EFF, borrowing costs under a high access EFF would be higher than under credit tranches during first three years; elimination of TBRE would extend EFF repayment period by three years on average without incentivizing early repurchases. Mitigation option: principle that EFF not be used as vehicle to provide high access.
- Partial alignment proposal:
  - Apply proposed system to SRF and EFF but with different time-based surcharge triggers:
    - SRF: duration-based trigger shorter than 36 months (example: apply two years after the access threshold is exceeded).
    - EFF: duration-based trigger longer than 36 months (example: apply after five years).
  - This would preserve some distinguishing cost features of SRF and avoid unduly increasing EFF costs while introducing price-based incentives for earlier repayments.
  - Partial alignment would undermine goal of simplifying the system.
- Staff view:
  - Simplifying and aligning surcharges would be best achieved through elimination of the SRF, and possibly also the EFF, given limited perceived usefulness of SRF and limited cases conforming to the SRF “V-shaped” crisis profile.

*Source: IMF Finance Department material in _121208a - 23. Will the proposed schedule of surcharges yield higher or lower surcharge (PDF chapter/section).*

### 33.      Approving the reform proposals contained in this paper requires different

### 33.      Approving the reform proposals contained in this paper requires different

### Voting requirements and specific reform actions
- Modifications to surcharges require the support of 70 percent of the total voting power.
- The abolishment of the TBRE policy would require a majority of the vote cast.
- Elimination of the SRF or the EFF would require a majority of the votes cast.
- Note: "The SRF has not been used since 2002." (footnote context in source)

### Issues for discussion (items for Directors)
- Do Directors agree that the TBRE policy should be abolished? Do they see a need to replace the TBRE policy with other procedures in addition to a time-based surcharge?
- Do Directors consider that the staff’s proposal on surcharges strikes an appropriate balance between providing incentives to repay exceptional access early without unduly deterring members from seeking Fund financial support?
- Do Directors view the proposed system of surcharges adequate in relation to the need to build precautionary balances?
- What are Directors’ views on whether to align surcharges across facilities? Do Directors see benefit in aligning surcharges across facilities for which there has not been demand?
- How do Directors see the role of the SRF and the EFF going forward?

### Annex I. Adjusted EMBIG spreads — definitions and series
- Definition (formal):
  - EMBIG spread = EMBIG yield – Adjusted rate of charge;
  - Adjusted rate of charge = SDR interest rate + margin + burden sharing adjustment
- Interpretation:
  - The adjusted EMBIG spread measures the difference in borrowing costs between market charges to countries and what the Fund charges in arrangements within the normal access limits (same charge to all countries). It is used as a benchmark to gauge the size of surcharges.
- Series presented:
  - Figure 2: two series — median adjusted EMBIG spreads for all countries in the EMBIG sample, and median adjusted EMBIG spreads for countries that had exceptional access arrangements with the Fund from December 1997 to November 2008. Table I.1 lists the series for both variables.
  - Figure 6: median-adjusted EMBIG spreads for all countries that had exceptional access arrangements since 1997. Each Fund arrangement with exceptional access is treated as an episode centered at Board approval (t). Episodes cover t-24 to t+60 months; medians computed using nonzero observations. Table I.2 lists the centered series.
- Table I.1 (as presented, December 1997 - November 2008; in basis points) — selected raw entries (preserved exactly as in source):
  - Dec-1997499540
  - Jan-1998462466
  - Feb-1998491502
  - Mar-1998468472
  - Apr-1998477480
  - May-1998522522
  - Jun-1998568581
  - Jul-1998543545
  - Aug-1998980982
  - Sep-1998919903
  - Oct-1998830831
  - Nov-1998681718
  - Dec-1998750788
  - Jan-1999799834
  - Feb-1999794819
  - Mar-1999713746
  - Apr-1999661708
  - May-1999760762
  - Jun-1999779779
  - Jul-1999774790
  - Aug-1999800800
  - Sep-1999771777
  - Oct-1999686727
  - Nov-1999634650
  - Dec-1999580587
  - Jan-2000636649
  - Feb-2000524565
  - Mar-2000558527
  - Apr-2000574537
  - May-2000642600
  - Jun-2000569569
  - Jul-2000533533
  - Aug-2000500500
  - Sep-2000569595
  - Oct-2000630630
  - Nov-2000654798
  - Dec-2000609708
  - Jan-2001583637
  - Feb-2001609717
  - Mar-2001599798
  - Apr-2001682875
  - May-2001586664
  - Jun-2001618938
  - Jul-20015951004
  - Aug-2001585932
  - Sep-20017061025
  - Oct-2001717992
  - Nov-2001679939
  - Dec-2001656893
  - Jan-2002677834
  - Feb-2002629723
  - Mar-2002652763
  - Apr-2002593705
  - May-2002551660
  - Jun-2002591689
  - Jul-2002571735
  - Aug-2002569623
  - Sep-2002531579
  - Oct-2002531610
  - Nov-2002540605
  - Dec-2002550605
  - Jan-2003497497
  - Feb-2003533451
  - Mar-2003523443
  - Apr-2003495387
  - May-2003411351
  - Sources: J.P. Morgan; Bloomberg; and Finance Department, IMF.
  - Note: "1/ Exceptional access cases are listed in Table 3. The adjusted EMBIG spreads are defined as the EMBIG yield net of the adjusted rate of charge."
- Table I.2 (Median Adjusted EMBIG Spreads Synchronized across Crisis Episodes; in basis points) — selected raw entries (preserved exactly as in source):
  - t-24757t+19797
  - t-23790t+20867
  - t-22798t+21774
  - t-21746t+22874
  - t-20731t+23781
  - t-19717t+24736
  - t-18680t+25689
  - t-17693t+26718
  - t-16807t+27658
  - t-15769t+28641
  - t-14753t+29543
  - t-13688t+30532
  - t-12682t+31519
  - t-11681t+32480
  - t-10651t+33491
  - t-9605t+34487
  - t-8600t+35489
  - t-7661t+36461
  - t-6736t+37420
  - t-5737t+38424
  - t-4753t+39412
  - t-3846t+40408
  - t-2906t+41497
  - t-1959t+42486
  - t1,062t+43368
  - t+11,088t+44372
  - t+21,126t+45347
  - t+31,080t+46398
  - t+41,046t+47418
  - t+51,098t+48362
  - t+6988t+49346
  - t+71,046t+50341
  - t+8978t+51346
  - t+91,014t+52362
  - t+10992t+53318
  - t+11939t+54340
  - t+12887t+55334
  - t+13954t+56331
  - t+14893t+57304
  - t+15838t+58343
  - t+16870t+59321
  - t+17838t+60296
  - t+18829
  - Sources: J.P. Morgan; Bloomberg; and Finance Department, IMF.
  - Note: "1/ Exceptional access cases are listed in Table 3. The adjusted EMBIG spreads are defined as the EMBIG yield net of the adjusted rate of charge. Episodes refer to the dates when there were exceptional access programs approved by the Fund. In the event window, t corresponds to the month when exceptional access was granted. The window shows 24 months prior to each episode and 60 months after."

### Annex II. Advance Repurchases — experience and purchase/repurchase schedules
- Table II.1: "Experience with Advance and Early Repurchase for Large Users of Fund Credit (January 1996–November 2008) 1/"
  - Notes in table: "Advance and Early Repurchases refer to voluntary payments made by the member five days ahead of the date scheduled for repayment approved by the Board. Korea is the only country in this sample that made early repurchases."
  - The table includes country-specific entries for EMBIG yield, surcharge rate, credit outstanding prior to repurchases, advance and early repurchases, and credit outstanding following repurchases (in SDR millions). (Full table entries preserved in source PDF.)
- Table II.2: "Purchases and Repurchases Under Expectations Schedule in Stand-By Arrangements (January 2003–November 2008) (in SDR million, unless otherwise indicated)" — selected aggregate entries (preserved exactly as in source):
  - Total 15,883.2    8,886.4    6,996.7   17,281.0   13,847.1   4,756.9                                9,090.2                                   4,928.5                                    1,765.6                                   -1,765.6                                  2,402
  - Memorandum Item: In percent of arising 55.9         44.1         108.8          34.4        65.6        35.6        -100.0
  - Source: Finance Department, IMF.
  - Notes:
    - "1/ Length of period (2¼ years) corresponds to grace period for each purchase under Stand-By Arrangements; after this period repurchases under the expectation schedule start to become due."
    - "2/ Total repurchases under the expectations schedule (as of the beginning of the period) falling due in the next 2¼ years. Total repurchases during the period could be higher owing to the repurchases under obligation basis."
    - "3/ Value of repurchases switched from expectations to obligation schedule during the period."
    - "4/ Repurchase made under the expectations schedule, excluding any repurchase made of amounts arising in subsequent periods (i.e., excluding advance repurchases)."

*Source: Excerpts from IMF staff paper (text, Annex I, Annex II) as presented in the supplied PDF content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2008/_121208a.pdf_