## _030409

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### Purpose and rationale
- Proposes approval of an instrument to establish a new framework administered account to administer external financial resources for selected Fund activities (the “SFA Instrument”).
- Objective: provide a more flexible platform to attract donor resources and meet demand for the Fund’s technical assistance (TA) and other activities.
- Builds on Executive Board endorsement of management’s proposal for a more vigorous and systematic approach in raising external financing.
- Transitional arrangement: the SFA Instrument will operate in parallel with the existing Instrument for a Framework Administered Account for Technical Assistance Activities (the “FAA”), with new subaccounts opened exclusively under the SFA Instrument; FAA expected to be phased out in due course.

### Rationale for a new instrument / demand dynamics
- External financing has become a critical component of the Fund’s TA program and is expected to grow in importance in the years ahead.
- Internal funding has declined over the last decade; externally financed TA has increased substantially and allowed the Fund to maintain TA field delivery at a constant level.
- Internally financed TA is expected to decline as envisaged in the Fund’s FY2009-2011 Medium-Term Budget - by about 20 percent in real terms - but demand for Fund TA is expected to grow.
- Growing demand evidenced by:
  - expanding requests for new Regional Technical Assistance Centers (RTACs);
  - low- and lower middle-income countries building institutions;
  - emerging markets and developing countries strengthening legal and regulatory frameworks for financial systems.
- Existing external financing strategies are insufficient; Fund needs a more systematic approach going forward.

### Strategic objectives for external financing
- External financing strategy will continue to support mainly TA and, in line with TA reforms endorsed by the Executive Board, will:
  - embody a forward-looking TA agenda that responds to countries’ priorities and focuses on areas within the Fund’s expertise;
  - establish deeper partnerships with donors and expand sources of external financing to the private sector (e.g., private foundations);
  - strengthen country ownership through the Fund’s new charging policy;
  - ensure external financing supports the full range of Fund TA activities including direct TA advice, training, related research, policy development, conferences and seminars, and staff exchanges and secondments;
  - make use of a TA costing model that is more transparent and comprehensive in scope, including full actual costs of each project (expert salary and travel, and Fund staff costs).

### Permitted scope beyond TA and safeguards
- External financing may support a limited range of activities beyond TA:
  - financing of non-TA related research conferences;
  - use of external financing to strengthen Fund staff’s own capacity on issues relevant to the Fund;
  - staff exchanges and secondments with other organizations.
- Safeguards to be established before opening subaccounts for non-TA purposes to ensure Fund control over work program and substance of advice is not undermined.

### Key enhancements in the SFA Instrument (features)
- Establishes the SFA Framework Account as an umbrella administered account under Article V, Section 2(b) of the Fund’s Articles comprised of individual subaccounts.
- Specific enhancements compared with FAA:
  - Support a broader range of activities than permitted under the FAA, including full range of capacity building activities, participation by Fund personnel in TA-related conferences, research, international standard setting activities, secondments, assignments, and staff exchanges.
  - Expand the pool of donors to include both public sector and private sector donors (FAA allows only governments, other official agencies of countries and international organizations).
  - Expand modalities for attracting external financing: allow opening subaccounts before donor commitments are secured to initiate larger, multi-donor programs and topical trust funds; Management authorized to specify essential terms of subaccounts to align donor support with Resource Allocation Plans (RAPs) and Regional Strategy Notes (RSNs).
  - Authorize the Fund to transfer resources between sub-accounts at the request of a donor (FAA disallows transfers between sub-accounts).
  - Support administration of country contribution charges under the Fund’s policies on country contributions for technical assistance, including charges voluntarily paid in advance and advance charges required of countries with accrued arrears.
  - Ensure greater transparency for TA costing:
    - FAA distinguishes “provision of TA” and “costs for the administration of TA” and uses a “presumption” of the Fund’s "standard” costs; administrative fee under FAA is 13 percent of costs for the provision of TA.
    - Donors prefer actual costs and have questioned the 13 percent administrative fee as out of line with international best practices; it recoups only about half of the Fund’s costs.
    - SFA will provide for costing based on the Fund’s new modalities to ensure TA costing is more comprehensive and transparent and will allow replacing the FAA administrative fee with a lower trust fund management fee in line with international best practices.
  - Enhance reporting: SFA reporting will explicitly enable the Fund to directly report on donor-financed TA to non-donor third-parties upon donors’ request.

### Operational and governance provisions (Annex summary)
- Establishes the “Framework Administered Account for Selected Fund Activities” (the “SFA Framework Account”) to administer resources contributed by (i) donors and (ii) recipients of technical services under the Fund’s charging policies (each a “Contributor”).
- “Selected Fund Activities” include:
  - (a) technical and financial services consistent with Article V, Section 2(b) of the Fund’s Articles, including:
    - (i) provision of technical services in the form of technical assistance and training of officials; and
    - (ii) activities in support of technical services including research, high-level conferences and international standard setting initiatives, secondments, assignments, and staff exchanges;
  - (b) such other activities or services for which the Fund may accept external financing under its policies, consistent with the purposes of the Fund.
- Resources to the SFA Framework Account may consist of:
  - (i) grants;
  - (ii) proceeds of grants or loans received by a Contributor from entities other than the Fund;
  - (iii) amounts paid in connection with the Fund’s policies on country contributions for technical assistance.
- Financing implemented through subaccounts:
  - Establishment of a subaccount requires prior approval by the Fund on recommendation of the Managing Director, with or without a request from a Contributor.
  - Managing Director must specify (i) essential terms and conditions of the subaccount (nature, design, implementation of activities) and (ii) the method by which costs will be financed from subaccount resources.
  - A subaccount may administer resources from one or more Contributors; additional Contributors may be added with consent of the Managing Director and concurrence of existing Contributors.
  - Managing Director authorized to use resources in the subaccount in accordance with essential terms and conditions.
- Costing and fees:
  - Costs charged to subaccounts shall be based on the prevailing cost system the Fund employs at the time activities are financed unless otherwise agreed.
  - Each subaccount shall be charged an amount equivalent to a percentage of costs charged to the subaccount to help cover Fund expenses in administering the subaccount.
- Disbursements to General Resources Account:
  - Resources held in a subaccount may be used to make disbursements to the Fund’s General Resources Account as required to reimburse the Fund for expenditures incurred on account of any Selected Fund Activity financed by such subaccount.

### Denomination, investment, and financial management (paragraphs 7–12)
- "7.  All transactions and operations of the SFA Framework Account shall be denominated in U.S. dollars."
- "8.  Resources held in a subaccount pending disbursement shall be invested at the discretion of the Managing Director. Earnings net of any costs associated with such investments shall accrue to the subaccount and shall be available for the purposes of the subaccount."
- "9.  Subject to the requirement of Fund approval specified in paragraph 4, the Managing Director is authorized (i) to make all arrangements, including establishment of accounts in the name of the Fund, as he deems necessary to carry out the operations of the SFA Framework Account; and (ii) to take all other measures he deems necessary to implement the provisions of this Instrument."
- "10.  Assets held in the SFA Framework Account shall be accounted for separately from the assets and property of other accounts of, or administered by, the Fund."
  - The assets and property held in such other accounts shall not be used to discharge or meet any liabilities, obligations, or losses of the Fund incurred in the administration of the SFA Framework Account nor shall the assets of the SFA Framework Account be used to discharge or meet any liabilities, obligations, or losses incurred by the Fund in the administration of such other accounts.
  - Unless otherwise specified in the essential terms and conditions of the subaccount, the assets and property held in each subaccount of the SFA Framework Account shall not be used to discharge or meet any liabilities, obligations, or losses of the Fund incurred in the administration of any other subaccount of the SFA Framework Account.
  - The essential terms and conditions of the subaccount may authorize the Fund to transfer amounts directly to and from the subaccount to other subaccounts under the SFA Framework Account.
- Financial records, reporting, and external audit:
  - "(a)  The Fund shall maintain separate financial records and prepare separate financial statements for the SFA Framework Account. Such records and statements, which shall include a breakdown with respect to each subaccount, will be maintained in accordance with International Financial Reporting Standards."
  - "The financial statements for the SFA Framework Account shall be expressed in U.S. dollars."
  - "For each subaccount, a report on the subaccount’s expenditures and a review of the activities financed by it shall be prepared by the Fund and furnished to the subaccount’s Contributor(s) annually, or more often if agreed between the Contributor(s) and the Managing Director."
  - "The essential terms and conditions of the subaccount may provide for direct reporting on subaccount expenditures by the Fund to specified third parties."
  - "(b) The External Audit Firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions conducted through the SFA Framework Account. The audit shall relate to the financial year of the Fund."
  - "(c)  The Fund shall report on the position of the SFA Framework Account, including a breakdown with respect to each subaccount, in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the External Audit Firm on the SFA Framework Account."
- "12.  Subject to the provisions of this Instrument, the Fund, in administering the SFA Framework Account, shall apply, mutatis mutandis, the same rules and procedures as apply to the operation of the General Resources Account of the Fund."

### Contributor withdrawal, termination, and residual balances (paragraphs 13–15)
- "13.  A Contributor may cease its participation in the subaccount or withdraw from the subaccount at any time without causing the termination of the subaccount. A Contributor’s withdrawal shall become effective on the date that the Fund  receives notice of withdrawal, or such later date, if any, as may be specified in the notice of withdrawal."
- "14. The SFA Framework Account may be terminated by the Fund at any time, upon request of the Managing Director; the termination of the SFA Framework Account shall terminate each subaccount thereof."
  - A subaccount may be terminated by the Fund upon the request of the Managing Director with the concurrence of all Contributors participating in the subaccount at the time of termination.
  - A subaccount may be terminated by the Fund upon the request of a Contributor with the concurrence of the Managing Director and all other Contributors participating in the subaccount at the time of termination.
- "15.  The essential terms and conditions of each subaccount shall specify terms for the disposition upon termination of the subaccount of any balances, net of the amounts of continuing liabilities and commitments under the activities financed, that may remain in the subaccount at the time of termination."
  - The essential terms and conditions of a subaccount shall also specify the terms of distribution of a contribution of a Contributor, net of the amounts of continuing liabilities and commitments under the activities financed, upon the withdrawal by the Contributor from the subaccount.
  - Unless otherwise provided in the essential terms and conditions of a subaccount, any net contribution held in that subaccount shall be retransferred to a Contributor only upon the Contributor’s withdrawal from the subaccount or upon termination of the subaccount.

*Source: Instrument and explanatory paper for the proposed Framework Administered Account for Selected Fund Activities (SFA Instrument).*

### 1.      This paper proposes the approval of an instrument for the establishment of a new

### _030409 - 1.      This paper proposes the approval of an instrument for the establishment of a new

### Purpose and rationale
- Proposes approval of an instrument to establish a new framework administered account to administer external financial resources for selected Fund activities (the “SFA Instrument”).
- Objective: provide a more flexible platform to attract donor resources and meet demand for the Fund’s technical assistance (TA) and other activities.
- Builds on Executive Board endorsement of management’s proposal for a more vigorous and systematic approach in raising external financing.
- Transitional arrangement: the SFA Instrument will operate in parallel with the existing Instrument for a Framework Administered Account for Technical Assistance Activities (the “FAA”), with new subaccounts opened exclusively under the SFA Instrument; FAA expected to be phased out in due course.

### Why a new instrument is needed
- External financing has become a critical component of the Fund’s TA program and is expected to grow in importance in the years ahead.
- Internal funding has declined over the last decade; externally financed TA has increased substantially and allowed the Fund to maintain TA field delivery at a constant level.
- Internally financed TA is expected to decline as envisaged in the Fund’s FY2009-2011 Medium-Term Budget - by about 20 percent in real terms - but demand for Fund TA is expected to grow.
- Growing demand evidenced by: expanding requests for new Regional Technical Assistance Centers (RTACs); low- and lower middle-income countries building institutions; emerging markets and developing countries strengthening legal and regulatory frameworks for financial systems.
- Existing external financing strategies are insufficient; Fund needs a more systematic approach going forward.

### Strategic objectives for external financing
- External financing strategy will continue to support mainly TA and, in line with TA reforms endorsed by the Executive Board, will:
  - embody a forward-looking TA agenda that responds to countries’ priorities and focuses on areas within the Fund’s expertise;
  - establish deeper partnerships with donors and expand sources of external financing to the private sector (e.g., private foundations);
  - strengthen country ownership through the Fund’s new charging policy;
  - ensure external financing supports the full range of Fund TA activities including direct TA advice, training, related research, policy development, conferences and seminars, and staff exchanges and secondments;
  - make use of a TA costing model that is more transparent and comprehensive in scope, including full actual costs of each project (expert salary and travel, and Fund staff costs).

### Permitted scope beyond TA
- External financing may support a limited range of activities beyond TA:
  - financing of non-TA related research conferences;
  - use of external financing to strengthen Fund staff’s own capacity on issues relevant to the Fund;
  - staff exchanges and secondments with other organizations.
- Safeguards to be established before opening subaccounts for non-TA purposes to ensure Fund control over work program and substance of advice is not undermined.

### Key enhancements in the SFA Instrument (features)
- Establishes the SFA Framework Account as an umbrella administered account under Article V, Section 2(b) of the Fund’s Articles comprised of individual subaccounts.
- Specific enhancements compared with FAA:
  - Support a broader range of activities than permitted under the FAA, including full range of capacity building activities, participation by Fund personnel in TA-related conferences, research, international standard setting activities, secondments, assignments, and staff exchanges.
  - Expand the pool of donors to include both public sector and private sector donors (FAA allows only governments, other official agencies of countries and international organizations).
  - Expand modalities for attracting external financing: allow opening subaccounts before donor commitments are secured to initiate larger, multi-donor programs and topical trust funds; Management authorized to specify essential terms of subaccounts to align donor support with Resource Allocation Plans (RAPs) and Regional Strategy Notes (RSNs).
  - Authorize the Fund to transfer resources between sub-accounts at the request of a donor (FAA disallows transfers between sub-accounts).
  - Support administration of country contribution charges under the Fund’s policies on country contributions for technical assistance, including charges voluntarily paid in advance and advance charges required of countries with accrued arrears.
  - Ensure greater transparency for TA costing:
    - FAA distinguishes “provision of TA” and “costs for the administration of TA” and uses a “presumption” of the Fund’s "standard” costs; administrative fee under FAA is 13 percent of costs for the provision of TA.
    - Donors prefer actual costs and have questioned the 13 percent administrative fee as out of line with international best practices; it recoups only about half of the Fund’s costs.
    - SFA will provide for costing based on the Fund’s new modalities to ensure TA costing is more comprehensive and transparent and will allow replacing the FAA administrative fee with a lower trust fund management fee in line with international best practices.
  - Enhance reporting: SFA reporting will explicitly enable the Fund to directly report on donor-financed TA to non-donor third-parties upon donors’ request.

### Operational and governance provisions (Annex summary)
- Establishes the “Framework Administered Account for Selected Fund Activities” (the “SFA Framework Account”) to administer resources contributed by (i) donors and (ii) recipients of technical services under the Fund’s charging policies (each a “Contributor”).
- “Selected Fund Activities” include:
  - (a) technical and financial services consistent with Article V, Section 2(b) of the Fund’s Articles, including:
    - (i) provision of technical services in the form of technical assistance and training of officials; and
    - (ii) activities in support of technical services including research, high-level conferences and international standard setting initiatives, secondments, assignments, and staff exchanges;
  - (b) such other activities or services for which the Fund may accept external financing under its policies, consistent with the purposes of the Fund.
- Resources to the SFA Framework Account may consist of:
  - (i) grants;
  - (ii) proceeds of grants or loans received by a Contributor from entities other than the Fund;
  - (iii) amounts paid in connection with the Fund’s policies on country contributions for technical assistance.
- Financing implemented through subaccounts:
  - Establishment of a subaccount requires prior approval by the Fund on recommendation of the Managing Director, with or without a request from a Contributor.
  - Managing Director must specify (i) essential terms and conditions of the subaccount (nature, design, implementation of activities) and (ii) the method by which costs will be financed from subaccount resources.
  - A subaccount may administer resources from one or more Contributors; additional Contributors may be added with consent of the Managing Director and concurrence of existing Contributors.
  - Managing Director authorized to use resources in the subaccount in accordance with essential terms and conditions.
- Costing and fees:
  - Costs charged to subaccounts shall be based on the prevailing cost system the Fund employs at the time activities are financed unless otherwise agreed.
  - Each subaccount shall be charged an amount equivalent to a percentage of costs charged to the subaccount to help cover Fund expenses in administering the subaccount.
- Disbursements to General Resources Account:
  - Resources held in a subaccount may be used to make disbursements to the Fund’s General Resources Account as required to reimburse the Fund for expenditures incurred on account of any Selected Fund Activity financed by such subaccount.

*Source: Instrument and explanatory paper for the proposed Framework Administered Account for Selected Fund Activities (SFA Instrument).*

### 7.  All transactions and operations of the SFA Framework Account shall be denominated

### _030409 - 7.  All transactions and operations of the SFA Framework Account shall be denominated

### Denomination and investment of subaccount resources
- "7.  All transactions and operations of the SFA Framework Account shall be denominated in U.S. dollars."
- "8.  Resources held in a subaccount pending disbursement shall be invested at the discretion of the Managing Director. Earnings net of any costs associated with such investments shall accrue to the subaccount and shall be available for the purposes of the subaccount."

### Managing Director authority and implementation measures
- "9.  Subject to the requirement of Fund approval specified in paragraph 4, the Managing Director is authorized (i) to make all arrangements, including establishment of accounts in the name of the Fund, as he deems necessary to carry out the operations of the SFA Framework Account; and (ii) to take all other measures he deems necessary to implement the provisions of this Instrument."

### Asset segregation and use restrictions
- "10.  Assets held in the SFA Framework Account shall be accounted for separately from the assets and property of other accounts of, or administered by, the Fund."
- "The assets and property held in such other accounts shall not be used to discharge or meet any liabilities, obligations, or losses of the Fund incurred in the administration of the SFA Framework Account nor shall the assets of the SFA Framework Account be used to discharge or meet any liabilities, obligations, or losses incurred by the Fund in the administration of such other accounts."
- "Unless otherwise specified in the essential terms and conditions of the subaccount, the assets and property held in each subaccount of the SFA Framework Account shall not be used to discharge or meet any liabilities, obligations, or losses of the Fund incurred in the administration of any other subaccount of the SFA Framework Account."
- "The essential terms and conditions of the subaccount may authorize the Fund to transfer amounts directly to and from the subaccount to other subaccounts under the SFA Framework Account."

### Financial records, reporting, and external audit
- "(a)  The Fund shall maintain separate financial records and prepare separate financial statements for the SFA Framework Account. Such records and statements, which shall include a breakdown with respect to each subaccount, will be maintained in accordance with International Financial Reporting Standards."
- "The financial statements for the SFA Framework Account shall be expressed in U.S. dollars."
- "For each subaccount, a report on the subaccount’s expenditures and a review of the activities financed by it shall be prepared by the Fund and furnished to the subaccount’s Contributor(s) annually, or more often if agreed between the Contributor(s) and the Managing Director."
- "The essential terms and conditions of the subaccount may provide for direct reporting on subaccount expenditures by the Fund to specified third parties."
- "(b) The External Audit Firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions conducted through the SFA Framework Account. The audit shall relate to the financial year of the Fund."
- "(c)  The Fund shall report on the position of the SFA Framework Account, including a breakdown with respect to each subaccount, in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the External Audit Firm on the SFA Framework Account."

### Application of General Resources Account rules
- "12.  Subject to the provisions of this Instrument, the Fund, in administering the SFA Framework Account, shall apply, mutatis mutandis, the same rules and procedures as apply to the operation of the General Resources Account of the Fund."

### Contributor withdrawal and account termination
- "13.  A Contributor may cease its participation in the subaccount or withdraw from the subaccount at any time without causing the termination of the subaccount. A Contributor’s withdrawal shall become effective on the date that the Fund  receives notice of withdrawal, or such later date, if any, as may be specified in the notice of withdrawal."
- "14. The SFA Framework Account may be terminated by the Fund at any time, upon request of the Managing Director; the termination of the SFA Framework Account shall terminate each subaccount thereof."
- "A subaccount may be terminated by the Fund upon the request of the Managing Director with the concurrence of all Contributors participating in the subaccount at the time of termination."
- "A subaccount may be terminated by the Fund upon the request of a Contributor with the concurrence of the Managing Director and all other Contributors participating in the subaccount at the time of termination."

### Disposition of balances on withdrawal or termination
- "15.  The essential terms and conditions of each subaccount shall specify terms for the disposition upon termination of the subaccount of any balances, net of the amounts of continuing liabilities and commitments under the activities financed, that may remain in the subaccount at the time of termination."
- "The essential terms and conditions of a subaccount shall also specify the terms of distribution of a contribution of a Contributor, net of the amounts of continuing liabilities and commitments under the activities financed, upon the withdrawal by the Contributor from the subaccount."
- "Unless otherwise provided in the essential terms and conditions of a subaccount, any net contribution held in that subaccount shall be retransferred to a Contributor only upon the Contributor’s withdrawal from the subaccount or upon termination of the subaccount."

*Source: _030409 - 7.  All transactions and operations of the SFA Framework Account shall be denominated*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_030409.pdf_