## _062609 ## Source details **Canonical URL:** [_062609](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_062609.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_062609.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_062609.pdf.json) --- ### Executive Summary — Objectives and Rationale - Objectives of the reform: - Make Fund financial support to low-income countries (LICs) more flexible and tailored to diverse LIC needs in light of heightened exposure to global volatility. - Assist LICs in achieving and maintaining a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Support policies rooted in country-owned Poverty Reduction Strategy (PRS) strategies, while allowing more flexibility in documentation requirements. - Ensure all facilities support policies that safeguard social and other priority spending. - Rationale and context: - Response to the global economic crisis and the 2008 food and fuel price shocks that led to an unprecedented surge in LIC demand for Fund financing. - Reform addresses LICs’ increased exposure to global volatility, higher private capital inflows, and larger trade volumes, implying greater demand for episodic, short-term Fund financing and precautionary arrangements. - New instruments are more closely aligned with those available in the General Resources Account (GRA). ### Proposed Facilities Architecture (overview) - Unified facilities framework under a new Poverty Reduction and Growth Trust (PRGT). - Facilities distinguished primarily by: - (i) the duration of financing and adjustment needs; - (ii) the nature of the economic program and related conditionality standard. - Components: - Extended Credit Facility (ECF): successor to the PRGF; medium- to longer-term support for LICs with protracted balance of payments problems. Duration: three-year ECF arrangements; extendable and repeatable. - Standby Credit Facility (SCF): concessional SBA-like instrument for short-term BOP needs, including exogenous shocks; typical duration: 12–18 months; use limited to 2½ out of any 5 years; precautionary option activation at the beginning of 2010. - Rapid Credit Facility (RCF): rapid low-access financing with limited conditionality; outright disbursements based on ex-ante policy undertakings; shocks window for natural disasters or other exogenous shocks; repeated use possible subject to access limits. - Policy Support Instrument (PSI): non-financial policy support tool; can facilitate access to SCF and RCF without canceling the PSI. ### Facility-specific design, eligibility, and conditionality - ECF: - Intended for protracted balance of payments problems defined as resolution normally expected to last three years or more, and in any case more than two years. - Requires a UCT-quality program and supports upper-credit tranche (UCT) quality programs aimed at moving toward a stable and sustainable macroeconomic position. - Programs: generally semi-annual disbursements and reviews; greater structural content than SCF; PRS document required by the time of the second ECF or PSI program review. - Repayment terms: 5½ -10 years. - Interest: proposed ¼ percent (revised staff proposal: initial interest rate for the ECF will be zero). - Concurrent use: ECF cannot run concurrently with other concessional or non-financial PRGT instruments; augmentation is the response to additional needs during an ECF. - SCF: - Designed for short-term BOP needs expected to be resolved within two years (and in any case in less than three years). - Supports UCT-quality programs; conditionality limited to macro-critical measures. - Duration: normally 12–18 months, up to a maximum of two years; use limited to 2½ out of any 5 years. - Access norms: set at 120 percent of quota per 18-month arrangement, or 75 percent of quota if total outstanding concessional credit is 100 percent of quota or higher; adjusted proportionally for different durations. - Repayment terms: 4-year grace period and 8-year maturity. - Interest: proposed ¼ percent (revised staff proposal: initial interest rate for the SCF will be 0.25 percent). - Commitment fee: 15 basis points for precautionary use (refundable proportionally upon draw). - PSI interaction: SCF qualification presumed for on-track PSI users; SCF can run concurrently with PSI. - RCF: - For urgent BOP needs, exogenous shocks, disasters, post-conflict, or capacity-constrained situations where UCT-quality program is not necessary or feasible. - Outright disbursements without a time-bound arrangement or ex-post conditionality; based on ex-ante policy undertakings. - Qualification: normally when need expected to be resolved within one year with no major policy adjustments required, or when UCT program not feasible due to limited capacity and/or urgency. - Access limits: 25 percent of quota per year and 75 percent of quota cumulatively; shocks window augments to 50 percent per year and 100 percent cumulatively if specified conditions met. - Repayment terms: 5½ -10 years. - Interest: proposed ¼ percent (revised staff proposal: initial interest rate for the RCF will be zero). - Repeated use: possible but constrained by access limits and requirement for a satisfactory track record; past ENDA/EPCA/ESF-RAC drawings count toward RCF limits; first RCF disbursement after Decision effective does not require a policy track record. - PRS not required for RCF; repeated use toward an ECF would expect efforts to prepare a PRS. ### Access policies, norms, limits, and procedural safeguards - Global access limits (applied uniformly across concessional facilities): - (i) 100 percent of quota per year; and - (ii) 300 percent of quota cumulatively. - Exceptional access: annual limit of 150 percent of quota; cumulative of 450 percent of quota. - Access can be higher in cases of exceptionally large needs and strong policies. - Access norms (based on total outstanding credit): - 120 percent of quota when outstanding concessional credit is less than 100 percent of quota; - 75 percent of quota when outstanding concessional credit is 100 percent of quota or more; - For outstanding concessional credit above 200 percent of quota, norms do not apply; access guided by 300 percent of quota limit and repayment schedule. - RCF sub-limits: - Annual 25 percent of quota and cumulative 75 percent of quota; shocks window: annual 50 percent and cumulative 100 percent. - Procedural safeguards for high-access requests (uniform across concessional facilities): - DSA update required for requests that would involve exceptional access and/or bring total access to more than 80 percent of quota in any 24-month period, and/or involve a member with a high risk of debt distress or in debt distress. - Early informal Board meeting required if request would involve exceptional access and/or bring total access to more than 180 percent of quota in any 36-month period. - Exception: financing requests of 10 percent or less of quota do not trigger these procedural safeguards. - Access decision criteria (case-by-case): - (i) actual and potential balance of payments need; - (ii) strength of program and capacity to repay the Fund (including debt sustainability); - (iii) amount of outstanding Fund credit and the member’s record of past use. - Phasing and augmentations: - Access can be phased, front- or back-loaded; augmentations normally approved at reviews; phased access can support larger BOP needs or strengthen programs. ### Financing terms, concessionality, and blending - Interest rate proposals and revisions: - Proposed interest rate for all three facilities: ¼ percent (one quarter percent), reduced from current ½ percent. - Revised Executive Board/staff proposal: initial interest rate structure of 0.0/0.0/0.25 percent for the ECF, RCF, and SCF, respectively (set out in Supplement 1). - Repayment schedules: - ECF and RCF: repayment terms aligned with current PRGF-ESF terms—5½ -10 years. - SCF: shorter maturity—4-year grace period and 8-year maturity. - Commitment fees: - SCF precautionary feature: 15 basis points commitment fee refundable upon draw. - Concessionality impact: - Based on a long-term historical average CIRR discount rate of 6.4 percent, the proposed financing terms would bring the average grant element of all LIC instruments to 37 percent. - Blending rules and guidance: - Strengthened blending rules based on per capita income, market access, and debt vulnerabilities. - Per capita income threshold raised to the prevailing IDA operational cutoff (currently $1,095). - In blending, concessional access normally half of total access, subject to: - floor on annual average concessional access of 25 percent of quota; - ceiling of 50 percent of quota. - Blending not normally used for countries at high risk of debt distress or in debt distress; exceptional circumstances may allow deviations. - Blending can apply to precautionary SCF use. ### PRS, PSI, donor coordination, and symmetry with GRA - PRS requirements and flexibility: - PRS document submission required for ECF and PSI, with greater timing flexibility—normally by the time of the second ECF or PSI program review. - SCF and RCF do not require PRS documents for initial use; repeated RCF use toward ECF expects PRS preparation efforts. - Letters of Intent for financing requests should indicate how the program advances poverty reduction and growth objectives. - PSI role: - PSI remains a non-financial policy support tool; PSI users can request SCF or RCF without canceling the PSI. - PSI can provide accelerated access to concessional financing but is not a substitute for a precautionary arrangement—does not guarantee access or immediate disbursement. - Donor financing and catalytic role: - All three facilities can provide moderate liquidity while bulk assistance expected from donors. - Fund support provides inter-temporal smoothing and is expected to catalyze donor support; close coordination with donors and the World Bank remains critical. - Symmetry with GRA: - Architecture aligns features with GRA instruments (e.g., concessional SBA-like SCF, facility design by financing need, global access limits), while tailoring to LIC needs; access limits remain lower than GRA. ### Demand projections, expected usage, and operational implications - Demand surge: - Demand for Fund concessional financing surged during the global crisis and projected to remain at roughly twice the historical average over the medium run. - Demand could reach up to US$4 billion in both 2009 and 2010, and is expected to average just over US$2 billion per year thereafter. - Expected facility usage: - ECF expected to remain central given prevalence of protracted financing and adjustment needs in the majority of LICs. - SCF expected to grow in importance as more LICs establish broadly sustainable macroeconomic positions. - RCF demand likely significant in periods of global volatility; use outside exogenous shocks expected to decline as LICs build capacity for UCT-quality programs. - Operational implications: - Need to secure additional loan and subsidy resources for PRGT given demand projections. - Transition and operational rules required to manage outstanding PRGF/ESF credits and conversions. ### Transitional arrangements and treatment of prior credit - Conversion and counting of existing credit: - Existing PRGF arrangements automatically converted into ECF arrangements once ECF decision becomes effective. - Outstanding PRGF and ESF credit will count toward annual and cumulative access limits and access norms applying to the new facilities. - Transition flexibility: - If previously committed PRGF or ESF disbursements exceed 50 percent of quota per year or total outstanding PRGF and ESF credit exceeds 150 percent of quota, access above normal global limits is possible during a transition period that expires on December 31, 2010. - Additional flexibility for countries with relatively high pre-reform credit outstanding. - Existing ESF-HAC arrangements remain in effect until expiration or cancellation; not converted into SCF arrangements. - Past drawings under ESF-RAC, ENDA, and EPCA would count toward RCF annual and cumulative access limits; but past ESF-RAC/ENDA/EPCA use does not count toward repeated-use track record for a member’s first RCF disbursement after Decision effective. ### Consultative process and stakeholder feedback - Survey of Fund Mission Chiefs (January 2009): - Identified gaps in current architecture: absence of PSI-like instrument, short-term concessional finance for domestic pressures, precautionary concessional access, and emergency rapid-access concessional facility. - Seminar for Country Authorities (April 26, 2009): - Emphasized urgency for flexible facilities, shorter-duration programs, and a precautionary facility; PRSPs useful but not crucial in sudden-shock crises. - Conference call with Civil Society Organizations (May 15, 2009): - Calls to increase concessional resource envelope, preference for emergency instrument with higher flexibility and rapid access, and advocacy for higher concessionality to avoid debt problems. *Source: IMF PDF content unit _062609.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Objectives of the Reform - Make Fund financial support to low-income countries (LICs) more flexible and tailored to diverse LIC needs in light of heightened exposure to global volatility. - Assist LICs in achieving and maintaining a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Support policies rooted in country-owned Poverty Reduction Strategy (PRS) strategies, while allowing more flexibility in documentation requirements. - Ensure all facilities support policies that safeguard social and other priority spending. ### Proposed Facilities Architecture (overview) - Unified facilities framework for LICs under a new Poverty Reduction and Growth Trust (PRGT). - Facilities are distinguished primarily by (i) the duration of financing and adjustment needs and (ii) the nature of the economic program and related conditionality standard. - The proposed architecture comprises three concessional lending facilities and one non-financial instrument: - Extended Credit Facility (ECF): successor to the PRGF; medium- to longer-term support for LICs with protracted balance of payments problems. - Standby Credit Facility (SCF): concessional SBA-like instrument for short-term BOP needs, including exogenous shocks (superseding ESF-HAC). - Rapid Credit Facility (RCF): rapid low-access financing with limited conditionality for urgent BOP needs, disasters, post-conflict, or capacity-constrained situations (superseding ENDA, RAC, EPCA). - Policy Support Instrument (PSI): non-financial policy support tool; can facilitate access to SCF and RCF if needed. - The architecture preserves a PRGF-type central instrument while closing gaps and streamlining short-term, precautionary, and emergency support (based on “Option 2” from the framework paper). ### Facility-Specific Features - Extended Credit Facility (ECF) - Succeeds the PRGF as the Fund’s main tool for medium-term support to LICs with protracted BOP problems. - Supports upper-credit tranche (UCT) quality economic programs aimed at moving toward a stable and sustainable macroeconomic position. - Duration: three-year ECF arrangements. - Arrangements can be extended and used repeatedly. - Standby Credit Facility (SCF) - Provides concessional financing for LICs with short-term BOP needs, including those caused by exogenous shocks. - Supports UCT quality programs aimed at restoring a stable and sustainable macroeconomic position. - Targets countries that do not face protracted BOP problems; can be used on a precautionary basis (revised board decision: precautionary option under the SCF will be activated at the beginning of 2010). - Typical duration: 12-18 months. - Use limited to two and a half out of any five years. - Can be used flexibly in conjunction with a PSI. - Rapid Credit Facility (RCF) - Provides rapid low-access concessional financing with limited conditionality. - Resources provided as outright disbursements, based on ex-ante policy undertakings, without a review-based program or ex-post conditionality. - Offers a “shocks window” for natural disasters or other exogenous shocks; can be used repeatedly based on a performance track record, including to facilitate transition to a UCT quality program. - Intended where a UCT quality program is not necessary or not feasible. - Policy Support Instrument (PSI) - Remains the Fund’s non-financial policy support tool for countries with broadly sustainable macroeconomic positions. - PSI users would have quick access to the SCF or RCF for short-term financing and adjustment needs without canceling the PSI. ### Access, Limits, and Procedural Safeguards - Recent doubling of concessional access limits is preserved and applied uniformly across facilities. - Total access under all concessional facilities is available up to: - (i) 100 percent of quota per year and - (ii) 300 percent of quota cumulatively. - Access can be higher in cases of exceptionally large needs and strong policies. - Sub-limits apply to RCF access given the absence of UCT conditionality. - Access under the ECF and SCF is guided by access norms that decline with total outstanding credit. - High-access financing requests are subject to uniform procedural safeguards. ### Financing Terms and Blending - Interest rate on all concessional facilities is reduced to ¼ percent. - Revised Executive Board proposal: initial interest rate structure of 0.0/0.0/0.25 percent for the ECF, RCF, and SCF, respectively. - The ECF and RCF retain the current PRGF-ESF repayment schedule. - The SCF has a shorter maturity and grace period to reflect the short-term nature of needs. - Blending rules strengthened and based on per capita income, market access, and debt vulnerabilities to preserve concessional resources while allowing higher access when needed. ### Rationale and Context - The global economic crisis, together with the 2008 food and fuel price shocks, led to an unprecedented surge in LIC demand for Fund financing, prompting doubling of access limits on concessional lending and a redesign of concessional facilities. - The reform responds to LICs’ increased exposure to global volatility, higher private capital inflows, and larger trade volumes, which imply greater demand for episodic, short-term Fund financing and precautionary arrangements. - The new instruments are more closely aligned with those available in the General Resources Account (GRA). _ Source: _062609 - Executive Summary (IMF PDF) _ ### 8. The new architecture distinguishes the facilities according to the duration of the ### _062609 - 8. The new architecture distinguishes the facilities according to the duration of the ### Facility design and eligibility - The architecture distinguishes facilities according to the duration of the financing and adjustment needs (Figure 1 and Table 1). - ECF (Extended Credit Facility): - Intended to assist countries with protracted balance of payments problems in making progress toward a sustainable macroeconomic position. - A protracted balance of payments problem: "an actual or potential balance of payments need associated with entrenched macroeconomic imbalances, resolution of which is expected to extend over the medium- or longer term." - Footnote definition: "A protracted balance of payments problem would exist when the resolution of the underlying macroeconomic imbalances would normally be expected to last three years or more, and in any case more than two years." - ECF may be used in successive arrangements; can be used repeatedly. - SCF (Stand-by Credit Facility): - Designed to address short-term balance of payments needs, both immediate and potential, of members no longer facing protracted balance of payments problems and to restore a sustainable macroeconomic position in the short term. - Short-term need defined: "an actual or potential balance of payments need associated with macroeconomic imbalances that are normally expected to be resolved within two years, and in any case in less than three years." - Use of the SCF is intended to be episodic; "Use of the SCF is limited to 2½ out of any 5 years to avoid overlap with the ECF and ensure it is not used for addressing protracted balance of payments problems." - Includes a precautionary option (noted in Table 1). - RCF (Rapid Credit Facility): - Can assist members with an urgent balance of payments need that may be short term or could occur in the context of a protracted problem (in which case the RCF could facilitate a transition to an ECF arrangement). - Intended for urgent balance of payments needs; outright disbursements; repeated use possible subject to access limits. - RCF financing does not require a PRS document; repeated use to move toward an ECF would expect efforts to prepare a PRS. ### Focus on poverty reduction and PRS requirements - All LIC instruments support economic policies rooted in country-owned strategies that aim to support poverty reduction and economic growth. - Program design should be aligned with the country’s medium-term poverty reduction and growth objectives and aim to safeguard social and other priority spending. - PRS (Poverty Reduction Strategy) documentation: - Submission of a PRS document to the Executive Board remains a requirement for the ECF and PSI, with greater flexibility on timing than prior practice ("the PRS document would normally need to be submitted by the time of the second ECF or PSI program review"). - SCF: "if financing and adjustment needs persist beyond the short term, SCF users would typically move to an ECF arrangement, which would then be underpinned by a PRS document." - RCF: PRS document not required; repeated RCF use toward an ECF would expect efforts to prepare a PRS. - Letter of Intent for a new financing request should indicate how the program advances the country’s poverty reduction and growth objectives. ### Conditionality and phasing - Conditionality under LIC facilities is limited to macro-critical measures, consistent with the Fund’s Guidelines on Conditionality. - ECF and SCF require a UCT-quality program, with conditionality limited to measures critical for achieving program objectives and monitoring implementation. - UCT standard: "a set of policies that are adequate to correct external imbalances and enable repayment to the Fund within the specified maturity period." - ECF programs generally expected to have a greater structural content than SCF programs. - ECF generally allows more flexibility in specification and monitoring of program objectives than SCF. - RCF: no UCT and no ex-post review-based conditionality; assistance provided as outright disbursement on the basis of ex-ante policy undertakings. - In case of repeated use (e.g., transition to an ECF), a track record of performance would be required in advance of disbursement unless financing need is primarily caused by an exogenous shock. - Program monitoring: - Disbursements and reviews under the ECF and SCF would normally be semi-annual. - Programs should include both quantitative performance criteria and an agenda of critical structural reforms monitored in a review-based framework. - "Recently, the Fund’s Executive Board decided that structural performance criteria will no longer be established under Fund-supported programs." ### Access policies and financing terms - Access policies balance members’ financing needs and preservation of concessional resources; access determined case-by-case, considering established criteria such as balance of payments need and program strength. - Global access limits and norms: - Proposed global annual and cumulative limits on total access under the three concessional facilities, similar to GRA access modalities. - The proposed architecture establishes a global annual limit of 100% of quota; limit of 300% of quota on a cumulative basis across facilities. (Exceptional access: annual limit of 150% of quota; cumulative of 450% of quota.) - Norms: access decline with total outstanding credit; specific norms in Table 1 include thresholds: 20% of quota if outstanding credit < 100% of quota; 75% of quota if outstanding credit >= 100% of quota; annual 25% of quota; cumulative 75% of quota. (Shocks window norms noted: annual 50%; cumulative 100%.) - Sub-limits apply to the RCF given lack of a UCT-quality program. - Exceptional access criteria are defined more explicitly and consider size of financing need, program strength, and blending possibilities. - Financing terms: - Proposed interest rate of ¼ percent for all three facilities (reduced from current ½ percent). Footnote: a revised staff proposal adjusted initial interest rate structure to 0.0/0.0/0.25 percent for the ECF, RCF, and SCF, respectively; the revised proposal is set out in Supplement 1. - Rationale: reducing interest rate enhances concessionality immediately; repayment period of the RCF aligned with the ECF (based on existing PRGF-ESF terms); SCF will have somewhat shorter maturity consistent with short-term nature of need and generally stronger debt service capacity. - Commitment fee: SCF includes a small commitment fee effective in cases of precautionary use, reflecting its insurance function. - Repayment terms by facility (Table 1): - ECF: Repayment terms: 5 ½ -10 years. - SCF: Repayment terms: 4 - 8 years. - RCF: Repayment terms: 5 ½ -10 years. - Interest rate in Table 1: "Interest rate: ¼ percent" for all three facilities (with the noted board revision in the staff note). ### Blending, PRGT eligibility, and role of PSI - Blending rules: - Strengthened to preserve scarce concessional resources for the most vulnerable while allowing higher access and positive signaling for countries moving to emerging market status. - Blending to be tailored to individual members’ needs with a clear link to debt vulnerability, per capita income, and market access criteria. - A forthcoming paper will review criteria for PRGT eligibility and the list of eligible countries. - Role of the PSI (Policy Support Instrument): - Non-financial PSI remains a valuable complement to the three lending facilities; can provide policy support over a sustained period and signal that a member has no balance of payments need if used stand-alone. - PSI users could request an SCF (or RCF) without canceling the PSI if a short-term financing need arises. - PSI users could request concurrent precautionary support under the SCF; PRSP requirements made more flexible in line with the ECF. - "While a PSI can provide accelerated access to Fund concessional financing, it is not a substitute for a precautionary arrangement, as it does not guarantee access and does not provide for an immediate disbursement." ### Link to donor financing and symmetry with GRA - Donor financing: - All three facilities can provide moderate levels of liquidity support while the bulk of financial assistance is normally expected to come from donors. - Fund financial support is distinct from development assistance: it provides inter-temporal smoothing of adjustment rather than a permanent resource transfer and is expected to catalyze donor support. - Close coordination with donors and the World Bank remains critical. - Symmetry with the GRA: - New LIC architecture provides greater symmetry with non-concessional lending policies while tailoring to LIC needs. - Features similar to the GRA include: (i) a concessional SBA-like facility that can be precautionary, (ii) facility design based on type of financing need, (iii) global annual and cumulative access limits and uniform exceptional access procedures, and (iv) broad qualification criteria. - Access limits are lower than in the GRA reflecting comparatively low capital account vulnerability of LICs, the Fund’s catalytic role, and scarce subsidy resources. - The architecture includes a unified instrument for concessional emergency support without the need for a UCT-quality program; it may be desirable to introduce a parallel non-concessional RCF-like window in the GRA and abolish EPCA and ENDA altogether. ### Demand projections and operational implications - Demand surge and projections: - Demand for Fund concessional financing has surged during the ongoing global crisis and is projected to remain at roughly twice the historical average over the medium run. - Demand could reach up to US$4 billion in both 2009 and 2010, and is expected to average just over US$2 billion per year thereafter. - Expected facility usage: - Given prevalence of protracted financing and adjustment needs in the majority of LICs, the ECF is expected to remain a central pillar of the LIC architecture over the medium term. - The SCF is expected to become more important over time as more LICs establish broadly sustainable macroeconomic positions. - RCF demand likely significant in periods of global volatility; its use other than for exogenous shocks is expected to decline gradually as LICs build capacity to implement UCT-quality programs. *Source: IMF PDF content unit _062609 - 8. The new architecture distinguishes the facilities according to the duration of the (excerpt).* ### 24. The proposed concessional financing framework provides greater flexibility in ### 24. The proposed concessional financing framework provides greater flexibility in ### Major findings and context - The proposed concessional financing framework allows greater flexibility in allocating resources across the new facilities; general subsidy and loan accounts under the PRGT would be able to provide resources to all three facilities. - Demand projections imply a need to secure additional loan and subsidy resources. - As discussed in the framework paper, more than a quarter of LICs were in broadly sustainable macroeconomic positions at end-2007, while a majority continue to face entrenched adjustment needs, including about a third that are still in a fragile situation. - The PRGF has long been central to the Fund’s engagement with LICs; more than three-quarters of the current 78 PRGF-eligible countries have been supported under the ESAF (created in 1987) and its successor, the PRGF (created in 1999). ### The Extended Credit Facility (ECF) — purpose and rationale - Purpose: - Provides medium- and longer-term concessional financing to LICs with protracted balance of payments problems. - Supports UCT-quality economic programs aimed at moving toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Appropriate where resolution of entrenched macroeconomic imbalances is expected to extend over the medium- or longer-term. - Provides policy support and can catalyze additional financing from donors. - Rationale for reforming the PRGF into the ECF: - Addressed perceived barriers to PRGF use: standardized three-year arrangement length; access norms not aligned with needs; perceptions of heavy structural conditionality and limited timing flexibility; perceived rigid PRSP requirements; stigma associated with over-indebtedness and widespread poverty. - Responds to concerns about whether PRGF was sufficiently concessional given exceptionally low world interest rates. ### ECF structure and key features - Eligibility and qualification: - Available to all PRGT-eligible members that face a protracted balance of payments problem. - Implies an actual financing need over the course of the three-year arrangement, though not necessarily at approval or at individual disbursement dates. - Requires Fund finding that the member is making an effort to strengthen substantially and in a sustainable manner the country’s balance of payments position in the context of a policy program that meets UCT standards and supports progress toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Duration and repeated use: - Assistance is available for a three-year term, extendable for up to a total of two additional years. - After expiration or cancellation, additional ECF arrangements may be approved if qualification criteria are met. - Access policies and augmentations: - ECF access subject to global access limits and guided by access norms. - Total access limited to 100 percent of quota per year, and total outstanding concessional credit at 300 percent of quota; limits can be exceeded in exceptional circumstances. - Access is guided by norms set at 120 percent of quota per arrangement, or 75 percent of quota if total outstanding concessional credit is 100 percent of quota or higher. - High-access ECF financing requests are subject to uniform procedural safeguards. - Access can be phased and may be augmented to meet larger balance of payments needs or support program strengthening. - Financing terms: - Financing would be based on current PRGF-ESF terms, though with a reduced interest rate. - Credit under the ECF would carry a ¼ percent interest rate, half the current PRGF rate. - The repayment period is 5½ to 10 years. - A revised staff proposal was approved by the Executive Board: the initial interest rate for the ECF will be zero. - Concurrent use and blending: - The ECF cannot be used concurrently with the Fund’s other concessional or non-financial program instruments. - Augmentation of access is the appropriate response to additional balance of payments needs during an ECF arrangement; a member could not obtain SCF or RCF financing while an ECF arrangement is in place and on track. - At ECF approval, any previously existing SCF and PSI must be cancelled. - The ECF can be used concurrently with upper credit-tranche arrangements under the GRA (normally with an EFF) where blending criteria are met. - Conditionality and PRSPs: - ECF-supported programs require UCT conditionality aimed at achieving arrangement objectives. - Conditionality recognizes flexibility in the country’s choice of adjustment path; review-based conditionality focuses on overarching goals. - Conditionality includes quantitative performance criteria, typically quantitative and structural benchmarks, and prior actions if necessary. - Quantitative performance criteria and reviews normally set on a semi-annual basis (exceptionally quarterly); quantitative benchmarks normally on a quarterly basis. - Programs should include an agenda for macro-critical structural reforms, with flexibility on timing; structural benchmarks under ECF would not require a specific target date but would be linked to program reviews. - A PRS document must be issued to the Executive Board no later than the time of the second ECF review (allowing greater flexibility than the PRGF, which required PRS at approval). - The Letter of Intent for a new ECF request should indicate how the program advances poverty reduction and growth objectives. - Disbursements, monitoring, and reviews: - Disbursements and reviews are normally semi-annual; in exceptional circumstances both could be quarterly. - The first disbursement is made upon approval; subsequent disbursements conditional on observance of performance criteria and a program review confirming satisfactory progress. - Reviews evaluate backward-looking observance of performance criteria, structural benchmarks, and prior actions, and forward-looking alignment of policy commitments with program objectives. - Other Fund guidelines and policies: - ECF to follow same modalities and policy requirements as PRGF unless otherwise discussed. - Examples: safeguards assessment report completed no later than the first review (staff aim to complete prior to Board approval); access counts toward policy on longer-term program engagement; ECF performance could count toward HIPC decision point/completion point track record; 24-month cycle for Article IV consultations applies to members with an ECF arrangement. - Transitional arrangements: - All existing PRGF arrangements automatically converted into ECF arrangements once the ECF decision becomes effective. - From conversion, debt service on any new disbursements will be based on ECF terms and other ECF provisions apply unless otherwise indicated. - Credit outstanding under PRGF and ESF would count toward annual and cumulative access limits and access norms applying to the ECF and other concessional facilities; transitional arrangements apply to countries with relatively high levels of credit outstanding. ### The Standby Credit Facility (SCF) — background and purpose - Background: - Gaps exist in short-term and precautionary support to LICs; short-term concessional financing currently available only for sudden exogenous shocks (ESF), not for needs arising from domestic circumstances or precautionary needs. - Precautionary support increasingly relevant as LICs integrate into global markets and develop financial sectors. - PSI can provide accelerated access but is not a full substitute for a precautionary arrangement. - In March 20, 2009 discussions, most Executive Directors supported creating a concessional short-term instrument similar to the GRA’s SBA to close these gaps. - The SCF would replace the ESF-HAC and broaden use to address all types of short-term balance of payments needs, including those not primarily caused by sudden exogenous shocks, and provide an option for precautionary concessional support. - SCF structure and objectives: - Provides concessional financing to LICs with short-term balance of payments needs; covers both actual and potential financing needs. - Supports UCT-quality economic programs aimed at restoring a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Targeted at LICs with a track record of sustainable macroeconomic policies that do not face protracted balance of payments problems but may experience episodic short-term financing and adjustment needs. - Designed for cases where macroeconomic imbalances are expected to be resolved within a significantly shorter timeframe than under an ECF arrangement. - Countries facing potential rather than immediate needs could use the SCF on a precautionary basis. - Countries with protracted problems should be supported by ECF arrangements or, if appropriate, RCF financing. - The SCF also provides policy support and can catalyze additional donor financing. *Source: _062609 - 24. The proposed concessional financing framework provides greater flexibility in* ### 44. The proposed SCF is available to PRGT-eligible members facing an actual or ### _062609 - 44. The proposed SCF is available to PRGT-eligible members facing an actual or ### Eligibility and Qualification for the SCF - The proposed SCF is available to PRGT-eligible members facing an actual or potential balance of payments need. - An SCF can be approved based on a potential financing need, in which case the country authorities would treat it as precautionary. - Each disbursement requires a representation of a balance of payments need, as defined in the context of the GRA. - Qualification also requires a finding by the Fund that the member is making an effort to resolve the balance of payments need in the context of a policy program that meets UCT standards and aims to restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction. - Qualification is presumed for countries with an on-track PSI that face a previously unanticipated immediate or potential balance of payments need. - The SCF cannot be used if the predominant cause of the balance of payments difficulties underlying the short-term need is a withdrawal in financial support by donors. - The Fund will not challenge the representation of need prior to disbursement, but can impose a repayment expectation and take other remedial measures after disbursement if it determines the disbursement took place in the absence of need. ### Intended Scope and Limitations - The SCF is not intended for cases where the financing need is caused by a protracted balance of payments problem. - To qualify for the SCF, there should be an expectation that the member’s financing and adjustment needs would be resolved within two years (and in any case in less than three years), thus restoring a sustainable macroeconomic position. - Countries facing both protracted balance of payments problems and additional financing needs caused by a shock are expected to be supported by the ECF. ### Duration and Repeated Use - The duration of an SCF arrangement would normally be 12–18 months, up to a maximum of two years. - Use would normally be limited to two and a half out of any five years, assessed on a rolling basis. - Subject to these limits, an SCF arrangement can be extended or cancelled, and consecutive arrangements could be approved. - If financing and adjustment needs persist beyond the short term, continued support would normally be provided under an ECF arrangement. ### Access Policies and Augmentations - SCF access is subject to global access limits and guided by access norms (elaborated in Section V). - Total access to concessional financing is limited to 100 percent of quota per year, and total outstanding concessional credit at 300 percent of quota; these limits can be exceeded in exceptional circumstances. - Access is determined on a case-by-case basis taking into account established criteria such as the balance of payments need and strength of the program. - Access is guided by norms, set at 120 percent of quota per 18-month arrangement, or 75 percent of quota if total outstanding concessional credit is 100 percent of quota or higher. - Access norms are adjusted proportionally for SCF arrangements of durations other than 18 months to keep annualized average access unchanged. - High-access SCF financing requests are subject to uniform procedural safeguards. - Access can be phased and may be augmented to meet larger balance of payments needs or to support a strengthening of the program. - A member with a potential but not immediate balance of payments need would treat access under the SCF as precautionary. - Every SCF arrangement is in principle precautionary in nature, providing the member the possibility of obtaining an arrangement in the absence of an actual financing need and requesting a disbursement should a financing need arise. - Members retain and accumulate the rights to request disbursements during the period of the arrangement, provided they have concluded the most recent scheduled review. - If, at the time of approval of an arrangement, there is a potential but no actual balance of payments need, annualized access would be limited to 50 percent of quota, with the possibility to augment access later should a larger actual financing need arise. ### Financing Terms - Repayment is subject to a 4-year grace period and 8-year maturity. - The interest rate is ¼ percent (one quarter percent), half the current PRGF-ESF rate. - A commitment fee of 15 basis points would apply to each approved disbursement that is not drawn, refundable proportionally upon actual disbursement. - As in the GRA, there would only be an effective charge in case of precautionary use, but unlike the GRA (where the fee applies to amounts committed over the next twelve months), the SCF would not involve any upfront payment for non-precautionary use. ### Concurrent Use and Interaction with Other Facilities - The SCF cannot be used concurrently with the Fund’s other concessional facilities. - Should additional balance of payments needs arise during an ECF arrangement, an augmentation of access would be the appropriate response. - A member could not obtain RCF financing with an SCF arrangement in place and on track. - The SCF can be used concurrently with other upper credit-tranche GRA arrangements (SBA, EFF) in cases where the member meets the criteria for blending concessional and GRA resources (as defined in Section V). - Qualification for the SCF would be presumed for countries with an on-track PSI; an on-track PSI with UCT conditionality would reduce the time normally required to design an SCF-supported program. - There would be no need to cancel the PSI, and an SCF could run concurrently with a PSI. - PSI users can also request concurrent precautionary support under the SCF. ### Conditionality, PRSP Alignment, and Program Design - An SCF-supported program requires UCT conditionality aimed at achieving the objectives of the arrangement. - Conditionality is limited to macroeconomic and structural measures considered critical for meeting program objectives; the short time frame will generally permit less flexibility in the choice and timing of these measures compared to the ECF. - Conditionality will include quantitative performance criteria, and typically also quantitative and structural benchmarks, as well as prior actions if necessary. - The Fund may grant waivers for nonobservance of performance criteria if satisfied that program objectives can still be achieved. - The frequency of quantitative performance criteria would be aligned with reviews and disbursements; quantitative benchmarks would normally be on a quarterly basis, typically covering all test dates that fall within the 12 months after the Board meeting (initial approval and review). - Programs should include structural reforms that are critical for resolving the balance of payments need; the program should identify main structural objectives for the arrangement period, specific objectives for periods covered by individual reviews, and related structural benchmarks. - Use of the SCF does not require a PRS document, but SCF-supported programs should be aligned to the country’s poverty reduction and growth objectives and consistent with the medium-term goals of a country’s PRS if one exists. - The SCF should aim to support policies that safeguard social and other priority spending. - The Letter of Intent for a new SCF request should indicate how the program advances the country’s poverty reduction and growth objectives. - If financing and adjustment needs persist beyond the short term, SCF users would typically move to an ECF arrangement, which would then be underpinned by a PRS document. ### Disbursements, Monitoring, and Reviews - Disbursements and reviews are normally both semi-annual. - Reviews and disbursements can also be both at quarterly intervals depending on duration, level of access, balance of payments need, volatility, and capacity constraints. - The first disbursement is made available upon approval of the arrangement; subsequent disbursements are conditional on a program review confirming satisfactory progress. - For precautionary SCF arrangements, if a financing need arises during the arrangement period, authorities can draw on undrawn balances provided the most recent scheduled review has been completed. - Reviews evaluate performance against quantitative performance criteria, structural benchmarks, and prior actions (backward-looking) and ensure policy commitments are in line with program objectives (forward-looking). - At approval and for each review, the authorities’ Letter of Intent would present or update their policy program; a staff report would accompany it providing an overall assessment. ### Other Fund Guidelines and Policies Applicable to the SCF - The decision establishing the SCF would generally make applicable to the SCF all Fund decisions and instruments pertaining to the current PRGF, unless otherwise proposed. - In particular: - (i) a member would need to have a safeguards assessment completed at least by the time of the first program review; - (ii) SCF use would count toward the policy on longer-term program engagement; - (iii) performance under the SCF could count toward a track record of strong policy performance required for the decision point and completion point under the HIPC Initiative; - (iv) in line with practice for program countries, the 24-month cycle for Article IV consultations will apply to members with an SCF arrangement. ### Transitional Arrangements and Interaction with Existing Facilities - Existing ESF-HAC arrangements would remain in effect until their expiration or cancellation and would not be converted into SCF arrangements; current ESF-HAC terms continue to apply. - New ESF-HAC arrangements could still be approved within three months of the decision establishing the SCF. - Credit outstanding under the PRGF and ESF would count toward the annual and cumulative access limits and access norms that will apply to the SCF and other concessional facilities, with transitional arrangements for countries with relatively high levels of credit outstanding. ### Rapid Credit Facility (RCF): purpose and initial eligibility framing - The RCF is proposed as a unified concessional emergency facility for LICs, replacing the ESF-RAC as well as the subsidized use of ENDA and EPCA, while providing flexible financing to meet a variety of urgent balance of payments needs. - The proposed RCF provides low-access concessional financing with limited conditionality to address financing needs caused by exogenous shocks, natural disasters, and emergence from conflict or other disruptive situations. - The RCF is designed for circumstances where a UCT conditionality is either not necessary or not feasible (for instance, when institutional and policy capacity is highly constrained). - The RCF also provides policy support and is expected to play an important role in catalyzing additional financing from donors. - The RCF is available to PRGT-eligible countries facing an urgent balance of payments need; an urgent need is characterized by a financing gap that, if not addressed, would result in an immediate and severe economic disruption. - A member facing such an urgent need would qualify for the RCF only if one or more specified circumstances apply (text continues beyond provided extract). *Source: _062609 - 44. The proposed SCF is available to PRGT-eligible members facing an actual or* ### Box 1: The Fund’s Existing Emergency Policies ### Box 1: The Fund’s Existing Emergency Policies ### Facility descriptions - Emergency Natural Disaster Assistance (ENDA) - Provides financial assistance through an outright purchase to members recovering from a natural disaster. - Member required to describe the general policies it plans to pursue. - Member expected to cooperate with the Fund to find solutions for balance of payments difficulties and avoid policies that compound disaster effects. - Emergency Post-Conflict Assistance (EPCA) - Provides assistance to countries with balance of payments needs after a conflict. - Member may not have sufficient institutional capacity to implement a UCT-quality program but must have sufficient capacity and commitment for policy planning and implementation. - Role: meet urgent balance of payments needs, help rebuild reserves, and catalyze donor support. - To receive assistance (outright purchase) member is expected to present: - a statement of economic policies; - a quantified macroeconomic framework; - a statement indicating intention to move to a UCT-quality program as soon as possible. - Exogenous Shocks Facility (ESF) - Rapid Access Component (RAC) - Intended to assist LICs facing balance of payments needs caused by exogenous shocks. - Provides quick assistance in the form of an outright disbursement. - Member expected to outline policy commitments and/or actions. - Approval granted where the Fund is satisfied the member will implement appropriate policies to address the shock and will cooperate with the Fund. ### Table 3: Key design features (ENDA / EPCA / ESF-RAC) - Situation: Natural disaster / Post-conflict / Exogenous shock - Policies: Non-UCT / Non-UCT / Non-UCT - Financing source: GRA / GRA / PRGF-ESF Trust - Outright Purchase: Yes / Yes / Yes - Annual Limit*: 50 / 25 / 50 - Cumulative Ceiling*: Unspecified / 50 / Unspecified; 2 uses in 5 yrs - Financial Terms: GRA; possible subsidy / GRA; possible subsidy / PRGF - * Percent of quota ### RCF qualification and use (excerpts relevant to RCF rules and linkages with existing emergency policies) - Qualification criteria and exclusions - RCF should not be used if a UCT-quality program would be feasible and more appropriate. - Member normally qualifies only if either: - (i) the balance of payments need is expected to be resolved within one year and no major policy adjustments are necessary; or - (ii) a UCT-quality Fund-supported program cannot be put in place owing to limited policy implementation capacity and/or the urgent nature of the balance of payments need. - Qualification requires ex-ante policy undertakings: - Member must outline planned policies and reach additional understandings to assure inappropriate policies will not compound difficulties. - Sufficient policy capacity and commitment must exist to safeguard Fund resources. - Fund must assess that the member will cooperate to find, where appropriate, solutions for its balance of payments difficulties. - RCF cannot be used if the predominant cause of the balance of payments difficulties is a withdrawal in financial support by donors. - Duration and repeated use - Resources provided as an outright disbursement without a time-bound arrangement or review-based program. - Facility can accommodate one-off disbursements for urgent financing needs of limited duration and repeated disbursements over a (limited) number of years for recurring or on-going needs. - Disbursements under the facility could be made up to twice a year subject to the conditions for repeated use of the RCF. - Frequency and size of disbursements limited by qualification requirements and access policies; repeated use de facto constrained by relatively low cumulative access limit and requirement that repeated disbursement be approved only based on an exogenous shock or a satisfactory track record. - Access limits - Access under the RCF is limited to 25 percent of quota per year and 75 percent of quota on a cumulative basis. - Augmented access under the shocks window: up to 50 percent of quota per year and up to 100 percent on a cumulative basis if both: - (i) the primary cause of the balance of payments need is a sudden, well-defined exogenous shock other than a withdrawal in financial assistance by donors; and - (ii) existing and prospective policies are sufficiently strong to address the shock. - Access cannot exceed the size of the balance of payments need; under the shocks window, access cannot exceed the size of the exogenous shock. - Access is also subject to global limits on total concessional financing. - Financing terms - Financing under the RCF is based on the same terms as the ECF. - Credit outstanding under the RCF would carry a ¼ percent interest rate, half the current PRGF-ESF rate. - The repayment period is 5½ to 10 years. - A revised staff proposal approved by the Executive Board: the initial interest rate for the RCF will be zero (set out in Supplement 1). - The lower interest rate makes the RCF somewhat more concessional than the current ESF-RAC; the repayment period makes it significantly more concessional than the subsidized ENDA and EPCA, which are based on shorter GRA maturities. - Concurrent use and blending - RCF can be combined with non-financial programs (SMP and PSI). - RCF cannot be combined with an existing UCT arrangement except where additional financing needs are best addressed through augmentation of access under such an arrangement, or if the arrangement is off-track and the member meets RCF qualification criteria. - RCF can be blended with GRA resources provided through ENDA and EPCA if the member meets blending criteria; total annual and cumulative access normally expected to remain as defined above. - As with the ESF-RAC, RCF could be used concurrently with an off-track UCT arrangement solely in case of an exogenous shock, with policies adequate to address this shock. - Conditionality, PRSPs, and track records - RCF does not require a UCT quality economic program and does not include ex-post conditionality. - Before Board approval, members must provide the ex ante policy undertakings; prior actions could be established only in exceptional circumstances. - Members that have received RCF financing in the previous three years would require a track record of adequate macroeconomic policies, except if qualifying under the shocks window. - Such a track record would normally cover about six months immediately prior to the disbursement and be based on monitorable objectives (typically involving quantitative and structural benchmarks) established at the time of a recent RCF disbursement, under an SMP, or under any other Fund-supported program. - In exceptional cases, where no relevant pre-determined monitorable objectives exist, the track record could be based on the Fund’s assessment that macroeconomic policies have been adequate at least over the most recent six-month period. - Use of the RCF does not require a PRS document, but policies supported under the RCF should be aligned to the member’s poverty reduction and growth objectives. - In case of repeated RCF use to facilitate a transition to an ECF, monitorable objectives established at the time of an RCF disbursement should be consistent with the medium-term goals of the country’s poverty reduction and growth strategy, if one exists, and efforts should be made to prepare such a strategy if it does not exist. - Policies supported under the RCF should aim to allow for appropriate safeguards on social and other priority spending. - The Letter of Intent for an RCF request should indicate how the authorities’ policies advance the country’s poverty reduction and growth objectives. - Disbursements and monitoring - An outright disbursement is made immediately following Board approval. - Board decision based on a short staff report and a Letter of Intent outlining the member’s policy commitments. - Where repeated use is envisaged, expectations for future performance, including where possible monitorable quantitative targets and structural objectives, should be outlined in the Letter of Intent, with staff reports for subsequent disbursements providing an assessment of past policy performance against these goals. - Other Fund guidelines and policies applicable to RCF - Member’s request will require a commitment to undergo a safeguards assessment and an authorization for Fund staff to have access to the central bank’s most recently completed external audit reports and to hold discussions with the external auditors; timing and modalities determined case-by-case. - Disbursements under the RCF will not count toward assessment of longer-term program engagement. - A period of performance under the monitorable track record required for repeated use of the RCF could count toward the track record required for HIPC decision point. - Flexibility (as under EPCA) would be practiced in applying the Fund’s policy of non-toleration of arrears to official creditors, and the lending into arrears policy. ### Transitional arrangements - Past drawings under the ESF-RAC, and the subsidized ENDA and EPCA, would count toward the annual and cumulative access limits under the RCF. - For assessing repeated use, past use of ENDA, EPCA and the ESF-RAC does not count toward past use of the RCF, so a member’s first RCF disbursement after the Decision becomes effective will not require a policy track record. *Source: Box 1, "The Fund’s Existing Emergency Policies" (text as provided).* ### Section III). ### Section III) ### Access Norms for UCT Concessional Financing - New access norms are based on total outstanding credit; norms provide general guidance and represent neither ceilings nor entitlements. Norms will be applied flexibly and access could deviate substantially, for instance in case of large shocks. - Proposed access norms under each arrangement: - 120 percent of quota when outstanding concessional credit is less than 100 percent of quota; - 75 percent of quota, when outstanding concessional credit is 100 percent of quota or more; - For outstanding concessional credit above 200 percent of quota, the norms do not apply, and access will be guided by consideration of the access limit of 300 percent of quota, expectation of future need for Fund support, and the repayment schedule. - Rationale and implications: - Norms aim to provide similar levels of access to concessional resources over the longer run to all members, while accounting for differing patterns of usage under the ECF and SCF. - Norms are the same for both ECF and SCF; support under the SCF will be more concentrated on an annualized basis due to shorter duration and less frequent usage. - Linking norms and limits to outstanding credit allots more room for new borrowing to countries that have used little or no Fund credit recently, helps limit moral hazard, and avoids skewing concessional resources to a small number of countries. - The proposed 300 percent of quota limit on outstanding concessional resources allocates concessional borrowing space more equitably among past users and recent borrowers. ### Box 2: Comparisons, Simulations, and Design Choices - Proposed annual access limit for the ECF and SCF: 100 percent of quota (annualized). - Average Annualized Norm shown as "33 33 ..." in source table (presented as in the source). - Key comparisons: - Corrects an anomaly in current rules that ties access to historical 1980s/1990s credit usage that may now be repaid. - Under proposed norms: a hypothetical country with older PRGF use would have a norm of 120 percent of quota versus 70 percent under prior rules; a country with recent PRGF use would have a norm of 75 percent of quota versus 110 percent under prior rules. - Treats SCF and ECF users consistently, promoting broadly similar access to concessional resources over the longer run. - Proposed norms foresee a more gradual accumulation of Fund credit for countries using the ECF: outstanding credit after three consecutive ECF arrangements would be under 190 percent of quota, versus just over 270 percent under current PRGF norms. - Proposed cumulative limit across all concessional facilities would reduce incentives for arbitrage across facilities (example in source text). - Simulations (Figure 3 in source): compare ECF continuous arrangements and episodic SCF use (one arrangement every five years; two consecutive arrangements every five years), showing annual access level and outstanding credit trajectories (figures as described in source). ### Access Decision Criteria and Phasing - Access in individual countries determined case-by-case based on three established criteria: - (i) the member’s actual and potential balance of payments need; - (ii) the strength of its program and capacity to repay the Fund (including policy and debt sustainability considerations); - (iii) the amount of outstanding Fund credit and the member’s record of past use. - For ECF and SCF arrangements, access can be phased according to expected financing needs and may be augmented. Phasing can be front- or back-loaded as appropriate, considering timing of balance of payments need, current and committed policies, external environment, sequencing of other financing, and reserve objectives. - Augmentations would normally be approved at the time of a review under the arrangement. ### Procedural Safeguards for High-Access Requests - Uniform safeguards apply to all concessional facilities for high-access financing requests: - A DSA update is required for financing requests (augmentation or a new arrangement) under any of the three concessional facilities that would: - (i) involve exceptional access; - and/or (ii) bring total access to more than 80 percent of quota, based on past scheduled (not necessarily drawn) and future scheduled disbursements, in any 24-month period; - and/or (iii) involve a member with a high risk of debt distress or in debt distress. - An early informal Board meeting is required if a financing request (augmentation or a new arrangement) would involve exceptional access and/or bring total access to more than 180 percent of quota, based on past scheduled (not necessarily drawn) and future scheduled disbursements, in any 36-month period. - Exception: financing requests of 10 percent or less of quota do not trigger either of these two procedural safeguards. ### Financing Terms: Concessionality and Repayment - Motivation: - Market interest rate declines reduced the grant element of Fund concessional resources; IMFC called for exploring ways to increase concessionality. - EPCA and ENDA currently based on GRA repayment terms, making them significantly less concessional than ESF and PRGF, despite many users being among the poorest with weak capacity. - Repayment terms should align with expected duration of the needs. - Policy choice: - Reducing the interest rate is preferred as the most efficient way to enhance concessionality versus extending loan maturity. - Proposed financing terms: - Interest rate proposed for all three facilities: ¼ percent, below the current PRGF-ESF rate of ½ percent. - Note in source: A revised staff proposal was approved by the Executive Board, with an initial interest rate structure: 0.0/0.0/0.25 percent for the ECF, RCF, and SCF, respectively (see Supplement 1) — presented as in the source. - Repayment terms: - ECF and RCF aligned with current PRGF-ESF terms: 10-year maturity and 5½-year grace period. - SCF: shorter repayment period—8-year maturity and 4-year grace period. - Commitment fee: - A commitment fee of 15 basis points is charged for the precautionary feature of the SCF and refunded upon actual use. - Expected concessionality impact: - Relatively modest overall increase in concessionality is consistent with the Fund’s role in temporary balance of payments support and catalyzing donor flows. - Based on long-term historical average CIRR discount rate of 6.4 percent, the proposed financing terms would bring the average grant element of all LIC instruments to 37 percent (as stated in the source). ### Blending Rules and Guidance - Background: - Blending of the PRGF with GRA instruments has been rarely used; over the past ten years, only four blend arrangements (Albania, FYR Macedonia, Liberia, and Sri Lanka). - Existing blending rules limit concessional access to half of the PRGF norm; blending presumed for LICs with (i) per capita income exceeding 75 percent of the prevailing IDA operational cutoff or (ii) significant recent or prospective non-concessional borrowing. - Blending not applied to the ESF historically. - Proposed changes to promote consistent use of blending: - Raise per capita income threshold for blending to the prevailing IDA operational cutoff (currently $1,095). - Clarify that presumption of blending in cases of market access applies only to sustained past and prospective market access. - Access to concessional financing in a blended arrangement would normally be half of total access, subject to: - a floor on annual average concessional access of 25 percent of quota; - and a ceiling of 50 percent of quota. - Blending can be applied to the precautionary SCF for greater flexibility. - Blending is normally not used for countries at a high risk of debt distress or in debt distress. - Exceptional circumstances (e.g., clearance of protracted arrears to the Fund): blending can be used irrespective of per capita income, market access, and debt sustainability criteria; in these cases, the concessional access part of the blended arrangement could exceed the 50 percent of quota ceiling. - In blending cases, access levels under both concessional and GRA-based facilities continue to be determined case-by-case based on balance of payments and program strength, with attention to debt sustainability. ### Transitional Arrangements - Objectives: promote uniformity of treatment and avoid unduly constraining access for countries with relatively high levels of credit outstanding prior to reform. - Key transitional rules: - New access limits will not affect any disbursements under arrangements approved prior to the date the decision establishing the new architecture becomes effective. - Outstanding PRGF and ESF credit would count toward the new global annual and cumulative access limits. - If previously committed PRGF or ESF disbursements exceed 50 percent of quota per year or total outstanding PRGF and ESF credit exceeds 150 percent of quota, access above the normal global limits (annual and cumulative) is possible during a transition period that expires on December 31, 2010, even when the country does not meet exceptional access criteria. - Additional flexibility in applying the new norms will be used for these countries during the transition period. - For existing arrangements, the revised access norms do not create a presumption that access will be adjusted on the basis of the new norm; augmentations will continue to be based on existing policies. - If a member replaces outstanding ENDA or EPCA credit with RCF or ECF resources, these credits would also count toward the global annual and cumulative access limits. ### Consultative Process (Appendix I) - Survey of Fund Mission Chiefs (January 2009): - Reported gaps in current architecture noted by country authorities, donors, and civil society: - Absence of a policy support instrument for LICs not mature stabilizers and without immediate balance of payments need; - Absence of an instrument providing concessional financing for non post-conflict fragile states; - Lack of an instrument providing short-term concessional financing for domestic pressures/policy slippages that do not qualify for ESF; - Absence of an instrument providing precautionary access to concessional financing; - Absence of an emergency concessional rapid-access facility. - Little criticism of overall concessionality in Fund programs for LICs, with exceptions. - Seminar for Country Authorities (April 26, 2009): - Participants emphasized urgency for reform in light of the global financial crisis; need for more flexible facilities; reassessment of conditionality. - Support for retaining a PRGF-like instrument, but consensus that LIC toolkit needed redesign. - Need for facilities providing financing on more flexible terms and shorter-duration programs; precautionary facility seen as useful to maintain confidence and rapid disbursement when needed. - PRSPs seen as useful but not crucial in sudden-shock crisis situations; participants did not see need for a direct link between PRSP and short-term financing instruments. - Conference Call with Civil Society Organizations (May 15, 2009): - Broad agreement to revisit LIC facilities architecture. - Calls to increase concessional resources envelope to help LICs face global crisis impact. - Preference for an emergency instrument with higher flexibility, rapid access, and no predefined forward-looking conditionality. - Higher concessionality advocated to avoid debt problems and align Fund lending with donor support. *Source: _062609 - Section III).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_062609.pdf_