## Executive Summary — Proposed PRGT Eligibility Framework (_011110)

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### Framework design and objectives
- Establish a transparent framework with differentiated criteria for entry and for graduation, and a regular review process with policies for phasing in changes in eligibility.
- Preserve access to scarce concessional Fund resources for members with a low level of income and related economic and financial vulnerabilities.
- Maintain close alignment between PRGT eligibility and IDA practices; the large majority of IDA-eligible countries would remain PRGT-eligible.
- Aim to ensure permanent graduation decisions that do not pose undue risks to members’ financial sustainability and to recognize graduation as a signal of development progress.

### Key procedural features
- PRGT eligibility to be reviewed by the Executive Board every two years.
- Decisions regarding entry onto the PRGT-eligibility list could also be adopted between reviews.
- Changes to the PRGT eligibility list would become effective three months after adoption of the Executive Board decision.
- Countries with arrangements in place would remain PRGT-eligible for the full duration of the arrangement.
- Graduation would not affect terms for repayments of outstanding PRGT credit or the subsidization of the rate of charge on otherwise eligible EPCA/ENDA credit.

### IDA alignment and specific terms preserved
- IDA operational cutoff: US$1,135 for FY 2010.
- IDA financing terms:
  - Same financing cost and grace period for all borrowers: 10 years.
  - Repayment period for IDA-only countries: 40 years.
  - IDA credit for “blend” countries maturity: 35 years.
  - Eligible countries with a per capita GNI above the prevailing IDA threshold for more than two consecutive years are subject to hardened borrowing terms, with 20 years maturity.
- IDA’s Performance Based Allocation (PBA) system referenced.

---

### Proposed policy recommendations (summary)
- Use the IDA per-capita GNI cutoff for entry assessments and preserve close alignment with IDA practice.
- Differentiate entry and graduation criteria; make graduation criteria more demanding than entry criteria to avoid untimely graduations.
- Apply an explicit market-access criterion that is related to, but more demanding than, IDA’s creditworthiness assessment.
- Provide standardized exceptional treatment for small countries (population below 1 million) with less stringent per-capita income thresholds but retaining safeguards on vulnerabilities.
- Maintain transitional protections: outstanding PRGT credit and subsidy entitlements remain under PRGT terms after removal from the eligibility list.

*Source: Executive Summary, _011110 - Executive Summary*

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### Criteria for Entry and Graduation

### Entry criterion (summary)
- A Fund member is eligible for addition to the PRGT-eligibility list if:
  - (i) its annual per capita GNI is below the IDA operational cut-off (based on the latest available qualifying data); and
  - (ii) the sovereign does not have capacity to access international financial markets on a durable and substantial basis as defined in paragraph 12.
- Per capita GNI assessments normally based on World Bank ATLAS methodology; qualifying data must relate to a calendar year not more than 30 months in the past at the time of assessment.

### Graduation criteria — income and market access (paragraph 12 summary)
- A PRGT-eligible country would graduate if it meets EITHER the Income Criterion OR the Market Access Criterion AND does not face serious short-term vulnerabilities.

- Income Criterion (all three conditions must be met):
  - (a) annual per capita GNI has been above the IDA operational cutoff for at least the last five years for which qualifying data are available;
  - (b) per capita GNI has not been on a declining trend in the same period (comparing first and last relevant annual data);
  - (c) per capita GNI is currently at least twice the operational IDA cutoff (based on the latest available qualifying data).

- Market Access Criterion (two alternative tests; country must also meet safeguards):
  - Test A (quantitative): public sector issuance/guaranteeing of external bonds or disbursements under public and publicly guaranteed external commercial loans during at least three of the last five years, cumulative amount ≥ 100 percent of the country’s Fund quota at assessment time.
  - Test B (case-specific): convincing evidence sovereign could have tapped international markets on a durable and substantial basis despite actual borrowing falling short.
  - Safeguards for market-access candidates:
    - (a) annual per capita GNI above 80 percent of the IDA operational cutoff; and
    - (b) per capita GNI not on a declining trend during the last five years (comparing first and last relevant annual data).

- Absence of serious short-term vulnerabilities (required in addition to meeting at least one criterion):
  - Focus on risks of a sharp decline in income, loss of market access, and debt vulnerabilities.
  - For LIC-DSA members: external debt distress classification must be moderate or less; domestic debt should not raise serious sustainability concerns.
  - Developments since the most recent DSA must confirm overall debt vulnerabilities remain limited.

### Definition of durable and substantial market access (subparagraph C)
- Evidence may be either:
  - (1) issuance/guarantee of external bonds or disbursements under external commercial loans during at least three of the last five years, cumulative ≥ 100 percent of member’s IMF quota; or
  - (2) convincing case-specific evidence sovereign could have tapped markets as specified under (1), taking into account volume and terms of recent borrowing and sovereign credit rating (where one exists).

### Data sources and timeliness
- Assessments normally based on World Bank ATLAS data; other sources or Fund staff estimates allowed in exceptional circumstances.
- Qualifying data: most recent observation must relate to a calendar year not more than 30 months in the past at assessment time.

---

### Special Treatment for Small Countries

### Definition and rationale
- Small country defined as population below 1 million.
- Rationale: small countries face higher openness, export concentration, small domestic markets, large public sectors, and high aid dependency; higher volatility in growth and consumption documented in literature.

### Entry for small countries
- Small countries not currently PRGT-eligible would be considered for entry if:
  - (i) the sovereign does not have capacity to access international financial markets on a durable and substantial basis; and
  - (ii) per capita GNI is less than twice the IDA operational threshold (based on latest annual qualifying data).

### Graduation criteria for small countries (three criteria)
- Income criterion (all three must be met):
  - (i) annual per capita GNI above IDA operational threshold for at least last five years;
  - (ii) no declining trend over same period;
  - (iii) currently at least three times the IDA threshold.
- Market access criterion: sovereign capacity to access international financial markets on a durable and substantial basis (as defined).
- Absence of serious short-term vulnerabilities as described for general cases.
- Note: small country would generally not be expected to graduate if there is serious risk income might decline to less than three times the IDA operational cutoff.

---

### Review Timing, Phasing, and Transitional Protections

### Periodicity and interim decisions
- PRGT eligibility reviewed by Executive Board every two years.
- Interim entry or re-entry decisions permitted if delay would disadvantage a member (e.g., member wishes to request PRGT support), or for re-entry after sanctions-related removal.
- Graduation decisions may be adopted in the interim at the request of a member that meets the criteria.

### Effective dates and phasing
- Removal from PRGT-eligibility list becomes effective three months after adoption of Executive Board decision.
- If member has an existing PRGT arrangement or program subject to assessment/endorsement by Fund policy support instrument, removal becomes effective upon expiration or termination of such arrangement or instrument.
- Outstanding PRGT resources disbursed prior to effectiveness remain subject to PRGT terms (repayments, subsidies).
- Subsidization of the rate of charge on otherwise eligible EPCA/ENDA credit remains available for purchases made while a member was PRGT-eligible.

---

### Proposed Amendments to the PRGT-Eligibility List (staff proposals)

### Proposed removals (Decision B)
- Remove Albania, Angola, the Azerbaijan Republic, India, Pakistan and Sri Lanka from the PRGT-eligibility list.
- Effective date for that decision stated as April 10, 2010.

### No additions proposed
- No additions to the list are proposed at this time.
- Kosovo would not qualify for entry because its 2008 per capita income exceeds two times the IDA operational cutoff.

### Practical and financing implications
- Proposed changes intended not to interfere with existing PRGT support or ongoing financing discussions.
- Graduation would not affect repayment terms of outstanding PRGT credit or subsidy on EPCA/ENDA credit.
- Likely limited impact on demand for the Fund’s concessional resources: six countries identified for graduation were not expected to request concessional resources in the near term.
- Three of the six proposed-for-graduation countries have recently requested access to Fund financing from the GRA under Stand-By Arrangements.

---

### Selected Exact Per Capita GNI Figures (2008 US dollars, as listed in Table 2)
- Albania 3840
- Angola 3450
- Azerbaijan, Rep. of 3830
- India 1070
- Pakistan 980
- Sri Lanka 1780
- Armenia** 3350
- Georgia** 2480
- Dominica** 4770
- Grenada** 5710
- Maldives** 3630
- St. Lucia** 5530
- St. Vincent & Grenadines** 5140

- Table 2 annotations:
  - * Maintained on the list due to small country exception
  - ** Maintained on the list due to short-term vulnerability

*Source for table: The World Bank, World Development Indicators, September 20 09*

---

### Annex I — Selected Country Assessments and Staff Proposals

### Albania
- Per-capita GNI: US$3,840 in 2008; above IDA threshold since 2000 and not declining for at least last 5 years.
- Recent record: GDP growth averaging almost 6 percent in last 5 years (2002-2008); external debt below 20 percent of GDP.
- DSA: non-LIC DSA confirmed debt sustainable if adequate fiscal anchor maintained.
- Staff proposal: Immediate graduation of Albania.

### Angola
- Per-capita GNI: US$3,450 in 2008 (about 3 times the IDA threshold); exceeded IDA threshold for last five years.
- Growth driven by oil; 2009 oil price drop caused fiscal/external deterioration; external reserves projected to drop to 2.9 months of imports by end-2009.
- SBA approved November 2009 (27-month) to restore stability.
- Growth projection: after contraction by 0.4 percent in 2009, GDP growth expected to reach 7.1 percent in 2010.
- LIC-DSA indicated a moderate risk of debt distress.
- Staff proposal: Immediate graduation of Angola.

### Armenia
- Per-capita GNI: US$3,350 in 2008; above IDA threshold since 2004 and not declining for last 5 years.
- 2009 shock: exchange rate depreciated over 25 percent; GDP expected to contract by 15 percent in 2009 and recover to 1.2 percent in 2010.
- SBA with exceptional access approved March 2009.
- LIC-DSA: risk of debt distress remains low; external debt projected to reach 40 percent of GDP in 2011 before falling.
- Staff proposal: Maintain PRGT-eligibility; reassess at next review.
- Note: per capita GNI in dollar terms could fall below twice the IDA cutoff once full impact of devaluation incorporated (three years under World Bank Atlas).

### Azerbaijan
- Per-capita GNI: US$3,830 in 2008; above IDA cutoff since 2004 and not declining.
- Strong oil-driven growth; reserves reached 7.2 months of imports in 2008; public and external debt below 20 percent of GDP.
- DSA: debt position sustainable under shocks.
- Staff proposal: Immediate graduation of Azerbaijan.

### ECCU member small countries (Dominica, Grenada, St. Lucia, St. Vincent & Grenadines)
- Common vulnerabilities: exposure to systemic risks, tourism shocks, CL Financial collapse impacts, financial sector stress.
- Individual highlights and staff proposals:
  - Dominica: Per-capita GNI US$4,931 in 2008; public debt 84 percent of GDP end-June 2009; maintain PRGT-eligibility.
  - Grenada: Per-capita GNI US$5,730 in 2008; public debt almost 114 percent of GDP in 2009; maintain PRGT-eligibility.
  - St. Lucia: Per-capita GNI US$5,530 in 2008; public debt 67 percent of GDP end-2008; maintain PRGT-eligibility.
  - St. Vincent & Grenadines: Per-capita GNI US$5,437 in 2008; public debt projected 69.7 percent of GDP in 2008 to 89 percent in 2010; maintain PRGT-eligibility.
- All four: reassess at next PRGT-eligibility review.

### Georgia
- Per-capita GNI: US$2,480 in 2008; above IDA threshold and not declining.
- 2008 political tensions and capital outflows; SBA with exceptional access approved.
- 2009: exchange rate depreciation ~20 percent; remittances down ~20 percent; real GDP expected to contract by 4 percent in 2009.
- Debt: public debt peak projected 47 percent of GDP in 2011; external debt peak 65 percent of GDP in 2011; risk of debt distress assessed as moderate.
- Staff proposal: Maintain PRGT-eligibility; reassess at next review.
- Note: per capita GNI could fall below twice the IDA operational cutoff once devaluation effects incorporated (three years under Atlas).

### India
- Per-capita GNI: US$1,070 in 2008 (slightly below IDA threshold).
- Growth: averaged 9 percent (2004-2008); GDP growth projected about 6-6 ½ percent in 2009/10, strengthening to around 8 percent subsequently.
- Fiscal: general government deficit projected at 11.2 percent of GDP in 2009/10.
- External: gross international reserves US$280 billion in September 2009, covering more than 10 months of imports.
- India meets market access criterion; India indicated it does not intend to use PRGT resources.
- Staff proposal: Immediate graduation of India.

### Maldives
- Per-capita GNI: US$3,630 in 2008.
- 2009 program: blended Stand-By/Exogenous Shocks Facility with combined access of 700 percent of quota approved December 2009; 36-month program.
- 2009 outlook: real GDP expected to contract almost 4 percent in 2009; reserves projected to fall to 2.3 months of imports and return to 3 months of imports in 2010.
- Debt stocks end-2008: external debt 37 percent of GDP; domestic debt 31 percent of GDP.
- LIC-DSA: moderate risk of debt distress under baseline with major fiscal adjustment; vulnerabilities high under historical (no-reform) scenario.
- Staff proposal: Maintain PRGT-eligibility; reassess at next review.

### Pakistan
- Per-capita GNI: US$980 in 2008 (almost 90 percent of prevailing IDA threshold).
- Growth: real GDP expansion 6–7 percent since 2001; remittances increased by 20 percent from mid-2008 to May 2009.
- SBA November 2008 (two-year) to restore financial stability.
- Debt outlook: total public debt expected stable around 56 percent of GDP; external debt ~32 percent of GDP medium-term.
- Market access: has issued Eurobonds, GDRs, exchangeable bonds; meets market access criterion.
- Staff proposal: Immediate graduation of Pakistan.

### Sri Lanka
- Per-capita GNI: US$1,790 in 2008.
- Growth resilience; SBA approved July 2009; GDP growth expected to return near pre-crisis levels in 2010.
- LIC-DSA: moderate risk of external debt distress; public external debt projected to reach 50 percent of GDP in 2010 before declining.
- Market access: recent oversubscribed five-year Euro bond; meets market access criterion.
- Staff proposal: Immediate graduation of Sri Lanka.

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### Annex II — Market Access: Measurement and Findings (selected empirical observations)
- Market access measure focuses on voluntary public and publicly guaranteed external bond issuance and disbursements under external commercial loans; excludes non-voluntary domestic bank borrowing.
- Durability and size measured over medium term (e.g., five years) and relative to Fund quota.
- Empirical observations (2003-2007):
  - A few LICs tapped external bond markets since 2003; only a small subset issued bonds multiple times (Grenada, India, Pakistan).
  - Angola, Sri Lanka and Pakistan accessed international financial markets in four or five of the recent pre-crisis years (2003-2007), with cumulative market access exceeding their present quota.
  - India’s actual access over 2003-07 remained below 100 percent of quota, but market access confirmed by investment grade sovereign credit rating.
- Selected raw data lines (Market Access, Public and Publicly Guaranteed External Bond and Commercial Loan Disbursements — In percent of IMF quota):
  - Angola 2000 272.6 2001 289.2 2002 299.8 2003 407.4 2004 446.5 2005 789.7 2006 132.7 2007 1064.1 Average (2003-07) 568.1 - Credit Rating -
  - Sri Lanka 2000 8.2 2001 2.2 2002 16.1 2003 17.9 2004 9.2 2005 22.6 2006 20.5 2007 1137 Average (2003-07) 37.4 Credit Rating B+
  - Pakistan 2000 -21.5 2001 6.9 2002 -31.4 2003 40.6 2004 51.3 2005 47.4 2006 42.7 Average (2003-07) 42.7 Credit Rating B-/B3

---

*Source: IMF content unit _011110 (PDF).*

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

### Executive Summary

### Proposed framework for PRGT eligibility
- Establish a transparent framework with differentiated criteria for entry and for graduation, and a regular review process with policies for phasing in changes in eligibility.
- Preserve access to scarce concessional Fund resources for members with a low level of income and related economic and financial vulnerabilities.
- Maintain close alignment between PRGT eligibility and IDA practices; the large majority of IDA-eligible countries would remain PRGT-eligible.

### General criteria for entry and graduation
- Entry criterion (summary): countries become eligible if their per-capita income is below the IDA cutoff and they do not have durable and substantial access to financial markets.
- Graduation criteria (summary): countries on the PRGT eligibility list would be expected to graduate if they meet either:
  - (i) a persistently high level of income exceeding twice the IDA operational cutoff, or
  - (ii) durable and substantial access to financial markets;
  - and (iii) they do not face serious short-term vulnerabilities.
- The assessment of short-term vulnerabilities would focus in particular on risks of a sharp decline in income, loss of market access, and on debt vulnerabilities.
- The graduation criteria are intentionally more demanding than entry criteria to minimize the risk of untimely graduation decisions and reversal.

### Treatment of small countries
- Proposal extends the existing exceptional treatment of small islands to all small countries using a standardized definition, ensuring uniformity of treatment for members with similar vulnerabilities.
- For small countries, entry and graduation criteria largely mirror the general rules but are less stringent with respect to per capita income.

### Alignment with IDA practices and distinctions from IDA
- PRGT eligibility would remain closely aligned with IDA because it uses the same per capita GNI cutoff used by IDA for determining eligibility.
- Market access criterion proposed for PRGT eligibility is related to, but more demanding than, the creditworthiness assessment performed by IDA.
- Key distinctions noted:
  - All PRGT-eligible countries, as Fund members, have full access to resources in the Fund’s General Resources Account (GRA), provided they meet applicable criteria including capacity to repay the Fund.
  - IDA-only countries (per capita income below operational cutoff) have no access to IBRD lending; IDA-blend countries have limited access to IBRD lending.
  - Fund financing may be a closer substitute to market financing than longer-term World Bank loans.

### Specific IDA-related numbers and terms preserved from the source
- IDA operational cutoff: US$1,135 for FY 2010.
- IDA financing terms described:
  - Same financing cost and grace period for all borrowers: 10 years.
  - Repayment period for IDA-only countries: 40 years.
  - IDA credit for “blend” countries maturity: 35 years.
  - Eligible countries with a per capita GNI above the prevailing IDA threshold for more than two consecutive years are subject to hardened borrowing terms, with 20 years maturity.
- IDA’s Performance Based Allocation (PBA) system referenced as a complementary framework.

### Proposed review process, timing, and phasing
- PRGT eligibility to be reviewed by the Executive Board every two years to promote continuous alignment with PRGT objectives.
- Decisions regarding entry onto the PRGT-eligibility list could also be adopted between reviews.
- Proposed effective timing for changes: changes to the PRGT eligibility list would become effective three months after adoption of the Executive Board decision.
- Countries with arrangements in place would remain PRGT-eligible for the full duration of the arrangement.
- Graduation would not affect terms for repayments of outstanding PRGT credit or the subsidization of the rate of charge on otherwise eligible EPCA/ENDA credit.

### Proposed amendments to the PRGT eligibility list (based on application of proposed criteria)
- Entry: No additions to the list are proposed at this time.
- Graduation (proposed):
  - Albania, Angola, and Azerbaijan proposed to graduate based on the income criterion, given that their short-term vulnerabilities appear manageable. Angola also meets the market access criterion.
  - India, Sri Lanka, and Pakistan are proposed for graduation as they meet the market access graduation criterion and their short-term vulnerabilities appear manageable.
- Retentions despite meeting income tests:
  - Armenia and Georgia meet the income criterion but staff proposes maintaining PRGT-eligibility based on their short-term vulnerabilities.
  - Small countries meeting the small-country income criterion—Dominica, Grenada, Maldives, St. Lucia, and St. Vincent and the Grenadines—are proposed to remain PRGT-eligible based on their short-term vulnerabilities.
- All countries on the list will be reassessed against the graduation criteria at the time of the next PRGT-eligibility review.

### Practical and financing implications
- Intended that changes should not interfere with existing PRGT support or ongoing discussions on new financing requests.
- Graduation from the list would not affect repayment terms of outstanding PRGT credit or subsidization on otherwise eligible EPCA/ENDA credit.
- The proposed changes would likely have a limited impact on demand for the Fund’s concessional resources; the six countries identified for graduation were not expected to request concessional resources in the near term.
- Three of the six proposed-for-graduation countries have recently requested access to Fund financing from the GRA under Stand-By Arrangements.

### Rationale and objectives
- Aim to preserve concessional resources for members with low income and related vulnerabilities, and to ensure permanent graduation decisions that do not pose undue risks to members’ financial sustainability.
- Recognize that graduation signals progress in economic development and should mark a permanent exit from concessional resource use to avoid complications for debt management and economic planning.

*Source: Executive Summary, _011110 - Executive Summary*

### 11.      The framework comprises differentiated sets of criteria for entry and for

### 11.      The framework comprises differentiated sets of criteria for entry and for graduation

### Framework overview
- The framework comprises differentiated sets of criteria for entry and for graduation. The graduation criteria are more demanding to minimize the risk of reversal of graduation decisions.
- Annex II and Annex I are referenced for further detail and country-specific assessments (content not reproduced here).

### Entry criteria
- A Fund member would be added to the list of PRGT-eligible countries if:
  - (i) its annual per capita income is below the operational IDA cut-off (based on the latest available qualifying data); and
  - (ii) the sovereign does not have capacity to access international financial markets on a durable and substantial basis as defined in paragraph 12.
- Per capita GNI assessments for entry would normally be based on World Bank data derived using the Atlas methodology; other data sources could be used in exceptional circumstances. Data qualify only if the most recent observation relates to a calendar year that is not more than 30 months in the past at the time of the assessment.

### Graduation criteria (paragraph 12)
- A PRGT-eligible country would graduate if it meets the following tests:

  Income Criterion (all three conditions must be met)
  - The country’s annual per capita GNI:
    - (a) has been above the IDA operational cutoff for at least the last five years (for which qualifying data are available);
    - (b) has not been on a declining trend in the same period (comparing the first and the last relevant annual data); and
    - (c) is currently (based on the latest available qualifying data) at least twice the operational IDA cutoff.

  Or

  Market Access Criterion (two alternative tests; country must also meet safeguards)
  - Test A (quantitative evidence): Public sector issuance or guaranteeing of external bonds or disbursements under public and publicly guaranteed external commercial loans in international markets during at least three of the last five years (for which data are available), in a cumulative amount over that period equivalent to at least 100 percent of the country’s Fund quota at the time of the assessment.
  - Test B (case-specific): Convincing evidence that the sovereign could have tapped international markets on a durable and substantial basis despite actual borrowing falling short of thresholds (considering volume and terms of recent borrowing and the sovereign credit rating).
  - Safeguards for market-access graduation candidates:
    - (a) annual per capita GNI is above 80 percent of the IDA operational cutoff (based on the latest available qualifying data); and
    - (b) annual per capita GNI has not been on a declining trend during the last five years for which data is available (comparing the first and last relevant annual data).

  Absence of serious short-term vulnerabilities (required in addition to meeting at least one of the above)
  - Assessment focuses on risks of a sharp decline in income, loss of market access, and debt vulnerabilities.
  - Examples:
    - A country meeting the income criterion would not be expected to graduate if there is a serious risk that its income might decline to less than twice the operational IDA cutoff.
    - A country meeting the market access criterion would not be expected to graduate if there is reason to believe that market access might be lost; large spreads on recent external borrowing could indicate such risks.
  - Debt vulnerabilities should be limited as indicated by the most recent Debt Sustainability Analysis (DSA). For members with a LIC-DSA:
    - the risk of external debt distress should be moderate or less; and
    - additional risks related to domestic debt should not raise serious concerns regarding debt sustainability.
  - Developments and prospects since the most recent DSA should confirm that overall debt vulnerabilities remain limited.

### Relationship to blending rules (paragraph 13 and Table 1)
- The graduation framework builds on the new blending rules for the PRGT. Blending presumption exists for PRGT-eligible members that have durable market access or a per-capita income level exceeding the IDA operational cutoff, but graduation criteria are more stringent (higher income threshold and longer evaluation period; specific thresholds for magnitude and duration of market access).
- The income threshold of 80 percent of the IDA operational cutoff is proposed to be added to the blending rules’ market-access graduation criterion to ensure consistency.

### Special criteria for small countries (paragraphs 14–16)
- Small countries (drawing on literature) proposed definition: population below 1 million.
- Exceptional treatment operationalized as follows:

  Entry for small countries
  - Small countries not currently PRGT-eligible would be considered for entry if:
    - (i) the sovereign does not have capacity to access international financial markets on a durable and substantial basis (as defined in paragraph 12); and
    - (ii) per capita GNI is less than twice the IDA operational threshold (based on the latest available annual qualifying data).

  Graduation for small countries (three criteria)
  - Income criterion:
    - Their annual per capita GNI:
      - (i) has been above the IDA operational threshold for at least the last five years (for which qualifying data are available);
      - (ii) has not been on a declining trend in the same period (comparing the first and the last relevant annual data);
      - (iii) is currently at least three times the IDA threshold (based on the latest available qualifying data).
  - Market access criterion: sovereign capacity to access international financial markets on a durable and substantial basis (as defined in paragraph 12).
  - Absence of serious short-term vulnerabilities: as described in paragraph 12.
  - Note: With respect to the risk of a sharp decline of income, a small country would generally not be expected to graduate if there is a serious risk of a decline in income to less than three times the operational IDA cutoff.

### Periodicity of reviews and interim decisions (paragraphs 17–18)
- PRGT eligibility is proposed to be reviewed by the Executive Board every two years.
- Decisions on entry onto the PRGT-eligibility list could also be adopted in the interim period between reviews if:
  - a member not on the list meets the entry criteria in the period between reviews and a delay would disadvantage the member (e.g., the member wishes to request support under PRGT facilities); or
  - re-entry is possible in the interim period for any country removed due to sanctions for overdue obligations to the PRGT.
- A revised staff proposal approved by the Executive Board: decisions on graduation can be adopted in the interim period between reviews for a member that meets the criteria for graduation, at the request of such a member.

### Proposed amendments to the PRGT-eligible list (paragraph 19 and Table 2)
- Entry: No additions proposed at this time. Kosovo would not qualify for entry because its 2008 per capita income exceeds two times the IDA operational cutoff.
- Graduation (staff proposals, subject to absence of serious short-term vulnerabilities):
  - Albania would graduate based on the income criterion (per capita GNI exceeds twice the IDA operational cutoff and the two other elements are met).
  - Angola would graduate based on the income criterion; Angola also meets the market access criterion.
  - Azerbaijan would graduate based on the income criterion.
  - Armenia and Georgia meet the income criterion but staff proposes maintaining their PRGT eligibility due to debt vulnerabilities and potential for a substantial drop in GNI per capita in 2009; their eligibility will be reassessed at the next review.
  - Dominica, Grenada, Maldives, St. Lucia, and St. Vincent and the Grenadines meet the income criterion for small countries (per capita GNI exceeds three times IDA’s operational cutoff and the two other elements are met) but staff proposes maintaining their PRGT eligibility due to short-term vulnerabilities (especially on debt); their eligibility will be reassessed at the next review.
  - India, Sri Lanka, and Pakistan would graduate as they meet the market access graduation criterion and short-term vulnerabilities appear manageable.

- Selected exact per capita GNI figures from Table 2 (US dollars, 2008 per capita GNI as listed):
  - Albania 3840
  - Angola 3450
  - Azerbaijan, Rep. of 3830
  - India 1070
  - Pakistan 980
  - Sri Lanka 1780
  - Armenia** 3350
  - Georgia** 2480
  - Dominica** 4770
  - Grenada** 5710
  - Maldives** 3630
  - St. Lucia** 5530
  - St. Vincent & Grenadines** 5140
  - (Note: Table 2 lists many other PRGT-eligible countries with per capita GNI figures or "na" where data not available. A subset is reproduced here exactly as shown above.)

- Table 2 annotations:
  - * Maintained on the list due to small country exception
  - ** Maintained on the list due to short-term vulnerability
  - Source cited in table: The World Bank, World Development Indicators, September 20 09

### Policies for phasing in changes in eligibility (paragraphs 20–21)
- Changes would become effective three months after adoption of the related Executive Board decision, to avoid interfering with existing PRGT support or ongoing financing discussions.
- Countries that meet graduation criteria but have concessional arrangements in place when a decision becomes effective would remain PRGT-eligible for the full duration of the arrangement; removal from the list would become effective only upon termination of the relevant arrangement.
- Repayments of outstanding PRGT credit would remain subject to PRGT terms after graduation. This includes repayments linked to ongoing or past arrangements or outright disbursements, and disbursements approved during the transitional period.
- Subsidization of the rate of charge on otherwise eligible EPCA/ENDA credit would remain available (subject to the terms of the administered account for EPCA/ENDA subsidies) for all EPCA or ENDA purchases made while a member was PRGT-eligible.
- A similar deferral of the effectiveness of a graduation decision would apply with respect to the PSI.

*Source: The World Bank, World Development Indicators, September 20 09*

### 22.      The proposed changes to the list of PRGT-eligible countries would likely have a

### _011110 - 22.      The proposed changes to the list of PRGT-eligible countries would likely have a

### Impact on demand for concessional resources
- The proposed changes to the list of PRGT-eligible countries would likely have a limited impact on the demand for the Fund’s concessional resources.
- The most recent financing projections, presented in SM/09/254, did not assume any change in the list of PRGT-eligible countries and were based in part on country-by-country information provided by area departments.
- The projections did not envisage in the near term requests for concessional resources from the six countries identified for graduation beyond existing commitments.
- Three of these countries—Angola, Pakistan and Sri Lanka—have recently requested access to Fund financing from the GRA under Stand-By Arrangements (SBAs) and were judged unlikely to request concessional resources in the medium term.
- At the inception of the ESAF in 1987, India indicated that it did not intend to use the Fund’s concessional resources and has therefore been excluded from the financing projections.
- Albania was unlikely to consider concessional resources in light of its relatively strong economic position.
- None of the countries proposed for graduation from PRGT-eligibility are among the “ring-fenced” countries that could benefit from the HIPC Initiative.
- The proposed changes would have no implications on the resources needed by the Fund to provide HIPC Initiative and MDRI debt relief.

### Economic vulnerability in small countries (Box 2: summary)
- No generally accepted definition of a small country; literature often uses a population threshold of 1 million or less.
- Typical characteristics contributing to greater vulnerability:
  - Exceptionally high degree of openness.
  - High concentration of export bases.
  - Small domestic markets.
  - Large public sector.
  - High degree of aid dependency.
- Empirical findings cited:
  - Small countries have a ratio of trade to GDP that is 54 percentages points higher than the average economy (Easterly and Kraay, 1999).
  - Developing countries’ terms of trade volatility was estimated to be 30 percent higher on average for small states as opposed to other developing countries (Kose and Prasad, 2002).
  - The volatility of per capita real GDP growth is almost twice higher in small countries than in other countries.
  - The volatility of consumption growth was over 50 percent higher in small countries (Easterly and Kraay, 1999).
  - GDP may not be a good measure of income (or wealth) for economies that are highly open to trade, given the strong volatility of their terms of trade.

### Proposed decisions — Decision A (criteria for entry and graduation)
- General:
  - The criteria for entry and graduation shall guide Executive Board decisions to add members to, and remove members from, the list annexed to Decision No. 8240-(86/56) SAF, as amended (the “PRGT-eligibility list”).
- (A) Criteria for entry:
  - A member will be added to the PRGT-eligibility list if (i) its annual per capita gross national income (“GNI”), based on the latest available qualifying data, is below the International Development Association (“IDA”) operational cut-off or, for a member qualifying as a “small country” under the definition set forth in subparagraph (D), is less than twice the IDA operational cut-off; and (ii) the sovereign does not have capacity to access international financial markets on a durable and substantial basis as defined in subparagraph (C).
- (B) Criteria for graduation:
  - A member will be removed from the PRGT-eligibility list if it meets either or both the income and market access criteria specified in (1) and (2) below, and does not face serious short-term vulnerabilities as specified in (3) below:
  - (1) Income Criterion:
    - the member’s annual per capita GNI (i) has been above the IDA operational cut-off for at least the last five years for which qualifying data are available;
    - (ii) has not been on a declining trend over the same period, comparing the first and last relevant annual data; and
    - (iii) based on the latest qualifying annual data, is at least twice the IDA operational cut-off or, for a member qualifying as a “small country” under the definition set forth in subparagraph (D), is at least three times the IDA operational cut-off.
  - (2) Market Access Criterion:
    - (i) the sovereign has the capacity to access international financial markets on a durable and substantial basis as defined in subparagraph (C);
    - (ii) the member’s annual per capita GNI is above 80 percent of the IDA operational cut-off based on the latest qualifying annual data; and
    - (iii) the member’s annual per capital GNI has not been on a declining trend over the last five years for which qualifying data are available, comparing the first and last relevant annual data.
  - (3) Absence of serious short-term vulnerabilities:
    - the member does not face serious short-term vulnerabilities, which shall require in particular (i) the absence of risks of a sharp decline in the member’s income, or of a loss of its market access (where relevant);
    - (ii) limited debt vulnerabilities as indicated by the most recent debt sustainability analysis, including, for members whose debt has been assessed under the Debt Sustainability Framework for Low-Income Countries, an external debt distress classification of moderate or less and a level of domestic debt that does not give rise to serious concerns about the member’s debt sustainability; and
    - (iii) confirmation that overall debt vulnerabilities remain limited, taking into account developments and prospects since the most recent debt sustainability analysis.
- (C) Definition of sovereign’s capacity to access international financial markets on a durable and substantial basis:
  - Evidence may be either:
    - (1) The issuance or guarantee by a public debtor of external bonds in international markets, or disbursements under external commercial loans contracted or guaranteed by a public debtor in international markets, if such issuance, guarantee or disbursement has occurred during at least three of the last five years for which qualifying data are available, and has been in a cumulative amount equivalent to at least one hundred percent of the member’s quota in the Fund at the time of the assessment; or
    - (2) The existence of convincing evidence that the sovereign could have tapped international markets as specified under (1) above, even though the actual issuance or guarantee by a public debtor of external bonds in international markets, or actual disbursements under external commercial loans contracted or guaranteed by a public debtor in international markets, fell short of the duration and scale thresholds specified under (1) above. Determinations under this paragraph shall be a case-specific assessment that takes into account relevant factors, including the volume and terms of recent external borrowing or guaranteeing of external borrowing in international markets, and the sovereign credit rating where one exists.
  - For purposes of this subparagraph (C):
    - (i) a “public debtor” shall include the sovereign (national government) as well as other public borrowers (including political subdivisions, agencies of the national government or of political subdivisions, autonomous public bodies and public corporations) whose ability to borrow in international markets is assessed to be an indicator of the sovereign’s creditworthiness;
    - (ii) “external bonds” are those issued in international capital markets and “external commercial loans” are commercial loans contracted in international markets by residents of a member with nonresidents, provided that bonds issued and loans contracted in markets that are not integrated with broader international markets shall not qualify; and
    - (iii) bonds and commercial loans guaranteed by a public debtor shall be obligations of a private debtor whose repayment is guaranteed by a public debtor.
- (D) Small country definition:
  - A member will be considered a “small country” if it has a population below 1 million.
- (E) Data sources and timeliness:
  - Assessments of per capita GNI will normally be based on World Bank data using the ATLAS methodology, but other data sources may be used in exceptional circumstances, including data estimated by Fund staff in the absence of World Bank data.
  - Qualifying data for the purposes of the criteria set forth in this paragraph 1 shall be data in respect of which the most recent observation relates to a calendar year that is not more than 30 months in the past at the time of the assessment.
- Effective dates and transitions:
  - Executive Board decisions to remove a member from the PRGT-eligibility list pursuant to the graduation criteria shall become effective three months after their adoption, provided that such decisions in respect of members that have an existing arrangement under the PRGT, or that have a program subject to assessment and endorsement by the Fund under an existing policy support instrument, shall become effective upon the expiration or other termination of such arrangement or policy support instrument, respectively.
  - Any outstanding PRGT resources disbursed to a member prior to the effectiveness of a removal decision shall remain subject to the terms of the PRGT.
  - In Section II, paragraph 4(c) of the PRGT, the reference to “as such list may be amended from time to time,” shall be deleted.
  - The term “eligible recipients” under paragraph 7(a) of Decision No. 12481-(01/45) governing subsidies for postconflict and natural disaster purchases of PRGT-eligible members shall be understood to include members that, at the time of their removal from the PRGT-eligibility list pursuant to this decision, have outstanding postconflict or natural disaster purchases for as long as such purchases remain outstanding.
  - In subparagraph 7(d) of Decision No. 12481-(01/45), as amended, the references to “qualifying PRGT-eligible members” shall be replaced with references to “PRGT-eligible members”, and the second sentence shall be deleted.
- Review cadence:
  - It is expected that the criteria for entry and graduation shall be reviewed every two years.
  - The PRGT-eligibility list shall be reviewed and updated every two years on the basis of the then applicable criteria, with provisions for interim decisions in specified circumstances.

### Proposed decisions — Decision B (list amendment and effective date)
- Amendment:
  - The list annexed to Decision No. 8240-(86/56) SAF shall be amended by removing from such list Albania, Angola, the Azerbaijan Republic, India, Pakistan and Sri Lanka.
- Effective date:
  - This decision shall become effective on April 10, 2010.

*Source: _011110 - 22.      The proposed changes to the list of PRGT-eligible countries would likely have a (PDF).*

### Annex I. Assessments of Countries that Meet the Income or

### Annex I. Assessments of Countries that Meet the Income or Market Access Criteria

### Albania
- Per-capita GNI reached US$3,840 in 2008; above the prevailing IDA threshold since 2000 and not on a declining trend for at least the last 5 years.
- Under three consecutive PRGF-EFF arrangements (last completed on January 2009), Albania achieved:
  - GDP growth averaging almost 6 percent in the last 5 years (2002-2008).
  - Stable inflation and sustainable debt.
- External debt:
  - Remained low, below 20 percent of GDP.
  - Expected to decline further with lengthened maturities and a declining public debt-to-GDP ratio.
- DSA findings:
  - The most recent (non-LIC) DSA confirmed debt was set to remain on a sustainable path, provided an adequate fiscal anchor remains in place.
- Outlook:
  - Per capita income is expected to continue to grow.
  - Projected strong external position would provide capacity to service possible future lending on non-concessional terms.
- Staff proposal:
  - Immediate graduation of Albania.

### Angola
- Third largest economy in Sub-Saharan Africa.
- Since 2004 experienced double digit growth, underpinned by a stable macroeconomic environment.
- Per-capita GNI:
  - Consistently exceeded the IDA threshold for the last five years.
  - Not on a declining trend during that period.
  - In 2008, per capita income reached US$ 3,450 (about 3 times the IDA threshold).
- Growth drivers:
  - Strong expansion of oil production and rapid growth in the non-oil sector.
- Impact of the global crisis:
  - Drop in oil prices negatively impacted fiscal and external positions.
  - Sharp decline in oil revenues in 2009 shifted fiscal and current account surpluses into negative territory.
  - External reserves projected to drop to 2.9 months of imports by the end of 2009.
- Policy response:
  - 27-month stand-by arrangement (SBA) approved in November 2009 to restore macroeconomic stability and reverse reserve decline.
  - Key program elements: address fiscal weaknesses, insulate budget from oil price volatility by expanding the economic base, improve public financial management and fiscal transparency.
- Growth projection:
  - After a minor contraction in 2009 (by 0.4 percent), GDP growth expected to reach 7.1 percent in 2010.
- Debt and risk:
  - External debt projected to remain below 30 percent of GDP in the medium-term.
  - SBA includes a non-zero ceiling of 2.4 percent of GDP on non-concessional debt.
  - LIC-DSA indicated a moderate risk of debt distress due to vulnerability to oil prices and high non-concessional indebtedness.
- Staff proposal:
  - Immediate graduation of Angola.

### Armenia
- Per-capita GNI reached US$3,350 in 2008; above IDA threshold since 2004 and not on a declining trend for at least the last 5 years.
- 2005-08 PRGF-supported program:
  - Double-digit growth rates with relatively low inflation.
  - Strong performance reflected sound macroeconomic policies and structural reforms.
  - External position sustainable, underpinned by FDI and remittances; reserves to almost five months of imports by end-2008.
- Impact of the global crisis:
  - Exchange rate depreciated by over 25 percent since early 2009.
  - GDP expected to contract by 15 percent in 2009 and recover to 1.2 percent in 2010.
  - Transfers dropped by about 30 percent in 2009 and projected to rise slightly in 2010.
  - SBA with exceptional access approved in March 2009 to restore external stability, ensure fiscal discipline, and strengthen confidence in currency and banking sector.
- Debt dynamics:
  - LIC-DSA indicated risk of debt distress remains low.
  - Rise in external borrowing expected to cause external debt to reach 40 percent of GDP in 2011 before falling to under 30 percent in the medium-term.
  - Debt dynamics vulnerable to shocks, particularly growth and depreciation.
- Outlook for market access:
  - Successful implementation of the SBA and economic recovery would restore prospects of access to private capital markets within the next two or three years.
- Staff proposal:
  - Maintain Armenia’s PRGT-eligibility, with reassessment at next PRGT-eligibility review.
- Note:
  - Based on current projections, Armenia’s per capita GNI in dollar terms could fall below twice the IDA operational cutoff once the full impact of the devaluation has been incorporated (which would take three years, in the World Bank’s Atlas methodology).

### Azerbaijan
- Annual real GDP growth above 20 percent since 2005 due to major expansion in oil and gas production.
- Per-capita GNI reached US$3,830 in 2008; above the IDA operational cut-off since 2004 and not on a declining trend for at least the last 5 years.
- PRGF arrangement expired in 2005.
- External position:
  - Oil revenues provide abundant financing for large increases in government spending pursuing a fast-track development strategy.
  - International reserves reached 7.2 months of imports in 2008, almost three times total external debt.
  - Public and external debt below 20 percent of GDP in 2008.
  - DSA indicated debt position will remain sustainable under a number of shocks, including lower oil prices.
- Outlook:
  - Despite global downturn, external position remained robust and reserve accumulation expected to continue at a slower pace.
- Staff proposal:
  - Immediate graduation of Azerbaijan.

### Eastern Caribbean Currency Union (ECCU) Member Countries — Common themes
- Four PRGF-eligible ECCU members: Dominica, Grenada, St. Lucia, and St. Vincent and the Grenadines.
- Shared risks:
  - Exposure to system-wide risks and country-specific vulnerabilities.
  - Continued stress on the financial sector from the economic downturn.
  - Limited capacity of the ECCB to act as lender-of-last-resort increases risk of regional spillovers.
  - Collapse of the Trinidad and Tobago-based CL Financial group (January 2009) is a major challenge to financial stability and could add to public debt burdens.
- Financial system note on CL Financial subsidiaries:
  - BAICO and CLICO had been offering deposit-like products; BAICO reported insolvent by judicial managers.
  - BAICO exposure: EC$2 billion (15 percent of GDP) to policy and deposit holders in the ECCU.
  - BAICO estimated negative net worth of some EC$0.8 billion (6 percent of GDP) at the regional level.

#### Dominica
- Per-capita GNI reached US$4,931 in 2008; well above IDA threshold since 2004 and not declining for at least the last 5 years.
- Progress under last PRGF arrangement ended in 2006; further steps needed to increase resilience to shocks.
- Natural disasters (Hurricane Dean August 2007; Hurricane Omar October 2008) and global downturn resulted in:
  - Lower tourism receipts, FDI, and remittances.
  - Increased current account deficit expected to remain elevated.
- Fund support:
  - Rapid Access Component of the Exogenous Shocks Facility approved in July 2009.
- Growth:
  - Real GDP growth expected to remain slightly positive in 2009/10 and gradually recover over the medium term.
- Debt:
  - Public debt at 84 percent of GDP at end-June 2009; projected to decline gradually to 75 percent of GDP by 2014.
  - External debt currently at 60 percent of GDP; projected to decline to about 56 percent of GDP by 2014.
  - Sensitivity analysis: economic growth and grants are main drivers; natural disasters significant source of vulnerabilities.
  - External debt indicators generally below threshold for debt distress in medium term but can breach thresholds under extreme shocks.
- Financial system:
  - Remains vulnerable following CL Financial collapse.
- Staff proposal:
  - Maintain Dominica’s PRGT-eligibility, with reassessment at next PRGT-eligibility review.

#### Grenada
- Per-capita GNI reached US$5,730 in 2008; above threshold during current decade and not declining for at least last 5 years.
- Post-2004-5 hurricanes, activity rebounded in 2007; global slowdown and financial turmoil severely affected tourism, FDI, and remittances.
- Under current PRGF-supported program, progress in fiscal adjustment and business environment improvements.
- Policy response:
  - Reprioritized spending; accelerated implementation of high impact capital outlays within tight budget.
- Debt vulnerabilities:
  - High risk of debt distress.
  - Last LIC-DSA showed deterioration owing to lower growth, lower FDI, and higher-than-expected debt growth.
  - Public debt almost 114 percent of GDP in 2009; projected to remain above ECCU target threshold of 60 percent well beyond 2020.
  - External debt expected to reach about 84 percent of GDP in 2010.
  - Sensitivity to shocks and policy slippages, particularly nonconcessional borrowing.
- Financial system:
  - Remains vulnerable following CL Financial collapse.
- Staff proposal:
  - Maintain Grenada’s PRGT-eligibility, with reassessment at next PRGT-eligibility review.

#### St. Lucia
- Per-capita GNI reached US$5,530 in 2008; well above IDA threshold for more than a decade and not declining for at least last 5 years (almost five times the current IDA threshold).
- Tourism-based economy (tourism accounts for three-fourths of exports); significant progress expanding tourism sector.
- Global slowdown and financial turmoil severely reduced tourism, FDI, and remittances.
- Policy response:
  - Fund-supported program under Rapid Access Component of the Exogenous Shocks Facility approved in July 2009.
- Outlook:
  - Real GDP expected to decline in 2009.
  - Overall fiscal deficit expected to narrow by ½ percent of GDP this fiscal year due to financing constraints.
  - Rebalancing of global demand likely to have permanent adverse impact on tourism arrivals and FDI.
- Debt:
  - Public debt 67 percent of GDP at end-2008; projected to rise to 71 percent before declining to 52 percent of GDP by 2020.
  - External debt to reach 41 percent of GDP in 2010 before gradually declining to about 29 percent by 2029.
  - Sensitivity analysis: economic growth is main driver of debt dynamics; expected moderate risk of debt distress.
- Financial system:
  - Remains vulnerable following CL Financial collapse.
- Staff proposal:
  - Maintain St. Lucia’s PRGT-eligibility, with reassessment at next PRGT-eligibility review.

#### St. Vincent and the Grenadines
- Per-capita GNI reached US$5,437 in 2008; above the IDA threshold over the past decade and not declining for at least last 5 years.
- Growth above potential in 2006 and 2007, sustained by tourism-related construction.
- Impact of global slowdown and financial turmoil:
  - Real GDP expected to decline in 2009.
  - Fiscal deficit projected to widen.
  - Tourism, FDI, and remittances flows fell sharply.
- Fund support:
  - Rapid Access Component of the Exogenous Shock Facility approved in May 2009.
- Debt:
  - Rising public debt major macro risk: projected increase from 69.7 percent of GDP in 2008 to 89 percent in 2010, with upward trend continuing in coming years.
  - External debt-to-GDP ratio expected to rise but remain below 50 percent of GDP.
  - Stress tests show vulnerabilities to shocks in GDP growth, exports, and FDI.
- Financial system:
  - Remains vulnerable following CL Financial collapse.
- Staff proposal:
  - Maintain St. Vincent and the Grenadines’ PRGT-eligibility, with reassessment at next PRGT-eligibility review.

### Georgia
- Per-capita GNI reached US$2,480 in 2008; income above the IDA threshold and not on a declining trend for the past five years.
- Recent high economic growth supported by large capital inflows, sound macro policies, and structural reforms; FDI and privatization improved business environment.
- 2008 political tensions:
  - Exceptional access SBA approved to support balance of payments after sudden large capital account pressures.
- Impact of global crisis:
  - Exchange rate depreciated by almost 20 percent since November 2008.
  - Remittances dropped by about 20 percent in 2009.
  - Real GDP expected to contract by 4 percent in 2009.
- Outlook:
  - Medium-term recovery expected; real GDP growth to 5 percent in the medium term supported by restoration of market access and continued structural reform.
- Debt and risks:
  - Economic and political crisis and fiscal response led to sharp increase in public sector indebtedness.
  - Peak projections: public debt peak in 2011 at 47 percent of GDP; external debt peak in 2011 at 65 percent of GDP.
  - Staff assesses risk of debt distress as moderate.
  - Debt sensitive to adverse shocks, particularly worsening borrowing terms and currency depreciation.
- Market access:
  - Assuming normalization of international credit conditions by 2010, private sector should regain capital market access within next two–three years.
- Staff proposal:
  - Maintain Georgia’s PRGT-eligibility, with reassessment at next PRGT-eligibility review.
- Note:
  - Based on current projections, Georgia’s per capita GNI in dollar terms could fall below twice the IDA operational cutoff once the full impact of the devaluation has been incorporated (which would take three years, in the World Bank’s Atlas methodology).

### India
- India indicated it does not intend to make use of PRGT resources.
- Per-capita income:
  - Since 2000 has been growing at sustained pace, reaching US$1,070 in 2008, slightly below the IDA threshold.
- Growth:
  - GDP growth averaged 9 percent from 2004-2008, supporting substantial poverty reduction.
  - Economic activity resilient during the global crisis.
  - GDP growth projected at about 6-6 ½ percent in 2009/10, strengthening to around 8 percent in subsequent years.
- Fiscal:
  - General government deficit projected at 11.2 percent of GDP in 2009/10, nearly unchanged from 2008/09.
- External:
  - External debt around 20 percent of GDP; (non-LIC) DSA projects a gradual decline over the medium term.
  - Gross international reserves reached US$280 billion in September 2009, covering more than 10 months of imports.
- Market access:
  - India meets the market access criterion (see Annex II).
- Staff proposal:
  - Immediate graduation of India.

### Maldives
- Per-capita GNI stood at US$3,630 in 2008; above the threshold during the current decade and not on a declining trend for at least the last 5 years.
- Macroeconomic imbalances:
  - Facing serious and unsustainable fiscal and external imbalances compounded by the global financial crisis.
- Growth and reserves (partial statement in source):
  - Real GDP is expected to contract by almost 4 percent in 2009, while international reserves are expected to decline to

*Source: Annex I. Assessments of Countries that Meet the Income or (extracted content).*

### 2.3 months of imports and return to 3 months of imports in 2010. To help address these

### _011110 - 2.3 months of imports and return to 3 months of imports in 2010. To help address these

### Maldives — program, outlook, and debt sustainability
- Executive Board approved blended Stand-By/Exogenous Shocks Facility financing with a combined access of 700 percent of quota in December 2009.
- The Fund-supported program is 36-months and is based on ambitious fiscal adjustment, as well as structural and banking sector reforms.
- Medium-term growth outlook: economy expected to stabilize, along a gradual growth recovery path of around 4 percent.
- LIC-DSA under the adjustment scenario suggests Maldives is at a moderate risk of debt distress.
- Debt stocks at end 2008:
  - external debt: 37 percent of GDP
  - domestic debt: 31 percent of GDP
- External public debt indicators remain below their respective policy-dependent thresholds.
- Present value of external debt projected to remain below 25 percent in the medium-term in the baseline scenario which envisages major fiscal adjustment.
- Total public debt vulnerabilities remain high, driven by rapid increases in public debt since 2004, especially in 2009, due to highly expansionary fiscal policy.
- Debt dynamics would become unsustainable under the historical (no-reform) scenario.
- Sustainability hinges on successful implementation of a strong adjustment program, with considerable risks including uncertainty about global economic conditions, the growth path, and availability of external financing.
- Staff proposal: maintain Maldives’ PRGT-eligibility, with expectation of reassessment at next PRGT-eligibility review.

### Pakistan — recent performance, program support, and debt outlook
- Since 2001: real GDP expanded annually at 6–7 percent; experienced moderate inflation, a declining debt burden, and lower poverty rates.
- 2008 per capita GNI: US$980, almost 90 percent of the prevailing IDA threshold; per capita GNI has not been on a declining trend for at least the last 5 years.
- FDI composition: accelerated privatization facilitated FDI inflows; greenfield investments also represent a large part of FDI.
- Policy and reform context: improved regulation and structural reforms in liberalizing financial markets and reducing trade protection.
- Impact of global recession and volatility: macroeconomic conditions deteriorated, but:
  - real GDP growth expected to remain positive in 2009/10
  - remittances increased by 20 percent from mid-2008 to May 2009 despite the global crisis
- November 2008: a two-year SBA was approved to support efforts to restore financial stability through tightening the policy mix and strengthening social safety nets.
- Macroeconomic imbalances have shrunk and inflation has fallen, though the external position retains considerable downside risks.
- Debt outlook:
  - total public debt expected to remain stable at around 56 percent of GDP, partly reflecting debt from the electricity sector
  - external debt expected to remain broadly stable at 32 percent of GDP in the medium-term
  - DSA shows debt stock would remain moderate and external debt manageable
  - debt dynamics vulnerable to shocks, particularly fiscal deterioration and exchange rate depreciation
- Market access record: through 2007, Pakistan issued Eurobonds, Global Depository Receipts, and exchangeable bonds; has maintained a good record in servicing external debt and meets the market access criterion.
- With normalization of financial markets and successful implementation of current SBA, country should regain full access to international capital markets.
- Staff proposal: immediate graduation of Pakistan.

### Sri Lanka — growth, program, and debt risks
- Strong recent performance: per capita income reached US$1790 by 2008, well above the prevailing IDA threshold; per capita GNI has not been on a declining trend for at least the last 5 years.
- Growth resilience to shocks, including oil price shocks and expiration of the Multi-Fiber Agreement.
- July 2009: an SBA was approved to cushion the impact of the global crisis.
- Program performance: developments somewhat stronger than expected; GDP growth expected to return almost to pre-crisis levels already in 2010; exports showing signs of recovery.
- LIC-DSA indicates a moderate risk of external debt distress, hinging on satisfactory implementation of the Fund-supported program.
- Public debt projections and sensitivities:
  - total public debt, despite a recent decline, expected to remain at high levels for a number of years
  - public external debt projected to decline gradually over the medium term after reaching 50 percent of GDP in 2010
  - debt dynamics sensitive to currency depreciation and export shocks
  - timely implementation of fiscal consolidation, as envisaged in the program, is crucial for sustainability
- Market access: Sri Lanka has benefited from capital market access in recent years and meets the market access criterion; a recent oversubscribed five-year Euro bond signaled progress under the Fund-supported program.
- Staff proposal: immediate graduation of Sri Lanka.

### Annex II — Market access for low-income countries: definition, measurement, and findings
- Rationale and challenges:
  - Domestic financial markets in most LICs are underdeveloped and illiquid; external market access is often sporadic.
  - Market access measure should capture voluntary access to financial markets by a low-income sovereign and exclude directed domestic bank borrowing and similar non-voluntary measures.
- Proposed definition pillars:
  - Voluntary: focus on public and publicly guaranteed external bond issuance and disbursements under external commercial loans; includes obligations of a public debtor and publicly guaranteed private debtor obligations; “external bonds” are those issued in international capital markets; external commercial loans are commercial loans contracted with nonresidents by residents.
  - Durability and Size: measure bond issuance over the medium term (e.g., five years) and require record of accessing markets more than once; measure relative to Fund quota to indicate comparable size.
- Empirical observations based on available data for 2003-2007:
  - A few LICs tapped external bond markets since 2003; only a small subset issued bonds multiple times (Grenada, India, and Pakistan). Two countries issued only one external bond (Vietnam in 2005 and Sri Lanka in 2007).
  - Angola, Maldives, Sri Lanka, Vietnam, and a number of ECCU member countries obtained external commercial loans over 2003-07.
  - For many of these countries, market access is fairly small (e.g., below 10 percent of the Fund quota on average during 2003–07).
  - Angola, Sri Lanka and Pakistan accessed international financial markets in four or five of the recent pre-crisis years (2003-2007), with cumulative market access exceeding their present quota in the Fund.
  - India’s actual access over 2003-07 remained below 100 percent of quota, though India’s market access is confirmed by its investment grade sovereign credit rating.
  - Evidence shows Angola, India, Sri Lanka, and Pakistan maintained regular market access in recent years in line with proposed conditions for duration and magnitude, while also meeting the income threshold under the market access criterion.
- Data source and scope:
  - Disbursement data (1990-2007) of external bond and commercial loans drawn from the Global Development Finance (GDF) database for cross-country comparison; results confirmed with additional information where available.
- Selected raw data lines from the Market Access table (Market Access, Public and Publicly Guaranteed External Bond and Commercial Loan Disbursements — In percent of IMF quota):
  - Angola 2000 272.6 2001 289.2 2002 299.8 2003 407.4 2004 446.5 2005 789.7 2006 132.7 2007 1064.1 Average (2003-07) 568.1 - Credit Rating -
  - Sri Lanka 2000 8.2 2001 2.2 2002 16.1 2003 17.9 2004 9.2 2005 22.6 2006 20.5 2007 1137 Average (2003-07) 37.4 Credit Rating B+
  - Pakistan 2000 -21.5 2001 6.9 2002 -31.4 2003 40.6 2004 51.3 2005 47.4 2006 42.7 Average (2003-07) 42.7 Credit Rating B-/B3

*Source: IMF content unit _011110 - 2.3 months of imports and return to 3 months of imports in 2010. To help address these*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_011110.pdf_