## 1. Commitment Capacity from Quota and NAB Resources

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---

### I. Introduction
- Purpose:
  - Provide the basis for the next round of discussions on the 14th General Review of Quotas.
  - Revisit the size of the Fund and present illustrative simulations of quota-share realignment.
- Process notes:
  - Committee of the Whole (COW) met in March, April, and July; informal meeting with the Managing Director on July 22.
  - Goal: reach a pragmatic solution within a tight timetable; simulations are purely illustrative and not staff proposals.
- Key outstanding issues among Directors:
  - Quota size: many Directors indicated broadly a doubling of quotas would be appropriate; some argued for a larger increase; others were skeptical beyond redistribution needs or preferred deferring specific views.
  - Quota realignment: commitment to IMFC-endorsed goal of at least a 5 percent shift in quota share to dynamic EMDCs from over- to under-represented countries, while protecting voting share of poorest members; disagreements remain on details including the role of a compressed GDP blend and protection modalities.

### II. Size of the Fund — Stocktaking and Updated Assessment
- Prior analysis conclusions:
  - A substantial quota increase is needed; some indicators pointed to a doubling, others to larger increases.
  - No general increase since the 11th Review in 1998 had led to quota resources declining relative to global GDP, trade, and capital flows.
  - Scenario analysis and tail-event vulnerability analysis supported a sizable increase.
  - With a doubling of quotas plus the expanded NAB, Fund lending capacity would be about US$1 trillion.
- Subsequent developments strengthening the case:
  - Euro area crisis and establishment of the EFSF highlighted potential large financing needs of advanced countries.
  - Agreement on an SBA for Greece — the Fund’s largest non-precautionary commitment — underscored potential for large commitments.
  - Reforms to Fund facilities (elimination of access cap under the FCL; introduction of the PCL) tend to raise crisis prevention demand for Fund resources while possibly lowering crisis-resolution demand.
- Indicator and projection updates:
  - Extending quota-to-global-indicator analysis through 2009 (using IFS and April 2010 WEO) suggests:
    - A 90 percent quota increase would be needed to restore quotas relative to global GDP to the level agreed in the 1980s and 1990s (up from 80 percent in the March paper).
    - Based on formula-weighted variables, the needed increase would be 164 percent rather than 134 percent.
  - Comparison of quotas to prospective external financing needs (EFN) for 76 past GRA borrowers:
    - Earlier estimate: 110 percent increase needed to restore quota-to-EFN ratio to its 11th Review level.
    - Using updated WEO projections through 2014: estimate rises to 138 percent.
  - General takeaway: an increase of 100-125 percent would initially return the quota-to-EFN ratio close to previous levels before it begins to decline again.
- Policy-relevant conclusion:
  - Analysis continues to point to a range of quota increases broadly centered on a doubling.
  - Together with the expanded NAB, a doubling of quotas would provide a commitment capacity of over SDR 600 billion or close to $1 trillion.

### Key Quantitative Indicators and Scenarios
- Commitment capacity illustrative figures:
  - With a doubling of quotas plus activation of the full amount of the expanded NAB, the Fund’s commitment capacity is approximately SDR 613 billion.
  - This is equivalent to about US$950 billion at an exchange rate of 1.55 U.S. dollars per SDR (three-year average exchange rate to end July 2010).
  - Staff statement: a doubling of quotas, together with the expanded NAB, would provide the Fund with a commitment capacity of over SDR 600 billion or close to $1 trillion.
- Forecasting assumption for Figure 2:
  - In the forecast period, quota resources are assumed to be unchanged in 2010 and to increase in 2011 by 75%, 100%, and 125% respectively, with respect to post second round quota of SDR 238 billion.
- Table 1 summary lines (In billions of SDRs unless otherwise noted):
  - Current quota: 217.4 (total quota)
  - Agreed quota: 238.4 (total quota)
  - Quota increase (percent) scenarios and related total commitment capacity (US$ equivalent computed using three-year average US$/SDR exchange rate of 1.55) — extracted summary rows:
    - 50 percent increase → total commitment capacity (US$) 6829
    - 75 percent increase → total commitment capacity (US$) 7391
    - 100 percent increase → total commitment capacity (US$) 8461
    - 125 percent increase → total commitment capacity (US$) 9531
    - 150 percent increase → total commitment capacity (US$) 1077
  - Notes attached to table:
    - NAB total is for activation of the full amount, although some participants in the expanded NAB are not currently in the FTP.
    - A liquidity buffer of 20 percent is assumed to be retained in the NAB to ensure the reserve asset status of NAB drawings.
    - Based on three-year average US$/SDR exchange rate of 1.55.
  - Figures and tables sourced to Finance Department, WEO database and staff calculations.

### III. Realignment of Quota Shares — Stocktaking and Simulation Approaches
- Approaches reviewed:
  - Approach 1: Combination of selective increases distributed according to the quota formula and ad hoc increases distributed mainly to dynamic EMDCs (builds on March paper).
  - Approach 2: Distribute ad hoc increases using a mix of the formula and a compressed GDP blend variable.
  - Approach 3: Distribute ad hoc increases solely on a compressed GDP blend variable.
- Design features to facilitate larger shift to EMDCs:
  - Ad hoc increases concentrated on EMDCs that meet specified criteria.
  - Under-represented advanced countries would benefit fully from selective increases.
  - Over-represented advanced countries that are under-represented using the GDP blend would be protected up to their post-second round quota share.
  - Some simulations allowed over-represented countries to become modestly under-represented.
- Simulation parameter ranges:
  - Overall quota increases: 50–150 percent.
  - Ad hoc increases: 25–40 percent of the overall increase (with some simulations including a modest equiproportional increase).
- Directors’ views on approaches:
  - Many saw merit in exploring a compressed GDP variable and greater role for PPP GDP and alternative options.
  - Several Directors favored approaches that do not assign effectively larger weights to variables already embedded in the formula, asserting the formula should remain primary.
  - Objections were raised to mechanisms that exclude some under-represented countries from ad hoc increases; many Directors argued all under-represented countries should be potentially eligible and all over-represented countries should contribute to adjustment.

### IV. Illustrative Simulations — Common Elements and Definitions
- Common simulation elements:
  - Based on a narrower range of overall quota increases, centered on a doubling (75, 100 and 125 percent).
  - Distribution mix: largest share (55–65 percent) distributed as selective increases; smaller share (35–45 percent) as ad hoc increases.
  - No equiproportional element included; selective component acts as partial substitute.
  - Under-represented advanced countries participate in ad hoc increase to prevent dilution of their post-selective share.
  - Over-represented advanced countries participate in ad hoc increase if under-represented with respect to GDP blend but capped at post-second round quota share.
  - Protection applied to extent over-represented countries can become under-represented.
  - Post-second round quota shares of poorest members protected, based on PRGT or PCDR eligibility, applied individually.
- Definitions and formula elements referenced:
  - CQS = (0.50*GDP blend +0.30*Openness+0.15*Variability+0.05*Reserves)^K, where GDP blend is a weighted average of market (60 percent) and PPP-based GDP (40 percent) and K=0.95 is a compression factor.
  - Dynamic EMDCs: defined as those that are under-represented using the formula or whose PPP GDP share divided by its post-second round quota share is greater than 1 and are not over-represented by more than 25 percent.

### V. Four Illustrative Simulation Sets (overview and outcomes)
- Simulation 1
  - Ad Hoc: mix of formula and GDP blend.
  - Over-represented countries fully protected at their calculated quota share.
  - PRGT-eligible countries protected individually.
- Simulation 2
  - Ad Hoc: compressed GDP blend only.
  - Concentrates ad hoc increases on EMDCs under-represented under the compressed GDP blend.
- Simulation 3
  - Same as Simulation 1 but with protection for over-represented countries set at 95 percent of calculated quota share (CQS).
  - Allows over-represented countries to become modestly under-represented to facilitate larger shift to dynamic EMDCs.
- Simulation 4
  - Same as Simulation 1 but protects PCDR-eligible countries (48 poorest members; per capita income < $1,135 and up to twice this amount for small states).
- Key quantitative findings:
  - Simulations presented for quota increases of 75, 100 and 125 percent.
  - IMFC-endorsed goals met: shifts from over- to under-represented countries and to dynamic EMDCs exceeding 5 percent in all cases.
  - Aggregate outcomes:
    - Quota share of advanced countries as a group falls to, or slightly below, its calculated quota share in all simulations.
    - Aggregate share of EMDCs rises to, or slightly above, its calculated quota share.
  - Simulation-specific effects:
    - Simulation 3 yields about 1 percent larger overall shifts due to allowing modest under-representation of some over-represented countries.
    - Use of GDP blend (Simulation 2) rather than mixed approach (Simulation 1) results in larger increases for EMDCs under-represented based on the blend.
    - Using PCDR-eligible list (Simulation 4) rather than PRGT allows larger shifts of about 0.3 percent to targeted groups.
  - Magnitude of individual quota increases:
    - In all simulations, quota increases would be very large for a number of countries; e.g., increases would exceed 200 percent for 6 countries in the case of doubling of quotas under the “mixed” approach of Simulation 1.
- Reported ranges in table summary (results correspond to quota increases of 75, 100 and 125 percent):
  - Range of shift of quota share to Dynamic EMDCs:
    - Simulation 1 (Ad Hoc: Formula/GDP Blend; Protection: 100% PRGT): 5.3 - 6.3
    - Simulation 2 (Ad Hoc: GDP Blend; Protection: 100% PRGT): 5.2 - 6.2
    - Simulation 3 (Ad Hoc: Formula/GDP Blend; Protection: 95% PRGT): 6.1 - 7.3
    - Simulation 4 (Ad Hoc: Formula/GDP Blend; Protection: 100% PCDR): 5.5 - 6.6
  - Range of shift to Under-represented countries:
    - Simulation 1: 5.7 - 6.8
    - Simulation 2: 5.6 - 6.7
    - Simulation 3: 6.5 - 7.8
    - Simulation 4: 5.9 - 7.1
  - EMDCs as a group (shift in p.p.):
    - Simulation 1: 2.3 - 2.4
    - Simulation 2: 2.2 - 2.4
    - Simulation 3: 3.1 - 3.3
    - Simulation 4: 2.2 - 2.4
  - Other illustrative memorandum examples (scenario-dependent):
    - Advanced economies share examples: 60.5; 58.2; 60.0; 58.1; 58.1; 58.2
    - Major advanced economies share examples: 45.3; 42.9; 48.0; 43.8
    - United States quota-share examples: 17.7; 17.0; 21.6; 17.7
    - EU 27 examples: 31.9; 31.3; 27.8; 30.3; 30.3; 30.4
    - LICs (PRGT-eligible) examples: 4.3; 2.6; 2.4; 4.3; 4.3; 4.3
    - LICs (PCDR eligibility) examples: 3.2; 1.8; 1.7; 3.2; 3.2; 3.2
    - Underrepresented countries (shift in p.p.) examples: 5.9; 6.5; 6.8; 5.8; 6.4; 6.8
    - Underrepresented EMDCs (shift in p.p.) examples: 5.4; 5.8; 6.1; 5.3; 5.7; 6.0
    - Dynamic EMDCs (shift in p.p.) examples: 5.6; 6.0; 6.3; 5.4; 5.9; 6.1
    - EMDCs (shift in p.p.) examples: 2.4; 2.4; 2.3; 2.3
    - Uniform reduction factor examples: 34.7; 35.5; 34.6; 31.5; 32.0; 31.4; 28.2; 28.4; 27.8

### VI. Protection Approaches and Implications
- Two eligibility lists for protecting poorest members considered:
  - Full list of PRGT-eligible members.
  - Subset of the poorest members eligible for PCDR (48 members).
- Protection is provided at the level of individual members in the simulations.
- Alternative approaches discussed:
  - Group-level protection would allow within-group realignment and result in a somewhat larger shift from over- to under-represented countries by about 0.2 percentage points.
  - Preserving voting share of PRGT-eligible countries solely through an increase in basic votes would require amendment of the Articles to increase share of basic votes in total votes from 5.5 percent (agreed in 2008) to about 8.5 percent, implying nearly a 5-fold increase over the pre-2008 reform level (assuming a doubling of quotas).
  - With many PRGT- and PCDR-eligible countries over-represented under the formula, their quota share would decline if voting share protection is achieved solely through an increase in basic votes.

### VII. Issues for Directors (questions posed)
- Size of the quota increase:
  - Do Directors agree that, after two general reviews without a quota increase, broadly a doubling of quotas would seem warranted to ensure that the Fund has adequate resources to meet members’ potential needs in the period ahead, and taking account of the latest and possible future reforms of the Fund’s lending toolkit?
- Broad goals of the quota realignment:
  - Do Directors consider that an overall outcome along the lines of the illustrative simulations could represent a viable approach to building the necessary broad consensus for a realignment of quota shares under the 14th Review?
- Allocation mechanisms:
  - Views on approach of a sizable selective increase for all members based on the quota formula, and a smaller but still sizable ad hoc increase for a subset of members?
  - Do Directors agree that a relatively large selective increase could provide an alternative to an equiproportional increase, given the emphasis on realigning quota shares in the current review?
- Criteria for ad hoc increases:
  - Views on approaches to allocating ad hoc increases discussed in the paper?
  - Do Directors agree that an approach using the compressed GDP blend, either as a complement (a “mixed approach”) or alternative to the quota formula, should be explored further?
- Protection:
  - Views on the level of protection discussed, including:
    - that the selective increases for under-represented advanced economies should not be diluted;
    - that over-represented countries should be fully or largely protected from becoming under-represented;
    - that over-represented advanced countries that are under-represented using the GDP blend should be protected up to their post-second round quota?
- Protecting the poorest members:
  - Views on modalities for protecting the voting share of the poorest members: through ad hoc quota allocations or an increase in the share of basic votes?
  - Should protection be extended to individual countries or to the group of the poorest as a whole?
  - Views on criteria for defining the poorest members, including use of the eligibility list for potential access to the PCDR rather than the broader PRGT-eligible list?
- Key simulation parameters and methodological notes:
  - Simulations assume a 75, 100, and 125 percent increase of post second round quotas.
  - One illustrative assumption: a 100% increase with a distribution of 0/60/40 for equiproportional/selective/ad hoc respectively.
  - Ad hoc allocation rules vary by simulation (eligibility based on under-representation to formula or GDP blend; caps at post second round or post-selective quota share; protection at CQS or 95 percent of CQS).
  - GDP blend definition: 60 percent market and 40 percent PPP, compressed using factor of 0.95.
  - Membership and timing notes: includes ad hoc increases for 54 eligible members not yet effective; includes Kosovo and Tuvalu (members since June 29, 2009 and June 24, 2010); for two countries not yet consented/paid, 11th Review proposed quotas used.

### VIII. Chairman’s Concluding Remarks (Committee meeting, September 22, 2010; circulated September 29, 2010)
- Size of the Quota Increase:
  - Most Directors supported a substantial overall increase to ensure the Fund has sufficient resources.
  - Many Directors indicated they could support a doubling of quotas, with some viewing this as an upper bound and others as a minimum.
  - A few Directors, pointing to the expanded NAB, were not convinced of the need to increase quota resources substantially beyond targeted realignment.
  - Many Directors noted that with an increase in quotas, the size of the NAB should be reconsidered to maintain appropriate balance between quota and borrowed resources.
- Quota Realignment:
  - Directors reiterated commitment to a shift in quota share to dynamic EMDCs of at least 5 percent from over- to under-represented countries.
  - Significant differences remain on details:
    - Some favored staff approach: combination of selective increase for all members and sizable ad hoc component aimed primarily at EMDCs, using compressed GDP blend.
    - Many considered a larger net shift to EMDCs than illustrated is needed—of the order of 5–6 percentage points—with adequate protection for other EMDCs; stressed PPP GDP should play a larger role and did not support protection for over-represented advanced countries.
    - Some emphasized the formula should remain primary mechanism and favored limited ad hoc increases; all over-represented countries should contribute while being fully protected from becoming under-represented, and all under-represented countries should be eligible for ad hoc increases.
    - Some reiterated calls to account for members’ voluntary financial contributions to the Fund.
- Protecting the Poorest:
  - Directors reiterated support for protecting the voting share of the poorest members.
  - Many supported protecting quota shares of these countries individually.
  - A number favored protecting PRGT-eligible countries; a few favored PCDR list; others remained open on definition.
  - A few Directors open to possibility of further increase in share of basic votes.
- Process and next steps:
  - Chairman called for continued informal consultations to narrow differences and provide basis for a staff proposal that could command broad support.
  - Chairman urged members to finalize domestic processes so the 2008 quota and voice reform can become effective by the time of the Annual Meetings.

*Source: IMF staff paper — Fourteenth General Review of Quotas (excerpt: "1. Commitment Capacity from Quota and NAB Resources"); Finance Department; Chairman’s Concluding Remarks, Fourteenth General Review of Quotas—Further Considerations, Committee of the Whole on Review of Quotas Meeting 10/4, September 22, 2010 (concluding remarks circulated September 29, 2010).*

### 1. Commitment Capacity from Quota and NAB Resources ......................................................9

### 1. Commitment Capacity from Quota and NAB Resources

### I. Introduction
- Purpose:
  - Provide the basis for the next round of discussions on the 14th General Review of Quotas.
  - Revisit the size of the Fund and present illustrative simulations of quota-share realignment.
- Process notes:
  - Committee of the Whole (COW) met in March, April, and July; informal meeting with the Managing Director on July 22.
  - Goal: reach a pragmatic solution within a tight timetable; simulations are purely illustrative and not staff proposals.
- Key outstanding issues identified among Directors:
  - Quota size: many Directors indicated broadly a doubling of quotas would be appropriate; some argued for a larger increase; others were skeptical beyond redistribution needs or preferred deferring specific views.
  - Quota realignment: commitment to IMFC-endorsed goal of at least a 5 percent shift in quota share to dynamic EMDCs from over- to under-represented countries, while protecting voting share of poorest members; disagreements remain on details including the role of a compressed GDP blend and protection modalities.

### II. Size of the Fund — Stocktaking and Updated Assessment
- Prior analysis (March paper) conclusions summarized:
  - A substantial quota increase is needed; some indicators pointed to a doubling, others to larger increases.
  - No general increase since the 11th Review in 1998 had led to quota resources declining relative to global GDP, trade, and capital flows.
  - Scenario analysis and tail-event vulnerability analysis supported a sizable increase.
  - With a doubling of quotas plus the expanded NAB, Fund lending capacity would be about US$1 trillion (see paragraph 4).
- Subsequent developments strengthening the case for a substantial increase:
  - Euro area crisis and establishment of the EFSF highlighted potential large financing needs of advanced countries.
  - Agreement on an SBA for Greece — the Fund’s largest non-precautionary commitment — underscored potential for large commitments.
  - Reforms to Fund facilities (elimination of access cap under the FCL; introduction of the PCL) tend to raise crisis prevention demand for Fund resources while possibly lowering crisis-resolution demand.
- Indicator and projection updates:
  - Extending quota-to-global-indicator analysis through 2009 (using IFS and April 2010 WEO) suggests:
    - A 90 percent quota increase would be needed to restore quotas relative to global GDP to the level agreed in the 1980s and 1990s (up from 80 percent in the March paper).
    - Based on formula-weighted variables, the needed increase would be 164 percent rather than 134 percent.
  - Comparison of quotas to prospective external financing needs (EFN) for 76 past GRA borrowers:
    - Earlier estimate: 110 percent increase needed to restore quota-to-EFN ratio to its 11th Review level.
    - Using updated WEO projections through 2014: estimate rises to 138 percent.
  - General takeaway: an increase of 100-125 percent would initially return the quota-to-EFN ratio close to previous levels before it begins to decline again.
- Policy-relevant conclusion:
  - Analysis continues to point to a range of quota increases broadly centered on a doubling.
  - Together with the expanded NAB, a doubling of quotas would provide a commitment capacity of over SDR 600 billion or close to $1 trillion (Table 1).

### Key Quantitative Indicators and Scenarios (as presented)
- Commitment capacity illustrative numbers (from Table 1 and related paragraphs):
  - With a doubling of quotas plus activation of the full amount of the expanded NAB, the Fund’s commitment capacity is approximately SDR 613 billion. This is equivalent to about US$950 billion at an exchange rate of 1.55 U.S. dollars per SDR (three-year average exchange rate to end July 2010).
  - Staff statement: a doubling of quotas, together with the expanded NAB, would provide the Fund with a commitment capacity of over SDR 600 billion or close to $1 trillion.
- Figure 2 forecasting assumption:
  - In the forecast period, quota resources are assumed to be unchanged in 2010 and to increase in 2011 by 75%, 100%, and 125% respectively, with respect to post second round quota of SDR 238 billion.

### III. Realignment of Quota Shares — Stocktaking and Simulation Approaches
- Approaches reviewed (as illustrated in the July COW staff paper):
  - Approach 1: Combination of selective increases distributed according to the quota formula and ad hoc increases distributed mainly to dynamic EMDCs (builds on March paper).
  - Approach 2: Distribute ad hoc increases using a mix of the formula and a compressed GDP blend variable.
  - Approach 3: Distribute ad hoc increases solely on a compressed GDP blend variable.
- Design features applied to facilitate larger shift to EMDCs:
  - Ad hoc increases concentrated on EMDCs that meet specified criteria.
  - Under-represented advanced countries would benefit fully from selective increases.
  - Over-represented advanced countries that are under-represented using the GDP blend would be protected up to their post-second round quota share.
  - Some simulations allowed over-represented countries to become modestly under-represented.
- Simulation parameter ranges presented:
  - Overall quota increases: 50–150 percent.
  - Ad hoc increases: 25–40 percent of the overall increase (with some simulations including a modest equiproportional increase).
- Directors’ views on approaches:
  - Many saw merit in exploring a compressed GDP variable and greater role for PPP GDP and alternative options.
  - Several Directors favored approaches that do not assign effectively larger weights to variables already embedded in the formula, asserting the formula should remain primary.
  - Objections were raised to mechanisms that exclude some under-represented countries from ad hoc increases; many Directors argued all under-represented countries should be potentially eligible and all over-represented countries should contribute to adjustment.

### IV. Commitment Capacity Table Highlights (formatted numbers preserved)
- Table 1 summary lines (In billions of SDRs unless otherwise noted):
  - Current quota: 217.4 (total quota)
  - Agreed quota: 238.4 (total quota)
  - Quota increase (percent) scenarios and related total commitment capacity (US$ equivalent computed using three-year average US$/SDR exchange rate of 1.55) — extracted summary rows:
    - 50 percent increase → total commitment capacity (US$) 6829 (table formatting in source suggests per-row values; source full table contains detailed components).
    - 75 percent increase → total commitment capacity (US$) 7391
    - 100 percent increase → total commitment capacity (US$) 8461
    - 125 percent increase → total commitment capacity (US$) 9531
    - 150 percent increase → total commitment capacity (US$) 1077 (note: table in source shows multiple columns; preserved numeric strings are as presented).
  - Notes attached to table:
    - NAB total is for activation of the full amount, although some participants in the expanded NAB are not currently in the FTP.
    - A liquidity buffer of 20 percent is assumed to be retained in the NAB to ensure the reserve asset status of NAB drawings.
    - Based on three-year average US$/SDR exchange rate of 1.55.
- Figure and table sources:
  - Figures and tables sourced to Finance Department, WEO database and staff calculations (as stated in captions and notes).

*Source: IMF staff paper — Fourteenth General Review of Quotas (excerpt: "1. Commitment Capacity from Quota and NAB Resources").*

### 14.      Directors reaffirmed that the current quota formula should serve as the basis to

### 14.      Directors reaffirmed that the current quota formula should serve as the basis to

### Directors’ views and positions
- Many Directors maintained that the quota formula should not be reopened and that the current quota formula should serve as the basis to work from.
- Some Directors were willing to proceed on the basis of the current formula provided there is a commitment to revisit it again after the 14th Review is completed.
- Some other Directors preferred to modify the formula during this review.
- Directors supported protecting the voting share of the poorest countries.
  - A number favored protecting the quota share of PRGT-eligible countries individually.
  - A few preferred using the eligibility criterion adopted for the Post-Catastrophe Debt Relief (PCDR) Trust.
  - Other Directors preferred to leave options open, including alternative approaches to defining the poorest members.
  - Some Directors remained open to the possibility of a further increase in the share of basic votes, which requires an amendment of the Articles.

### Illustrative simulations: purpose and approach
- Staff prepared a further set of illustrative simulations for COW consideration based on Directors’ views at the July meeting.
- Simulations build on the second and third approaches presented previously and:
  - Use a combination of selective increases distributed to all members based on the quota formula and ad hoc increases distributed to a subset of members based mainly or in part on their shares in the GDP blend variable.
  - Continue to use the current formula as the primary distribution mechanism while supplementing it with the GDP blend variable for distributing ad hoc increases.
  - Aim to address concerns that economic weight should play a larger role in distributing quota increases.

### Common elements of the simulations
- They are based on a narrower range of overall quota increases, centered on a doubling (75, 100 and 125 percent).
- They explore a relatively narrow distribution mix, with the largest share (55–65 percent) in all cases distributed as selective increases, and a smaller but substantial share (35–45 percent) as ad hoc increases.
- An equiproportional element (which maintains current shares) is not included, given limited support; the relatively large selective component may be seen as a partial substitute since it goes to all members.
- Under-represented advanced countries participate in the ad hoc increase to ensure that their increased share following the selective increase is not diluted.
- Over-represented advanced countries also participate in the ad hoc increase if they are under-represented with respect to the GDP blend but are capped at their post-second round quota share.
- Protection is applied on the extent to which over-represented countries (including EMDCs) can become under-represented, if at all.
- The post-second round quota shares of the poorest members are protected, based on two alternative eligibility lists discussed previously (PRGT or PCDR eligible). In all cases, protection is applied to eligible members individually rather than as a group.

### Four illustrative simulation sets (overview)
- Simulation 1
  - Uses a mix of the formula and the GDP blend as the distribution key for ad hoc increases.
  - Over-represented countries are fully protected at their calculated quota share.
  - The post second round quota shares of PRGT-eligible countries are protected individually.
- Simulation 2
  - Same as Simulation 1 but using only the compressed GDP blend as allocation key for ad hoc increases.
  - Concentrates ad hoc increases on EMDCs under-represented under the compressed GDP blend, generally resulting in larger realignments for those countries.
- Simulation 3
  - Same as Simulation 1 but with less than full protection for over-represented countries.
  - Protection is set here at 95 percent of calculated quota share (CQS).
  - Allowing over-represented countries to become modestly under-represented can facilitate a larger shift in quota share to dynamic EMDCs.
- Simulation 4
  - Same as Simulation 1 but with PCDR-eligible countries protected.
  - PCDR eligibility comprises the 48 poorest members (a subset of the 71 PRGT eligible countries) with per capita incomes of less than $1,135 (and up to twice this amount for small states).

### Definitions and formula elements referenced
- CQS = (0.50*GDP blend +0.30*Openness+0.15*Variability+0.05*Reserves)^K, where GDP blend is a weighted average of market (60 percent) and PPP-based GDP (40 percent) and K=0.95 is a compression factor.
- Dynamic EMDCs are defined here as those that are under-represented using the formula or whose PPP GDP share divided by its post-second round quota share is greater than 1 and are not over-represented by more than 25 percent.

### Key quantitative findings and outcomes
- The simulations are presented for quota increases of 75, 100 and 125 percent.
- The IMFC-endorsed goals would be met, with shifts from over- to under-represented countries and to dynamic EMDCs exceeding 5 percent in all cases.
- Aggregate outcomes:
  - The quota share of advanced countries as a group falls to, or slightly below, its calculated quota share (and significantly below its share in the GDP blend) in all simulations, including those with full protection.
  - The aggregate share of EMDCs rises to, or slightly above, its calculated quota share (and significantly above its share in the GDP blend).
- Simulation-specific effects:
  - Simulation 3 yields about 1 percent larger overall shifts as a result of allowing over-represented countries to become modestly under-represented.
  - Different assumptions for distribution of ad hoc increases are centered on EMDCs; impacts are primarily on distribution within the EMDC group rather than on the shift between advanced countries and EMDCs.
  - Use of the GDP blend (Simulation 2) rather than the “mixed” approach (Simulation 1) results in larger increases for EMDCs under-represented based on the blend.
  - Use of the PCDR-eligible list for protection (Simulation 4) rather than the PRGT group allows larger shifts of about 0.3 percent to the targeted groups because over-represented PRGT-eligible members with relatively higher incomes would no longer be protected.
- Magnitude of individual quota increases:
  - In all simulations, quota increases would be very large for a number of countries; for example, increases would exceed 200 percent for 6 countries in the case of doubling of quotas under the “mixed” approach of Simulation 1.

### Protection approaches and implications
- Two alternative eligibility lists for protecting the poorest members are considered:
  - Full list of PRGT-eligible members.
  - Subset of the poorest members eligible for PCDR (48 members).
- Protection is provided at the level of individual members in the simulations.
- Alternative approaches discussed previously:
  - Protection at the group rather than the individual level would allow a quota share realignment within the eligible group through the selective increases while protecting the share of the group as a whole; it would result in a somewhat larger shift from over- to under-represented countries by about 0.2 percentage points, depending on the scenario.
  - Preserving the voting share of PRGT-eligible countries solely through an increase in basic votes would require a further amendment of the Articles to increase the share of basic votes in total votes from the 5.5 percent agreed in 2008 to about 8.5 percent, implying nearly a 5-fold increase over the pre-2008 reform level (assuming a doubling of quotas).
  - With many PRGT- and PCDR-eligible countries over-represented under the formula, their quota share would decline if voting share protection is achieved solely through an increase in basic votes.

### Reported ranges in Table summary (as presented)
- Range of shift of quota share to:
  - Dynamic EMDCs (includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent):
    - Simulation 1 (Ad Hoc: Formula/GDP Blend; Protection: 100% PRGT): 5.3 - 6.3
    - Simulation 2 (Ad Hoc: GDP Blend; Protection: 100% PRGT): 5.2 - 6.2
    - Simulation 3 (Ad Hoc: Formula/GDP Blend; Protection: 95% PRGT): 6.1 - 7.3
    - Simulation 4 (Ad Hoc: Formula/GDP Blend; Protection: 100% PCDR): 5.5 - 6.6
  - Under-represented countries:
    - Simulation 1: 5.7 - 6.8
    - Simulation 2: 5.6 - 6.7
    - Simulation 3: 6.5 - 7.8
    - Simulation 4: 5.9 - 7.1
  - EMDCs as a group:
    - Simulation 1: 2.3 - 2.4
    - Simulation 2: 2.2 - 2.4
    - Simulation 3: 3.1 - 3.3
    - Simulation 4: 2.2 - 2.4
- Note: Results correspond to quota increases of 75, 100 and 125 percent. See Tables 1-4 for details.

### Issues highlighted for discussion
- Whether to proceed without reopening the formula now but commit to revisiting it after the 14th Review, or to modify the formula during this review.
- Choice of protection approach for poorest members: PRGT-eligible individually, PCDR-eligible individually, group-level protection, or protection via increased basic votes (requiring an Articles amendment).
- Trade-offs between maximizing shifts to dynamic EMDCs and protecting over-represented members from becoming under-represented.
- Distributional consequences within the EMDC group depending on ad hoc allocation key (mixed formula/GDP blend versus compressed GDP blend).
- Potential alternative levels of protection for over-represented countries (e.g., other than 95 percent of CQS).

*Source: _090210 - 14.      Directors reaffirmed that the current quota formula should serve as the basis to*

### 22.      In light of the above considerations, Directors may wish to comment on the

### _090210 - 22.      In light of the above considerations, Directors may wish to comment on the

### Issues for Directors (questions posed)
- Size of the quota increase
  - Do Directors agree that, after two general reviews without a quota increase, broadly a doubling of quotas would seem warranted to ensure that the Fund has adequate resources to meet members’ potential needs in the period ahead, and taking account of the latest and possible future reforms of the Fund’s lending toolkit?
- Broad goals of the quota realignment
  - Recognizing that many details are still to be worked out, do Directors consider that an overall outcome along the lines of the illustrative simulations presented in this paper could represent a viable approach to building the necessary broad consensus for a realignment of quota shares under the 14th Review?
- Allocation mechanisms
  - Views on the approach explored of a sizable selective increase for all members based on the quota formula, and a smaller but still sizable ad hoc increase for a subset of members?
  - Do Directors agree that a relatively large selective increase could provide an alternative to an equiproportional increase, given the emphasis on realigning quota shares in the current review?
- Criteria for ad hoc increases
  - Views on the approaches to allocating ad hoc increases discussed in the paper?
  - Do Directors agree that an approach using the compressed GDP blend, either as a complement (a “mixed approach”) or alternative to the quota formula, should be explored further?
- Protection
  - Views on the level of protection discussed, including:
    - that the selective increases for under-represented advanced economies should not be diluted;
    - that over-represented countries should be fully or largely protected from becoming under-represented;
    - that over-represented advanced countries that are under-represented using the GDP blend should be protected up to their post-second round quota?
- Protecting the poorest members
  - Views on modalities for protecting the voting share of the poorest members: through ad hoc quota allocations or an increase in the share of basic votes?
  - Should protection be extended to individual countries or to the group of the poorest as a whole?
  - Views on criteria for defining the poorest members, including use of the eligibility list for potential access to the PCDR rather than the broader PRGT-eligible list?

### Key simulation parameters and methodological notes
- Simulations assume a 75, 100, and 125 percent increase of post second round quotas.
- Distribution of overall increase across methods varies by simulation (examples in tables):
  - One illustrative assumption: a 100% increase with a distribution of 0/60/40 for equiproportional, selective, and ad hoc respectively.
  - Elsewhere the overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively (x/y/z varied across simulations).
- Ad hoc increase allocation rules (vary by simulation):
  - Allocated to all countries under-represented with respect to the formula or with respect to the GDP blend, or to those under-represented with respect to the GDP blend only (simulation-specific).
  - Eligible EMDCs receive a uniform reduction in out-of-lineness based on the formula, or the GDP-blend, or the greater of the two (for those that qualify under both criteria).
  - Eligible advanced countries are capped at their post second round or post-selective quota share, whichever is greater.
  - Over-represented countries which would become under-represented as a result of the overall quota increase are protected at their calculated quota share (in some simulations at 95 percent of calculated quota share).
  - PRGT-eligible countries receive at least their post second round quota share; in some simulations PCDR-eligible countries receive at least their post second round quota share.
- GDP blend definition used in simulations:
  - GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.
- Membership and timing notes in simulations:
  - Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo and Tuvalu which became members on June 29, 2009 and June 24, 2010, respectively.
  - For two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

### Illustrative quantitative outcomes and group-level results (high-level)
- Simulations report quota-share outcomes by country and by group (examples across tables):
  - Advanced economies share examples: 60.5; 58.2; 60.0; 58.1; 58.1; 58.2 (varied across simulation/scenario cells).
  - Major advanced economies share examples: 45.3; 42.9; 48.0; 43.8 (varied across scenarios).
  - United States quota-share examples in tables: 17.7; 17.0; 21.6; 17.7 (scenario-dependent).
- Memorandum items reported across simulations:
  - EU 27 examples: 31.9; 31.3; 27.8; 30.3; 30.3; 30.4 (varied across scenarios).
  - LICs (PRGT-eligible) examples: 4.3; 2.6; 2.4; 4.3; 4.3; 4.3 (scenario-dependent).
  - LICs (PCDR eligibility) examples: 3.2; 1.8; 1.7; 3.2; 3.2; 3.2 (varied by simulation).
  - Underrepresented countries (shift in p.p.) examples: 5.9; 6.5; 6.8; 5.8; 6.4; 6.8 (scenario-dependent).
  - Underrepresented EMDCs (shift in p.p.) examples: 5.4; 5.8; 6.1; 5.3; 5.7; 6.0.
  - Dynamic EMDCs (shift in p.p.) examples (definition in notes): 5.6; 6.0; 6.3; 5.4; 5.9; 6.1.
  - EMDCs (shift in p.p.) examples: 2.4; 2.4; 2.3; 2.3 (scenario-dependent).
  - Uniform reduction factor examples reported across tables (varies by simulation): e.g., 34.7; 35.5; 34.6; 31.5; 32.0; 31.4; 28.2; 28.4; 27.8; and other values specific to simulation notes.

### Chairman’s Concluding Remarks — key points from Committee meeting (September 22, 2010; Chairman’s concluding remarks circulated September 29, 2010)
- Size of the Quota Increase
  - Most Directors supported a substantial overall increase to ensure that the Fund has sufficient resources to meet members’ needs.
  - Many Directors indicated they could support a doubling of quotas, with a number viewing this as an upper bound and a number of others seeing it as a minimum.
  - A few Directors, pointing to the expanded New Arrangements to Borrow (NAB), were not convinced about the need to increase quota resources substantially beyond that needed to achieve targeted realignment of quota shares.
  - Many Directors noted that with an increase in quotas, the size of the NAB should be reconsidered to maintain the appropriate balance between quota and borrowed resources.
- Quota Realignment
  - Directors reiterated commitment to a shift in quota share to dynamic emerging market and developing countries (EMDCs) of at least 5 percent from over- to under-represented countries.
  - Significant differences remain on details:
    - Some Directors favored the staff paper approach: a combination of a selective increase for all members and a sizable ad hoc component aimed primarily at EMDCs, using the compressed GDP blend variable in distributing ad hoc increases.
    - Many Directors considered a larger net shift to EMDCs than illustrated in the staff paper is needed—of the order of 5–6 percentage points—with adequate protection for other EMDCs not benefiting from the shift; they generally stressed that PPP GDP should play a larger role in allocating ad hoc increases and did not support protection for over-represented advanced countries.
    - Some Directors emphasized the formula should remain the primary mechanism for distributing quota increases, favoring only a limited ad hoc increase as needed to achieve the targeted shift; they noted all over-represented countries should contribute while being fully protected from becoming under-represented, and that all under-represented countries should be eligible for ad hoc increases.
    - Some Directors reiterated calls to take account of members’ voluntary financial contributions to the Fund.
- Protecting the Poorest
  - Directors reiterated support for protecting the voting share of the poorest members.
  - Many supported protecting the quota shares of these countries individually.
  - A number of Directors preferred protecting PRGT-eligible countries; a few favored the narrower list eligible for Post-Catastrophe Debt Relief (PCDR); others remained open on the definition of poorest members.
  - A few Directors were open to the possibility of a further increase in the share of basic votes.
- Process and next steps
  - The Chairman called for continued informal consultations in the coming days to narrow remaining differences and provide a basis for a staff proposal that could command broad support.
  - The Chairman urged members that have not yet done so to rapidly finalize necessary domestic processes so that the 2008 quota and voice reform can become effective by the time of the Annual Meetings.

*Source: Finance Department; Chairman’s Concluding Remarks, Fourteenth General Review of Quotas—Further Considerations, Committee of the Whole on Review of Quotas Meeting 10/4, September 22, 2010 (concluding remarks circulated September 29, 2010).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_090210.pdf_