## _081911 ## Source details **Canonical URL:** [_081911](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_081911.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_081911.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_081911.pdf.json) --- ### Executive Summary — recent developments and headline statistics - Total arrears to the Fund amounted to SDR 1,303.9 million at end-June 2011, a decline of about SDR 5.5 million since the last review. - All overdue financial obligations to the Fund as of end-June 2011 were protracted arrears (outstanding for six months or more). - Three members remained in protracted arrears to the Fund: Somalia, Sudan, and Zimbabwe. - Distribution of total arrears by member (as of end-June 2011): - Sudan: SDR 985 (accounts for 76 percent of total arrears). - Somalia: SDR 232 (accounts for 17 percent of total arrears). - Zimbabwe: SDR 87 (accounts for the remaining 7 percent). - The majority of arrears (86 percent) were to the General Resources Account (GRA); the remainder were to the Trust Fund (6.8 percent), the PRGT (6.7 percent), and the Structural Adjustment Facility (SAF) (less than 1 percent). - Total burden-shared deferred charges amounted to SDR 700 million at end-June 2011, an increase of SDR 2.0 million from a year ago. - Overdue currency valuation adjustments of 12 members amounted to about SDR 1.3 billion at end-June 2011; the protracted arrears cases accounted for SDR 774.3 million, or 60.4 percent of that total. - Since the general SDR allocation on August 28, 2009, members with protracted arrears remained current to the SDR Department; Somalia, Sudan and Zimbabwe received combined general SDR allocation amounts and special allocation amounts maintained in escrow pending arrears clearance. ### Protracted arrears cases — cooperation and payment records - General observation: the record of cooperation with the Fund on policies and payments by the three protracted arrears cases varied widely during the period under review; remedial measures remained in place for all three cases. - Somalia - The Executive Board has postponed its review of Somalia’s overdue financial obligations since October 1990. - There has been no basis for assessing cooperation owing to the absence of a government recognized by the Fund, continuing political and security problems, and lack of official economic and financial information. - Somalia remained current on obligations to the SDR Department; arrears to the Fund are contained to the GRA, Trust Fund, and SAF. - Staff will monitor developments and stands ready to re-engage should conditions permit. - Sudan - Sudan’s arrears position dominated total arrears and Sudan’s cooperation on policies was assessed as generally satisfactory against the backdrop of uncertainty related to the July 2011 secession of South Sudan. - Under the 2009–10 Staff-Monitored Program (SMP), economic performance was described as broadly satisfactory, with progress on fiscal tightening, monetary policy, exchange rate adjustment, and structural reforms. - Payment record: Sudan’s payments to the Fund in 2010 amounted to US$11.2 million (equivalent to SDR 7.3 million) compared to new obligations falling due of SDR 2.9 million; these payments continued to exceed new obligations but a reduction in payments significantly weakened payments indicators in 2010. - So far in 2011, Sudan made two payments totaling US$5.0 million (equivalent to SDR 3.2 million) but had not confirmed the level of payments for 2011. - The next review of Sudan’s overdue financial obligations and the Managing Director’s complaint was agreed to be postponed to no later than November 9, 2011 to benefit from a July 2011 mission and discussions of a successor SMP. - Zimbabwe - Zimbabwe’s PRGT arrears have decreased slightly; cooperation on payments remained poor while cooperation on policies improved in 2010 before policy setbacks in 2011. - In 2010, Zimbabwe made five payments to the Fund totaling US$4.1 million (equivalent to SDR 2.6 million), exceeding new obligations falling due for the period and the authorities’ quarterly payment commitment of about US$100,000. - Zimbabwe made no payment to the Fund so far in 2011. - Policy setbacks weighing on growth prospects include a sizable fiscal gap in 2011 financed by nonconcessional borrowing, unaddressed financial sector vulnerabilities, and announced fast-track indigenization of the mining sector. - The Executive Board saw merit in continuing regular staff visits and decided to add public finance management (PFM) and anti-money laundering and combating the financing of terrorism (AML/CFT) to targeted areas for which the suspension of the Fund’s technical assistance had been lifted in May 2009. - The next review of Zimbabwe’s overdue financial obligations to the PRGT was postponed to no later than September 14, 2011 to consider findings from a late-June 2011 staff visit and mid-year budget intentions. ### Arrears to other international financial institutions (as of end-June 2011) - World Bank: SDR 1,090.3 million (converted at the US$/SDR exchange rate of June 30, 2011 for reporting). - African Development Bank Group (AfDB): SDR 587.0 million. - Combined arrears (Fund, World Bank, AfDB): SDR 2,981.2 million. - Breakdown by country (as of end-June 2011): - Somalia: Fund SDR 231.7; World Bank SDR 148.3; AfDB SDR 56.8; total SDR 436.9. - Sudan: Fund SDR 984.9; World Bank SDR 405.1; AfDB SDR 183.6; total SDR 1,573.5. - Zimbabwe: Fund SDR 87.4; World Bank SDR 536.9; AfDB SDR 346.5; total SDR 970.8. ### Rights approach — overview, eligibility, conditions, and proposal - Initiated in 1990. - Used in clearing the arrears to the Fund of three members in the 1990s: Peru, Sierra Leone, and Zambia. - Eligibility for the rights approach was restricted to the eleven members that had protracted arrears to the Fund at end-1989. - Only two of those originally eligible members remain eligible: Somalia and Sudan. - Under the rights approach: - An eligible member must establish a track record of cooperation on policies with the Fund by undertaking an economic program with conditionality equivalent to that of upper credit tranche Fund arrangements. - The member is expected to make payments to the Fund (and the World Bank) that, at a minimum, are sufficient to meet new obligations falling due. - By establishing such a track record, the member accumulates “rights” to future drawings of Fund resources following the clearance of its arrears. - At the end of the rights accumulation program, bilateral creditors would provide a bridge loan to clear the member’s arrears to the Fund, which would be followed by the member’s access to new Fund financing. - Proposal regarding availability: - It is proposed that the availability of the rights approach be extended for another year, to end-August 2012. - Rationale: The rights approach remains an important option for arrears clearance for the remaining two eligible members (Somalia and Sudan). - A decision is proposed to extend the availability of the rights approach to end-August 2012. - No changes are proposed to the Fund’s overall strategy on arrears, which is judged to remain broadly effective in dealing with both short-term and protracted arrears. ### Key statistics on protracted arrears (as of end-June 2011 and related periods) - Countries with arrears outstanding for six months or more (Table 7 summary): - Somalia: Total Indebtedness (SDR millions) 231.7; Of which Overdue Principal 112.0; Interest 119.7; Total Overdue 231.7. - Sudan: Total Indebtedness (SDR millions) 984.9; Of which Overdue Principal 246.2; Interest 738.6; Total Overdue 984.9. - Zimbabwe: Total Indebtedness (SDR millions) 87.4; Of which Overdue Principal 71.1; Interest 16.2; Total Overdue 87.4. - Total (Somalia + Sudan + Zimbabwe): 1,303.9 (Total Indebtedness); Of which Overdue Principal 429.4; Interest 874.5; Total Overdue 1,303.9. - Deferred GRA charges of countries with protracted arrears, FY 2007–12 (as of June 30, 2011) (in millions of SDRs): - Somalia: Balance Apr. 30, 2007 = 108.0; ... Balance Jun. 30, 2011 = 118.0. - Sudan: Balance Apr. 30, 2007 = 693.0; ... Balance Jun. 30, 2011 = 716.8. - Total (Somalia + Sudan + Zimbabwe): Total Apr. 30, 2007 = 801.0; Total Jun. 30, 2011 = 834.8. - Overdue currency valuation adjustments (as of end-June 2011) — selected entries (in millions of SDRs): - Somalia: 136.4. - Sudan: 637.9. - Total (listed members): 1,280.4. - Financial obligations falling due and payments to the Fund by current protracted arrears cases, 2001–11 (Table 8 highlights, in millions of SDRs): - Somalia obligations falling due (selected years): 2001 = 5.4; 2002 = 3.4; 2003 = 2.7; 2004 = 3.0; 2005 = 4.1; Jan.–Jun. 2011 = 0.8. - Sudan obligations falling due (selected years): 2001 = 21.1; 2002 = 12.3; 2003 = 9.7; 2004 = 9.9; 2005 = 12.8; Jan.–Jun. 2011 = 1.6. - Payments made as percent of obligations falling due (selected entries): - Somalia: 2001 = -- (no payment recorded); 2006 = -- (no payment recorded). - Sudan: 2001 = 204.1; 2004 = 219.5; 2008 = 325.0. - Combined: 2001 total payments as percent of obligations falling due = 52.3; 2004 = 85.6; Jan.–Jun. 2011 = 41.4. - Number of members with late payments as a percent of members with obligations falling due during the period (2000–2011, six months to June 30, 2011 shown): - 2011 (six months to June 30): Number of members with obligations falling due during the period 164; Number of members with late payments during the period 162; Number of members with late payments as a percent = 16.5 (this table lists annual series; the 2011 six-month figure as presented is 1.6 under "Protracted cases" for members with arrears outstanding for six months or more). ### Timetables of remedial measures — highlights - Overdue Financial Obligations to the General Department and the SDR Department — timetable highlights: - Immediately: Staff sends cable urging prompt payment; member not permitted use of Fund resources until arrears cleared. - 2 weeks: Management communication to Governor urging settlement. - 1 month: Managing Director notifies Executive Board that an obligation is overdue. - 6 weeks: Managing Director notifies member that a complaint will be issued unless obligations are settled; may recommend communication to selected or all Fund Governors. - 2 months: Complaint regarding overdue obligations issued by Managing Director to Executive Board. - 3 months: Factual statement posted on Fund’s external website; Board considers limiting use of general resources and suspending SDR rights; press release issued following Board decision. - 6–12 months: Executive Board will review limitation decision within three months and may consider declaration of ineligibility to take effect not more than twelve months after emergence of arrears. - Up to 15 months: Declaration of noncooperation may be considered within three months after communications dispatch. - Up to 18 months: Decision on suspension of voting and representation rights considered within three months after declaration of noncooperation. - Up to 24 months: Procedure on compulsory withdrawal initiated within six months after decision on suspension. - Overdue Financial Obligations to the Poverty Reduction and Growth Trust (PRGT) — timetable highlights: - Immediately: Staff sends cable urging prompt payment; member’s access to Fund resources, including Trust resources, is suspended. - 2 weeks: Management communication to Governor urging settlement. - 1 month: Managing Director notifies Executive Board that an obligation to the Trust is overdue. - 6 weeks: Managing Director notifies member that a report will be issued to the Executive Board unless settled; may recommend communications to selected or all Fund Governors. - 2 months: Report by Managing Director to the Executive Board requesting limitation of the member’s use of PRGT resources. - 3 months: Report considered by Executive Board; factual statement posted on the member’s country-specific page; press release issued following Board decision. - 6 months: Executive Board reviews limitation and may remove the member from the list of PRGT-eligible countries; reinstatement requires a new Board decision. - 12 months: Declaration of noncooperation with the PRGT may be issued by the Executive Board; upon declaration, technical assistance could be suspended. ### Policy implications and operational considerations - The rights approach remains an available tool for the two eligible members (Somalia and Sudan) and can be adapted to country-specific circumstances given its requirements: - Establishing a program with conditionality equivalent to upper credit tranche arrangements. - Minimum payments to meet new obligations falling due. - Use of bilateral bridge loans at the end of the rights accumulation program to clear arrears ahead of new Fund drawings. - Proposed administrative action: extend availability of the rights approach through end-August 2012 to preserve this option for eligible members. *Source: Executive Summary (IMF document)._081911 - Executive Summary (end-June 2011).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Recent developments and headline statistics - Total arrears to the Fund amounted to SDR 1,303.9 million at end-June 2011, a decline of about SDR 5.5 million since the last review. - All overdue financial obligations to the Fund as of end-June 2011 were protracted arrears (outstanding for six months or more). - Three members remained in protracted arrears to the Fund: Somalia, Sudan, and Zimbabwe. - Distribution of total arrears by member (as of end-June 2011): - Sudan: SDR 985 (accounts for 76 percent of total arrears). - Somalia: SDR 232 (accounts for 17 percent of total arrears). - Zimbabwe: SDR 87 (accounts for the remaining 7 percent). - The majority of arrears (86 percent) were to the General Resources Account (GRA); the remainder were to the Trust Fund (6.8 percent), the PRGT (6.7 percent), and the Structural Adjustment Facility (SAF) (less than 1 percent). - Total burden-shared deferred charges amounted to SDR 700 million at end-June 2011, an increase of SDR 2.0 million from a year ago. - Overdue currency valuation adjustments of 12 members amounted to about SDR 1.3 billion at end-June 2011; the protracted arrears cases accounted for SDR 774.3 million, or 60.4 percent of that total. - Since the general SDR allocation on August 28, 2009, members with protracted arrears remained current to the SDR Department; Somalia, Sudan and Zimbabwe received combined general SDR allocation amounts and special allocation amounts maintained in escrow pending arrears clearance. ### Protracted arrears cases — cooperation and payment records - General observation: the record of cooperation with the Fund on policies and payments by the three protracted arrears cases varied widely during the period under review; remedial measures remained in place for all three cases. - Somalia - The Executive Board has postponed its review of Somalia’s overdue financial obligations since October 1990. - There has been no basis for assessing cooperation owing to the absence of a government recognized by the Fund, continuing political and security problems, and lack of official economic and financial information. - Somalia remained current on obligations to the SDR Department; arrears to the Fund are contained to the GRA, Trust Fund, and SAF. - Staff will monitor developments and stands ready to re-engage should conditions permit. - Sudan - Sudan’s arrears position dominated total arrears and Sudan’s cooperation on policies was assessed as generally satisfactory against the backdrop of uncertainty related to the July 2011 secession of South Sudan. - Under the 2009–10 Staff-Monitored Program (SMP), economic performance was described as broadly satisfactory, with progress on fiscal tightening, monetary policy, exchange rate adjustment, and structural reforms. - Payment record: Sudan’s payments to the Fund in 2010 amounted to US$11.2 million (equivalent to SDR 7.3 million) compared to new obligations falling due of SDR 2.9 million; these payments continued to exceed new obligations but a reduction in payments significantly weakened payments indicators in 2010. - So far in 2011, Sudan made two payments totaling US$5.0 million (equivalent to SDR 3.2 million) but had not confirmed the level of payments for 2011. - The next review of Sudan’s overdue financial obligations and the Managing Director’s complaint was agreed to be postponed to no later than November 9, 2011 to benefit from a July 2011 mission and discussions of a successor SMP. - Zimbabwe - Zimbabwe’s PRGT arrears have decreased slightly; cooperation on payments remained poor while cooperation on policies improved in 2010 before policy setbacks in 2011. - In 2010, Zimbabwe made five payments to the Fund totaling US$4.1 million (equivalent to SDR 2.6 million), exceeding new obligations falling due for the period and the authorities’ quarterly payment commitment of about US$100,000. - Zimbabwe made no payment to the Fund so far in 2011. - Policy setbacks weighing on growth prospects include a sizable fiscal gap in 2011 financed by nonconcessional borrowing, unaddressed financial sector vulnerabilities, and announced fast-track indigenization of the mining sector. - The Executive Board saw merit in continuing regular staff visits and decided to add public finance management (PFM) and anti-money laundering and combating the financing of terrorism (AML/CFT) to targeted areas for which the suspension of the Fund’s technical assistance had been lifted in May 2009. - The next review of Zimbabwe’s overdue financial obligations to the PRGT was postponed to no later than September 14, 2011 to consider findings from a late-June 2011 staff visit and mid-year budget intentions. ### Arrears to other international financial institutions - As of end-June 2011, arrears of the three protracted arrears members to other institutions amounted to: - World Bank: SDR 1,090.3 million (converted at the US$/SDR exchange rate of June 30, 2011 for reporting). - African Development Bank Group (AfDB): SDR 587.0 million. - Combined arrears (Fund, World Bank, AfDB): SDR 2,981.2 million. - Breakdown by country (as of end-June 2011): - Somalia: Fund SDR 231.7; World Bank SDR 148.3; AfDB SDR 56.8; total SDR 436.9. - Sudan: Fund SDR 984.9; World Bank SDR 405.1; AfDB SDR 183.6; total SDR 1,573.5. - Zimbabwe: Fund SDR 87.4; World Bank SDR 536.9; AfDB SDR 346.5; total SDR 970.8. ### Progress under the Fund’s arrears strategy and proposed extension of the rights approach - The Fund’s arrears strategy comprises three elements: prevention, intensified collaboration (including the rights approach), and remedial measures. - The preventive element has generally worked well in avoiding new arrears or bringing about quick clearance when they occur. - Remedial measures and timetables for overdue financial obligations to the General and SDR Departments and the PRGT are in place (Annexes referenced in the source). - It is proposed that the availability of the rights approach be extended by another year, to end-August 2012. - Rationale: The rights approach remains an important option for arrears clearance for the remaining two eligible members (Somalia and Sudan). - A decision is proposed to extend the availability of the rights approach to end-August 2012. - No changes are proposed to the Fund’s overall strategy on arrears, which is judged to remain broadly effective in dealing with both short-term and protracted arrears. *Source: Executive Summary (IMF document)._081911 - Executive Summary (end-June 2011).* ### 16. The rights approach remains an important option for arrears clearance for the ### 16. The rights approach remains an important option for arrears clearance for the ### Rights approach: overview and past use - Initiated in 1990. - Used in clearing the arrears to the Fund of three members in the 1990s: Peru, Sierra Leone, and Zambia. - Eligibility for the rights approach was restricted to the eleven members that had protracted arrears to the Fund at end-1989. - Only two of those originally eligible members remain eligible: Somalia and Sudan. ### Eligibility, conditions, and mechanics - Use of the rights approach is not required for eligible members, but it could provide a useful approach for arrears clearance in light of country-specific circumstances. - Under this approach: - An eligible member must establish a track record of cooperation on policies with the Fund by undertaking an economic program with conditionality equivalent to that of upper credit tranche Fund arrangements. - The member is expected to make payments to the Fund (and the World Bank) that, at a minimum, are sufficient to meet new obligations falling due. - By establishing such a track record, the member accumulates “rights” to future drawings of Fund resources following the clearance of its arrears. - At the end of the rights accumulation program, bilateral creditors would provide a bridge loan to clear the member’s arrears to the Fund, which would be followed by the member’s access to new Fund financing. ### Proposal regarding availability - It is proposed that the availability of the rights approach be extended for another year, to end-August 2012. ### Key statistics on protracted arrears (as of end-June 2011 and related periods) - Countries with arrears outstanding for six months or more (Table 7 summary): - Somalia: Total Indebtedness (SDR millions) 231.7; Of which Overdue Principal 112.0; Interest 119.7; Total Overdue 231.7. - Sudan: Total Indebtedness (SDR millions) 984.9; Of which Overdue Principal 246.2; Interest 738.6; Total Overdue 984.9. - Zimbabwe: Total Indebtedness (SDR millions) 87.4; Of which Overdue Principal 71.1; Interest 16.2; Total Overdue 87.4. - Total (Somalia + Sudan + Zimbabwe): 1,303.9 (Total Indebtedness); Of which Overdue Principal 429.4; Interest 874.5; Total Overdue 1,303.9. - Deferred GRA charges of countries with protracted arrears, FY 2007–12 (as of June 30, 2011) (in millions of SDRs): - Somalia: Balance Apr. 30, 2007 = 108.0; subsequent balances and period deferrals leading to Balance Jun. 30, 2011 = 118.0. - Sudan: Balance Apr. 30, 2007 = 693.0; subsequent balances and period deferrals leading to Balance Jun. 30, 2011 = 716.8. - Total (Somalia + Sudan + Zimbabwe): Total Apr. 30, 2007 = 801.0; Total Jun. 30, 2011 = 834.8. - Overdue currency valuation adjustments (as of end-June 2011) — selected entries (in millions of SDRs): - Somalia: 136.4. - Sudan: 637.9. - Total (listed members): 1,280.4. - Financial obligations falling due and payments to the Fund by current protracted arrears cases, 2001–11 (Table 8 highlights, in millions of SDRs): - Somalia obligations falling due (selected years): 2001 = 5.4; 2002 = 3.4; 2003 = 2.7; 2004 = 3.0; 2005 = 4.1; Jan.–Jun. 2011 = 0.8. - Sudan obligations falling due (selected years): 2001 = 21.1; 2002 = 12.3; 2003 = 9.7; 2004 = 9.9; 2005 = 12.8; Jan.–Jun. 2011 = 1.6. - Payments made as percent of obligations falling due (selected entries): - Somalia: 2001 = -- (no payment recorded); 2006 = -- (no payment recorded). - Sudan: 2001 = 204.1; 2004 = 219.5; 2008 = 325.0. - Combined: 2001 total payments as percent of obligations falling due = 52.3; 2004 = 85.6; Jan.–Jun. 2011 = 41.4. - Number of members with late payments as a percent of members with obligations falling due during the period (2000–2011, six months to June 30, 2011 shown): - 2011 (six months to June 30): Number of members with obligations falling due during the period 164; Number of members with late payments during the period 162; Number of members with late payments as a percent = 16.5 (this table lists annual series; the 2011 six-month figure as presented is 1.6 under "Protracted cases" for members with arrears outstanding for six months or more). ### Timetables of remedial measures (summaries) - Overdue Financial Obligations to the General Department and the SDR Department — timetable highlights: - Immediately: Staff sends cable urging prompt payment; member not permitted use of Fund resources until arrears cleared. - 2 weeks: Management communication to Governor urging settlement. - 1 month: Managing Director notifies Executive Board that an obligation is overdue. - 6 weeks: Managing Director notifies member that a complaint will be issued unless obligations are settled; may recommend communication to selected or all Fund Governors. - 2 months: Complaint regarding overdue obligations issued by Managing Director to Executive Board. - 3 months: Factual statement posted on Fund’s external website; Board considers limiting use of general resources and suspending SDR rights; press release issued following Board decision. - 6–12 months: Executive Board will review limitation decision within three months and may consider declaration of ineligibility to take effect not more than twelve months after emergence of arrears. - Up to 15 months: Declaration of noncooperation may be considered within three months after communications dispatch. - Up to 18 months: Decision on suspension of voting and representation rights considered within three months after declaration of noncooperation. - Up to 24 months: Procedure on compulsory withdrawal initiated within six months after decision on suspension. - Overdue Financial Obligations to the Poverty Reduction and Growth Trust (PRGT) — timetable highlights: - Immediately: Staff sends cable urging prompt payment; member’s access to Fund resources, including Trust resources, is suspended. - 2 weeks: Management communication to Governor urging settlement. - 1 month: Managing Director notifies Executive Board that an obligation to the Trust is overdue. - 6 weeks: Managing Director notifies member that a report will be issued to the Executive Board unless settled; may recommend communications to selected or all Fund Governors. - 2 months: Report by Managing Director to the Executive Board requesting limitation of the member’s use of PRGT resources. - 3 months: Report considered by Executive Board; factual statement posted on the member’s country-specific page; press release issued following Board decision. - 6 months: Executive Board reviews limitation and may remove the member from the list of PRGT-eligible countries; reinstatement requires a new Board decision. - 12 months: Declaration of noncooperation with the PRGT may be issued by the Executive Board; upon declaration, technical assistance could be suspended. ### Policy implications and operational considerations - The rights approach remains an available tool for the two eligible members (Somalia and Sudan) and can be adapted to country-specific circumstances given its requirements: - Establishing a program with conditionality equivalent to upper credit tranche arrangements. - Minimum payments to meet new obligations falling due. - Use of bilateral bridge loans at the end of the rights accumulation program to clear arrears ahead of new Fund drawings. - Proposed administrative action: extend availability of the rights approach through end-August 2012 to preserve this option for eligible members. *Source: IMF Finance Department material excerpt (as of end-June 2011).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_081911.pdf_