## Introduction — Facilities Architecture Overview ## Source details **Canonical URL:** [Introduction — Facilities Architecture Overview](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_032112.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_032112.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_032112.pdf.json) --- ### A. Facilities architecture and objectives - The Fund’s concessional facilities provide flexible, tailored support to low-income countries (LICs) to achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - LIC facilities include: - Extended Credit Facility (ECF): successor to the PRGF for medium-term support to LICs with protracted balance of payments (BoP) problems. - Standby Credit Facility (SCF): financing for short-term BoP needs, similar to the SBA. - Rapid Credit Facility (RCF): rapid low-access financing with limited conditionality for urgent BoP needs. - Policy Support Instrument (PSI): nonfinancial policy support tool; can facilitate access under SCF and RCF. - Desired outcome across instruments: absence of present or prospective BoP need, domestic and external stability, sustainable fiscal and current account balances, limited debt vulnerabilities, adequate international reserves, and sufficient policy and institutional capacity. Aid dependence may remain significant but expected to decline over time. ### B. Choosing the appropriate facility — key factors and rules of thumb - Main factors for choice: - Expected time to establish a stable and sustainable macroeconomic position. - Conditionality standard (UCT quality or not). - Nature of the BoP need (present, prospective, potential; urgent if immediate severe disruption would occur). - Definitions: - Protracted BoP problem: resolution expected to extend over normally three years or more, and in any case more than two years. - Short-term BoP need: resolution expected to extend over normally two years or less, and in any case less than three years. - UCT conditionality standard: commitment and capacity to implement policies adequate to correct external imbalances and enable repayment to the Fund within the specified maturity. - Rules of thumb: - Protracted problem → ECF appropriate; SCF/PSI not appropriate. If UCT-quality program not feasible, build track record via SMP or use RCF if urgent. - Short-term present need → SCF appropriate if UCT-quality program feasible; RCF alternative when UCT-quality program unnecessary and need is urgent (e.g., transitory shock expected to be resolved within one year and no major policy adjustments required). - Prospective/potential short-term needs → SCF precautionary use possible. - Broadly stable macro position → PSI appropriate; can request SCF or RCF if needs arise without cancelling PSI. PSI can be precautionarily accompanied by SCF. ### C. Key facility features and numerical limits (selected) - ECF - Duration: Protracted BoP problem; time needed ≧ 3 years (in any case > 2 years). - UCT conditionality: Required. - Access norms: norm 120% of quota (or 75% if outstanding PRGT credit >=100% of quota). Annual/cumulative limit: 100/300% of quota. - Arrangement duration: 3-year, extendable to 5 years. - PRS document: required by 2nd review. - SCF - Duration: Time needed ≦ 2 years (in any case < 3 years). - UCT conditionality: Required. - Access norms: norm 120% of quota (or 75% if outstanding PRGT credit >= 100% of quota) for 18-month arrangement. Annual/cumulative limit: 100/300% of quota. - Arrangement duration: 1–2 years; episodic use norm—no more than 2.5 out of every 5 years. - RCF - Duration: Could be short term or protracted. - UCT conditionality: Not needed or not feasible. No ex-post conditionality or reviews. - Access: No norm. Annual/cumulative limit: 25/75% of quota, or 50/100% in case of sudden exogenous shocks (shocks window). - Disbursement: One-off disbursements; repeated use possible with constraints. - PSI - Broadly stable macroeconomic position required. - No access to Fund resources. Duration 1–3 years, extendable to 4 years. PRS document required by 2nd review. - SMP - Track-record instrument; duration normally 6–18 months. No Board endorsement. No access. ### Reforms introduced in 2009/10 (high-level) - Financing terms: exceptional interest relief during the global financial crisis; new interest rate ranges and blending framework; new PRGT eligibility framework. - Conditionality: streamlined—rigorous justification required; structural performance criteria discontinued; structural progress assessed in reviews. - Program documentation: more flexible timing for PRS documents. - Debt policy linkage: more flexible link between nonconcessional borrowing limits and debt vulnerabilities and capacity. - Financing framework: more flexible use of loan and subsidy resources while preserving earmarking. --- ### CHAPTER I — Extended Credit Facility (ECF) — Key guidance ### A. Objectives, qualification, and program design - Purpose: medium- and longer-term concessional financing for PRGT-eligible members with protracted BoP problems; assist in implementing programs to make significant progress toward a stable and sustainable macroeconomic position consistent with poverty reduction and growth. - Qualification: - Protracted BoP problem: resolution expected to extend over normally three years or more. - Minimum ECF arrangement length: three years. - Board finding required that member is making a substantial, sustainable effort and has commitment and capacity to implement a UCT-quality program enabling repayment. - Members not meeting qualification can build track record via SMP or use RCF in urgent cases. - Program design areas to be articulated in LOI/MEFP: fiscal, monetary, exchange rate, financial sector, public financial management, and structural reforms. - Role of ECF financing: strengthen reserves, loosen external financing constraints, catalyze donor financing. ### B. Duration, extensions, cancellations, and repeated use - Initial term: three-year term from Board approval; may be extended up to an overall five-year limit. - Extensions permitted for rephasing or augmentations; cannot extend when all scheduled amounts already disbursed. - Short-term "technical" extensions (a few weeks or months) allowed for completing final reviews/disbursements. - Authorities may cancel arrangements at any time. No limit on number of successor ECF arrangements if qualification met. ### C. Concurrent use, blending, and blending presumptions - ECF cannot be used concurrently with SCF or PSI; pre-existing SCF or PSI must be cancelled before ECF approval and vice versa. - RCF financing during an ECF may be provided only when ECF disbursements are not possible, qualification requirements for RCF met, and BoP need primarily caused by a sudden exogenous shock. If RCF access exceeds 25% of quota in these circumstances, policies should address the shock. - Blending: - PRGT-eligible countries with per capita income above the IDA operational cutoff (or sustained market access and income > 80% of the IDA cutoff) are presumed for blending. - As of July 2011, the IDA operational cutoff was US$1,175. - Blending normally not used for countries at high risk of debt distress or in debt distress per joint Bank-Fund LIC DSA. - For blended ECF+GRA rules: concessional (ECF) component normally half of total access, subject to floor on annual average ECF access of 25% of quota and ceiling of 50% of quota; new three-year arrangements with total access of 75% of quota or below initially not subject to blending. ### Repayment terms, interest, and financing assurances - Repayments: made in 10 equal semi-annual installments, subject to a 5.5-year grace period and 10-year final maturity. - Interest: paid semi-annually. Interest rate on ECF credit currently set at zero percent, subject to biennial Board reviews within a 0.0–0.5 percent range for the ECF. Next such review scheduled for December 2013. - Financing assurances: ECF arrangements and reviews require the program to be fully financed; staff must confirm no unfilled financing gaps over the 12 months following approval (and each review). - Arrears: Fund non-toleration policy applies; LIA policy applies to private external creditor arrears; remedial measures for PRGT arrears include removal from PRGT-eligible list and suspension of technical assistance. ### Conditionality, DSAs, and monitoring - UCT conditionality standard required. - Conditionality: quantitative periodic and continuous PCs, indicative targets, structural benchmarks (used parsimoniously), and prior actions if necessary. - Quantitative PCs normally set semi-annually; benchmarks normally quarterly. - A fully elaborated DSA required at least once every three years; full DSAs in periods of heightened risk; joint Bank-Fund DSAs for most LICs. --- ### SCF, RCF, PSI, and SMP — Summarized operational rules ### Standby Credit Facility (SCF) — selected operational rules - Eligibility: PRGT-eligible members with short-term BoP needs expected to be resolved in normally two years or less. - Duration: minimum 12 months, maximum 24 months; use normally limited to 2.5 out of any five-year period. - Access norms: 120% of quota per 18-month arrangement (or 75% if outstanding concessional credit between 100% and 200% of quota); proportional adjustments for durations ≠ 18 months. - Interest: SCF credit interest rate currently 0.25 percent; for period January 7, 2010 through December 31, 2012 no interest charged on outstanding SCF balances. - Availability fee: precautionary SCF use charged availability fee 0.15 percent per annum on undrawn portion each six-month period. - Blending: SCF resources normally provided with GRA resources under SBA when blended; concessional (SCF) component normally half of total access, with floor 25% of quota and ceiling 50% of quota on annual average SCF share. ### Rapid Credit Facility (RCF) — core features and limits - Purpose: rapid concessional outright disbursements to PRGT-eligible members facing urgent BoP needs (exogenous shocks, natural disasters, post-conflict, fragility). - Qualification: - Urgent BoP need: present BoP need that, if not addressed, would cause immediate severe disruption. - RCF used when UCT-quality program is not feasible or not necessary (e.g., need resolves within one year without major policy adjustments) or when capacity inadequate to implement UCT-quality program. - Ex ante undertakings: LOI must outline policies and typically include commitment not to introduce/intensify exchange and trade restrictions. - Repeated use limits: - Member may not receive more than two RCF disbursements in any 12-month period. - A repeated disbursement allowed only if no RCF disbursements in past three years, or BoP need caused primarily by sudden exogenous shock (shocks window), or member has established a track record of adequate macro policies for about six months prior. - Access limits: - Sub-ceilings: 25% of quota per year and 75% of quota cumulatively; shocks window: up to 50% per year and 100% cumulatively when primary cause is sudden exogenous shock and policies sufficiently strong. - RCF sub-ceilings are in addition to global PRGT annual/cumulative limits (100% per year; 300% cumulatively), and exceptional hard caps (150% annual; 450% cumulative). - Repayments: 10 equal semiannual installments; 5.5-year grace period; 10-year final maturity. - Interest: currently zero percent; biennial reviews within a 0.0–0.5 percent range; next review scheduled by end-December 2013. - Financing assurances: not required for RCF disbursements (contrast to other arrangements), but staff reports should provide projected financing gaps and capacity-to-repay analysis. ### Policy Support Instrument (PSI) — nonfinancial support - Eligibility: PRGT-eligible members in a broadly stable and sustainable macroeconomic position; no present or prospective BoP need unless expected to be met from other financing sources. - Purpose: policy support to consolidate macro stability and debt sustainability while deepening structural reforms. - Duration: 1–3 years initially; requests for three-year PSIs common; extendable to 4 years. - Concurrent use: PSI cannot be used concurrently with ECF; can run concurrently with SCF or RCF without cancellation of PSI. - Conditionality and monitoring: - ACs set (analogous to PCs) normally semiannually; structural benchmarks used parsimoniously. - UCT-conditionality standard applies. - Misreporting framework tailored to PSI: simplified; Board decisions conditioned on accuracy of reported information for three years; no waivers in PSI misreporting framework. ### Staff-Monitored Programs (SMPs) - Purpose: build a track record toward a UCT-quality program, or monitor policies when capacity/commitment doubts exist or arrears preclude other engagement. - Nature: resemble Fund-supported programs in form; use indicative targets (normally quarterly) and structural benchmarks; not Board-endorsed; no access to Fund resources. - Typical duration: minimum six months, normally up to 18 months. --- ### Access norms, global limits, augmentations, and procedural safeguards ### Standard access determination criteria (applies across ECF/SCF/RCF) - Access determined case-by-case using: - (i) member’s present, prospective, and potential BoP needs (including reserve accumulation and other financing); - (ii) program strength and capacity to repay (policy plans, adjustment effort, institutional capacity, track record); and - (iii) amount of outstanding Fund credit and past use. - Access may not exceed member’s present and prospective BoP needs during program period and typically less than total financing needs. ### PRGT global norms and hard caps - Normal global limits across concessional facilities: - Annual: total access should normally not exceed 100 percent of quota per year across all concessional facilities. - Cumulative: total access should normally not exceed 300 percent of quota cumulatively, net of scheduled repayments. - Exceptional access criteria (must meet all): - (i) exceptionally large BoP need cannot be met within normal limits; - (ii) comparatively strong adjustment program and ability to repay (generally not met for high debt distress unless expected debt relief reduces risk); - (iii) do not meet income/market access criteria for blending. - Exceptional hard caps: 150 percent of quota annually; 450 percent of quota cumulatively. ### Blended financial assistance rules (ECF/SCF/RCF + GRA) - General principle: total access comparable across cases irrespective of blending; standard rules replaced by blended-specific rules where applicable. - Common blended rule: concessional component normally half of total access, subject to an annual average floor of 25% of quota and ceiling of 50% of quota for the concessional component. - Consequence: new three-year ECF arrangements with total access of 75% of quota or below would initially not involve blending. ### Procedural safeguards on high access requests - DSA or DSA update required for PRGT financing requests if: - (i) involves exceptional access to concessional resources; or - (ii) brings total access under all concessional facilities to more than 80 percent of quota in any 24-month period (using defined inclusion rules); or - (iii) involves a member with a high risk of debt distress or in debt distress. - Early informal Board meeting required if: - (i) exceptional concessional access requested; or - (ii) brings total access under all concessional facilities to more than 180 percent of quota in any 36-month period. - Exception: new financing requests of 10 percent or less of quota do not trigger a DSA update or Board briefing. --- ### Quantitative conditionality, fiscal/monetary targets, and TMU guidance (Appendix II highlights) ### Periodicity and definitions - Quantitative PCs (or ACs in PSI) normally semiannual and tied to semiannual reviews; quantitative benchmarks normally quarterly. - PCs set to cover test dates falling within 12 months after Board meeting; PC table attached to LOI/MEFP should identify PCs, indicative targets, and adjustors for at least 12 months. - TMU must set precise definitions of PCs, data coverage, adjustors, and valuation conventions. ### Fiscal conditionality and measurement - Fiscal anchor monitored via: - credit aggregate (e.g., net domestic financing of government), - deficit measure (overall or primary deficit), - or combination. - Social and other priority spending: typically monitored through an indicative floor where possible. ### Monetary and reserve targets - Monetary PC typically on net domestic assets (NDA) or reserve money; reserve floors typically on official central bank net international reserves (NIR). - TMU must specify coverage and valuation conventions; valuation effects excluded from NIR floors. ### External debt limits and concessionality - Concessionality threshold: grant element at least 35 percent for a loan to be concessional (calculate using OECD CIRR). - Debt limits and concessionality requirements vary by country capacity; guidance provided for lower- and higher-capacity countries and advanced LICs. ### Continuous PCs and adjustors - Continuous PCs always include commitments on non-introduction or intensification of exchange restrictions and non-accumulation of external payments arrears. - Adjustors pre-specify automatic adjustments for NIR/NDA/fiscal PCs in response to deviations in external flows (use sparingly, defined in TMU). --- *Source: Introduction — Facilities Architecture Overview; CHAPTER I—EXTENDED CREDIT FACILITY; excerpts on SCF, RCF, PSI, SMP, conditionality, access, DSAs, and documentation from IMF content unit _032112 (Handbook excerpt).* ### Introduction — Facilities Architecture Overview .....................................................................5 ### Introduction — Facilities Architecture Overview ### A. Background - The Fund’s concessional facilities aim to provide flexible and tailored support to low-income countries (LICs) to achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - In July 2009, the Fund’s Executive Board adopted a comprehensive overhaul of the Fund’s concessional facilities. - The new Poverty Reduction and Growth Trust (PRGT) became effective on January 7, 2010 to finance concessional loans. - Members’ eligibility for PRGT support was reviewed on January 11, 2010, and more recently on February 17, 2012. - Based on review, 71 IMF member countries are currently PRGT-eligible. - The LIC facilities architecture includes three concessional facilities and one nonfinancial instrument: - Extended Credit Facility (ECF): succeeds the PRGF as the Fund’s main tool for providing medium-term support to LICs with protracted balance of payments problems. - Standby Credit Facility (SCF): provides financing to LICs with short-term balance of payments needs, similar to the Stand-By Arrangement (SBA). - Rapid Credit Facility (RCF): provides rapid low-access financing with limited conditionality to meet urgent balance of payments needs. - Policy Support Instrument (PSI): the Fund’s nonfinancial policy support tool for LICs, and can facilitate access under the SCF and RCF, if needed. - Desired outcome of all instruments: a macroeconomic position characterized by the absence of a present or prospective balance of payments need, domestic and external stability, sustainable fiscal and current account balances, limited debt vulnerabilities, adequate international reserves, and sufficient policy and institutional capacity to implement appropriate macroeconomic policies. Aid dependence may remain significant but would be expected to decline over time. - Reforms and changes introduced in 2009/10 to make Fund support more flexible and tailored: - Financing terms: (i) exceptional interest relief during the global financial crisis, (ii) a new interest rate mechanism providing modest differentiation of rates across facilities and limiting fluctuations in concessionality when world interest rates move, (iii) a new framework for blending PRGT and GRA resources for LICs, (iv) a new framework for determining countries’ eligibility to use PRGT resources based on transparent criteria. - Conditionality: streamlined across all Fund-supported programs by requiring rigorous justification of program conditions; structural performance criteria discontinued and progress on structural conditions assessed in program reviews. - Program documentation: made more flexible, allowing more time to submit the poverty reduction strategy (PRS) document in cases where required (i.e., ECF and PSI-supported programs). All PRGT-supported programs should be explicit about how they advance the country’s poverty reduction and growth objectives, including safeguarding social and other priority spending. - Debt policy linkage: new policies on nonconcessional borrowing allowing a more flexible approach linking debt limits to countries’ debt vulnerabilities and macroeconomic and public financial management capacity. - Financing framework: allows more flexible use of loan and subsidy resources provided by lenders and contributors to the PRGT while preserving contributors’ preferences for earmarking. - In some cases, Staff-Monitored Programs (SMPs) or blends of PRGT with GRA facilities may be appropriate alternatives to LIC-specific instruments. ### B. Choosing the Appropriate Facility — Key factors and rules of thumb - Three main factors determine choice of instrument: 1. Expected time needed to establish a stable and sustainable macroeconomic position (duration of adjustment and balance of payments needs). 2. Conditionality standard of Fund support (whether it meets upper credit tranche (UCT) quality). 3. Nature of the balance of payments need (present, prospective, or potential; urgent if failure to address would cause immediate severe disruption). - Definitions and thresholds: - Protracted balance of payments problem: resolution expected to extend over normally three years or more, and in any case more than two years. - Short-term balance of payments need: resolution expected to extend over normally two years or less, and in any case less than three years. - UCT conditionality standard: authorities have the commitment and capacity to implement policies adequate to correct external imbalances and enable repayment to the Fund within the specified maturity period. - Balance of payments needs can be present, prospective, or potential. - Rules of thumb for facility selection: - If a country faces a protracted balance of payments problem → ECF is appropriate; SCF and PSI are not appropriate. If unable to implement UCT-quality program, the country can build a track record through an SMP or use RCF in case of urgent financing needs. - If a country does not have a protracted balance of payments problem but faces short-term (present) balance of payments needs → SCF is appropriate if a UCT-quality program can be implemented. RCF is an alternative when a UCT-quality program is not necessary and the need is urgent (e.g., transitory shock expected to be resolved within one year and no major policy adjustments required). If not in position to implement a UCT-quality program, build track record through SMP or, if urgent needs exist, access RCF. - Countries without a protracted problem or present need but facing prospective or potential short-term needs → SCF can be used on a precautionary basis; disbursements occur if/when a present need arises. - Countries already in a broadly stable and sustainable macroeconomic position → PSI is appropriate. If short-term balance of payments needs arise during a PSI, the country can request SCF or, if urgent, RCF financing. Precautionary SCF support is possible in conjunction with the PSI for potential balance of payments needs. - Practical guidance: these rules of thumb apply for assessing qualification for new financing arrangements or a new PSI and do not necessarily imply the need to cancel an existing program instrument. More detailed qualification requirements are described in Chapters I–IV of the Handbook. ### C. Key facility features and numerical limits (Table 1 summary) - Extended Credit Facility (ECF) - Duration of adjustment and BoP needs: Protracted BoP problem. Time needed to achieve stable and sustainable macro position ≧ 3 years (in any case > 2 years). - UCT conditionality standard: Required. - Size and nature of BoP need: Present or prospective BoP needs exist (even if minimal) over course of 3-year arrangement, but a present need is not necessary for each disbursement. - Access: Norm is 120% of quota (or 75% if outstanding PRGT credit >=100% of quota). Annual/cumulative limit: 100/300% of quota. - Other aspects: 3-year duration, extendable to 5 years. PRS document required by 2nd review. - Standby Credit Facility (SCF) - Duration of adjustment and BoP needs: Time needed to achieve stable and sustainable macro position ≦ 2 years (in any case < 3 years). - UCT conditionality standard: Required. - Size and nature of BoP need: SCF can be approved based on present, prospective, or potential short-term BoP needs. Precautionary use possible. Disbursements require a present need. - Access: Norm is 120% of quota (or 75% if outstanding PRGT credit >= 100% of quota) for 18-month arrangement. Annual/cumulative limit: 100/300% of quota. - Other aspects: 1-2-year duration. Episodic use the norm; i.e., no more than 2.5 out of every 5 years. - Rapid Credit Facility (RCF) - Duration of adjustment and BoP needs: Could be short term or protracted. - UCT conditionality standard: UCT conditionality not needed or not feasible. No ex-post conditionality or reviews. Can help build track record. - Size and nature of BoP need: Urgent (present) BoP need must exist. Prospective or potential needs may also exist. - Access: No norm. Annual/cumulative limit: 25/75% of quota, or 50/100% in case of sudden exogenous shocks. - Other aspects: One-off disbursements. Repeated use possible based on sudden exogenous shocks or 6-monthly track records. - Policy Support Instrument (PSI) - Duration of adjustment and BoP needs: Broadly stable and sustainable macroeconomic position. - UCT conditionality standard: Required. - Size and nature of BoP need: At approval, BoP needs may exist but expected to be met through financing from non-Fund sources. - Access: No access. On-track PSI facilitates rapid approval of SCF or RCF, without need to cancel PSI. - Other aspects: 1-3 year duration, extendable to 4 years. PRS document required by 2nd review. - Staff-Monitored Program (SMP) - Duration of adjustment and BoP needs: Could be short term or protracted. - UCT conditionality standard: Not required. SMP's purpose is to build a track record toward a UCT-quality program. - Size and nature of BoP need: Any type or size of BoP need may exist. - Access: No access. - Other aspects: Duration normally 6-18 months. No Board endorsement. *Source: Introduction — Facilities Architecture Overview (Handbook).* ### CHAPTER I—EXTENDED CREDIT FACILITY ### CHAPTER I—EXTENDED CREDIT FACILITY ### A. Objectives and Qualification - Purpose and objective - The ECF provides medium- and longer-term concessional financing to LICs with protracted balance of payments problems. - The purpose of an ECF arrangement is to assist PRGT-eligible member countries with a protracted balance of payments problem in implementing economic programs aimed at making significant progress toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - A stable and sustainable macroeconomic position would typically be associated with sustainable fiscal and current account balances, limited debt vulnerabilities, adequate international reserves, and sufficient policy and institutional capacity to implement appropriate macroeconomic policies. - Use of the ECF is appropriate where resolution of entrenched macroeconomic imbalances is expected to extend over the medium or longer term; repeated use of the ECF and its predecessors has been common. - ECF resources can be used to strengthen the international reserve position and loosen financing constraints for both the public and private sectors, and are expected to catalyze additional financing from donors. - Eligibility and qualification - Assistance under the ECF is available to all PRGT-eligible member countries that face a protracted balance of payments problem. - A protracted balance of payments problem exists when the resolution of macroeconomic imbalances needed to establish a stable and sustainable macroeconomic position is expected to extend over normally three years or more. - If a stable and sustainable macroeconomic position is expected to be established within two years or less and the member has a short-term balance of payments need, the SCF would be the appropriate instrument to support UCT-quality programs. - Where a stable and sustainable macroeconomic position is expected to be established in more than two but less than three years, the choice between ECF and SCF should be determined on a case-by-case basis; minimum length for an ECF arrangement is three years and use of the SCF is normally limited to two and a half years out of any five-year period. - Substantial structural reform or capacity building needs, or frequently recurring financing needs, indicate a protracted balance of payments problem and argue for ECF; relatively front-loaded adjustment needs aimed at speedy restoration of macroeconomic stability argue for SCF. - The existence of a protracted balance of payments problem implies balance of payments needs are expected to arise over the course of the arrangement, though they may not be present at approval or when individual disbursements are made. - Approval of an ECF arrangement is possible in the absence of present balance of payments needs, but the precautionary use of the ECF is not envisaged (contrast with SCF). - For members with minimal present/prospective needs but medium- or longer-term adjustment needs, a low-access ECF arrangement would be appropriate. - Qualification requires a Board finding that the member is making an effort to strengthen substantially and in a sustainable manner the balance of payments position, in the context of a UCT-quality program that supports significant progress toward a stable and sustainable macroeconomic position consistent with poverty reduction and growth. - Qualification requires assurances of commitment and capacity to implement policies adequate to correct external imbalances and enable repayment to the Fund within the specified maturity period, evidenced by recent policy performance, institutional capacity, and other relevant circumstances. - Countries not currently meeting ECF qualification requirements (notably capacity to implement a three-year UCT-quality program) can build a track record through an SMP or, in urgent financing needs, the RCF. ### B. Duration, Extensions, Cancellations, and Repeated Use - Duration and limits - Initial term: three-year term from the date of the Board decision approving the arrangement. - ECF arrangements may be extended (including multiple times), subject to an overall five-year limit on total duration of any ECF arrangement. - After expiration or cancellation, additional ECF arrangements may be approved if qualification criteria are met; there is no limit on the number of successor ECF arrangements. - Extensions and rephasing - Extensions can be requested to allow disbursement of rephased amounts or to provide additional resources (augmentation) based on projected developments in the balance of payments position, subject to appropriate conditions consistent with ECF terms. - Rephasing may be appropriate when: - (i) more time is needed to implement envisaged policies or reforms warranting a rephasing of access; - (ii) to provide an augmentation such as when a shock has led to additional financing and adjustment needs; - (iii) more time is needed to design a successor ECF-supported program; or - (iv) the protracted balance of payments problem is expected to be resolved in two additional years or less. - Extensions must be requested by the member and approved by the Board before expiration of the arrangement period. - Extensions are only possible if needed to allow disbursement of amounts under the arrangement; it is not possible to extend arrangements when all scheduled amounts have already been disbursed. - Extensions involving rephasing and/or augmentations would normally be approved by the Board on the basis of a request in an LOI and in the context of a program review where the review demonstrates the program is on track. - In exceptional circumstances, extensions involving rephasing may be approved by the Board outside the context of a scheduled program review, with staff report documenting reasons, status of the program, and policy understandings. - Short-term ("technical") extensions - When no rephasing/change in access/additional reviews are involved and only additional time is needed to complete final review(s) and final disbursement, ECF arrangements can be extended for a short period (a few weeks or months). - Short-term extensions can be granted outside the context of a review provided authorities and staff have reached (or are expected to reach very near-term) understandings on appropriate policies to complete the review. - Board approval generally occurs via a very short staff paper with a decision proposed for lapse-of-time Board approval; the staff paper should explain status of discussions, document preparation, and policy understandings. - Cancellations and repeated use - ECF arrangements may be cancelled by the authorities at any time—for example, when macroeconomic imbalances have been resolved, when authorities no longer have capacity or commitment to implement the program, or when objectives/modalities of economic policies have changed substantially. - Additional ECF arrangements can follow expiration/cancellation if qualification criteria are met. ### C. Concurrent Use and Blending - Concurrent use - The ECF cannot be used concurrently with the SCF or PSI; any pre-existing SCF arrangement or PSI must be cancelled before an ECF arrangement can be approved, and vice versa. - A member cannot obtain RCF financing (or start an SMP) if an ECF arrangement is in place and on track. - RCF financing during an ECF arrangement can be provided only when: - (i) ECF disbursements are not possible (e.g., due to policy slippages or delays in program discussions); - (ii) qualification requirements for the RCF are met, including the existence of an urgent balance of payments need and relevant policy commitments; and - (iii) the balance of payments need is primarily caused by a sudden exogenous shock. - When access under the RCF exceeds 25 percent of quota in these circumstances, policies should be appropriate to address the shock. - RCF-supported policies could serve as a track record to bring an SCF-supported program back on track; in the absence of an urgent financing need, a track record could be built through an SMP. - The ECF can be used concurrently with GRA financing under certain circumstances. - Blending - Certain PRGT-eligible countries are expected to receive financial assistance through blended PRGT and GRA resources rather than relying on fully concessional Fund financing. - Blending can allow higher access levels (if justified by the balance of payments need and strength of the program) and provide a signal that the borrower is moving toward middle-income or emerging market status. - PRGT-eligible countries, including members qualifying for an ECF arrangement, would be expected to use either fully concessional or blended resources, rather than GRA-only financing, although they are always eligible for access to the Fund’s general resources. - Presumptions and limitations on blending - Blending is presumed for PRGT-eligible countries with either: - (i) per capita income above the prevailing operational cutoff used by IDA; or - (ii) sustained past and prospective market access and a per capita income that exceeds 80 percent of the IDA operational cutoff. - As of July 2011, the IDA operational cutoff was US$1,175. - Other PRGT-eligible countries are expected to use concessional financing only. - Blending should normally not be used for countries at high risk of debt distress or in debt distress (as assessed by the most recent joint Bank-Fund LIC Debt Sustainability Analysis (DSA)), even if per capita income or market access creates a presumption for blending. - As a consequence of the rules on access under blended financial assistance (Section D), new three-year arrangements with total access of 75 percent of quota or below would, at least initially, not be subject to blending even if the criteria that create a presumption for blending are met. - In exceptional circumstances, when financing needs exceed the applicable access limits, blending can be used irrespective of the per capita income, market access, and debt sustainability criteria. *Source: CHAPTER I—EXTENDED CREDIT FACILITY* ### 22. When providing financial assistance with blended resources, ECF resources will ### _032112 - 22. When providing financial assistance with blended resources, ECF resources will ### Blended assistance modalities (ECF with EFF/GRA) - ECF resources will normally be provided together with GRA resources under the Extended Fund Facility (EFF). - Concurrent financial assistance under an ECF arrangement and an SBA would only be expected where pre-existing ECF support is supplemented by SBA financing at a later stage. - An ECF arrangement initially blended with EFF financing that is extended for more than a year may require continuation under EFF rules because arrangements under the EFF are limited to a four-year period. - Financing through the RFI under the GRA during an ECF arrangement would be expected only if the ECF-supported program is off track; in such cases RFI purchases would typically be combined with RCF disbursements. - Modalities of blended financial assistance under ECF and EFF: - Support a three-year economic program for countries with protracted balance of payments problems, based on a single set of program conditions, schedule of disbursements and reviews, and other requirements largely mirroring regular ECF arrangements. - Differences in blended cases include: - Disbursements would involve both ECF and EFF resources, implying lower average concessionality of the Fund’s financial support than under a stand-alone ECF arrangement. - EFF qualification requirements must be met (e.g., clearly articulated structural reform agenda). If the blend pushes (annual or cumulative) access above GRA normal limits, the member would need to meet the Exceptional Access criteria. - Reviews under the EFF arrangement of blended financial assistance may require waivers of applicability under certain circumstances. - Each disbursement under an ECF arrangement is linked to a specific test date, whereas for extended arrangements purchases are conditioned upon observance of the PCs related to the most recent test date. - Consequence: ECF-component resources tied to earlier test dates may be disbursed while EFF-component resources cannot be disbursed unless waivers for non-observance are granted. ### Access — determination and main criteria - Area departments may consult with SPR and FIN early when considering access for a new arrangement or augmentation (before a policy note is circulated for formal review). - Staff reports for new arrangements or requests for changes in access must explicitly discuss the basis for access determination with reference to main criteria and applicable access norms/limits. - Access is determined case-by-case based on standard criteria: - (i) the member’s (present and prospective) balance of payments need (taking into account all projected balance of payments flows, including reserve accumulation and financing from other sources); - (ii) the strength of its program and capacity to repay the Fund (taking into account the member’s policy plans, adjustment effort, commitment to implement the program, institutional capacity, track record of policy implementation, and country circumstances such as vulnerabilities, imbalances, and debt sustainability); - (iii) the amount of outstanding Fund credit and the member’s record of past use. - Access may generally not exceed the member’s present and prospective balance of payments needs during the program period and would typically be less than total financing needs; however, an ECF arrangement can be approved and disbursements made even in the absence of a present balance of payment need if the Executive Board finds the member is experiencing a protracted balance of payment problem at approval. Members do not need to represent a present balance of payments need to request individual disbursements. ### Access norms and limits (PRGT/ECF context) - Access norms apply to access under ECF arrangements (though not in cases of blended financial assistance). - Access norm: - 120 percent of quota per ECF arrangement for countries with total outstanding concessional IMF credit under all facilities of less than 100 percent of quota. - 75 percent of quota per arrangement for countries with outstanding concessional credit of between 100 percent of quota and 200 percent of quota. - For countries with outstanding concessional credit above 200 percent of quota, the norms do not apply; access is guided by the cumulative access limit of 300 percent of quota (450 percent of quota in exceptional cases), the expectation of future need for Fund support, and the repayment schedule. - Norms are guidance only; access can deviate if warranted by standard criteria. - Special case—low present/prospective BOP needs but protracted BOP problem: - Standardized access level of 10 percent of quota per arrangement has been practice. - ECF precautionary use is not envisaged; members routinely draw amounts as they become available under ECF irrespective of present BOP needs. - Global annual and cumulative limits for total access under all concessional facilities (ECF, SCF, RCF, ESF; excluding EPCA and ENDA credit even if subsidized under GRA): - Total access should normally not exceed 100 percent of quota per year across all concessional facilities. This annual access limit refers to past and future scheduled disbursements in any 12-month period, specifically (i) any actual disbursements under the RCF and past ECF and SCF arrangements at the time they became available (i.e., the date of the Board decision that makes the disbursement available), (ii) any disbursements to date that became available under the current ECF arrangement, irrespective of whether they have been drawn or not, and (iii) any future disbursements under the ECF at the scheduled availability dates. - Total access should normally not exceed 300 percent of quota cumulatively, net of scheduled repayments. This cumulative access limit requires that total outstanding Fund concessional credit (including disbursements made available but not drawn in the current arrangement) cannot normally exceed 300 percent of quota at any point based on projected disbursements and repayments. - Exceptional circumstances can allow access above normal limits if: - (i) exceptionally large balance of payments need cannot be met within normal limits; - (ii) comparatively strong adjustment program and ability to repay the Fund (generally not met for countries with high risk of debt distress or in debt distress unless expected debt relief or restructuring reduces risk to moderate or low); - (iii) do not meet income or market access criteria for blending. - Exceptional access is subject to hard caps of 150 percent of quota annually and 450 percent of quota cumulatively across all concessional facilities. ### Access under blended financial assistance (specific rules) - Total access under blended ECF + GRA is determined based on standard criteria; total access should be comparable across country cases with similar needs and program strength irrespective of blended vs PRGT-only resources. The access norms do not apply; instead specific blended rules apply ex ante: - Access to the concessional (ECF) component of blended assistance is normally half of total access, subject to a floor on annual average access under the ECF of 25 percent of quota and a ceiling of 50 percent of quota; the remainder of total access is met by GRA financing. - Consequently, new three-year ECF arrangements with access of 75 percent of quota or below would, at least initially, not involve blending with GRA resources. - If the presumption for blending later applies to an arrangement initially at or below 75 percent of quota, augmentations may involve blended financing. - At approval of a new ECF arrangement involving blended GRA assistance, each scheduled disbursement should generally involve both ECF and GRA resources. For members without outstanding GRA credit at approval, a minimum of 25 percent of quota should be made available for the first purchase under the GRA arrangement at approval. - Shares of ECF and GRA financing at each disbursement can be determined individually and need not remain constant across disbursements. - In exceptional circumstances (very large shocks, arrears clearance, repurchases of GRA emergency assistance), access to concessional resources under blended assistance could exceed the normal ceiling of 50 percent of quota and reach the annual access limit of 100 percent of quota or possibly the exceptional annual access limit of 150 percent of quota if exceptional concessional access criteria are met. ### Augmentations and reductions of access - Augmentation is appropriate to meet larger BOP needs or support program strengthening; augmentation is often appropriate after shocks unless the program is off track (when RCF may be appropriate). - Extension of an ECF arrangement period often justifies augmentation because extension may involve additional BOP needs not initially included. - Augmentations can reflect strengthening of the program (e.g., if initial access was constrained by high risk of debt distress that later subsides). - Under the Trade Integration Mechanism (TIM), augmented access not exceeding 10 percent of quota will be available to compensate BOP shortfalls from trade liberalization measures implemented by other countries. - Determination of augmentation size is based on standard access criteria. No formal norm for augmentation size, though many augmentations have been in the range of 15–45 percent of quota, with a few cases well above this range. - For augmentations of arrangements presumed to involve blended PRGT and GRA resources: - Total financing mix over the full course of the arrangement should be guided by blended access rules: total access (post-augmentation) to concessional financing would, to the extent possible, normally be half of total overall access to Fund resources, but normally not higher than 50 percent of quota and not lower than 25 percent of quota on an annual average basis. - Access could in principle be reduced rather than augmented; the Fund will not unilaterally reduce access because of more favorable developments unless the improvement is substantially more favorable than envisaged at approval and derives in particular from external environment improvements. - Augmentations would normally be approved at the time of a scheduled review; in exceptional urgent circumstances a scheduled review may be brought forward to allow augmentation. ### Procedural safeguards on high access requests — DSAs and informal Board meetings - Financing requests are subject to uniform procedural safeguards across concessional facilities to protect PRGT-eligible members’ debt sustainability and the Fund’s concessional resources. - Staff reports for any arrangement request or augmentation should provide an up-to-date assessment of debt vulnerabilities with explicit reference to impact of new borrowing from all sources, including prospective IMF disbursements. - A DSA or DSA update is required for any financing request under the PRGT (augmentation or new arrangement) if it: - (i) involves exceptional access to concessional resources; or - (ii) brings total access under all concessional facilities to more than 80 percent of quota, based on past and future scheduled disbursements in any 24-month period (including (a) actual disbursements under the RCF, SCF, ESF, and past ECF arrangements at the time they became available, (b) disbursements to date that became available under the current ECF arrangement irrespective of drawdown, and (c) any future scheduled disbursements under the ECF); or - (iii) involves a member country with a high risk of debt distress or in debt distress. - A DSA update can be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA if recent and if the update would not change the risk of debt distress rating. - An early informal Board meeting is required if a financing request would: - (i) involve exceptional access to concessional financing; or - (ii) bring total access under all concessional facilities to more than 180 percent of quota, based on past and future scheduled disbursements in any 36-month period (using the same disbursement inclusion rules as above). - The early informal Board meeting would typically be preceded by a 2–3 page note including: - (i) factors underlying the large BOP need, taking donor financing into account; - (ii) brief summary of main policy measures and macro framework; - (iii) expected program strength and capacity to repay; - (iv) analysis of debt vulnerabilities reflecting all projected debt financing, including Fund; - (v) reference to impact on Fund’s concessional resources; - (vi) likely timetable of discussions with authorities; - (vii) selected indicators table and, if possible, standard DSA charts. - The early informal Board meeting should take place before staff reaches ad referendum understandings with the authorities. - Staff should provide early notice to the Board (e.g., in an informal country matters session) of upcoming requests or augmentations likely to have a large impact on the Fund’s overall concessional resources. - Exception: new financing requests of 10 percent or less of quota do not trigger either a DSA update or a Board briefing. *Source: _032112 - 22. When providing financial assistance with blended resources, ECF resources will* ### 41. Repayments of ECF credit are made in 10 equal semi-annual installments, subject to ### _032112 - 41. Repayments of ECF credit are made in 10 equal semi-annual installments, subject to ### Repayment terms and interest - Repayments of ECF credit are made in 10 equal semi-annual installments, subject to a 5.5-year grace period from the date of the first disbursement and 10-year final maturity. - The authorities may decide to make early repayments at any time, but would not be expected to do so. - Interest is paid semi-annually. - The interest rate on ECF credit is currently set at zero percent, but subject to biennial Board reviews that take account of developments in world interest rates. - At each review, interest rates would normally be adjusted if warranted by the prevailing SDR rate, within a 0.0–0.5 percent range for the ECF. - The new interest rate would apply to all outstanding ECF credit. - The next such review is scheduled for December 2013. - Footnote: This does not apply to interest on any overdue interest or overdue repayments of PRGT loans, which is charged at a rate equal to the SDR interest rate. ### Financing assurances - ECF arrangements can only be approved (and reviews can only be completed) when the program is fully financed; donors and creditors (both official and private) must furnish assurances to meet program financing requirements on terms consistent with the member’s return to external viability. - Staff should confirm there are no unfilled financing gaps over the 12 months immediately following the approval of the arrangement (and the completion of each review), and that there is a clear expectation the program will be fully financed through the remainder of the arrangement period. - Assurances should include that the member country has the capacity to repay the Fund based on medium-term projections of the balance of payments and, for new arrangements or augmentations, the standardized table on indicators of the capacity to repay the Fund. ### Arrears (official and private) - Under the Fund’s policy of non-toleration of sovereign arrears to official (multilateral and bilateral) creditors, the Fund generally calls for resolution of existing arrears to official creditors and non-accumulation of new arrears during the program. - Existing arrears need not be settled immediately; they can be addressed in a number of ways depending on creditor type. Country teams should seek guidance from LEG and SPR on application to specific creditors. - Macroeconomic program assumptions should be consistent with expected resolution of existing arrears to official creditors; staff and authorities should have common understandings on timing and modalities of arrears clearance. - Arrears to private external creditors are covered by the Fund’s Lending into Arrears (LIA) policy. - The LIA policy applies to both sovereign arrears to external private creditors and non-sovereign arrears arising from exchange controls. - The Fund can lend, on a case-by-case basis, in a situation of sovereign arrears to private external creditors only where: (i) prompt Fund support is essential for successful implementation of the member’s adjustment program; and (ii) the member is pursuing appropriate policies and making a good faith effort to reach a collaborative agreement with creditors (or to facilitate such an agreement) and good prospects exist for removal of exchange controls. - Whenever the LIA policy applies, each Fund disbursement under an arrangement is subject to a financing assurances review in which the Board considers, inter alia, whether the member’s adjustment efforts are undermined by developments in creditor-debtor relations. - ECF-supported programs should also address domestic arrears as part of the overall program design; specification depends on country context, particularly the fiscal framework. ### Overdue obligations to the Fund - Where a member is in arrears to the Fund in the GRA, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee (including the PRGT), a request for IMF financing, including under the ECF, will not be approved and disbursements under an existing arrangement will be suspended until the arrears are cleared. - After one month the Managing Director will notify the Executive Board that an obligation is overdue; in the case of protracted arrears (i.e., arrears of more than six months’ duration), semi-annual reports are to be issued to the Executive Board. - While a member is in arrears to the Fund, policy support can only be provided through surveillance, technical assistance, and, under certain circumstances, SMPs. - Remedial measures for dealing with PRGT arrears include removal from the list of PRGT-eligible countries, declaration of noncooperation, and suspension of technical assistance. ### Safeguards assessments policy - Staff should aim to complete a safeguards assessment prior to Executive Board approval of a new ECF arrangement; a safeguards assessment report should be completed for each new arrangement no later than the first review and for all augmentations for existing arrangements. - Once the first review has passed, subsequent staff reports should highlight the status of the assessment and, if not completed, reasons for its delay. - The safeguards process involves continuous analysis of documents and discussions with the authorities and the central bank’s external auditors; it evaluates governance, auditing, financial reporting, control systems, and legal autonomy of the central bank over the life of an arrangement and for as long as Fund credit remains outstanding. - Safeguards assessment recommendations may be incorporated into conditionality or structural measures under the member’s program. - Close cooperation and coordination between FIN, other functional departments, and area departments is essential; FIN should be kept informed by area departments of safeguards issues, including logistical issues such as timing of new arrangements and reviews. ### Program objectives - All ECF-supported programs are aimed at making significant progress toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - ECF-supported programs should aim to maintain or move toward: - strong and durable poverty reduction and growth; - low or moderate inflation; - sustainable fiscal and current account balances; - limited debt vulnerabilities; - adequate international reserves; - sufficient policy and institutional capacity to implement appropriate macroeconomic policies. ### Program design: policy areas and role of ECF financing - Program design should align with the country’s poverty reduction and growth objectives. - Typical specific policy objectives to be articulated in the LOI/MEFP and staff report include: - Fiscal policies: (i) fiscal stance well anchored for macroeconomic stability and fiscal/debt sustainability, (ii) revenue and spending policies accounting for growth and social objectives, (iii) budgets guided by medium-term fiscal frameworks where possible. - Monetary policies: consistent with inflation, exchange rate, and reserve objectives, taking account of cyclical considerations. - Exchange rate policies: ensure a unified exchange rate and a real exchange rate level broadly in line with fundamentals to ensure a stable and sustainable external position consistent with adequate growth. - Financial sector policies: geared toward financial stability and deepening to foster investment and forestall financial crises. - Public financial management reforms: ensure resources are tracked, reported, and targeted appropriately; public debt management to support debt sustainability; revenue reforms to broaden the revenue base and enhance tax efficiencies. - Other structural reforms critical for achieving the program’s macroeconomic objectives. - Role of ECF financial support: - Balance of payments support assists countries in smoothing adjustment toward a more stable and sustainable macroeconomic position. - Fund support can strengthen international reserves and provide liquidity for external payments. - By relaxing external financing constraints, Fund support loosens domestic liquidity constraints of public and private sectors, reducing the need for retrenchment in public and private savings-investment balances and enhancing policy options. - The appropriate mix of financing and public/private adjustment is determined case-by-case. ### Use of domestic counterpart / budget financing - A member may use the domestic counterpart of resources received under an ECF arrangement to finance, directly or indirectly, the government budget deficit, consistent with the Fund’s legal framework if the member has balance of payments problems and is implementing a program to resolve them. - Direct budget financing may be appropriate when: - (i) the program envisages the entire amount of Fund support is used to meet a present or prospective balance of payments need; - (ii) loosening fiscal financing constraints is an important macroeconomic objective under the program; - (iii) the central bank cannot or should not (for legal or institutional reasons) lend to the government while the domestic financial sector is too shallow (or not stable enough) to provide necessary budget financing (or the central bank plays a largely passive domestic policy role, e.g., under a currency board or in a fully dollarized economy). - Staff reports should justify use of the domestic counterpart for budget financing where relevant and discuss safeguards implications. ### Links to poverty reduction strategies and social spending - ECF-supported programs should be aligned with the country’s poverty reduction and growth objectives; specific PRS guidance includes: - Any financing request or program review under the ECF must be accompanied by a statement, normally in the LOI or MEFP, of how the program advances the country’s poverty reduction and growth objectives; description expected to be more detailed at initial program request or when a new PRSP (or I-PRSP) is produced. - If a PRS document exists, the ECF-supported program should be consistent with PRS objectives in the context of making significant progress toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Where no relevant PRS document exists, program documentation should outline the country’s medium-term poverty reduction and growth objectives and policies; subsequent program documents should refer to and update this documentation as necessary. - The second (and every subsequent) review can only be completed if a PRS document has been issued to the Board, normally within the previous 18 months and has been the subject of staff analysis, including in the staff report on a new ECF arrangement or on a review. - Staff should inform authorities at an early stage about Definitions and Timelines for PRS Documentation to ensure adequate time for the PRS process. - Staff are required to prepare a Joint Staff Advisory Note (JSANs) for PRSPs and I-PRSPs and circulate it to the Executive Board for discussion, generally within four months of transmission of a PRSP or an I-PRSP (outside the HIPC context); for APRs, it is good practice to provide feedback via an Annual Feedback Process (AFP). - In cases where a JSAN has not yet been prepared, the Executive Board is not prevented from making decisions governing a member’s ECF arrangement, including completion of reviews if relevant preliminary staff analysis has been included in the staff report or a supplement; Board consideration of a JSAN cannot be on a Lapse of Time (LOT) basis. - PRS documents should normally be produced by the authorities on a 12-month cycle and aligned with other domestic policy cycles; staff reports should report how significant weaknesses in PRS are being addressed. - Social and other priority spending should be safeguarded and, when appropriate, increased under ECF-supported programs; this should be monitored through explicit program targets, typically an indicative floor on social and other priority spending, whenever possible. - If tracking such expenditures is not feasible, program documentation should report measures envisaged to develop an adequate tracking system; staff should monitor progress and the program may include relevant structural benchmarks if appropriate. ### Debt sustainability analysis (DSA) - ECF-supported programs should be underpinned by a thorough DSA to inform medium-term debt strategies and fiscal frameworks. - Country teams should engage authorities in DSA preparation, discuss results, and share final files with relevant officials. - DSAs for most LICs are usually prepared jointly with the World Bank; country teams should involve other relevant Multilateral Development Banks (MDBs). - Joint DSAs are required for PRGT-eligible IDA-only countries; for LICs that are not IDA-only, close consultation with the Bank is recommended. *IMF — Extended Credit Facility (excerpt)._ ### 56. A fully elaborated DSA is required at least once every three years, with shorter ### _032112 - 56. A fully elaborated DSA is required at least once every three years, with shorter ### Debt Sustainability Analysis (DSA) timing and triggers - A fully elaborated DSA is required at least once every three years, with shorter annual updates in the interim years possible in the absence of significant changes in the macroeconomic and financial environment. - Full DSAs should be prepared in periods of heightened domestic, external, or global risk. - The precise timing of a DSA may be driven by program requirements, e.g., design of debt limits under an ECF arrangement is systematically related to the assessment of countries’ debt vulnerabilities. - A DSA (or DSA update) may need to be prepared for higher access financing requests (augmentation or new arrangement). - In cases where a DSA is required outside the regular joint Bank-Fund DSA cycle, a DSA update may be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA provided a joint DSA was prepared recently and the analysis would not result in a change of the risk of debt distress rating. ### DSAs for low-income countries (LICs) — framework and components - DSAs for LICs should be presented as self-contained documents. - They should normally be prepared using the LIC Debt Sustainability Framework (DSF); for countries with durable and substantial access to market financing, the middle-income country template can be used instead. - The analysis includes three components: - A forward-looking analysis (20-year projection) of debt and debt-service dynamics under a baseline scenario, alternative scenarios, and standardized stress tests. - An explicit assessment of the risk of external debt distress (low, moderate, high, or in debt distress) based on indicative country-specific debt-burden thresholds that depend on the quality of policies and institutions. - Recommendations on a borrowing (and lending) strategy to limit the risk of debt distress, while maximizing the resource envelope to achieve the country’s development objectives. ### Collaboration with the World Bank and other development partners - Fund staff should consult closely with all major development partners active in the country when designing and monitoring an ECF-supported program. - The Joint Management Action Plan (JMAP) calls on Bank and Fund country teams to consult at least once a year to identify key macroeconomic and structural reform challenges and coordinate work plans. ### Conditionality — principles - Conditionality under an ECF arrangement is intended to ensure Fund resources support meeting program objectives, with adequate safeguards to the Fund’s resources. - Conditions will normally consist of macroeconomic variables and structural measures reasonably within the member’s direct or indirect control and that are either: - of critical importance for achieving program goals (or for monitoring program implementation); or - necessary for implementation of specific provisions of the IMF Articles of Agreement or policies adopted under them. - ECF-supported programs must meet the UCT conditionality standard requiring commitment and capacity by the authorities to implement policies adequate to correct external imbalances and enable repayment to the Fund. - Given the ECF’s medium- to longer-term focus, it generally permits more flexibility than the SCF in the timing of measures; conditionality may focus on steps marking progress toward far-reaching structural reforms rather than completion. ### Specification of program conditions - Program conditionality will include quantitative periodic and continuous PCs, typically quantitative and structural benchmarks, and prior actions if necessary. - Conditionality is set at approval of the arrangement and updated at program reviews; should normally be set (or modified) by the Board before the test date. - Prior actions: - Are measures expected to be adopted prior to Fund approval, completion of a review, or granting of a waiver when critical for successful program implementation. - Are to be applied parsimoniously and specified in clear, objective, and unambiguous terms. - Should in principle be implemented at least five working days before the Board discussion and defined in the LOI/MEFP and cross-referenced in the relevant Board Decision. - Frequency and timing of quantitative measures: - Quantitative PCs would normally be set on a semi-annual basis and tied to semi-annual program reviews. - Quantitative benchmarks (indicative targets) would normally be specified on a quarterly basis. - In exceptional cases, quantitative PCs and reviews could be set on a quarterly basis. - Conditionality should cover the 12 months following the Board meeting (initial approval or review). - Under semi-annual monitoring, PCs would normally be established for two future test dates at the time of approval and at each review (except penultimate and final reviews). - Typical quantitative periodic PCs include measures of net international reserves, central bank domestic assets, domestic and fiscal balances or financing, and limits on nonconcessional external debt (periodic or continuous). - Indicative targets should include a floor on social and other priority spending where possible. - Continuous PCs always include, inter alia, commitments related to non-introduction or intensification of exchange restrictions and on non-introduction or modification of multiple currency practices; typically include non-accumulation of external payments arrears and may include non-contracting of nonconcessional external debt. - ECF arrangements should include an agenda for macro-critical structural reforms with appropriate flexibility on timing; structural benchmarks are critical markers for program reviews and should be used parsimoniously with explicit macro-criticality justification. - Structural benchmarks may be targeted for implementation either by a specific test date or by the time of a specific program review; structural PCs were discontinued in 2009. - Significantly delayed structural benchmarks can be re-dated and re-linked to the next program review or modified/replaced if no longer possible as originally defined. ### Waivers and modifications of conditionality - A waiver for non-observance of a PC may be granted if the Fund is satisfied the program will nevertheless be successfully implemented because of the minor or temporary nature of the nonobservance or remedial actions taken. - Upon verification that a PC was not met, a member may request a waiver in the LOI; if staff supports the waiver, justification and a proposed decision are included in the staff report. - Waivers for nonobservance are required only for quantitative PCs tied to the specific disbursement and to the review being completed (and for any standard continuous PC that has been missed). - Waivers of applicability could be granted if information to assess observance is unavailable but would be highly unusual under the ECF. - In arrangements with blended financing, waivers of applicability would be required for the GRA-financed arrangement if the review is conducted after the most recent test date has passed and data are not yet available. - For the GRA financial arrangement, the member may purchase any amount available based on earlier completed reviews if the purchase is requested within 45 days of the most recent test date and all conditions in paragraph 2 of Decision No. 14407-(09/105) have been met. - Modifications to Board-set conditionality may be appropriate when departures from PCs are expected; requests for modifications must be submitted to the Board before the relevant test date is passed and approved by the Board before information on observance is available, normally in a program review. - In exceptional cases, modifications can be approved by the Board outside a program review provided authorities and staff have common understandings documented in a revised/new LOI with an updated PC table and, where relevant, an updated TMU; Board approval requires a staff report explaining reasons. ### Misreporting - Misreporting occurs when members obtain resources on the basis of inaccurate information regarding observance of quantitative or continuous PCs or prior actions (a “noncomplying disbursement”). - Under the ECF, a noncomplying disbursement occurs when: - (i) the Fund makes a disbursement based on a finding that applicable conditions for that disbursement have been observed, and - (ii) that finding later proves incorrect. - Upon evidence that a member may have received a noncomplying disbursement, the Managing Director shall inform the member promptly; after consultation, if the Managing Director determines a noncomplying disbursement occurred, the Managing Director shall notify the member and submit a report to the Executive Board with recommendations. - The Board may decide either (a) the member shall be expected to repay the disbursed amount, or (b) the nonobservance will be waived; waivers will normally be granted only when the deviation was minor or temporary, or if the member adopted additional measures appropriate to achieve the objectives supported by the decision on the disbursement. - If the Executive Board finds the noncomplying disbursement was made but the nonobservance was de minimis (trivial with no impact on performance assessment), a waiver shall be granted; de minimis misreporting will not be published in a staff report. ### Reviews and disbursements — purpose and timing - Purpose of program reviews: - Evaluate whether the program is on track to achieve objectives based on backward-looking assessment (performance against quantitative PCs, structural and quantitative benchmarks, prior actions) and a forward-looking assessment of prospects for successful implementation, including policy capacity and commitments. - The second (and every subsequent) review can only be completed if a PRS document has been issued to the Board, normally within the previous 18 months. - At the final review, assuming the protracted balance of payments problem has been resolved and no further Fund support is expected, the forward-looking assessment scope could be more limited. - Reviews update program design by specifying forward-looking policies and conditionality and are the main vehicle for modifications (access, phasing, conditionality) as needed. - At approval and for each review, the authorities’ LOI presents or updates their policy program; a staff report provides overall assessment of performance and commitments. - Timing of reviews, test dates, and disbursements: - The timing of all reviews, test dates, and disbursements is summarized in a staff report table at approval and updated as needed at reviews. - The Arrangement text attached to the staff report for the initial ECF request specifies test dates, reviews, availability dates, and disbursements for the first year. - The quantitative indicator table (“PC table”) attached to the LOI/MEFP should identify PCs, indicative targets, and adjustors for at least a 12-month period from the Board date of program approval or review. - The structural benchmark table should cover measures over at least a 12-month period, indicating reviews individual benchmarks are linked to and/or dates for implementation. - The Decision attached to the staff report should specify all PCs and review/availability dates normally over the next 12 months from the Board date of program approval/review. - The first disbursement is made available upon approval of the arrangement; subsequent disbursements are conditional on observance of the PC and a program review confirming satisfactory progress. *Source: IMF Extended Credit Facility guidance (content unit: _032112 - 56).* ### 76. Disbursements and reviews under an ECF arrangement are normally both semi- ### _032112 - 76. Disbursements and reviews under an ECF arrangement are normally both semi- ### Timing and phasing of disbursements and reviews - Disbursements and reviews under an ECF arrangement are normally both semi-annual, implying typically seven scheduled disbursements and six reviews (and thus six test dates with PCs). - Small deviations from a strict six-monthly schedule can be justified to align monitoring with national budget/reporting cycles. - If the arrangement is approved well before the first test date (e.g., four months or earlier), there may be only six disbursements and five reviews, given the time lag in monitoring PCs and preparing documentation. - In exceptional circumstances, reviews and disbursements could be both at quarterly intervals (e.g., significant short-term volatility and/or uncertainty). - It is possible to shift between semi-annual and quarterly phasing during the course of an arrangement based on changes in volatility and/or uncertainty; such shifts could also be scheduled at approval of a new ECF arrangement if warranted by the projected risk profile. ### Test dates, availability dates, and scheduling constraints - Test dates for PCs must be set so that all scheduled disbursements can take place before the end of the three-year arrangement, taking into account reporting lags and preparation and circulation periods for staff reports. - Availability dates for disbursements should be set so that all data needed to confirm observance of PCs at related test dates would have become available. - Availability dates are specified in the Arrangement text and subsequent Decisions, and are summarized in the staff report table on the schedule of disbursements. - Reviews cannot be completed prior to the applicable availability date. ### Program period start - The program period supported by an ECF arrangement would typically start somewhat before the Board approves the ECF arrangement, and three to six months before the first test date under semiannual monitoring. - The program period should normally not start more than three months prior to the Board meeting, and in any case not before the authorities and staff have discussed the parameters of the program. ### Blackout periods and linkage of disbursements to reviews and PCs - Unlike SBAs or EFF arrangements, ECF design avoids "blackout periods" by linking each disbursement to completion of a specific review and to observance of specific periodic performance criteria. - A disbursement is not blocked when a new test date passes because such new test date applies to a future disbursement subject to completion of a future scheduled review. ### Addressing interruptions in program implementation: track records, combined reviews, and rephasing - Interruptions and delays may occur; if caused by substantial policy slippages, it is often appropriate to establish a track record before completing the next review. - A track record could be informal (informally agreed time-bound policy actions and targets), monitored more formally under an SMP, or via the RCF in case of urgent financing needs caused by an exogenous shock (assuming applicable policy commitments are in place). - Delays and interruptions can sometimes be addressed through: - extensions of the arrangement, - combining reviews, - rephasing of access, - or some combination of the three. - Combining two successive reviews is possible when delays have occurred and performance can be assessed against two test dates linked to successive reviews. - Combining three or more reviews is very unusual because PCs are typically not defined for more than two future test dates under semiannual monitoring, and long-lasting deviations would often justify cancellation. - Conditions for combining reviews: - (i) Conditionality fully defined, including applicable PCs, and approved by the Board; - (ii) Data available for measuring observance of conditionality for the reviews; - (iii) The earliest dates for conclusion of the reviews in the text of the arrangement have all passed. - Reviews are typically combined when the program is on track with respect to the most recent review and sufficient corrective action offsets problems with earlier reviews. - If slippages relative to objectives/conditionality for the most recent review are significant, combining reviews would not be appropriate; options include cancellation of the arrangement and discussion of support under a new instrument, or completing the past review while establishing a new future test date and conditionality combined with rephasing of access. ### Rephasing of disbursements and access - Disbursements may be rephased to change amounts under individual disbursements and/or change number or timing of disbursements and reviews. - If delays cannot be accommodated by extensions or combining reviews alone, the total amount of access can be rephased into a new pattern of test dates and reviews, generally only after making full use of the maximum possible extension. - Access should never be rephased in a manner that would make it impossible for the member to get the full, undisbursed amount under the arrangement. - If rephasing would compress a very large amount of access into a short period (even with a potential extension), it is normally appropriate to let the current arrangement expire, or for the member to cancel it, and to proceed to a new ECF arrangement with more attainable goals, unless there has been a very sharp turnaround in performance. ### Other relevant policies applying to ECF arrangements - Ex Post Assessments (EPAs) - Access to resources under ECF arrangements counts toward the policy on longer-term program engagement (LTPE). - Members that have had a UCT arrangement in place for at least seven out of the past ten years, and for whom an EPA has not been prepared in the past five years, an EPA should be prepared in time to be considered by the Board prior to a request for a new arrangement. - Post-Program Monitoring (PPM) - Outstanding ECF credit will be subject to PPM. - Normally, members with outstanding credit from the Fund in the GRA and/or PRGT exceeding 200 percent of quota after the expiry of their arrangements are expected, upon recommendation of the Managing Director, to engage with the Fund in PPM (unless the member is implementing a Fund-supported program or SMP). - Article IV cycle - The 24-month cycle for Article IV consultations applies to members with an ECF arrangement. - Article IV consultations with members that have an on-track ECF arrangement in place would be expected to be completed within 24 months after the completion of the previous Article IV consultation. - If a program review is not completed by the date specified in the arrangement, the next Article IV consultation would be expected to be completed by the later of (i) six months after the scheduled review date and (ii) 12 months, plus a grace period of three months after the previous Article IV consultation, unless the program review has been completed prior to the later of these two dates, in which case the 24-month cycle continues. - A member that has completed an ECF by drawing all amounts may remain on the 24-month cycle, if it does not meet any of the criteria in paragraph 2 of Decision No. 14747-(10/96): (i) the member is of systemic or regional importance; (ii) the member is perceived to be at risk, or is facing pressing policy issues of broad interest to the Fund membership; or (iii) the member has outstanding Fund credit exceeding 200 percent of quota. - At the time of the final review under the arrangement, staff should assess whether the consultation cycle should be shortened back to 12 months based on the criteria above; where this is the case, the staff report for the final review should seek the Board’s approval of such shortening. - Where the arrangement is cancelled by the member or expires with undrawn amounts, the member will remain on the existing cycle unless the Executive Board determines otherwise based on the above criteria. - Exchange System obligations and data provision - Requirements under Article VIII Sections 2, 3, and 4, and Article XIV are discussed elsewhere; a standard continuous PC applies inter alia to the non-introduction or intensification of exchange restrictions and on the non-introduction or modification of multiple currency practices (see Appendix II, Section G). - Article VIII, Section 5 of the Fund’s Articles of Agreement does not apply to the provision of information that is required for the purposes of Fund financial assistance under the ECF. - PRGT resources are held in an administered account and the obligations of a member using such resources are governed exclusively by the terms of the PRG Trust Instrument, which are incorporated by explicit reference into each ECF arrangement. - Heavily Indebted Poor Country (HIPC) and Multilateral Debt Relief Initiative (MDRI) - Performance under an ECF arrangement can count toward a track record of strong policy performance under Fund-supported programs required for the HIPC decision point and completion point. - The minimum required track record for the decision point is six months and one year for the completion point. - Side letters - Use of side letters in LIC programs has been extremely rare. - Side letters may be used when release of information on policy understandings at the time of a program request or review would cause adverse market reaction or undermine the authorities’ efforts to prepare the domestic groundwork for a measure. *Source: _032112 - Disbursements and reviews under an ECF arrangement are normally both semi- (IMF document excerpt)* ### 85. Similar to other Fund instruments, SCF arrangements assist countries in addressing ### _032112 - 85. Similar to other Fund instruments, SCF arrangements assist countries in addressing ### Eligibility and qualification - SCF arrangements provide concessional temporary financial support to smooth economic adjustment, strengthen international reserves, and loosen financing constraints for public and private sectors, and can catalyze additional donor financing. - Assistance is available to all PRGT-eligible member countries that experience short-term balance of payments needs, unless: - (i) the predominant cause of the balance of payments difficulties is a withdrawal in financial support by donors; or - (ii) the country faces a protracted balance of payments problem. - To qualify for the SCF there should be an expectation that the member will achieve a stable and sustainable macroeconomic position in normally two years or less. - If resolution of macroeconomic imbalances is expected to persist for three years or more, an ECF arrangement is appropriate. - If expected resolution is more than two but less than three years, choice between SCF and ECF is case-by-case; minimum length for an ECF arrangement is three years and use of the SCF is normally limited to two and a half out of any five-year period (assessed on a rolling basis). - Indicators favoring ECF rather than SCF include substantial structural reform or capacity building needs, or frequently recurring financing needs; indicators favoring SCF include needs for a relatively front-loaded adjustment process aimed at speedy restoration of macroeconomic stability. - SCF arrangements can support members with actual (present or prospective) or potential balance of payments needs, provided the need is short term rather than protracted. - If at approval a member does not presently face balance of payments needs but such needs are expected, the arrangement can be treated as precautionary initially. - If balance of payments needs are purely potential and risks are moderate or low, a PSI could be more appropriate than a precautionary SCF. - Individual disbursements can only be made based on the member’s representation of an actual (present) balance of payments need. - Qualification requires a Board finding that the member is implementing, or committed to implement, policies aimed at resolving the balance of payments difficulties within a program that meets UCT conditionality standards and aims to achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction. - Evidence of capacity and commitment includes recent policy performance (including under a recent Fund-supported program), institutional capacity, and other circumstances affecting macroeconomic performance; qualification is presumed (but must still be established) for countries with an on-track PSI. - Countries not currently able to meet SCF qualification requirements can build a track record via an SMP or, in urgent cases, the RCF (assuming applicable policy commitments are in place). - Countries with capacity to implement a UCT-quality program but with needs expected to be resolved within one year and no major policy adjustments necessary may opt for RCF financing for urgent balance of payments needs. ### Duration, extensions, cancellations, and repeated use - SCF assistance is available for a minimum of 12 months and a maximum of 24 months from the Board decision approving the arrangement. - Use of the SCF is normally limited to two and a half out of any five-year period, assessed on a rolling basis; the SCF is intended to address episodic short-term needs. - In rare cases, minor deviations from the two and a half year limit may be allowed (e.g., three distinct large exogenous shocks in a five-year period or if prior SCF support was treated as precautionary). - SCF arrangements may be extended (including multiple times) subject to a 24-month maximum total duration. - After expiration or cancellation of an SCF arrangement, additional SCF arrangements may be approved if qualification criteria are met, including the overall time limit on SCF use. - Extensions can be requested to allow disbursement of rephased amounts or to provide additional resources (augmentation) based on projected balance of payments developments, subject to appropriate conditions. - Extensions involving rephasing or augmentations are appropriate when: - More time is needed to implement envisaged policies or reforms warranting rephasing of access. - Duration of balance of payments needs is longer than originally envisaged (e.g., due to a shock causing additional financing and adjustment needs). - Heightened risks warrant further precautionary support. - Extensions must be requested by the member and approved by the Board before arrangement expiration; extensions are only possible if needed to allow disbursement of amounts under the arrangement (cannot extend when all scheduled amounts already disbursed). - Extensions are not automatic and are subject to appropriate conditions consistent with SCF assistance terms. - Extensions that involve rephasing and/or augmentations would normally be approved by the Board on the basis of an LOI and in the context of a program review (conclusion demonstrating program is on track). - In exceptional circumstances, extensions involving rephasing may be approved outside a scheduled program review if authorities and staff have understandings on appropriate policies documented by a letter from the authorities; Board approval requires a staff report discussing reasons and status. - Short-term “technical” extensions (a few weeks or months) can be granted outside a review when additional time is needed to complete a final review and make the final disbursement available before expiration, provided policy understandings exist or are expected imminently; Board approval generally via lapse-of-time decision based on a short staff paper. - Authorities may cancel SCF arrangements at any time (e.g., when macroeconomic imbalances resolved, when authorities lack capacity or commitment to implement the program, or when policy objectives/modalities change substantially). ### Concurrent use and blending — Concurrent use - The SCF cannot be used concurrently with the ECF; any pre-existing ECF must be cancelled before approving an SCF and vice versa. - A member cannot obtain RCF financing (or start an SMP) if an SCF arrangement is in place and on track. - If additional balance of payments needs arise during an SCF arrangement, an augmentation of access would typically be the appropriate response. - RCF financing during an SCF arrangement can be provided only when: - (i) SCF disbursements are not possible (e.g., due to policy slippages or delays in program discussions); - (ii) qualification requirements for the RCF are met, including existence of an urgent balance of payments need and relevant policy commitments; - (iii) the balance of payments need is primarily caused by a sudden exogenous shock. - When RCF access in these circumstances exceeds 25 percent of quota, policies should be appropriate to address the shock. - RCF-supported policies can serve as a track record to bring an SCF-supported program back on track; in absence of urgent financing needs, a track record can be built through an SMP. - The SCF can be used concurrently with GRA financing under certain circumstances. ### Concurrent use and blending — PSI interaction - The SCF can be used flexibly with a PSI; an on-track PSI presumptively supports SCF qualification for countries that experience or may experience a balance of payments need (present, prospective, or potential), provided qualification requirements are met. - An on-track PSI with UCT-conditionality reduces time normally required to design an SCF-supported program. - There is no need to cancel an on-track PSI to approve an SCF; an SCF can run concurrently with a PSI. - PSI users can request concurrent precautionary SCF support in periods of increased uncertainty or risk. - Modification of PSI-supported programs may be warranted when changed circumstances affect a country’s ability to meet program objectives. - If the PSI is off track, SCF approval would typically occur only after appropriate corrective actions have been taken. - Concurrent PSI and SCF support would be based on a single set of program conditions, schedule of reviews, and other requirements that largely mirror stand-alone SCF arrangements or PSIs, with key differences: - Choice of SCF duration (between 12 and 24 months) depends on financing and adjustment needs and is not necessarily tied to the PSI period. - If SCF expiration comes after the PSI, approval of a new PSI would normally occur only after SCF expiration or cancellation, since PSI qualification requires a broadly stable and sustainable macroeconomic position (implying no IMF financing needed). A new PSI could be approved if authorities intend to treat the SCF as precautionary. - It may be possible to extend an existing PSI for a short period to complete the final review. - An SCF arrangement does not require a PRS-related document, but such a document must exist by completion of the second and subsequent PSI reviews. - The PSI review schedule could remain on the “fixed review cycle” or be aligned to the more flexible SCF review cycle; shifting requires adjusting standard PSI decision language. - Documentation and modalities of reviews under concurrent use largely mirror those applicable to standalone instruments. ### Concurrent use and blending — Blending - Certain PRGT-eligible countries are expected to receive financial assistance through blended PRGT and GRA resources rather than fully concessional financing. - Blending can allow higher access levels (if justified by the balance of payments need and program strength) and signal movement toward middle-income or emerging market status. - PRGT-eligible countries, including members qualifying for an SCF arrangement, are expected to use either fully concessional or blended resources, rather than GRA-only financing, though they remain eligible for access to general resources. - Blending of SCF and GRA resources is subject to presumptions and limitations: - Blending is presumed, including for precautionary SCF arrangements, for PRGT-eligible countries with either: - (i) per capita income above the prevailing operational cutoff used by IDA; or - (ii) sustained past and prospective market access and a per capita income that exceeds 80 percent of the IDA operational cutoff. - Other PRGT-eligible countries are expected to use concessional financing only. - Blending should normally not be used for countries at high risk of debt distress or in debt distress as assessed by the most recent joint Bank-Fund LIC DSA, even if per capita income or market access creates a presumption for blending. - When annual average access is 25 percent of quota or below, SCF resources would, at least initially, not normally be blended with GRA resources, even if blending presumptions are met (as a consequence of rules on access under blended financial assistance). - In exceptional circumstances, when financing needs exceed applicable access limits, blending can be used irrespective of per capita income, market access, and debt sustainability criteria. - When providing blended assistance, SCF resources will normally be provided together with GRA resources under the SBA. - Financing through the RFI under the GRA during an SCF arrangement would be expected only if the SCF-supported program is off track; in such cases RFI purchases would typically be combined with disbursements under the RCF. - Modalities of blended assistance under SCF and SBA arrangements broadly mirror stand-alone SCF arrangements (supporting a one- to two-year program), with differences: - Disbursements would involve both SCF and SBA resources, implying lower average concessionality than stand-alone SCF. - SBA qualification requirements must be met; if the blend pushes access above GRA normal limits, the member would need to meet Exceptional Access criteria. - While effectiveness and expiration dates of SCF and SBA arrangements would normally be identical, it may be possible in some situations to blend SBA resources with an SCF when the SBA duration exceeds 24 months and SCF is limited to 2 years (maximum), provided SCF qualification requirements are met; however, SBA disbursements needed for a full three years could indicate a protracted balance of payments problem, making SCF inappropriate. - Reviews under the SBA component of blended assistance may require waivers of applicability under certain circumstances, unlike SCF practice. - Each SCF disbursement is linked to a specific test date, whereas for GRA arrangements purchases are conditioned on observance of PCs relating to the most recent test date; this can create situations where SCF-component resources can be disbursed (PCs for an earlier test date met) while SBA-component resources cannot (PCs for the most recent test date not observed) unless waivers are granted. *Italic: Source: Standby Credit Facility (excerpts) from the provided IMF chapter text.* ### 103. When considering access for a new arrangement, or possible augmentation under an ### _032112 - 103. When considering access for a new arrangement, or possible augmentation under an ### Determination of access — main criteria - Access is determined on a case-by-case basis using the following standard criteria: - (i) the member’s (present, prospective, and potential) balance of payments needs (taking into account all projected balance of payments flows, including reserve accumulation and financing from other sources); - (ii) the strength of its program and capacity to repay the Fund (taking into account the member’s policy plans, adjustment effort, commitment to implement the program, institutional capacity, track record of policy implementation, and country circumstances such as vulnerabilities, imbalances, and debt sustainability); - (iii) the amount of outstanding Fund credit and the member’s record of past use. - Access may not exceed the member’s present, prospective, and potential balance of payments needs during the program period and would typically be less than total financing needs. - For SCF arrangements approved on a precautionary basis: - each individual disbursement requires a member representation of the existence of a present balance of payments need (normally in an LOI); - the Fund will not challenge this representation prior to the disbursement but may impose a prepayment expectation and other remedial measures after disbursement if it determines the disbursement took place in the absence of a present need. - When used precautionarily, members retain and accumulate rights to request disbursements provided they have concluded the most recent scheduled review (associated to the corresponding availability date). - SCF design avoids blackout periods by allowing disbursements based on completed reviews without needing to verify observance of performance criteria whose test dates have passed while the date for the related scheduled review has not yet passed. ### Access norms - Access norms apply to financing under SCF arrangements (not in cases of blended financial assistance). - Norms: - 120 percent of quota per 18-month arrangement for countries with total outstanding IMF credit under all concessional facilities of less than 100 percent of quota; - 75 percent of quota per arrangement for countries with outstanding concessional credit of between 100 percent of quota and 200 percent of quota. - For arrangement durations different from 18 months: - for durations of more than 18 months, the norm is increased proportionally; - for durations of less than 18 months, the norm is decreased proportionally. - For countries with outstanding concessional credit above 200 percent of quota: - the norms do not apply; - access is guided by consideration of the cumulative access limit of 300 percent of quota (450 percent of quota in exceptional cases), the expectation of future need for Fund support, and the repayment schedule. - Access norms provide general guidance and are neither ceilings nor floors (nor entitlements); access can deviate if warranted by the standard criteria. ### Access limits (global and cumulative) - Total access under all concessional facilities is subject to global annual and cumulative limits and includes credit outstanding and disbursements under the ECF, SCF, RCF, and ESF (but excludes ENDA and EPCA). - Normal limits: - annual: total access to financing under the PRGT should normally not exceed 100 percent of quota per year across all concessional facilities; - cumulative: total access to financing under the PRGT should normally not exceed 300 percent of quota cumulatively, net of scheduled repayments. - Annual access limit interpretation includes past and future scheduled disbursements in any 12-month period, specifically: - (i) any actual disbursements under the RCF and past ECF and SCF arrangements at the time they became available (the date of the Board decision that makes the disbursement available); - (ii) any disbursements to date that became available under the current SCF arrangement, irrespective of whether they have been drawn or not; - (iii) any future disbursements under the SCF at the scheduled availability dates. - The cumulative access limit requires outstanding Fund concessional credit (including disbursements made available but not drawn in the context of the current arrangement) cannot normally exceed 300 percent of quota at any point in time, based on projected disbursements and repayments. - Exceptional access above normal limits can be made available only if all of the following criteria are met: - (i) an exceptionally large balance of payments need that cannot be met within the normal limits (e.g., very large external shocks, very low levels of reserves); - (ii) a comparatively strong adjustment program and ability to repay the Fund—this criterion would generally not be met for countries with a high risk of debt distress or those that are in debt distress as defined under the joint Bank-Fund DSA, unless expected debt relief or restructuring is projected to reduce the risk of debt distress to a moderate level or low level; - (iii) do not meet the income or market access criteria for blending. - Exceptional access is subject to hard caps: - 150 percent of quota annually; - 450 percent of quota cumulatively (as defined above) across all concessional facilities. - Sub-ceiling for precautionary SCF arrangements: - if at approval there is a potential but no present or prospective balance of payments need, annualized access (total access divided by the length of the arrangement in years) is limited to 50 percent of quota, with the possibility to augment later if a larger present or prospective need arises. ### Phasing of access and presentation of financing - Phasing of SCF access, determined at approval, should mirror the projected evolution of balance of payments needs over the arrangement and must take into account applicable annual access limits. - Access may be front-loaded or back-loaded based on program strength and time profile of needs; significant frontloading could be appropriate in exceptional cases (e.g., repayment of emergency assistance to the Fund or arrangements approved following clearance of overdue obligations). - Staff reports are expected to present the balance of payments so that, in any given period, scheduled IMF disbursements together with other exceptional financing items do not exceed the overall balance of payments deficit and programmed reserve accumulation; the balance of payments would be fully financed, at least in the near term, at approval and completion of each review, while residual financing gaps may show in outer years. ### Access under blended financial assistance - Total access under blended SCF and GRA arrangements is determined based on the standard criteria, implying comparability across similar country cases irrespective of blending. - The SCF access norms do not apply to blended assistance; specific rules include: - The concessional (SCF) component is normally half of total access, subject to: - a floor on annual average access under the SCF of 25 percent of quota; - a ceiling of 50 percent of quota on annual average SCF access. - Consequence: new SCF arrangements with annual average access of 25 percent of quota or below would, at least initially, not involve blending with GRA resources. If presumption-for-blending criteria later apply, augmentations may involve blended financing. - At approval of a new SCF arrangement involving blended GRA assistance: - each scheduled disbursement should generally involve both SCF and GRA resources; - for members without outstanding GRA credit at approval, a minimum of 25 percent of quota should be made available for the first purchase under the GRA arrangement at approval. - SCF and GRA shares at each disbursement can be determined individually and need not remain constant across disbursements. - In exceptional circumstances with very large needs (e.g., very large shocks or repurchases of GRA emergency assistance), concessional access under blended assistance could exceed the 50 percent ceiling and reach: - the annual access limit of 100 percent of quota; or - possibly the exceptional annual access limit of 150 percent of quota if criteria for exceptional concessional access are met. ### Augmentations and reductions of access - Augmentation may be used to meet larger balance of payments needs or support program strengthening (e.g., when initial access was constrained by high risk of debt distress that later subsided). - Extension periods that involve needs not originally included may justify augmentation. - Under the Trade Integration Mechanism (TIM), augmented access not exceeding 10 percent of quota is available to compensate for shortfalls from trade liberalization measures implemented by other countries. - Determination of access for an augmentation is based on the standard criteria; no formal norms apply to augmentation size, though many augmentations have been in the range of 15–45 percent of quota, with a few cases well above this range. - Staff reports supporting augmentations should explicitly discuss the basis and size with reference to the main criteria and applicable norms and limits. - For augmentations of arrangements presumed to involve blended PRGT and GRA resources: - total financing mix over the full course of the arrangement should be guided by blended access rules, including that total concessional financing (post augmentation) would, to the extent possible, normally be half of total Fund access but normally not higher than 50 percent of quota and not lower than 25 percent of quota on an annual average basis. - The Fund cannot unilaterally reduce access under the SCF; authorities may request reductions if there is a marked and unexpected improvement in the balance of payments. - Augmentations would normally be approved at scheduled reviews; in exceptional circumstances (e.g., severe natural disasters) reviews may be brought forward to allow augmentations. ### Procedural safeguards on high access requests — DSAs and informal Board meetings - Financing requests are subject to uniform procedural safeguards across all concessional facilities to protect PRGT-eligible members’ debt sustainability and the Fund’s concessional resources. - Requirements: - A DSA or DSA update is required for any PRGT financing request (augmentation or new arrangement) if it: - (i) involves exceptional access to concessional resources; or - (ii) brings total access under all concessional facilities to more than 80 percent of quota, based on past and future scheduled disbursements in any 24-month period (including specified categories of past, current, and future disbursements); or - (iii) involves a member country with a high risk of debt distress or in debt distress. - A DSA update can be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA if recent and if the analysis would not change the risk of debt distress rating. - An early informal Board meeting is required if a PRGT financing request would: - (i) involve exceptional access to concessional financing; or - (ii) bring total access under all concessional facilities to more than 180 percent of quota, based on past and future scheduled disbursements in any 36-month period (including specified categories). - The Board briefing note (two to three pages) would typically include: - factors underlying the large balance of payments need, taking into account donor financing; - a brief summary of main policy measures and macroeconomic framework; - expected strength of the program and capacity to repay the Fund; - analysis of debt vulnerabilities reflecting all projected debt financing, including from the Fund; - reference to impact on the Fund’s concessional resources (drawing on latest available paper); - likely timetable of discussion with the authorities; - a selected indicators table and, if possible, standard DSA charts. - The informal Board meeting should take place before staff reaches understandings, ad referendum, with the authorities. - Staff would provide early notice to the Board (e.g., informal country matters session) of upcoming requests or augmentations where the envisaged financing commitment, in absolute terms, would have a large impact on the Fund’s overall concessional resources. - Exception: new financing requests of 10 percent or less of quota do not trigger either the need for a DSA update or a Board briefing. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_032112.pdf* ### 121. Repayments of SCF credit are made in nine equal semiannual installments, subject to ### _032112 - 121. Repayments of SCF credit are made in nine equal semiannual installments, subject to ### Repayments, interest, and fees - Repayments of SCF credit are made in nine equal semiannual installments, subject to a four-year grace period from the date of the first disbursement and eight-year final maturity. - The authorities may decide to make early reimbursements at any time, but would not be expected to do so. - Interest is paid semiannually. - The interest rate on SCF credit is currently set at 0.25 percent. - For the period from January 7, 2010 through December 31, 2012, no interest shall be charged on outstanding balances of SCF credit. - Interest rates are subject to biennial Board reviews that take account of developments in world interest rates. - At each review, interest rates would normally be adjusted if warranted by the prevailing SDR rate, within a 0.25–0.75 percent range for the SCF. - The new interest rate would apply to all outstanding SCF credit. - The next such review is scheduled for December 2013. - A small availability fee applies to the precautionary use of SCF financial resources: a fee at 0.15 percent per annum is levied on the undrawn portion of the amount available for drawing each six-month period under an SCF arrangement. - Note: This does not apply to interest on any overdue interest or overdue repayments of PRGT loans, which is charged at a rate equal to the SDR interest rate. ### Financing assurances and arrears - SCF arrangements can only be approved (and reviews can only be completed) when the program is fully financed in accordance with the Fund’s policy on financing assurances. - Staff should confirm there are no unfilled financing gaps over the 12 months immediately following the approval of the arrangement (and completion of each review), and that there is a clear expectation the program will be fully financed through the remainder of the arrangement period. - Assurances should indicate the member country has the capacity to repay the Fund based on medium-term projections of the balance of payments and, in the case of new arrangements and augmentations, the standardized table on indicators of the capacity to repay the Fund. - Under the Fund’s policy of non-toleration of sovereign arrears to official creditors, the Fund generally calls for resolution of existing arrears to official creditors and non-accumulation of new arrears during the program period. - Existing arrears need not be settled immediately; they can be addressed in a number of ways depending on creditor type; country teams should seek guidance from LEG and SPR on application to specific creditors. - Macroeconomic program assumptions should be consistent with the expected resolution of existing arrears to official creditors; staff should have reasonable assurances that arrears clearance understandings are realistic. - Arrears to private external creditors are covered by the Fund’s Lending into Arrears (LIA) policy; the Fund can lend, on a case-by-case basis, in a situation of sovereign arrears to private external creditors only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies and making a good faith effort to reach a collaborative agreement with its creditors (or to facilitate a collaborative agreement between private debtors and their creditors and good prospects exist for the removal of exchange controls). - Whenever the LIA policy applies, each Fund disbursement under an arrangement is subject to a financing assurances review in which the Board considers, inter alia, whether the member’s adjustment efforts are undermined by developments in creditor-debtor relations. - Where a member is in arrears to the Fund in the GRA, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee (including the PRGT), a request for IMF financing, including under the SCF, will not be approved and disbursements under an existing arrangement will be suspended until the arrears are cleared. - After one month the Managing Director will notify the Executive Board that an obligation is overdue; in the case of protracted arrears (i.e., arrears of more than six months’ duration), semiannual reports are to be issued to the Executive Board. - While a member is in arrears to the Fund, policy support can only be provided through surveillance, technical assistance and, under certain circumstances, SMPs. - Remedial measures for dealing with PRGT arrears include removal from the list of PRGT-eligible countries, declaration of noncooperation and suspension of technical assistance. ### Safeguards assessments - Staff should aim to complete a safeguards assessment prior to Executive Board approval of a new SCF arrangement. - A safeguards assessment report should be completed for each new arrangement no later than the first review under the arrangement and for all augmentations for existing arrangements. - Once the first review has passed, subsequent staff reports should highlight the status of assessment and, if not completed, reasons for its delay. - The safeguards process involves continuous analysis of information obtained primarily through collection of documents and discussions with the authorities and the central bank’s external auditors. - The assessment evaluates the central bank’s safeguards framework covering governance, auditing, financial reporting, control systems, and legal autonomy over the life of an arrangement and for as long as Fund credit remains outstanding. - Safeguards assessment recommendations may be incorporated into conditionality or structural measures under the member’s program. - Close cooperation and coordination between FIN, other functional departments, and area departments is essential; FIN should be kept informed of safeguards issues, including logistical issues such as timing of new arrangements and reviews. ### Program objectives and design - SCF-supported programs are aimed at achieving, maintaining, or restoring a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - SCF-supported programs should typically aim to maintain or achieve: - (i) strong and durable poverty reduction and growth, - (ii) low or moderate inflation, - (iii) sustainable fiscal and current account balances, - (iv) limited debt vulnerabilities, - (v) adequate international reserves, - (vi) sufficient policy and institutional capacity to implement appropriate macroeconomic policies. - The design of an SCF-supported program should be aligned with the country’s own poverty reduction and growth objectives. - Specific policy objectives to be clearly articulated in the LOI/MEFP and associated staff report typically include: - Fiscal policies: (i) fiscal stance well anchored to ensure macroeconomic stability and fiscal/debt sustainability, (ii) revenue and spending policies take due account of growth and social objectives, (iii) budgets guided by medium-term fiscal frameworks to the extent possible. - Monetary policies: consistent with inflation, exchange rate, and reserve objectives, while taking due account of cyclical considerations. - Exchange rate policies: ensure a unified exchange rate and a real exchange rate level broadly in line with fundamentals. - Financial sector policies: geared toward financial stability and deepening to foster investment and forestall financial crises. - Public financial management reforms: ensure resources are tracked, reported, and targeted appropriately; public debt management to support debt sustainability; revenue reforms to broaden the revenue base and enhance tax efficiencies. - Other structural reforms critical for achieving macroeconomic objectives. ### Role of SCF financial support and use of domestic counterpart - SCF balance of payments support assists countries in smoothing adjustment toward a stable and sustainable macroeconomic position. - Fund financial support can be used to strengthen international reserves and to provide liquidity for making external payments. - By relaxing external financing constraints, SCF support loosens domestic liquidity constraints of the public and private sectors, reducing the need for retrenchment in public and private savings-investment balances and enhancing policy options. - A member may use the domestic counterpart of resources received under an SCF arrangement to finance, directly or indirectly, the budget deficit of the government. - Direct budget financing may be appropriate when: - (i) the program envisages the entire amount of Fund support is used to meet a present or prospective balance of payments need, - (ii) loosening fiscal financing constraints is an important macroeconomic objective under the program, - (iii) the central bank cannot or should not lend to the government while the domestic financial sector is too shallow or unstable (or central bank plays passive domestic policy role, e.g., under a currency board or fully dollarized economy). - Staff reports should justify use of the domestic counterpart as budget financing where relevant and discuss safeguards implications. ### Links to poverty reduction strategies and social spending - Any financing request or program review under the SCF must be accompanied by a statement, normally in the LOI or MEFP, of how the program advances the country’s poverty reduction and growth objectives. - If a PRS document exists, the SCF-supported program should be consistent with PRS objectives in the context of promoting macroeconomic stability consistent with poverty reduction and growth. - If a relevant PRS document does not exist, SCF documentation should outline the country’s medium-term poverty reduction and growth objectives and policies; subsequent program documents should refer to and update this documentation as necessary. - PRS documents are not required for approval or review of an SCF arrangement, consistent with its short-term focus; staff should inform authorities at an early stage about definitions and timelines for PRS documentation when future PSI- or ECF-supported programs are under consideration. - PRS documents should normally be produced by authorities on a 12-month cycle and aligned with domestic policy cycles; staff are required to prepare a JSAN for PRSPs and I-PRSPs and circulate it to the Executive Board for discussion generally within four months of transmission of the PRSP and I-PRSP. - Social and other priority spending should be safeguarded and, whenever appropriate, increased under SCF-supported programs. - Safeguarding social and priority spending should be monitored through explicit program targets, typically an indicative floor on social and other priority spending, whenever possible. - Where tracking of such expenditures is not feasible, program documentation should report measures envisaged to develop an adequate tracking system; staff should monitor progress and may include structural benchmarks if appropriate. ### Debt sustainability analysis (DSA) - SCF-supported programs should be underpinned by a thorough DSA to inform medium-term debt strategies and fiscal frameworks. - Country teams should engage authorities in DSA preparation, discuss results, and share final files with relevant officials. - DSAs for most LICs are usually prepared jointly with the World Bank; involvement of other relevant MDBs is recommended. - Joint DSAs are required for PRGT-eligible IDA-only countries; for LICs that are not IDA-only, close consultation with the Bank is recommended. - A fully elaborated DSA is required at least once every three years, with shorter annual updates possible in interim years absent significant changes. - Full DSAs should be prepared in periods of heightened domestic, external, or global risk. - The precise timing of a DSA may be driven by program requirements; DSAs relate systematically to the design of debt limits under an SCF arrangement and to access determinations for concessional resources. - In cases where a DSA is required outside the regular joint cycle, a DSA update may be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA provided a joint DSA was prepared recently and the analysis would not change the risk rating. - DSAs for LICs should be presented as self-contained documents and normally prepared using the LIC Debt Sustainability Framework (DSF); for countries with durable and substantial market access, the middle-income template can be used. - The analysis includes three components: - A forward-looking analysis (20-year projection) of debt and debt-service dynamics under a baseline scenario, alternative scenarios, and standardized stress tests; - An explicit assessment of the risk of external debt distress (low, moderate, high, or in debt distress) based on indicative country-specific debt-burden thresholds that depend on the quality of policies and institutions; - Recommendations on a borrowing (and lending) strategy to limit the risk of debt distress while maximizing resources to achieve development objectives. - DSAs for LICs should be self-contained documents (see Appendix I). ### Collaboration with the World Bank and development partners - Fund staff should consult closely with all major development partners active in the country when designing and monitoring an SCF-supported program. - The JMAP approved by the Boards of the World Bank and IMF calls on Bank and Fund country teams to consult with each other at least once a year to identify key macroeconomic and structural reform challenges and coordinate work plans. *Source: Standby Credit Facility (excerpts).* ### 139. Conditionality, i.e., the set of program-related conditions, under an SCF arrangement ### _032112 - 139. Conditionality, i.e., the set of program-related conditions, under an SCF arrangement ### Purpose and principles of conditionality - Conditionality is intended to ensure that Fund resources are provided in support of meeting the program’s objectives, with adequate safeguards to the Fund’s resources. - Consistent with the Fund’s Guidelines on Conditionality, conditions will normally consist of macroeconomic variables and structural measures that are reasonably within the member’s direct or indirect control and that are, generally, either: - (i) of critical importance for achieving the goals of the program or for monitoring program implementation, or - (ii) necessary for the implementation of specific provisions of the IMF Articles of Agreement or policies adopted under them. - If conditions are outside the Fund’s core areas of expertise, a more detailed explanation of their critical importance is required. - SCF-supported programs must meet the UCT conditionality standard, which requires the commitment and capacity by the authorities to implement a set of policies that is adequate to correct external imbalances and enable repayment to the Fund. - The adjustment effort required to attain full sustainability would not be expected to extend much beyond the expiration date of the SCF arrangement, and would often fall fully within the arrangement period. - Given its focus on restoring sustainability in the short term, the SCF will generally permit less flexibility than the ECF in the timing of measures. ### Specification of program conditions - Program conditionality will include quantitative periodic and continuous PCs, and typically also quantitative and structural benchmarks, as well as prior actions if necessary. - Conditionality is set at the time of approval of the arrangement and updated at the time of program reviews. - Conditionality should normally be set (or modified) by the Board before the test date. - For establishment (or modification) of post-dated PCs, program documents must be signed and circulated to the Board along with the staff report before the test date; no information on implementation of such conditionality would be available at the time of the Board meeting. - Prior actions: - Are measures expected to be adopted prior to the Fund’s approval of an SCF arrangement, completion of a review, or the granting of a waiver with respect to a PC when critical for successful implementation. - Are to be applied parsimoniously and specified in clear, objective, and unambiguous terms. - Should in principle be implemented at least five working days before the Board discussion. - Should be defined in the LOI/MEFP and cross-referenced in the relevant Board Decision. - Timing and frequency of PCs and benchmarks: - Quantitative PCs would normally be set on a semiannual basis and tied to semiannual program reviews. - Quantitative benchmarks (indicative targets) would normally be specified on a quarterly basis. - Where closer monitoring is needed, quantitative PCs and reviews could be set on a quarterly basis. - Conditionality should cover the 12 months following the Board meeting (initial approval or review). - Under semiannual monitoring, PCs would normally be established for two future test dates at approval and at each review (except for the penultimate and final reviews). - Under quarterly monitoring, PCs should normally be set for four future test dates, and in any case not less than for two future test dates. - Typical quantitative periodic PCs include measures of net international reserves, central bank domestic assets, domestic and fiscal balances or financing, and limits on nonconcessional external debt. - Indicative targets should include a floor on social and other priority spending where possible, and may include other indicators such as reserve money. - Continuous PCs always include commitments related to non-introduction or intensification of certain exchange restrictions and on non-introduction or modification of multiple currency practices; other continuous PCs typically include the non-accumulation of external payments arrears and may include the non-contracting of nonconcessional external debt. - Structural benchmarks: - SCF arrangements should cover structural reforms deemed critical for achieving a stable and sustainable macroeconomic position in the short term. - Structural benchmarks are critical measures serving as clear markers for progress in implementing critical structural reforms in the context of a program review. - Structural benchmarks should be used parsimoniously and their macro-criticality explicitly justified in program documents, ideally in the structural benchmark table. - Reviews are the primary tool for monitoring structural elements of the program. - Specific objectives should be defined for periods covered by individual reviews, with related structural benchmarks that are critical for achieving the program’s objectives. - SCF arrangements would typically contain less than 5 structural benchmarks per semiannual review. - The use of structural PCs was discontinued in 2009. - Re-dating and modification of structural benchmarks: - Any structural benchmark that is significantly delayed can be re-dated and re-linked to the next program review if it remains macro-critical. - If implementing a structural benchmark is no longer possible as defined, a new benchmark or a modified version may be appropriate as long as it is critical to achieve program goals. ### Waivers and modifications of conditionality - Waiver for non-observance of a PC may be granted if the Fund is satisfied that the program will nevertheless be successfully implemented because of the minor or temporary nature of the nonobservance or remedial actions taken by the authorities. - Procedures for waivers: - Upon verification that a PC was not met, a request for a waiver can be made by the member in the LOI. - If staff supports granting the waiver, justification is provided in the staff report, which will include a proposed decision on the waiver. - Waivers for nonobservance are only required for quantitative PCs tied to the specific disbursement and to the review being completed (and for any standard continuous PC that has been missed). - Waivers for PCs tied to subsequent disbursements and reviews are not required even if information on nonobservance already exists; in these cases staff report and LOI/MEFP must provide assurances that understandings on appropriate policies have been reached to complete the subsequent review. - Waivers of applicability: - Could in principle be granted if information necessary to assess observance is unavailable and the Fund is satisfied the program will be successfully implemented and there is no clear evidence the PC has not been met. - In the case of the SCF, waivers of applicability would be highly unusual. - In arrangements with blended financing, waivers of applicability will be required for the GRA-financed arrangement if the review is conducted after the most recent test date has passed and data are not yet available. - With respect to the GRA financial arrangement, the member may purchase any amount available based on earlier completed reviews if the purchase is requested within 45 days of the most recent test date and all the conditions specified in paragraph 2 of the Reduction of Blackout Periods in GRA arrangements decision (Decision No. 14407-(09/105)) have been met. - Modifications to conditionality already set by the Board: - May be appropriate when departures from PCs are expected because basic program assumptions have not been realized or significant unanticipated developments have occurred, provided targets remain macro-critical. - Requests for modifications must be submitted to the Board before the relevant test date has been passed and approved by the Board before information on observance is available, normally in the context of a program review. - In exceptional cases, Board approval for modifications can occur outside a review if authorities and staff have common understandings documented in a revised or new LOI with updated PC table and, where relevant, TMU. - Board approval requires a staff report discussing reasons for the modification, why it is proposed outside review context, the status of the program, and relevant policy understandings. ### Misreporting - Misreporting occurs when members with a Fund-supported program obtain resources on the basis of inaccurate information regarding observance of quantitative or continuous PCs or prior actions (a “noncomplying disbursement”). - Under the SCF, a noncomplying disbursement occurs when: - (i) the Fund makes a disbursement on the basis of a finding that applicable conditions established for that disbursement have been observed, and - (ii) that finding later proves to be incorrect. - Procedures following evidence of a noncomplying disbursement: - The Managing Director shall inform the member promptly upon evidence that a member may have received a noncomplying disbursement. - After consultation, if the Managing Director determines a noncomplying disbursement occurred, the Managing Director shall promptly notify the member and submit a report to the Executive Board with recommendations. - The Board may decide either (a) that the member shall be expected to repurchase/repay the disbursed amount, or (b) that the nonobservance will be waived. - Waivers will normally be granted only when the deviation was minor or temporary, or if the member had adopted additional measures appropriate to achieve the objectives supported by the relevant decision on the disbursement. - De minimis misreporting: - If the Executive Board finds the noncomplying disbursement has been made but the nonobservance was de minimis (a deviation so small as to be trivial with no impact on assessment of performance), a waiver for nonobservance shall be granted. - De minimis misreporting will not be published in a staff report. ### Reviews and disbursements: purpose, timing, and design - Purpose of program reviews: - Evaluate whether the program is on track to achieve its objectives based on backward-looking assessment (performance against quantitative PCs, structural and quantitative benchmarks, and prior actions) and a forward-looking assessment of prospects for successful implementation. - At the final review, and assuming no further Fund support is expected, the forward-looking assessment could be more limited. - Reviews update program design, specify forward-looking policies and conditionality, and are the main vehicle for modifications to program design (access, phasing, conditionality). - At approval and for each review, the authorities’ LOI presents or updates their policy program and a staff report provides overall assessment and policy commitments. - Timing of reviews, test dates, and disbursements: - Timing of all reviews, test dates, and disbursements is summarized in a staff report table at approval and updated as needed at reviews. - The Arrangement text attached to the staff report for the initial SCF request specifies test dates, reviews, availability dates, and disbursements for the first year. - The quantitative indicator table attached to the LOI/MEFP should identify PCs, indicative targets, and adjustors for at least a 12-month period from the Board date of program approval or review. - The structural benchmark table should cover measures over at least a 12-month period, indicating the reviews that individual benchmarks are linked to. - The Decision attached to the staff report should specify all PCs and review/availability dates normally over the next 12 months from the Board date. - The first disbursement is made available upon approval of the arrangement; subsequent disbursements are conditional on observance of PCs and a program review confirming satisfactory progress and adequate safeguards. - Phasing and monitoring frequency: - Disbursements and reviews can be both semiannual or both quarterly when closer monitoring is needed (significant volatility and/or uncertainty). - When designing test dates, consider alignment with the country’s budget cycle; small deviations from strict cycles are acceptable if minor. - Exceptional shifts between semiannual and quarterly phasing during an arrangement are possible based on changes in volatility and/or uncertainty, or scheduled at approval if warranted by projected risk profile. - Test dates and availability dates: - Test dates must be set so all scheduled disbursements can take place before the end of the SCF arrangement, accounting for reporting lags and preparation/circulation periods for staff reports. - Availability dates should be set so all data needed to confirm observance at related test dates would have become available. - Availability dates are specified in the Arrangement text and subsequent Decisions, and summarized in the staff report table; reviews cannot be completed prior to the applicable availability date. - Program period start: - The program period supported by an SCF arrangement would typically start somewhat before the Board approves the SCF arrangement, and three to six months before the first test date under semi-annual monitoring. - The program period should normally not start more than three months prior to the Board meeting, and in any case not before the authorities and staff have discussed the parameters of the program. - Blackout periods: - In contrast to SBAs, the SCF design avoids “blackout periods” by linking each disbursement to completion of a specific review and to observance of specific periodic performance criteria, so a disbursement is not blocked when a new test date passes because that test date applies to a future disbursement subject to completion of a future review. *Source: _032112 - 139. Conditionality, i.e., the set of program-related conditions, under an SCF arrangement* ### 160. The implementation of SCF-supported programs may encounter interruptions and ### _032112 - 160. The implementation of SCF-supported programs may encounter interruptions and ### Interruptions, delays, and establishing a track record (paras. 160–161) - Implementation of SCF-supported programs may encounter interruptions and delays; when caused by substantial policy slippages, it is often appropriate to establish a track record before completing the review (para. 160). - Track record options (para. 160): - Informal: based on informally agreed time-bound policy actions and targets. - Formal: monitored under an SMP, or under the RCF in case of urgent financing needs caused by an exogenous shock (assuming applicable policy commitments are in place). - Remedies for bringing a program back on track (para. 160): - Modification of planned timing of disbursements and reviews. - Extensions of the arrangement, combining reviews, rephasing of access, or combinations thereof. - Combining reviews (para. 161): - Two reviews can be combined when delays have occurred and performance can be assessed against two test dates linked to successive reviews. - Combining three or more reviews is very unusual because PCs are typically not defined for more than two future test dates under semiannual monitoring and long-lasting deviations often justify cancellation. - Conditions for combining reviews (para. 161): - (i) Conditionality (including applicable PCs) fully defined and Board-approved for these reviews. - (ii) Data available for measuring observance of conditionality for the reviews. - (iii) Anticipated dates for conclusion of the reviews in the arrangement text have all passed. - Typical rationale: combine when program is on track with respect to the most recent review and sufficient corrective action offsets earlier problems. - Not appropriate to combine when slippages relative to the most recent review are significant; alternatives include cancellation of the arrangement and discussion of support under a new instrument or completing the past review while establishing a new future test date and conditionality, typically combined with rephasing of access. ### Rephasing disbursements and access (para. 162) - Disbursements under an SCF arrangement may be rephased to: - Change amounts of financing provided under individual disbursements associated with specified reviews. - Change the number or timing of disbursements and reviews. - If delays cannot be accommodated by extensions or combining reviews alone, the total amount of access can be rephased into a new pattern of test dates and reviews, generally only after full use of the maximum possible extension (para. 162). - Principle: Access should never be rephased in a manner that makes it impossible for the member to get the full, undisbursed amount under the arrangement (para. 162). - If rephasing would compress a very large amount of access into a short period (even with a potential extension), it is normally appropriate to let the current arrangement expire or be cancelled and proceed to a new SCF arrangement with more attainable goals, unless there has been a very sharp turnaround in performance (para. 162). ### Other relevant policies linked to SCF arrangements (para. 163) - EPAs and LTPE (para. 163): - Access to resources under SCF arrangements counts toward the policy on LTPE. - Members that have had a UCT arrangement in place for at least seven out of the past ten years, and for whom an EPA has not been prepared in the past five years, an EPA should be prepared in time to be considered by the Board prior to a request for a new arrangement. - PPM (para. 163): - Outstanding SCF credit will be subject to PPM. - Normally, members with outstanding credit from the Fund in the GRA and/or PRGT exceeding 200 percent of quota after the expiry of their arrangements are expected, upon recommendation of the Managing Director, to engage with the Fund in PPM (unless the member is implementing a Fund-supported program or SMP). - Article IV cycle (para. 163): - The 24-month cycle for Article IV consultations applies to members with an SCF arrangement. - Article IV consultations with members that have an on-track SCF arrangement in place would be expected to be completed within 24 months after completion of the previous Article IV consultation. - If a program review is not completed by the date for completion specified in the arrangement, the next Article IV consultation would be expected to be completed by the later of: - (i) six months after the scheduled review date; and - (ii) 12 months, plus a grace period of three months after the previous Article IV consultation, - unless the program review has been completed prior to the later of these two dates, in which case the 24-month cycle continues to apply (para. 163). - A member that has completed an SCF by drawing all amounts may remain on the 24-month cycle, unless it meets any of the criteria in paragraph 2 of Decision No. 14747-(10/96): (i) systemic or regional importance; (ii) perceived to be at risk or facing pressing policy issues of broad interest; or (iii) outstanding Fund credit exceeding 200 percent of quota. At the final review staff should assess whether to shorten the cycle back to 12 months (para. 163). - Exchange System obligations and data (para. 163): - A standard continuous PC applies inter alia to the non-introduction or intensification of exchange restrictions and on the non-introduction or modification of multiple currency practices (see Appendix II, Section G). - Article VIII, Section 5 does not apply to provision of information required for Fund financial assistance under the SCF; PRGT resources are held in an administered account and obligations are governed by the PRGT Instrument (para. 163). - HIPC and MDRI (para. 163): - Performance under an SCF arrangement can count toward a track record of strong policy performance required for HIPC decision point and completion point. - Minimum required track record: six months for the decision point and one year for the completion point (para. 163). - Side letters (para. 163): - Use in LIC programs is extremely rare. - May be used when release of information at time of request or review would cause adverse market reaction or undermine authorities’ efforts to prepare domestic groundwork for a measure. ### Rapid Credit Facility—overview and purpose (paras. following 163, Ch. III intro, paras. 164–166) - The RCF provides low-access concessional financing with limited conditionality to LICs facing an urgent balance of payments need (chapter header). - The RCF became effective on January 7, 2010, as part of a comprehensive reform of the IMF’s facilities for LICs (footnote). - Purpose and objective (para. 164–166): - The RCF provides rapid concessional financial assistance as outright disbursements to LICs facing urgent balance of payments needs, including those caused by exogenous shocks, natural disasters, and emergence from conflict, as well as domestic instability, emergencies, and fragility (para. 164). - Designed for situations where a multi-year UCT-quality Fund-supported program is either not necessary (transitory adjustment need) or not feasible (limited capacity, post-conflict, disaster, fragile situations) or where more time is needed to design a multiyear program (para. 164). - The RCF is for situations where support can be provided before a UCT-quality program can be put in place and can be used to build a track record for moving to a UCT-quality arrangement (para. 164, 165). - RCF financing assists countries by providing temporary concessional financial support to smooth economic adjustment and avoid excess volatility; helps replenish international reserves and loosen financing constraints; expected to provide policy support and catalyze additional financing from donors (para. 166). ### RCF eligibility and qualification (paras. 167) - Assistance under the RCF is available to PRGT-eligible member countries that face urgent balance of payments needs unless: - (i) the balance of payments difficulties underlying the financing need are predominantly caused by a withdrawal in financial support by donors; or - (ii) a UCT-quality program is both feasible and necessary (para. 167). - Definitions and qualification criteria (para. 167): - Urgent balance of payments need: characterized by a present balance of payments need that, if not addressed, would result in immediate and severe economic disruption. Non-urgent financing needs could be met by the ECF or SCF, assuming relevant qualifications (para. 167). - RCF can only be used if it is either not feasible or not necessary to implement a UCT-quality program: - A member would normally qualify for the RCF if either: - (i) the balance of payments need is expected to be resolved within one year and no major policy adjustments are necessary to address underlying difficulties (as with some temporary shocks, but not for a country also facing a protracted balance of payments problem); or - (ii) a UCT-quality Fund-supported program cannot be put in place owing to limited policy implementation capacity or when urgency calls for assistance before a UCT-quality program can be put in place (or be brought back on track). In the latter case, the RCF can be used to build a track record for moving to a UCT-quality arrangement (para. 167). *Italicized source attribution: Content derived from the IMF PDF chapter excerpt provided (paras. 160–167 and surrounding text).* ### 168. Qualification also requires several ex ante policy undertakings. The member would ### 032112 - 168. Qualification also requires several ex ante policy undertakings. The member would ### Ex ante policy undertakings - Qualification requires the member to outline, in a LOI, the policies it plans to pursue and set out any additional understandings to provide assurance that it will not introduce measures or policies that would compound its balance of payments difficulties. - Typical undertakings include, inter alia, a commitment not to introduce or intensify exchange and trade restrictions. - Sufficient policy capacity and commitment to implement the policies must exist to safeguard Fund resources. - The Fund must assess that the member will cooperate with the Fund to find, where appropriate, solutions for its balance of payments difficulties. - Other requirements for the approval, repeated use, and implementation of RCF support are discussed further below. ### Repeated use of the RCF - RCF resources are provided as outright loan disbursements and not phased under an arrangement. - The RCF can accommodate both one-off disbursements (e.g., in case of shocks) or repeated disbursements over a (limited) period in case of recurring or ongoing urgent financing needs. - In the latter case, the RCF should typically be used (similar to an SMP) to facilitate an eventual transition to a UCT-quality program, normally to be supported under an ECF arrangement. - Use in post-conflict and similar situations of instability and limited capacity would be similar to the use of the RFI (previously EPCA). - For countries building a track record for a UCT-quality arrangement and facing urgent financing needs, use of the RCF, with appropriate policy understandings, would often obviate the need for an SMP. - To limit support for continued weak policies or moral hazard: - A member may not receive more than two RCF disbursements in any 12-month period. - A member can qualify for an RCF disbursement only if one or more of the following three circumstances apply: - no RCF disbursements have been made in the past three years; or - the balance of payments need was caused primarily by a sudden, exogenous shock, in which case a member qualifies under a ―shocks window‖; or - the member country has established a track record of adequate macroeconomic policies for a period of about six months prior to the request. ### Concurrent use and blending - Concurrent use - A member cannot obtain RCF financing if a UCT-quality financial arrangement (e.g., under the ECF or SCF) is in place and on track. - RCF financing during an ECF or SCF arrangement can be provided only when: - (i) disbursements under the ECF or SCF arrangement are not possible (e.g., due to policy slippages or delays in program discussions), - (ii) qualification requirements for the RCF are met, including the existence of an urgent balance of payments need and relevant policy commitments, and - (iii) the balance of payments need giving rise to the request for financing under the RCF is primarily caused by a sudden exogenous shock. - When access under the RCF exceeds 25 percent of quota in these circumstances, existing and prospective policies should be sufficiently strong to address the shock. - RCF-supported policies could serve as a track record to bring the ECF- or SCF-supported program back on track. - The RCF can be used concurrently with GRA financing under certain circumstances. - The RCF can be combined with programs supported under the PSI or monitored under an SMP. - Satisfactory performance under a PSI or SMP for at least six months would normally satisfy the track record requirement for repeated use of the RCF and facilitate rapid disbursement. - A short LOI together with a short staff paper would normally suffice for requesting an RCF loan disbursement when an urgent balance of payments need arises during an on-track PSI or SMP. - Blending - Certain PRGT-eligible countries are expected to receive financial assistance through blended PRGT and GRA resources, rather than relying on fully concessional Fund financing. - Blending can allow higher access levels (if justified by the balance of payments need and strength of the program) and provide a signal that the borrower is moving toward middle-income or emerging market status. - PRGT-eligible countries, including members qualifying for support under the RCF, would be expected to use either fully concessional or blended resources, rather than GRA-only financing, although they are always eligible for access to the Fund’s general resources. - Blending of RCF and GRA resources is subject to the following presumptions and limitations: - Blending is presumed for PRGT-eligible countries with either (i) per capita income above the prevailing operational cutoff used by the IDA or (ii) sustained past and prospective market access and a per capita income that exceeds 80 percent of the IDA operational cutoff. The income presumption applies at the time of each RCF disbursement irrespective of whether or not previous financial support under any instrument was blended. - If there is no available GRA instrument for blending an RCF loan disbursement with GRA resources, in particular when RFI purchases cannot be used, RCF-only financing is possible irrespective of the presumption of blending. - Blending should normally not be used for countries at a high risk of debt distress or in debt distress (as assessed by the most recent joint Bank-Fund LIC DSA), even if per capita income or market access creates a presumption for blending. - When total access for a disbursement is 25 percent of quota or below, the resources under the RCF would not normally be blended with resources under the GRA even if the criteria that create a presumption for blending are met. - In exceptional circumstances, when financing needs exceed the applicable access limits, blending can be used irrespective of the per capita income, market access, and debt sustainability criteria. - When providing financial assistance with blended resources, RCF resources will normally be provided together with GRA resources under the RFI. - Use of the RCF in conjunction with financing under GRA arrangements would only be expected in cases where the programs financed under the pre-existing SBA or EFF arrangements are off track; in this case, RCF financing would normally be provided together with RFI resources. - Modalities and documentation of blended RCF-GRA financing are broadly the same as those applicable under a stand-alone RCF disbursement, with the main difference that Fund financial assistance would typically involve both RCF and GRA resources, implying lower average concessionality than under stand-alone RCF support. - RFI qualification requirements must be met when applicable. ### Access—determination and limits - Determination of access—main criteria - Access under the RCF is determined on a case-by-case basis based on the following standard criteria: - (i) the member’s (present) balance of payments need (taking into account all balance of payments flows, including reserve accumulation and financing from other sources); - (ii) the strength of its policies and capacity to repay the Fund (taking into account the member’s policy plans, adjustment effort, commitment to implement the program, institutional capacity, track record of policy implementation, and country circumstances such as vulnerabilities, imbalances, and debt sustainability); - (iii) the amount of outstanding Fund credit and the member’s record of past use. - The amount of individual RCF disbursements may not exceed the member’s present balance of payments need, and would typically be less than total financing needs. - When requesting individual disbursements, the member will need to make a representation, normally in an LOI, that it is experiencing an urgent balance of payments need. - In case of repeated RCF disbursements, the timing and amounts of access would not be expected to mirror the projected evolution of financing needs, and disbursements would often cover only a small part of total financing needs. - When urgent financing needs are projected to persist or reoccur and transition to a UCT-quality arrangement is not expected in the near term, it may be appropriate to set access such that successive disbursements, at semiannual intervals and roughly equal magnitudes, could be accommodated under the applicable RCF access sub-ceilings. - Access limits - A member’s total access under all concessional facilities is subject to "global" annual and cumulative limits, including credit outstanding and disbursements under the ECF, SCF, RCF, and ESF (but not credit outstanding under ENDA and EPCA). - Total access to financing under the PRGT should normally not exceed 100 percent of quota per year across all concessional facilities. This annual access limit refers to past and future scheduled disbursements in any 12-month period, specifically: - (i) any actual disbursements under the RCF and past ECF and SCF arrangements at the time they became available (i.e., the date of the Board decision that makes the disbursement available), - (ii) any disbursements to date that became available under the current ECF or SCF arrangement, as relevant, irrespective of whether they have been drawn or not, and - (iii) any future disbursements under the current ECF or SCF arrangement, as relevant, at the scheduled availability dates. - Total access to financing under the PRGT should normally not exceed 300 percent of quota cumulatively, net of scheduled repayments. This cumulative access limit requires that total outstanding Fund concessional credit cannot normally exceed 300 percent of quota at any point in time, based on projected disbursements and repayments. - In exceptional circumstances, access above the normal global limits can be made available to countries that: - (i) experience an exceptionally large balance of payments need that cannot be met within the normal limits (e.g., very large external shocks, very low levels of reserves), - (ii) have a comparatively strong adjustment program and ability to repay the Fund—this criterion would generally not be met for countries with a high risk of debt distress or those that are in debt distress as defined under the joint Bank-Fund DSA, unless expected debt relief or restructuring is projected to reduce the risk of debt distress to a moderate level or low level, and - (iii) do not meet the income or market access criteria for blending. - Exceptional access is subject to hard caps of 150 percent of quota annually and 450 percent of quota on a cumulative basis across all concessional facilities. - In addition to global limits, access to the RCF is subject to sub-ceilings: - 25 percent of quota per year (i.e., over any 12-month period); and - 75 percent of quota on a cumulative basis (i.e., total stock of RCF credit outstanding at any point in time). - These sub-ceilings can be exceeded under the "shocks window" of the RCF, where augmented access of up to 50 percent of quota per year and up to 100 percent on a cumulative basis could be made available provided that: - (i) the primary cause of the balance of payments need is a sudden exogenous shock other than a withdrawal in financial assistance by donors, and - (ii) existing and prospective policies are sufficiently strong to address the shock. - The amount of augmented access provided under the shocks window cannot exceed the size of the financing need created by the exogenous shock. - Outstanding credit under the ESF-RAC and outstanding subsidized credit under EPCA or ENDA count against the above RCF sub-ceilings. - There are no norms for access under the RCF; the above sub-ceilings should not be considered norms. Individual disbursements would in most cases be below the applicable annual sub-ceilings. - A disbursement of 50 percent of quota under the shocks window would only be expected where the financing need is very large and the economic policy context is relatively strong (including limited debt vulnerabilities). - In the absence of an exogenous shock, a disbursement of 25 percent of quota would be rare and could only be appropriate where the financing need is relatively large and the economic policy context strong enough (including limited debt vulnerabilities) to provide a realistic near-term prospect of a transition to a UCT-quality program. - Access under blended financial assistance - Total access to financial assistance (e.g., RCF together with RFI) is determined based on the standard criteria, implying total access should be comparable across countries with similar needs and policies irrespective of financing form. - Access to the concessional (RCF) component of blended financial assistance would normally be half of total access, subject to a floor on annual average access under the RCF of 25 percent of quota, with the remainder met by GRA financing. - As a consequence, any disbursements of 25 percent of quota or less would therefore normally be provided through the RCF only even when a member meets the income or market access criteria that create a presumption of blending. - However, if for such a member another RCF disbursement is made within 12 months, the earlier RCF disbursement would count against the applicable sub-ceilings on annual access under the RCF, and the second disbursement would therefore normally involve GRA resources even if it is in a total amount of 25 percent of quota or lower. ### Procedural safeguards on high access requests—DSAs and informal Board meetings - Financing requests are subject to procedural safeguards that apply uniformly across all concessional facilities, aimed at protecting PRGT-eligible members’ debt sustainability and the Fund’s concessional resources. - The staff report for any RCF disbursement should provide an up-to-date assessment of debt vulnerabilities, with explicit reference to the impact of new borrowing from all sources, including prospective IMF disbursements. - Requirements: - A DSA or DSA update is required for any financing requests under the PRGT if it: - (i) involves exceptional access to concessional resources; or - (ii) brings total access under all concessional facilities to more than 80 percent of quota, based on past and future scheduled disbursements in any 24-month period (specific inclusions listed in the source); or - (iii) involves a member country with a high risk of debt distress or in debt distress. - A DSA update can be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA as long as a joint DSA was prepared recently and the analysis would not result in a change of the risk of debt distress rating. - An early informal Board meeting is required if a financing request under the PRGT would: - (i) involve exceptional access to concessional financing; or - (ii) bring total access under all concessional facilities to more than 180 percent of quota, based on past and future scheduled disbursements in any 36-month period (specific inclusions listed in the source). - Information to the Board would typically be in a 2–3 page note including seven specified elements and should take place before staff reaches understandings, ad referendum, with the authorities. - Staff would provide early notice to the Board of upcoming financing requests where the envisaged financing commitment, in absolute terms, would have a large impact on the Fund’s overall concessional resources. - As an exception, new financing requests of 10 percent or less of quota do not trigger either the need for a DSA update or a Board briefing. *Source: Extract from the Rapid Credit Facility chapter (pages 81–87) of the provided IMF document.* ### 190. Repayments of RCF credit are made in 10 equal semiannual installments, subject to a ### _032112 - 190. Repayments of RCF credit are made in 10 equal semiannual installments, subject to a ### Repayment terms and interest - Repayments of RCF credit are made in 10 equal semiannual installments, subject to a 5.5-year grace period from the date of the first disbursement and 10-year final maturity. - The authorities may decide to make early repayments at any time, but would not be expected to do so. - Interest is paid semiannually. - The interest rate on RCF credit is currently set at zero percent, but subject to biennial Board reviews that take account of developments in world interest rates. - At each review, interest rates would normally be adjusted if warranted by the prevailing SDR rate, within a 0.0–0.5 percent range for the RCF. - The new interest rate would apply to all outstanding RCF credit. - The next such review is scheduled by end-December 2013. - Note: This does not apply to interest on any overdue interest or overdue repayments of PRGT loans, which is charged at a rate equal to the SDR interest rate. ### Financing assurances and arrears - The Fund’s policy on financing assurances requires that financial arrangements can only be approved (and reviews can only be completed) when the program is fully financed. In contrast, such financing assurances are not required for RCF disbursements. - Staff reports for RCF requests should provide information on projected financing gaps. - Where the RCF may be used to build a track record for a UCT-quality arrangement, the staff report should discuss prospects for financing assurances required for such an arrangement. - Assurances should be given that the member country has the capacity to repay the Fund based on medium-term projections of the balance of payments and the standardized table on indicators of the capacity to repay the Fund. Arrears policy and flexibility - The Fund’s policy of non-toleration of sovereign arrears to official (multilateral and bilateral) creditors remains generally applicable in the context of RCF support. - The Fund generally calls for the resolution of existing arrears to official creditors and non-accumulation of new arrears; existing arrears need not necessarily be settled immediately and can be addressed in a number of ways depending on the type of creditor. - Country teams should seek guidance from LEG and SPR on the application of the policy to specific creditors. - Macroeconomic assumptions underlying RCF-supported policies should be consistent with expectations regarding resolution of existing arrears to official creditors, implying common understandings on timing and modalities of arrears clearance to the extent possible. - Flexibility can be practiced under certain circumstances (e.g., in the wake of a conflict or natural catastrophe) allowing RCF disbursements without understandings on clearance of sovereign arrears when concerted international action is expected to normalize relations with official creditors. - Staff reports for RCF requests should provide detailed information on arrears and discuss prospects for arrears resolution. Arrears to private creditors and domestic arrears - There is scope for flexibility in applying the Fund’s LIA policy for sovereign arrears to private external creditors and non-sovereign arrears arising from exchange controls. - Under LIA, the Fund can lend, on a case-by-case basis, in situations of sovereign arrears to private external creditors only where: (i) prompt Fund support is essential for successful implementation of the member’s adjustment program; and (ii) the member is pursuing appropriate policies and making a good faith effort to reach a collaborative agreement with its creditors (or facilitate such an agreement and good prospects exist for removal of exchange controls). - For the RCF, these conditions may not be required in all cases, particularly after conflict or natural catastrophe, although staff reports should provide information on arrears to private external creditors. - RCF-supported economic policies should take into account any domestic arrears; specification of policies related to domestic arrears will depend on country context, in particular the fiscal framework (see Appendix II). Overdue obligations to the Fund - Where a member is in arrears to the Fund in the GRA, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee (including the PRGT), a request for IMF financing, including under the RCF, will not be approved and disbursements under an existing arrangement will be suspended (PRGT Instrument, Section II, paragraph 1(e)(3) and 3(g)) until the arrears are cleared. - After one month the Managing Director will notify the Executive Board that an obligation is overdue. - In the case of protracted arrears to the Fund (i.e., arrears of more than six months’ duration), semiannual reports are to be issued to the Executive Board. - While a member is in arrears to the Fund, policy support can only be provided through surveillance, technical assistance and, under certain circumstances, SMPs. - Remedial measures for dealing with PRGT arrears include removal from the list of PRGT-eligible countries, declaration of noncooperation and suspension of technical assistance. Safeguards assessments - Under the RCF, a member’s request for assistance will require a commitment to undergo a safeguards assessment and to provide Fund staff access to the central bank’s most recently completed external audit reports (whether or not the audit is published). - The member shall authorize its external auditors to hold discussions with staff; the commitment and authorization is to be provided at the time when the member makes a formal written request for RCF resources. - Timing and modalities of the assessment will be determined case-by-case depending on the institutional and administrative capacity of the central bank; it is presumed that the safeguards assessment would have been completed before Board approval of any subsequent arrangement to which the Fund’s safeguards policy applies. - The safeguards process entails evaluation of the central bank’s safeguards framework covering governance, auditing, financial reporting, control systems, and legal autonomy. - FIN must be kept informed by area departments of safeguards issues, including logistical issues such as timing of new arrangements. ### Policy objectives and program design Policy objectives - RCF-supported policies should not compound existing balance of payments difficulties and should in general be aimed at making progress toward achieving or restoring a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - RCF-supported steps should address, though not necessarily resolve, the country’s macroeconomic imbalances and maintain or move toward: - strong and durable poverty reduction and growth, - low or moderate inflation, - sustainable fiscal and current account balances, - limited debt vulnerabilities, - adequate international reserves, - sufficient policy and institutional capacity to implement appropriate macroeconomic policies. Core policy areas typically addressed - Fiscal policies: - fiscal stance well anchored to help ensure macroeconomic stability and fiscal/debt sustainability, - revenue and spending policies take due account of the country’s growth and social objectives, - budgets guided by medium-term fiscal frameworks to the extent possible. - Monetary policies consistent with inflation, exchange rate, and reserve objectives, while taking due account of cyclical considerations. - Exchange rate policies ensuring a unified exchange rate and a real exchange rate level broadly in line with fundamentals. - Financial sector policies geared toward financial stability and deepening to foster investment and forestall crises. - Public financial management reforms to ensure resources are tracked, reported, and targeted appropriately; public debt management supporting debt sustainability; revenue reforms to broaden the revenue base and enhance tax efficiencies. - Other structural reforms critical for achieving the member’s macroeconomic objectives. Role of RCF financial support - RCF balance of payments support can assist countries in smoothing adjustment toward a more stable and sustainable macroeconomic position. - Fund financial support can be used to replenish international reserves and to provide liquidity for making external payments. - By relaxing external financing constraints, Fund support loosens domestic liquidity constraints for public and private sectors, reducing the need for retrenchment in public and private savings-investment balances. - This enhances policy options (allowing less contractionary fiscal, monetary, and exchange rate policies) and cushions private sector adjustment (e.g., investment and import declines). - The appropriate mix of financing and public/private adjustment is determined on a case-by-case basis. Direct vs. indirect budget financing - A member may use the domestic counterpart of resources received under an RCF to finance, directly or indirectly, the government budget deficit. - Direct budget financing may be appropriate when: - (i) policies envisage that the entire amount of the Fund’s financial support is used to meet a present or prospective balance of payments need, - (ii) loosening fiscal financing constraints is an important macroeconomic objective under the policies, - (iii) the central bank cannot or should not (for legal or institutional reasons) lend to the government while the domestic financial sector is too shallow (or not stable enough) to provide necessary budget financing (or the central bank plays a largely passive domestic policy role, for instance under a currency board or in a fully dollarized economy). - Staff reports should justify use of the domestic counterpart of RCF resources for budget financing where relevant and discuss safeguards implications. ### Links to poverty reduction and social spending - RCF-supported policies should generally be aligned with the country’s own poverty reduction and growth objectives. - Any financing request under the RCF must be accompanied by a statement, normally in the LOI or MEFP, of how the RCF-supported policies advance the country’s poverty reduction and growth objectives—linkage may be indirect (e.g., via macroeconomic stability). - If a PRS document exists, RCF-supported policies should take into account and be generally consistent with PRS objectives in promoting a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - If no PRS document exists, RCF documentation should outline the country’s medium-term poverty reduction and growth objectives and policies; subsequent Board documents should refer to and update this documentation as necessary. - PRS documents are not required for RCF disbursements, consistent with the RCF’s focus on urgent balance of payments needs; when a future ECF- or PSI-supported program is under consideration, staff should inform authorities early about PRS documentation requirements. - PRS documents should normally be produced by country authorities on a 12-month cycle and aligned with other domestic policy cycles; staff are required to prepare a JSAN for PRSPs and I-PRSPs and circulate it to the Executive Board for discussion, generally within four months of transmission of the PRSP and I-PRSP (outside the HIPC context). - Social and other priority spending should be safeguarded and, whenever appropriate, increased under RCF-supported policies. - Where LOI/MEFP includes indicative targets (e.g., to establish a track record), these should include a floor on social and other priority spending whenever possible. - Where tracking such expenditures is not feasible, RCF documentation should report measures envisaged to develop an adequate tracking system; staff should monitor progress and the program may include relevant structural measures if appropriate. ### Debt sustainability analysis (DSA) - RCF-supported policies should be underpinned by a thorough DSA to inform elaboration of medium-term debt strategies and fiscal frameworks. - Country teams should engage authorities in preparation of DSAs, discuss results, and share final files with relevant officials. - DSAs for most LICs are usually prepared jointly with the World Bank; country teams should involve other relevant MDBs. - Joint DSAs are required for PRGT-eligible IDA-only countries; for LICs that are not IDA-only, close consultation with the Bank is recommended. - A fully elaborated DSA is required at least once every three years, with shorter annual updates in interim years possible in the absence of significant changes in the macroeconomic and financial environment. - Full DSAs should be prepared in periods of heightened domestic, external, or global risk. - The timing of a DSA may be driven by other IMF policy requirements; design of possible indicative debt limits under the RCF is systematically related to assessment of countries’ debt vulnerabilities. - Determination of access to the Fund’s concessional resources needs to take account of the country’s debt vulnerabilities based on the most recent DSA; a DSA (or DSA update) may be needed for higher access financing requests. - Where a DSA is required outside the regular joint Bank-Fund cycle, a DSA update may be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA as long as a joint DSA was prepared recently and the analysis would not result in a change of the risk of debt distress rating. *Source: _032112 - 190. Repayments of RCF credit are made in 10 equal semiannual installments, subject to a (IMF PDF).* ### 206. DSAs for LICs should be presented as self-contained documents (see Appendix I). ### DSAs for LICs should be presented as self-contained documents (see Appendix I) ### DSA components (use of the LIC DSF or MIC template) - DSAs should normally be prepared using the LIC Debt Sustainability Framework (DSF). - For countries with durable and substantial access to market financing, the template designed for middle-income countries can be used instead. - The analysis includes three components: - A forward-looking analysis (20-year projection) of debt and debt-service dynamics under a baseline scenario, alternative scenarios, and standardized stress tests. - An explicit assessment of the risk of external debt distress (low, moderate, high, or in debt distress) based on indicative country-specific debt-burden thresholds that depend on the quality of policies and institutions in the country. - Recommendations on a borrowing (and lending) strategy to limit the risk of debt distress, while maximizing the resource envelope to achieve the country’s development objectives. ### Collaboration with the World Bank and other development partners - Fund staff should consult closely with all major development partners active in the country when designing and monitoring RCF-supported policies. - The JMAP approved by the Boards of the World Bank and IMF calls on Bank and Fund country teams to consult with each other at least once a year to identify the country's key macroeconomic and structural reform challenges and coordinate work plans in support of addressing these challenges. ### Conditionality principles (RCF context) - Conditionality attached to Fund financial support is intended to ensure that Fund resources are provided in support of meeting the member’s policy objectives, with adequate safeguards to the Fund’s resources. - Conditions will normally consist of macroeconomic variables and structural measures that are reasonably within the member’s direct or indirect control and that are generally either: - (i) of critical importance for achieving the goals of the program (or for monitoring program implementation), or - (ii) necessary for the implementation of specific provisions of the IMF Articles of Agreement or policies adopted under them. - In some cases, conditions may be outside the Fund’s core area of expertise, in which case a more detailed explanation of their critical importance is required. ### RCF-specific conditionality and modalities - The RCF does not require a UCT-quality economic program, and does not involve ex post conditionality (i.e., quantitative or continuous performance criteria), a time-bound arrangement, or formal program reviews. - The RCF provides for outright disbursements based on a number of ex-ante policy undertakings. - Prior actions: - Prior actions could be specified if necessary, but only in exceptional circumstances when critical to addressing the urgent balance of payments need. - Prior actions should be implemented no later than five working days before the Board discussion. - Prior actions should be defined in the LOI/MEFP and cross-referenced in the Board Decision approving the disbursements. ### Monitoring policies under the RCF - RCF disbursements do not require understandings on a program of economic policies other than general ex-ante policy undertakings by the authorities, including the commitment to cooperate with the Fund and not to introduce measures that would compound the country’s balance of payments difficulties. - The RCF can be used to: - provide general policy support, - establish a track record of economic performance (similar to an SMP), - help monitor the implementation of UCT-quality economic policies (in cases of temporary shocks expected to be resolved within one year without major policy adjustments). - Design of monitoring can mirror that of SMPs or past practice under EPCAs, but is in general very flexible and does not require specification of a time-bound program period. - Specification of policy objectives and indicators should be aimed at supporting adequate policies to address the urgent balance of payments need and, if relevant, facilitating the member’s transition to a UCT-quality program. - Because targets do not have the status of performance criteria (PCs), waivers are not required if they are missed; program adjustors are not needed. - Examples of quantitative periodic indicative targets could include: - measures of net international reserves, - central bank domestic assets, - domestic and fiscal balances or financing, - nonconcessional external debt, - social and other priority spending where possible, - any other relevant macro-critical indicators. - Continuous measures could include commitments related to non-introduction of certain exchange restrictions and multiple currency practices, and non-accumulation of external arrears. - RCF-supported policy track records could include an agenda for macro-critical structural reforms, with flexibility on the timing of the measures. - Structural benchmarks should be critical measures intended to serve as clear markers in assessment of progress. - Structural benchmarks should be used parsimoniously and their macro-criticality explicitly justified in program documents. - Structural benchmarks do not require a specific target date but should give an indication of the envisaged time frame. ### Misreporting (RCF context) - Misreporting occurs when members with a Fund-supported program obtain resources on the basis of inaccurate information regarding observance of quantitative or continuous PCs or prior actions (a "noncomplying disbursement"). - Under the RCF, there are no PCs; a noncomplying disbursement can only occur with respect to misreporting of prior actions (if applicable), specifically when: - (i) the Fund makes a disbursement on the basis of a finding that all prior actions established for that disbursement have been observed and - (ii) that finding later proves to be incorrect. - Upon evidence that a member may have received a noncomplying disbursement, the Managing Director shall inform the member promptly. - If the Managing Director determines that the member did receive a noncomplying disbursement, the Managing Director shall promptly notify the member and submit a report to the Executive Board with recommendations. - The Board may decide either: - (a) that the member shall be expected to repurchase/repay the disbursed amount, or - (b) that the nonobservance will be waived. - Waivers will normally be granted only when the deviation from the relevant condition was minor or temporary, or if, subsequent to the disbursement, the member had adopted additional measures appropriate to achieve the objectives supported by the relevant decision on the disbursement. - Whenever the Executive Board finds that a noncomplying disbursement has been made but that the nonobservance of the relevant specified condition was also de minimis misreporting, a waiver for nonobservance shall be granted by the Executive Board. - De minimis misreporting will not be published in a staff report. ### Track records for repeated RCF use and transition to UCT-quality arrangements - The RCF can be used to build a track record of policy performance to enable repeated disbursements under the RCF or support transition to a UCT-quality arrangement. - There is no pre-determined phasing of disbursements or test dates for indicative targets. - Track records would typically include agreed monitorable quantitative and structural indicators (which could be called indicative targets or benchmarks). - Test dates for quantitative targets can be set on a monthly, quarterly, semi-annual, or annual basis, including combinations thereof. - Test dates should generally be set to provide useful information for assessing performance in advance of potential future Fund support through the RCF or a UCT-quality arrangement. - A track record of adequate macroeconomic policies is required for an RCF disbursement when the member has already received RCF financing in the past three years and does not qualify under the shocks window. - Such a track record would normally cover at least six months immediately prior to the disbursement, and the staff report should provide an assessment of past policy performance against any previously specified policy objectives and targets. - The track record period would normally start around the time the relevant track record objectives and policies become clear. - Specifically, the track record period should start no earlier than the first time substantive policy discussions on near-term macroeconomic targets started between the country team and the authorities, and no later than the time ad referendum understandings were reached on such targets. - Approval of a repeated disbursement would be based on a finding that the member’s overall policy performance was adequate, taking into consideration the severity of the economic situation and the member’s capacity. - In exceptional cases, where no relevant pre-determined monitorable objectives exist at the time a repeated RCF disbursement is requested in response to an urgent financing need, the track record could be based on the Fund’s assessment that macroeconomic policies have been adequate at least over the most recent six-month period. ### Other relevant policies linked to RCF use - EPAs: Access to resources under the RCF does not count toward the policy on LTPE. - PPM: Outstanding RCF credit will be subject to PPM. - Normally, members with outstanding credit from the Fund in the GRA and/or PRGT exceeding 200 percent of quota after the expiry of their arrangements are expected, upon the recommendation of the Managing Director, to engage with the Fund in PPM of their economic developments and policies (unless the member is implementing a Fund-supported program or SMP). - Article IV cycle: RCF support does not alter the regular (typically 12-month) cycle for Article IV consultations. - Exchange System obligations under Articles VIII and XIV and Data Provision under Article VIII, Section 5: The Fund may require members to furnish it with such information as it deems necessary for its activities, including program monitoring. - HIPC and MDRI: A period of performance under a monitorable track record supported by the RCF can count toward a track record of strong policy performance required for the HIPC decision point. - The minimum required track record for the decision point is six months. - Side letters: Use of side letters in LIC programs has been extremely rare; side letters may be used when release of information on policy understandings at the time of a program request or review would cause adverse market reaction or undermine the authorities’ efforts to prepare the domestic groundwork for a measure. *Source: Excerpt from IMF document on the RCF and PSI (see Appendix references in the source).* ### 219. The PSI is available to all member countries that are eligible for assistance from the ### 219. The PSI is available to all member countries that are eligible for assistance from the PRGT and have a policy framework focused on consolidating macroeconomic stability and debt sustainability while deepening structural reforms in key areas in which growth and poverty reduction are constrained. ### Eligibility and qualification - PSI users must be PRGT-eligible and have a policy framework focused on consolidating macroeconomic stability and debt sustainability while deepening structural reforms. - At approval, the member must be in a broadly stable and sustainable macroeconomic position as defined in the chapter, specifically: - (i) would not have a present or prospective balance of payments need unless such a need is expected to be met from other (exceptional) financing sources; and - (ii) would not require any significant macroeconomic policy adjustments (including to address a protracted balance of payments problem), although structural reforms may still be beneficial. - If a country requires Fund financing or significant policy adjustment to achieve stability and sustainability, the PSI would normally not be approved; alternatives: - short-term financing and adjustment needs → SCF arrangement; - protracted balance of payments problem → ECF arrangement. - If no present or prospective BOP needs but potential needs exist, a precautionary SCF arrangement may be appropriate instead of, or in addition to, a PSI. - Board approval requires a finding that: - the member is committed to implement its policy framework in a program meeting UCT-conditionality standards; - the program aims to maintain or consolidate a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth; - the authorities have capacity and commitment to implement their program, evidenced by recent policy performance, institutional capacity, and other relevant circumstances; - the member seeks to maintain a close policy dialogue with the Fund through endorsement and assessment under a PSI. - Countries not yet meeting PSI qualification (notably UCT-quality program capacity) can build a track record via an SMP or, for urgent financing needs, the RCF (if applicable commitments are in place). ### Duration, extensions, cancellations, and repeated use - Initial PSI approval duration: one to three years from the Board decision approving the PSI. - Requests for three-year PSIs have been the norm. - PSI may be extended (including multiple times) subject to an overall maximum duration of four years. - After expiration, cancellation, or termination, a successor PSI may be approved if qualification criteria are met; no limit on number of successor PSIs. - Extensions involving additional test dates and reviews are appropriate when: - (i) more time is needed to implement envisaged policies or reforms; - (ii) unforeseen events warrant extended monitoring (including exogenous shocks that may require policy action and possibly Fund financial support through the RCF or SCF); - (iii) more time is needed to design a successor medium-term program. - Extensions must be requested by the member and approved by the Board before PSI expiration. - Extensions with new test dates/reviews normally require an LOI and a program review demonstrating the program is on track. - Exceptional circumstances may allow Board approval outside a scheduled review provided authorities and staff have documented understandings. - Short-term (technical) extensions of a few weeks or months can be granted outside a review if authorities and staff have or will shortly reach understandings; Board approval via a short staff paper with lapse-of-time decision is typical. - Cancellation by authorities can occur at any time; appropriate when: - financing or adjustment needs extend beyond short term (possibly warranting switch to an ECF arrangement); - authorities lack capacity or commitment to implement the program; - objectives or modalities of policies have changed substantially; - authorities no longer seek Fund support. - Automatic termination of a PSI occurs upon: - (a) noncompletion of two consecutive PSI scheduled reviews (or, if concurrent with the SCF, no scheduled review completed within 12 months of the completion of the last scheduled review); - (b) the member incurring overdue financial obligations to the GRA or PRGT; - (c) approval of an ECF arrangement for that member. ### Concurrent use with other IMF facilities - PSI cannot be used concurrently with an ECF arrangement. - Countries with an approved PSI can receive financial support under the SCF or RCF without cancelling the PSI. - SCF: - Qualification for an SCF would be presumed for on-track PSI users that experience a balance of payments need, provided SCF qualification requirements are met. - SCF support may be requested precautionarily during periods of increased uncertainty or risk. - SCF provides access to financing if a BOP need materializes; PSI provides continuity in policy support. - Key differences when used concurrently: - SCF qualification requirements must be met at SCF approval, including existence of present, prospective, or potential BOP need; use of SCF is normally limited to 2.5 years out of any 5-year period, assessed on a rolling basis. - SCF duration choice (between 12 and 24 months) depends on financing and adjustment needs and is not necessarily tied to the PSI period. - If SCF expiration comes after PSI expiration, a new PSI would normally be approved only after SCF expiration or cancellation because PSI qualification requires no IMF financing at approval; exceptions include when SCF is treated as precautionary or short PSI extension to complete final review. - SCF does not require issuance of a PRS-related document, whereas such a document must exist by completion of the second and subsequent reviews under a PSI. - PSI review schedule could remain on the "fixed review cycle" or be aligned to SCF's more flexible review cycle. - RCF: - Access to RCF support is presumed for PSI countries that subsequently experience an urgent BOP need, subject to RCF qualification requirements. - Blending: - Countries meeting criteria that create a presumption for blending would be expected to receive financial assistance through blended GRA and PRGT resources if they experience a BOP need during a PSI-supported program. - PRGT-eligible countries, including those qualifying for SCF or RCF financing during a PSI, would be expected to use either fully concessional or blended resources rather than GRA-only financing, though they remain eligible for general resources. - SMP or RCF may be used to establish a track record for moving to a PSI. - Normal procedure for bringing an off-track PSI back on track is completion of the next scheduled review after corrective actions rather than via an SMP. ### Financing assurances, arrears, and safeguards - Financing assurances: - PSI-supported programs require the same financing assurances as Fund financial arrangements. - PSIs can only be approved and reviews completed when the program is fully financed. - Donors and creditors must furnish assurances that they will provide necessary support through new loans and/or refinancing to meet program financing requirements on terms consistent with maintaining a stable and sustainable macroeconomic position. - Staff should confirm no unfilled financing gaps over, normally, the next 12 months immediately following PSI approval (and completion of each review) and a clear expectation that the program will be fully financed through the remainder of the PSI period. - When PSI is provided alongside SCF or RCF financial assistance, assurances should indicate capacity to repay the Fund through medium-term BOP projections and the standardized table on indicators of capacity to repay the Fund. - Arrears: - Fund policy of non-toleration of sovereign external arrears to official (multilateral and bilateral) creditors applies analogously to the PSI; Fund generally calls for resolution of existing arrears to official creditors and non-accumulation of new arrears during the program. - PSI users are not expected to have external arrears given qualification requirements; rare cases with external arrears can be addressed depending on creditor type with guidance from LEG and SPR. - Macroeconomic program assumptions should be consistent with expected arrears resolution; authorities and staff should have common understandings on timing and modalities of arrears clearance and reasonable assurances that arrears clearance understandings are realistic. - Sovereign arrears to private external creditors and non-sovereign arrears arising from exchange controls are covered by the LIA policy, which applies analogously to the PSI; under LIA the Fund can lend in cases of sovereign arrears to private external creditors only where: - (i) prompt Fund support is essential for successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies and making a good faith effort to reach a collaborative agreement with creditors (or to facilitate such an agreement) and good prospects exist for removal of exchange controls. - PSI-supported programs should address domestic arrears as part of overall program design; specification depends on country context and fiscal framework. - Overdue obligations to the Fund: - A member in arrears to the Fund in the GRA, or to the Fund as Trustee (including the PRGT), is not eligible for PSI support. - If a member incurs arrears into GRA or PRGT, any existing approved PSI would be terminated. - Safeguards assessments: - A safeguards assessment is not required for a PSI, but members with a PSI are encouraged to undertake one voluntarily to enhance accountability, transparency, and central bank institutional strength and to facilitate quick access to Fund resources if needed. - The safeguards process analyzes documents and involves discussions with authorities and the central bank’s external auditors, evaluating governance, auditing, financial reporting, control systems, and legal autonomy. - Close cooperation between FIN, other functional departments, and area departments is essential; FIN should be kept informed of safeguards issues, including timing of new arrangements and reviews. ### Program objectives and design - PSI-supported programs aim to maintain or consolidate a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Specifically, programs should aim to maintain or consolidate: - (i) strong and durable poverty reduction and growth; - (ii) low or moderate inflation; - (iii) sustainable fiscal and current account balances; - (iv) limited debt vulnerabilities; - (v) adequate international reserves; - (vi) sufficient policy and institutional capacity to implement appropriate macroeconomic policies. *Source: Excerpt from IMF document section 219–241 on the Policy Support Instrument (PSI).* ### 242. The design of a PSI-supported program should be aligned with the country’s own ### _032112 - 242. The design of a PSI-supported program should be aligned with the country’s own ### Design alignment and core policy areas - The design of a PSI-supported program should be aligned with the country’s own poverty reduction and growth objectives. - Specific policy objectives should be clearly articulated in the LOI/MEFP and associated staff report for a new PSI and would typically include: - Fiscal policies, where (i) the fiscal stance is well anchored to help ensure macroeconomic stability and fiscal/debt sustainability, (ii) revenue and spending policies take due account of the country’s growth and social objectives, and (iii) budgets are guided by medium-term fiscal frameworks to the extent possible. - Monetary policies that are consistent with inflation, exchange rate, and reserve objectives, while taking due account of cyclical considerations. - Exchange rate policies that ensure a unified exchange rate and a real exchange rate level that is broadly in line with fundamentals, ensuring a stable and sustainable external position consistent with adequate growth. - Financial sector policies geared toward financial stability and deepening with a view to fostering investment and forestalling financial crises. - Public financial management reforms aimed at ensuring that resources are tracked, reported, and targeted appropriately (including by providing adequate resources for social and other priority spending), public debt management aimed at supporting debt sustainability, and revenue reforms aimed at broadening the revenue base, and enhancing tax efficiencies. - Other structural reforms that are critical for achieving the program’s macroeconomic objectives, with a focus on "second-generation reforms" aimed at enhancing the country’s growth potential and the capacity to manage volatility. ### Links to poverty reduction strategies and social spending - PSI-supported programs should be aligned with the country’s own poverty reduction and growth objectives; specific guidance on PRS linkages includes: - New PSI requests and PSI reviews would be accompanied by a statement, normally in the LOI or MEFP, of how the PSI advances the country’s poverty reduction and growth objectives. The description is expected to be more detailed at the time of the initial request for a PSI or when a new PRSP (or I-PRSP) is produced. - If a PRS document exists, the description in the LOI/MEFP could cross-reference the PRS document. - If a PRS document exists, the PSI-supported program should be consistent with the objectives of the PRS in the context of maintaining a broadly stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - If a relevant PRS document does not yet exist, program documentation (e.g., in an attachment to the LOI or MEFP) should outline the country’s medium-term poverty reduction and growth objectives and policies; subsequent program documents should refer to and update this documentation as necessary. - While a PRS document is not required at the time of initial Board consideration of the PSI request, the second (and every subsequent) review under the PSI can only be completed if a PRS document has been issued to the Board, normally within the previous 18 months, and has been the subject of a staff analysis, including in the staff report on a new PSI or on a review. - Staff should inform the authorities at an early stage about relevant definitions and timelines for PRS documentation requirements (Appendix V) to ensure adequate time for the PRS process. - Staff are required to prepare JSANs for PRSPs and I-PRSPs generally within four months of the transmission of a PRSP or an I-PRSP (outside the HIPC context). For APRs, it is good practice to provide feedback in the context of an annual feedback process. - In cases where a JSAN has not yet been prepared, the Executive Board is not prevented from making decisions governing member’s PSIs, including the completion of reviews if the relevant preliminary staff analysis has been included in the staff report for the PSI or a supplement (and the JSAN, together with the PRSP, would be discussed at the next Board meeting). Board consideration of a JSAN cannot be on a Lapse of Time (LOT) basis. - PRS documents should normally be produced by the authorities on a 12-month cycle and aligned with other domestic policy cycles. In case of significant weaknesses in the PRS, including those identified in the JSAN or through the AFP, program staff reports should report how these weaknesses are being addressed. Addressing identified weaknesses is expected but is not a requirement for PSI support. - Social and other priority spending: - Social and other priority spending should be safeguarded and, whenever appropriate, increased under PSI-supported programs. - This objective could be monitored through explicit program targets, for instance through an indicative floor on social and other priority spending. - The definition of social or other priority spending should be consistent with the authorities’ poverty reduction and growth objectives. - Where such expenditures are not tracked, program documentation could report on progress in developing a tracking system. - Staff should alert authorities that the Fund’s concessional financial support generally includes conditionality related to safeguarding social and other priority spending where feasible. ### Debt sustainability analysis (DSA) - PSI-supported programs should be underpinned by a thorough DSA to inform the elaboration of medium-term debt strategies and fiscal frameworks. - Country teams should engage authorities in DSA preparation, discuss results, and share final files with relevant officials. - DSAs for most LICs are usually prepared jointly with the World Bank; country teams should involve other relevant MDBs. Joint DSAs are required for PRGT-eligible IDA-only countries; for LICs that are not IDA-only, close consultation with the Bank is recommended. - Timing and frequency: - A fully elaborated DSA is required at least once every three years, with shorter annual updates in the interim years possible in the absence of significant changes in the macroeconomic and financial environment. - Full DSAs should be prepared in periods of heightened domestic, external, or global risks. - The precise timing of a DSA may be driven by program requirements; the design of debt limits in the PSI is systematically related to the assessment of countries’ debt vulnerabilities (see Appendix II). - Where PSI support is provided alongside RCF or SCF support, determination of access to concessional resources needs to take account of the most recent DSA; a DSA (or DSA update) may need to be prepared for higher access financing requests (augmentation or new arrangement). - If a DSA is required outside the regular joint Bank-Fund DSA cycle, a DSA update may be prepared unilaterally by Fund staff drawing on a prior full joint Fund-Bank DSA as long as a joint DSA was prepared recently and the analysis would not result in a change of the risk of debt distress rating. - DSA format and components: - DSAs for LICs should be presented as self-contained documents (see Appendix I). - They should normally be prepared using the LIC Debt Sustainability Framework (DSF), although for countries with durable and substantial access to market financing, the template designed for middle-income countries can be used instead. - The analysis includes three components: - A forward-looking analysis (20-year projection) of debt and debt-service dynamics under a baseline scenario, alternative scenarios, and standardized stress tests; - An explicit assessment of the risk of external debt distress (low, moderate, high, or in debt distress) based on indicative country-specific debt-burden thresholds that depend on the quality of policies and institutions in the country; - Recommendations on a borrowing (and lending) strategy to limit the risk of debt distress, while maximizing the resource envelope to achieve the country’s development objectives. ### Collaboration with the World Bank and other development partners - Fund staff should consult closely with all major development partners active in the country when designing and monitoring a PSI-supported program. - The JMAP approved by the Boards of the World Bank and IMF calls on Bank and Fund country teams to consult with each other at least once a year to identify the country’s key macroeconomic and structural reform challenges and coordinate work plans. ### Conditionality principles - Purpose: - Conditionality under a PSI is aimed at assessing whether a member’s policies are strong enough to meet the program objectives. - Conditions will normally consist of macroeconomic variables and structural measures that are reasonably within the member’s direct control and that are, generally, either (i) of critical importance for achieving the goals of the program (or for monitoring program implementation), or (ii) necessary for the implementation of specific provisions of the IMF Articles of Agreement or policies adopted under them. - In some cases, conditions may be outside the Fund’s core areas of expertise, requiring a more detailed explanation of their critical importance. - UCT standard: - PSI-supported programs must meet the UCT-conditionality standard, which requires the commitment and capacity by the authorities to implement a set of policies that is adequate to correct external imbalances, and enable repayment to the Fund within the specified maturity period in the event that the member uses Fund resources or has any credit outstanding under the GRA or PRGT. ### Specification of program conditions - Types and timing: - Program conditionality will include quantitative periodic and continuous ACs, and typically also indicative targets and structural benchmarks, as well as prior actions if critical. - Conditionality is set at approval of the PSI and updated at program reviews. Conditionality should normally be set (or modified) by the Board before the test date. - For post-dated ACs, program documents must be signed and circulated to the Board along with the staff report before the test date; no information on implementation of such conditionality would be available at the Board meeting. - Prior actions: - Prior actions are measures expected to be adopted prior to the Fund’s approval of a PSI, completion of a review, or granting of a waiver with respect to an AC when critical for successful implementation. - Prior actions are to be applied parsimoniously and specified in clear, objective, and unambiguous terms. - Prior actions should in principle be implemented at least five working days before the Board discussion and should be defined in the LOI/MEFP and cross-referenced in the relevant Board Decision. - Use of prior actions is expected to be less frequent than in Fund financial arrangements. - Frequency and content of quantitative conditions: - Quantitative ACs would normally be set on a semiannual basis and tied to semiannual program reviews, while quantitative benchmarks (indicative targets) would normally be specified on a quarterly basis. - Conditionality should cover all test dates that fall within the 12 months after the Board meeting. - At initial approval and each review, ACs must be established for the shorter of (a) the next two scheduled reviews or (b) the remaining period of the PSI. - Quantitative ACs typically include measures of net international reserves, central bank domestic assets, domestic and fiscal balances or financing, limits on nonconcessional external debt, and any other macro-critical indicators. - ACs are usually subject to program adjustors that reflect deviations from projected external flows. - Indicative targets should include a floor on social and other priority spending where possible, and may include other indicators such as reserve money. - Continuous ACs: - Continuous ACs always include commitments related to non-introduction or intensification of exchange restrictions and on non-introduction or modification of multiple currency practices. - Other continuous ACs typically include the non-accumulation of external payments arrears. - Structural benchmarks: - PSI-supported programs normally include an agenda for macro-critical structural reforms, focusing on "second-generation reforms" to enhance growth potential and capacity to manage volatility. - Structural benchmarks are critical measures intended as clear markers for progress in implementing critical structural reforms in the context of a program review. - Structural benchmarks should be used parsimoniously, with macro-criticality explicitly justified in program documents, ideally in the structural benchmark table. - Reviews are the primary tool for monitoring structural elements; specific objectives should be defined for periods covered by individual reviews, with related structural benchmarks critical for achieving program objectives. - The appropriate number of structural benchmarks depends on country-specific factors; PSI-supported programs would typically contain less than five structural benchmarks per semiannual review. - The use of structural ACs was discontinued in 2009. - Structural benchmarks significantly delayed can be re-dated and re-linked to the next program review if still macro-critical. If implementation as originally defined is no longer possible, a new or modified benchmark may be appropriate as long as it is critical to achieve program goals. ### Waivers and modifications - Waivers for nonobservance: - A waiver for nonobservance of an AC may be granted if the Fund is satisfied that the program will nevertheless be successfully implemented—because of the minor or temporary nature of the nonobservance or because of remedial actions taken by the authorities to preserve program objectives. - A formal request from the member to grant waivers is not required under the PSI, and the staff report title need not state that waivers are proposed. - Waivers for nonobservance are only approved for quantitative ACs tied to the review being completed or for continuous ACs that have been missed. - Waivers of applicability: - Waivers of applicability are not possible under a PSI. - If authorities do not provide data allowing the Fund to determine observance of an assessment criterion or that a waiver is warranted, the corresponding review cannot be completed. - Where data for an assessment criterion is unavailable, the review (which cannot be completed) will nevertheless assess performance against other assessment criteria and program elements for which data were available. - Modifications: - Modifications to Board-set program conditionality may be appropriate when departures from ACs are expected, for instance when basic program assumptions have not been realized or significant unanticipated developments have occurred, provided the new targets remain macro-critical. - Requests for modifications must be submitted to the Board before the relevant test date has been passed and must be approved by the Board before information on the observance of the AC is available, normally in the context of a program review. - In exceptional cases, modifications of ACs can be approved by the Board outside a program review, provided the authorities and staff have common understandings on appropriate policies through the next review documented in a revised or new LOI with an updated AC table, and, where relevant, TMU. - Such modifications outside a review could be appropriate if the original targets are no longer critical due to developments beyond the authorities’ control (including staff errors). Board approval would require a staff report discussing reasons for the modification, why it is proposed outside the review context, the status of the program, and relevant policy understandings. *Source: _032112 - 242. The design of a PSI-supported program should be aligned with the country’s own (IMF PDF content).* ### 261. The framework for dealing with misreporting under the PSI is tailored specifically to ### _032112 - 261. The framework for dealing with misreporting under the PSI is tailored specifically to ### Misreporting framework under the PSI - The PSI misreporting framework is tailored to PSI modalities and the fact that the PSI does not entail the use of Fund resources (UFR). - The PSI misreporting framework is simplified compared to the more comprehensive framework applicable in the UFR context. - Board decisions approving a PSI or completing a review under a PSI are conditioned on the accuracy of information reported by the member on: - performance under assessment criteria (whether found to have been met or waived), and - implementation of prior actions (if any) specified in the respective Board decision. - Whenever staff become aware of evidence indicating that the member’s reporting was inaccurate in relation to a PSI approved or a review completed within the preceding three years, the Managing Director shall promptly inform the member concerned. - “Inaccuracy” of information should be interpreted in the same manner as in cases of misreporting under financial arrangements (example given: for a quantitative AC, reporting that the AC was met when it was not would be inaccurate). - If after consultation with the member the Managing Director finds that the member had reported inaccurate information to the Fund in these circumstances, the Managing Director shall promptly notify the member of this finding. - Board consideration of misreporting: - Normally occurs at the time of the next scheduled PSI review, based on a combined misreporting/review staff report. - Could occur earlier if circumstances warrant. - The Executive Board shall reassess program performance in light of the revised information associated with the misreporting. - Reassessment of past program performance will not lead the Board to retroactively reverse its decision completing a review which subsequently became associated with a misreporting. - Publication and waivers: - In all cases where the Board has determined misreporting has occurred (except de minimis cases), relevant information on the Board decision, such as the finding of misreporting and any impact on past Board assessments under the member’s PSI, will be published. - There are no waivers in the context of the PSI misreporting framework. ### Program reviews — purpose and outcomes - Purpose: - Program reviews evaluate whether the program is on track to achieve its objectives. - Evaluation is based on a backward-looking assessment (performance against quantitative ACs, structural and quantitative benchmarks, and prior actions) and a forward-looking assessment (prospects for successful implementation, policy capacity, and commitments). - PRS requirement: - The second (and every subsequent) review can only be completed if a PRS document has been issued to the Board, normally within the previous 18 months. - Final review: - At the time of consideration of the final review under a PSI, and assuming no further Fund program support is expected, the scope of the forward-looking assessment could be more limited than for previous reviews. - Completion signal: - Completion of a review by the Board signifies the Fund’s assessment that the program is on track. - Noncompletion of a scheduled review signals the program is off track. - Noncompletion of two consecutive scheduled reviews would automatically terminate the PSI. ### Fixed review schedule and test dates - Documentation and timing: - Timing of all reviews and test dates is summarized in a staff report table at PSI approval and updated as needed at reviews. - The AC table attached to the LOI/MEFP should clearly identify ACs and indicative targets, including adjustors, for at least a 12-month period from the Board date of PSI approval or review. - The structural benchmark table should cover measures over at least a 12-month period, indicating which reviews benchmarks are linked to. - The Decision attached to the staff should specify all ACs and review dates over the next 12 months from the Board date of program approval/review. - Semiannual norm: - Test dates for quantitative ACs are normally set on a semiannual basis. - Any deviation from the six-monthly norm must be justified in program documentation. - Limited flexibility for minor deviations is permitted if the total number of reviews and test dates over the PSI remains unchanged. - Alignment and sequencing: - Test dates for ACs must be set so all scheduled reviews can take place before the end of the PSI period, accounting for reporting lags and staff report circulation periods. - Review dates specified in the LOI/MEFP and the Decision should be set so that all data needed to confirm observance of ACs at related test dates would have become available. - Board documentation timing: - All program documentation for a review should normally be issued to the Board within four months following the test date for the quantitative ACs linked to that review. - Documentation shall in any case be issued prior to the test date for the earliest periodic quantitative ACs linked to the next scheduled review. - Board discussion of the review would normally occur two weeks after issuance of such documentation. - Program period start: - The program period supported by a PSI would typically start somewhat before Board approval, and three to six months before the first test date under semiannual monitoring. - Program period should normally not start more than three months prior to the Board meeting, and in any case not before authorities and staff have discussed program parameters. - Coordination with SCF: - If a member implementing a PSI also has an SCF arrangement, program reviews under the SCF should be scheduled at the same time as PSI reviews. - Performance criteria under the SCF shall normally be established for the same test dates (and apply to the same variables and measures) as ACs under the PSI. - A single set of documents related to PSI and SCF reviews should normally be issued to the Board. - Schedule alignment options: PSI fixed review cycle or SCF flexible cycle; shifting a PSI to the SCF review schedule requires amending the approved PSI. ### Noncompletion of reviews — procedures and consequences - Required staff action when off-track: - Even if performance is weak or forward-looking understandings cannot be reached, a staff report must still be circulated to the Board normally within four months of the test date of the periodic ACs linked to that review and in any event prior to the test date linked to the next scheduled review. - The report will assess performance relative to program objectives and indicate areas of divergence between staff and authorities. - The staff appraisal will recommend that the review not be completed at this time and will, to the extent possible, elaborate steps needed to bring the program back on track. - Bringing a program back on track: - The normal procedure is completion of the next scheduled review. - Corrective action is required if performance prevented completion of a review. - Staff assessment letters can fill information gaps between scheduled reviews and report performance improvements following an uncompleted scheduled review. - Returning to an uncompleted review: - Possible in principle but very rare because documentation would have to be issued to the Board prior to the test linked to the review (narrow timeframe). - Not available if the review is the second consecutive uncompleted scheduled review. - Lapse of PSI: - Noncompletion of two consecutive scheduled reviews (or, if PSI is concurrent with SCF, if no scheduled review is completed within 12 months of the completion of the last scheduled review) signifies lack of Board endorsement and the PSI automatically lapses as of the date of the Board’s second consecutive decision not to complete a scheduled review. - An SMP may be appropriate in some circumstances to reestablish a track record for a future Fund-supported program under the PSI, SCF, or (rarely) ECF after such a termination. ### Other relevant policies applicable to the PSI - EPAs: - Engagement under the PSI does not count toward determining the policy on longer-term program engagement (LTPE). - For members for whom an EPA is otherwise required, it is expected that the EPA would be conducted before, and in any case no later than, the Executive Board’s consideration of the request for a PSI. - PPM: - Engagement in a PSI provides an alternative vehicle for PPM for members subject to such monitoring because of outstanding obligations to the Fund. - Members with a PSI are treated similarly to members with programs supported by a Fund financial arrangement or SMPs for PPM purposes. - PSI staff reports should include a section on the member’s capacity to repay the Fund in such cases. - Article IV cycle: - The 24-month cycle for Article IV consultations applies to members with a PSI. - Specifically, Article IV consultations with members that have an on-track PSI arrangement in place would be expected to be completed within 24 months after completion of the previous Article IV consultation. - If a program review is not completed by the date specified in the arrangement, the next Article IV consultation would be expected to be completed by the later of: - (i) six months after the scheduled review date, and - (ii) 12 months plus a grace period of three months after the previous Article IV consultation, - unless the program review has been completed prior to the later of these two dates, in which case the 24-month cycle continues to apply. - A member that has completed a PSI by completing all reviews may remain on the 24-month cycle, if it does not meet any of the criteria in paragraph 2 of Decision No. 14747-(10/96): - (i) the member is of systemic or regional importance; - (ii) the member is perceived to be at risk, or is facing pressing policy issues of broad interest to the Fund membership; or - (iii) the member has outstanding Fund credit exceeding 200 percent of quota. - At the time of the final review under the PSI, staff should assess whether the consultation cycle should be shortened back to 12 months based on the criteria mentioned above; when appropriate, the staff report for the final review should seek the Board’s approval of such shortening. - Where the PSI is cancelled by the member or expires with uncompleted reviews, the member will remain on the existing cycle unless the Executive Board determines otherwise based on criteria in Decision No. 14747-(10/96). - Exchange system obligations and data provision: - Requirements under Article VIII Sections 2, 3, 4, and Article XIV are discussed elsewhere. - A standard continuous AC applies, inter alia, to the non-introduction or intensification of exchange restrictions and on the non-introduction or modification of multiple currency practices. - Data provision requirements under Article VIII, Section 5 also apply in applicable cases. - HIPC and MDRI: - Countries with unsustainable external debt situations that qualify for HIPC debt relief do not meet the qualification standard for a PSI. - PSI-supported programs are not included in programs specified by the PRGF-HIPC Trust Instrument for establishing track records toward the HIPC decision or completion points. - Side letters: - The use of side letters in LIC programs has been extremely rare. - Side letters may be used when release of information on policy understandings at the time of a program request or review would cause adverse market reaction or undermine authorities’ efforts to prepare domestic groundwork for a measure. ### Appendix I. Documentation and Review — Introduction and Pre-Mission Work - General responsibilities: - All staff papers concerning the UFR, other program support (PSI and SMP), and surveillance for a particular country are prepared by area department-led mission teams. - The area department and SPR have joint responsibility for clearance prior to submission to management. - The review process also involves LEG and FIN. - Other functional departments review documents according to their own internal rules and follow the review-on-demand principle (area departments can request reviews from non-reviewing functional departments on demand). - Early consultation: - Mission teams are encouraged to consult informally with SPR (and if relevant FIN or LEG) at an early stage when new financing or program support is envisaged to get information on relevant Fund policies, including: - choice of LIC instrument, access and phasing, PRS and DSA requirements, - early Board briefings, - technical issues related to HIPC/MDRI, safeguards assessments, external arrears, financing assurances (including from the Paris Club), misreporting, exchange restrictions, as applicable. - Policy Note (PN) requirements: - Area departments will prepare a PN in preparation for policy discussions with country authorities (UFR, surveillance, and other program support). - The PN should include: - (i) background diagnostics (including recent developments), - (ii) the economic outlook, - (iii) the staff’s and the authorities’ positions on key policy issues, - (iv) program objectives and design where relevant, and - (v) risks and mitigation measures. - Supportive charts are encouraged. - The PN should always include the standard set of macroeconomic tables. - Divergences of views with reviewing departments, brought up during the Policy Consultation Meeting, should be flagged upfront in the PN. - The final PN should be sent to management for clearance. - Procedures for management clearance should be decided jointly by area and reviewing departments according to the criteria in Table 2. *Source: IMF content unit _032112 - 261. The framework for dealing with misreporting under the PSI is tailored specifically to (PDF chapter/section).* ### 4. The standard macroeconomic tables include the following: (a) selected economic ### _032112 - 4. The standard macroeconomic tables include the following: (a) selected economic ### Standard macroeconomic tables and program tables - Standard macroeconomic tables should include: - (a) selected economic indicators; - (b) government accounts (in national currency and percent of GDP); - (c) monetary survey (central bank accounts and commercial bank accounts); and - (d) the balance of payments. - Program tables should include: - (a) a table with quantitative conditionality (the ―PC table‖) that covers: - (i) previously established targets and outturns (PCs and indicative targets) over at least the past 12 months, - (ii) PCs established for the next 12 months (from the expected Board date), and - (iii) indicative targets through the end of the calendar year (or fiscal year) for which policies are being discussed; - (b) a structural benchmark table covering: - (i) the implementation status of previously established benchmarks and - (ii) benchmarks covering the next 12 months, highlighting their timing and macro criticality; - (c) a table with the approved and proposed schedule of disbursements and reviews; - (d) financing requirements and sources, and, in the case of new financing requests or augmentations; or if the macroeconomic environment has changed significantly, - (e) the member’s capacity to repay the Fund. ### Policy Notes (PN), background material, and review process - Background material: - Area departments are encouraged to attach concise and focused appendices to the PN (analytical underpinnings of program design, the DSA, exchange rate assessment, HIPC/MDRI issues, and others as applicable). - Attaching draft staff reports is not encouraged. - Area departments can request cross-country information and analysis from functional departments and should informally contact functional departments about one to two months before the scheduled mission. - Full and shortened PN: - A full PN (typically 4 pages text)—to be circulated for departmental review—is required for all missions, staff visits, and authorities’ visits with substantive policy discussions not mostly covered in a previously cleared PN. - A shortened PN is appropriate for missions/visits continuing policy discussions based on a previous full PN, or for substantive staff visits on key budget parameters that are consistent with the macroeconomic framework set out in a previous full PN. Such a shortened PN should include a brief update on recent developments, the status of discussions, and, if relevant, justification for any proposed changes to the previous PN. - For technical or information-seeking staff visits, a short memorandum—circulated to review departments for information only—would be sufficient provided area departments and SPR agree there is no change in policy line or economic circumstances since the last staff report and/or PN. - Policy Consultation Meetings (PCM): - A PCM should be held approximately two to three weeks prior to missions. - PCM objectives: establish a firm idea of the final PN, discuss issues and ideally reach agreement. - Review departments should ensure the "right" people attend the meeting; functional departments may send technical experts (status to be made clear). - All policy issues should ideally be raised at the PCM; participants are encouraged to check shared understanding at the end of the PCM and then work interactively toward finalizing the PN. A follow up meeting may be called if needed. - Reviewing departments are encouraged to circulate cross-country and technical analyses ahead of the PCM and give an informal heads up of issues they intend to raise (but avoid extensive written comments). - Cover memorandum for PN: - The final PN should be sent to management for clearance with a cover memorandum that provides concise and candid information on: - (i) key issues—economic situation, including vulnerabilities to an external or financial crisis; - (ii) staff’s main recommendations; - (iii) main issues raised in the review process; and - (iv) any controversial aspects. - The cover memorandum should clarify the requested management action. - SPR will review the cover memorandum but does not "clear it"—any departmental disagreements should be fully reflected in the cover memorandum. - The protocol for management clearance of the cover memorandum is provided in Table 2 (in the source). ### On mission documentation and requirements - LOI/MEFP: - For new financing/program requests and for program reviews, authorities must sign an LOI, typically accompanied by an MEFP. - The LOI must be signed by representatives of agencies responsible for formulating and implementing policy commitments in the LOI/MEFP (standard practice: Minister of Finance and Governor of the Central Bank sign the LOI, although the latter may not be appropriate in currency unions; signature by presidents and prime ministers is also possible). - For routine program reviews, a more detailed LOI could in some cases obviate the need for an MEFP, provided a previous MEFP discussed the policies applicable to the 12-month period following the review. - The LOI/MEFP should contain: - (i) a table with quantitative performance criteria that cover the next 12 months (from the Board date) and indicative targets that extend through the end of the calendar year (or fiscal year) for which policies are being discussed; and - (ii) a structural benchmark table with benchmarks covering the next 12 months, highlighting their timing and macro criticality. - The LOI should include the standard consultation clause requiring authorities to consult with the Fund ahead of any revisions to measures outlined in the MEFP. - The LOI/MEFP should specify how the program advances the country’s poverty reduction and growth objectives and policies; description expected to be more detailed at initial program request or when a new PRSP (or I-PRSP) is completed. Where a relevant PRS document exists, the LOI/MEFP could cross-reference it; otherwise program documentation should outline medium-term poverty reduction and growth objectives and policies. - A draft LOI/MEFP should be discussed during the mission; understandings are reached ad referendum, subject to Fund management approval. Authorities should not sign the LOI prior to management approval. - Technical Memorandum of Understanding (TMU): - For new program/financing requests, the LOI/MEFP must be accompanied by a TMU that clearly and precisely defines the PCs under the program, including definitions of indicators, coverage of government and monetary authorities, exchange rate valuation for program purposes, program adjustors, data submission requirements, etc. - Standard language on the definition for external debt should also be included. - Side letters: - Use of side letters in LIC programs has been extremely rare. - Side letters may be used when release of information on policy understandings at the time of a program request or review would cause adverse market reaction or undermine authorities’ efforts to prepare domestic groundwork for a measure. - Concluding Statement and End-of-mission Press Release: - Mission Concluding Statements summarize discussions between country authorities and an IMF staff team, are agreed by country authorities and the IMF mission team, and can be posted on the IMF website if desired by both parties. - For Article IV missions teams typically leave a Concluding Statement with authorities, recapitulating the mission’s assessment of the macroeconomic situation and policy advice. - End-of-mission press statements are often useful when understandings on a new program/financing request or program review are reached; staff should inform authorities of intention to issue a press statement, inform the EXR country press officer or Media Relations of press plans, clear the written statement before release, and give authorities an opportunity to review the draft press statement. ### Post-mission work and staff reports - Back-to-Office Report (BTO): - The mission chief should send a BTO to management within two working days of the mission's return to headquarters. - The BTO should be short (up to two pages), mention the nature of the mission (with mission members listed in a footnote), and the key issues, with an attached Selected Economic Indicators table. - Staff Report requirements: - A staff report is required for an Article IV consultation, initial program or financing request, and at each program review. This includes the ECF, SCF, RCF, PSI, and SMP. Short staff reports to the Board are required where program design is modified in between reviews. - Staff reports should include: - (i) background diagnostics (including recent economic and political developments), - (ii) the economic outlook, including downside risks and debt vulnerabilities (referring to the most recent DSA), - (iii) the authorities’ policy objectives and plans, and - (iv) a staff appraisal of the key policy issues. - Where applicable staff appraisals should also make recommendations for approvals of requests for: - (i) waivers of nonobservance of PCs, - (ii) extension of arrangement, - (iii) augmentation, - (iv) rephasing, and - (v) modification of existing PCs, providing justification that builds on material in the main body of the report to support the recommendation. - For combined UFR and Article IV staff reports, Article IV coverage must remain comprehensive and address all relevant issues, in particular critical medium- or longer-term policy issues. - Program documents and tables: - Program documents involving initial requests for ECF, SCF, RCF, or PSI support should set out overall program objectives and specific policy understandings; staff reports should explain the choice of instrument, the determination and phasing of access, and the design of conditionality. - All program staff reports (initial requests and reviews) should discuss key near-term policy goals and commitments (typically over the next 12 months), and program financing; staff reports for program reviews should also discuss performance relative to program conditionality. - Staff reports should contain a full set of macroeconomic tables, including: - (a) selected economic indicators; - (b) government accounts (in national currency and percent of GDP); - (c) monetary survey (central bank accounts and commercial bank accounts); and - (d) the balance of payments. - A standard table on Millennium Development Goals (MDG) indicators should be included in staff reports about once a year (normally staff reports covering Article IV consultations and requests for new Fund-supported programs). - Staff report tables for program requests or reviews should also include: - (a) the approved and proposed schedule of disbursements and reviews, - (b) financing requirements and sources, and, in the case of new financing requests or augmentations, or if the macroeconomic environment has changed significantly, - (c) the member’s capacity to repay the Fund. - In the latter case (significant change in macro-environment), the staff report should also include staff’s qualitative assessment of the member’s capacity to repay the Fund. - LOI/MEFP attachments and tables: - The LOI/MEFP attached to program requests or reviews should include: - (a) a table with quantitative conditionality (the ―PC table‖) that covers: - (i) previously established targets and outturns (PCs and indicative targets) over at least the past 12 months—alternatively, reporting on past performance relative to quantitative targets can be included as a separate table in the staff report, - (ii) PCs established for the next 12 months (from the expected Board date), and - (iii) indicative targets through the end of the calendar year (or fiscal year) for which policies are being discussed; and - (b) a structural benchmark table covering: - (i) the implementation status of previously established benchmarks—alternatively, reporting on the status of previously established structural benchmarks can be included as a separate table in the staff report, and - (ii) benchmarks covering the next 12 months, highlighting their timing and macro criticality. - Management Clearance Memo: - Management clearance of staff reports is based on a clearance note that states the main issues addressed in the report, lays out any differences in views among departments, explains any significant deviations from the PN, and highlights potentially controversial issues. A copy of the staff report’s Executive Summary should be attached. - Debt Sustainability Analysis (DSA): - A Joint Bank-Fund low-income country DSA (LIC DSA) should be prepared once a year for PRGT-eligible, IDA-only countries. - A DSA (or DSA update) may also be required to support the proposed level of access. - The main conclusions of the DSA and its update should be discussed in the body of the staff report. - The DSA or its update is subject to the same review process as a staff report and, when finalized, if not published as a stand-alone document, should be included as a background document to the staff report. - The final versions of the DSA files (external and fiscal templates) should be submitted to the SPR review box at the time the DSA (and staff report) is sent to the Board. - Informational annexes: - An informational annex should be issued as a supplement to ECF, SCF, RCF, PSI, SMP, and Article IV reports. - This annex comprises Relations with the Fund and Bank-Fund Collaboration, including the JMAP matrix, and Relations with other Multilateral Institutions if applicable. - A Statistical Issues annex should be included at least for Article IV reports. - Annexes are subject to departmental review but do not require management clearance. - Annexes should not be attached to the staff report; at issuance of the staff report to the Board, annexes should be sent to SEC and posted on the web as a supplement to the staff report. ### Summing Up, Chairman’s Statement, and PIN - All stand-alone UFR discussions and combined UFR with Article IV discussions require both a Summing Up and Chairman's Statement. - Summing Up: - Intended to present the Executive Board's formal views on the key issues at stake. - For combined UFR with Article IV discussions, contains a section on key policy issues discussed in the Article IV consultation followed by a separate short section at the end on key program issues. Only the latter section is required for a stand-alone UFR discussion. - Should cover core areas: recent economic performance or performance under the program, the economic outlook, risks and challenges, and macroeconomic and structural policy issues. - Should have a clear forward-looking element and, for a program country, include what directors consider the most critical elements for the success of the program. - In cases where the Executive Board approves the staff appraisal to shorten the Article IV consultation cycle, the Summing Up should reflect such approval by the Board. - Chairman's Statement: - Prepared after the Executive Board adopts a decision regarding a country's use of Fund resources, or completes a discussion about a country's participation in the HIPC initiative or a country's PRSP-related document. - Intended to inform the public of the Board's decision on a UFR program and the Board's overall policy message. - Should convey a few (three to four) points on which the Board placed emphasis, not attempt to cover the discussion as a whole or reflect divergent Directors' views, and does not attribute statements to directors. - Staff should exercise caution when referring to highly market-sensitive issues. - Appendix Table 2 (as provided in the source) indicates Summing Up, Chairman's Statement, and PIN requirements by type of discussion: - Stand-alone UFR: Summing Up Yes; Chairman's Statement Yes; PIN No - Combined UFR with Article IV: Summing Up Yes; Chairman's Statement Yes; PIN Yes - Combined Ex Post Assessment/UFR: Summing Up Yes; Chairman's Statement Yes; PIN Yes - Stand-alone Post Program Monitoring or Ex Post Assessment: Summing Up Yes; Chairman's Statement No; PIN Yes *Source: Excerpt from IMF Appendix I. Documentation and Review (content unit _032112).* ### 25. Press Release: EXR (Media Relations Division) issues Press Releases for new ### 25. Press Release: EXR (Media Relations Division) issues Press Releases for new ### Press Releases and Staff Statements - Press Releases for new arrangements and reviews: - EXR prepares Press Releases containing the Chairman’s statements. - Area Departments prepare the background section, to be reviewed by SPR upon demand. - EXR prepares the initial draft, including the Chairman’s statement, and requests comments from the area department, LEG, FIN, and the executive director of the country in question. - Staff Statements: - Prepared as needed if new or additional information becomes available after submission of the staff report to the Board and before the Board meeting. - The statement should explicitly mention whether the new information changes the thrust of staff’s assessment in the staff report. - The statement should be sent to SPR for clearance. - The statement should be sent to management for their information and SEC for Board circulation, at least one day before the Board meeting. ### Ex Post Assessments (EPAs) and Longer-Term Program Engagement (LTPE) - EPA requirement: - An Ex Post Assessment (EPA) is required for all members considered as having long term program engagement (LTPE), defined as having in place a Fund-supported financial arrangement for at least seven of the past 10 years. - For members identified as meeting the LTPE definition and for whom an EPA has not been prepared in the past five years, if a successor arrangement is contemplated, EPAs should be prepared in time to be considered by the Board prior to a request for a new arrangement. - EPAs should preferably be prepared and circulated to departments prior to the PN for an Article IV consultation and before negotiations begin on a successor arrangement. - Where not possible, a draft EPA should be prepared prior to preparation of the PN for the final review of the existing arrangement. - In exceptional cases, the EPA could be considered in a stand-alone Board meeting. - If no successor arrangement is contemplated, an EPA should be prepared such that it is considered by the Board with the first post-program Article IV consultation. - Distinction and notification: - The revised policy distinguishes between the first EPA for a member (an EPA report) and subsequent assessments (streamlined EPA updates). - The Executive Board should be informed of an upcoming preparation of a streamlined EPA at the penultimate review of the current arrangement—or at an informal country matters session, if no current arrangement exists—up to six months in advance of the required EPA, to give Executive Directors an opportunity to request a comprehensive EPA on a case-by-case basis. ### Debt Sustainability Analyses (DSAs) for Low-Income Countries - Joint Bank-Fund LIC DSA: - A Joint Bank-Fund LIC DSA should be prepared annually for PRGT eligible, IDA-only countries. - A fully elaborated DSA is required at least once every three years, with shorter annual updates in the interim years possible in the absence of significant changes in the macroeconomic and financial environment, including in periods of heightened domestic, external, or global risk. - A DSA (or DSA update) may also be required to support the proposed level of access. - DSAs should be prepared as self-contained documents, normally issued as a supplement to staff reports, and should include a clear description of macroeconomic assumptions without referring to the Fund staff report to which they are a supplement. - Full DSAs should be concise (four to five pages, excluding tables or any appendices). - LIC DSA updates (between full DSAs) would be significantly lighter exercises and consist of a very short write up covering important changes from the previous DSA and including the usual set of tables and charts. - Fund-only DSA updates can be prepared under certain circumstances (in particular when needed to underpin a financing request), provided that they do not include a change in the risk of debt distress rating and that Bank staff has a reasonable amount of time to review the document. ### JSANs, PRS Documents, and PRSP-Related Timelines - JSANs and PRS documents (I-PRSP, PRSP, APR): - Within four months of a country’s issuance of an interim or full PRSP, Fund and Bank staffs should prepare a JSAN, with feedback on the strategy and its implementation. - Even when a PRSP is needed to allow completion of the second (and every subsequent) review, the accompanying JSAN need not be completed to allow completion of the review—the JSAN can be completed and circulated after the Board meeting, provided this is within the four-month window. - JSANs for APRs are not required, but providing feedback on APRs in the context of the annual feedback process is good practice. - Staff should report on the PRS to the Executive Board at least once a year in the staff report for the Article IV consultation or the next program review. - PRS documents and JSANs are not required prior to the approval of a Fund arrangement or PSI; however, to complete the second (and every subsequent) review of an ECF and PSI a country must have circulated to the Board a PRS document, normally within the previous 18 months, and the PRS must be discussed in the staff report (possibly through a reference to the JSAN). - JSANs are required for interim and full PRSPs, PRSP preparation status reports, and APRs for all countries reaching HIPC decision and completion points. - Standard procedures apply to JSANs for review, clearance by management, and submission to the Board; JSANs must also be reviewed by the Bank. - All I-PRSPs and full PRSPs, and the associated JSANs, are expected to be discussed by the Executive Board, normally at the time of the next scheduled Board meeting. - Improving coordination between the Fund and the World Bank on the review of JSANs should follow good practices set under the Information Note prepared jointly by the Fund and the World Bank, which suggests timelines staffs can follow to facilitate coordination. - Staffs should follow recommendations of the Joint Management Action Plan, by conducting regular meetings between counterparts to increase coordination. ### Joint Management Action Plan (JMAP) and Joint Documents - JMAP expectations: - Under the JMAP, Bank and Fund country teams are asked to document the results of an annual consultation in a joint memorandum for files, identifying: - (i) the key macroeconomic and macro-critical structural challenges facing the country; - (ii) policies and reforms to address these challenges and each institution’s priorities for supporting these reforms; - (iii) respective work plans and outputs for the next 12 to 24 months, together with tentative mission schedules and delivery dates (summarized in an “action matrix” appended to the memorandum); - (iv) information, analytical cross support, and other inputs (e.g., assessment letters) needed from institutional counterparts, including agreed delivery dates; - (v) any substantive disagreement on any of the above issues. - When a Fund team prepares a staff report, it is expected to document Bank-Fund Collaboration in the appendix to the staff report; to avoid duplication, the appendix can be an appropriately reformatted version of the memorandum with procedural detail of little interest to the Board deleted. - Review of Joint Fund-Bank Documents: - Staff of both institutions should communicate at the outset with their counterparts to discuss respective review requirements and agree on a coordinated timetable for all joint documents that require review by both institutions and consideration by the Boards. ### Assessment Letters and HIPC Documents - Assessment Letters: - Produced typically in response to requests from multilateral or bilateral donors or creditors, in particular the World Bank and other multilateral institutions, or from the member country approaching donors for financial assistance. - Should contain a clear and candid assessment of the member’s macroeconomic conditions and prospects, and of macroeconomic and related structural policies. - Specifically, the assessment should: - (i) identify existing macroeconomic imbalances and structural distortions; - (ii) indicate to what extent current and planned policies are dealing with (or perhaps contributing to) these imbalances and distortions; - (iii) highlight policy areas where there are major outstanding concerns. - To the extent possible, Assessment Letters should be derived from and consistent with the most recently available report (PNs, staff reports, etc.). - Should contain an account of the Fund’s relations with the member country, including, where relevant, program discussions. - May not include a direct call on donors to provide assistance. - Are subject to the same SPR review and clearance procedures as program-related documents, and require management approval. - Circulation to the Board for information is required at the time of external dissemination. - May be published on the IMF's external website or by the recipient institutions only with the consent of the authorities. - HIPC Documents: - If a country satisfies all eligibility criteria and decides to request HIPC assistance, a preliminary HIPC document is first required, followed by a decision point document and, finally, a completion point document. - HIPC documents, including HIPC DSAs, are produced jointly with the Bank and are reviewed by both institutions. - Standard procedures apply at the Fund for the review, clearance, and submission to the Board of HIPC documents. *Source: _032112 - 25. Press Release: EXR (Media Relations Division) issues Press Releases for new* ### Appendix I: Chronological Steps of Mission Related Work (selected timing highlights) - 1–2 months before mission (T-75) - Preparation of policy note: country team collects information, conducts policy analysis, prepares macroeconomic framework, drafts PN including full set of tables and concise topical background notes. - In cases where new financing or program support is envisaged, mission teams are encouraged to consult informally with SPR (and if relevant FIN or LEG) at an early stage. - 3 weeks before mission (T-58) - Draft policy note: At least three days before the PCM, country team sends a draft policy note to SPR and other departments; all relevant background materials, including a draft DSA (if required), should be circulated at this time. - 2–3 weeks before mission (T-54) - Policy Consultation Meeting (PCM): Hold the PCM. Reviewing departments encouraged to indicate key issues approximately a day ahead of the PCM. - 1.5 weeks before mission (T-50) - Department Review of Revised policy note/PRMED revised preliminary review: Circulate revised PN to SPR together with the cover note; copy other reviewing divisions—allow at least 1 day for review and clearance. - 1 week before mission (T-48) - Revised policy note to management: Fund management reviews and clears the revised policy note. Allow full 3 business days for management clearance, and another 1–2 days for answering questions. - (T-33) days Start of Mission; (T-33)/(T-33) End of mission (T-33/T-33) - (T-33) End of mission: Reach understandings ad referendum on a LOI/MEFP. LOI and MEFP are reviewed together with the Staff Report. Missions typically issue a Press Statement, which should be cleared with EXR. - 2 days after return to HQ (T-31) - BTO: Mission chief sends a BTO to management under a cover from the department director. - (T-21) days Department Review of Staff Report, LOI/MEFP - Area department sends the Staff Report and supporting documents to departments for review. Allow a full 3 business days for review, another 1–2 days for revisions and 1 day for final SPR review and clearance. - (T-15) days Clearance memo and Executive Summary of Staff Report to Management - Management should be provided a full three business days for clearance. Allow 1 day for answering questions. Allow another 0.5 days for issuance by SEC (final reports should be submitted before noon for issuance on the same day). - (T-10) days Circulation of Staff Report to Board - The country's ED would need to request a waiver if the staff report is issued to the Board later than two weeks prior to the Board meeting (plus one day grace). - (T-3) days Staff Statement to SPR - SPR will review and clear staff statements in one working day. - (T-2) days Summing Up, Chair Statement, and PIN to SEC - SEC will pro forma clear the Summing Up, Chair Statement, and PIN, prior to submission to management. PINs are only required for combined UFR and Article IV reports. - (T-1) days Staff Statement to SEC - SEC will circulate statements to the Board. - T Board Meeting - Staff Report subsequently published (given authorities' approval). *Source: _032112 - 25. Press Release: EXR (Media Relations Division) issues Press Releases for new* ### Appendix II: Quantitative Conditionality — Key Rules and Definitions - A. Periodicity and definitions - 1. Under Fund-supported programs for LICs, quantitative “PCs—or assessment criteria (“ACs”) in the case of the PSI—would normally be set on a semiannual basis and tied to semiannual program reviews, while quantitative benchmarks (also referred to as indicative targets) would normally be specified on a quarterly basis. - In exceptional circumstances in which closer monitoring is considered helpful for program implementation, PCs and reviews could be both at quarterly intervals, for instance in the context of significant short-term volatility and/or uncertainty. - There is scope for some flexibility in setting the specific test dates relative to strict three/six-monthly cycles, for example when there is a need to align monitoring with national budget/reporting cycles, as long as deviations are minor. - 2. Quantitative periodic conditionality should cover all test dates that fall within the 12 months after the Board meeting (initial approval or review). - Under semiannual monitoring, PCs would therefore normally be established for two future test dates at the time of approval of the arrangement and at each review (except for the penultimate and final reviews). - The table of quantitative conditionality (the “PC table”) attached to the LOI/MEFP should clearly identify PCs, indicative targets, and adjustors for at least a 12-month period from the Board date of the program approval or review. - Indicative targets should extend through the end of the calendar year (or fiscal year) for which policies are being discussed. - 3. The precise definitions of PCs should be set out in a TMU attached to the LOI. PCs and indicative targets for the main economic and financial indicators should be defined simply and clearly, and in a manner that makes it easy and relatively quick to measure. - 4. Quantitative periodic conditionality is normally set as cumulative flows or changes in stocks from a single reference date (normally, the beginning of a calendar or fiscal year) through each test date. - The first such reference date, set at the time of approval of a new financial arrangement or PSI, would have to coincide with or predate the start of the program period. The reference date would usually be moved ahead by one year on an annual basis. - Certain indicative targets (for instance on monetary aggregates or international reserves) may be set as period averages (e.g., over a number of days before or after the end-quarter date). - 5. Quantitative PCs typically include measures of net international reserves, central bank domestic assets, domestic and fiscal balances or financing, limits on nonconcessional external debt, non-accumulation of external payments arrears, and any other macro-critical indicators. - PCs are usually subject to program adjustors that reflect deviations from projected external flows. - Indicative targets should include a floor on social and other priority spending where possible. - B. Fiscal targets - 6. Programs should have fiscal PCs and indicative targets that are based on appropriate analytical fiscal indicators and have the desired institutional coverage. - Fiscal targets should aim to cover all relevant government entities and transactions. - Most targets are specified at the level of the central government or the general government, with the general government being the appropriate choice where sub-national governments have major fiscal responsibilities and relevant data are available. - Fiscal PCs should generally cover both budgetary and extra-budgetary activities of the government. - In all cases, the TMU should provide a clear definition of what is included in the term “government” (e.g., central, central and local, or including nonfinancial public organizations) for purposes of fiscal PCs. *Source: _032112 - 25. Press Release: EXR (Media Relations Division) issues Press Releases for new* ### 7. Fiscal conditionality should be set on the indicator(s) that are most crucial for ### 7. Fiscal conditionality should be set on the indicator(s) that are most crucial for ### Fiscal conditionality: choice of indicators and measurement - General stance of fiscal policy (the program’s near-term fiscal anchor) is normally monitored through a Performance Criterion (PC) on: - a credit aggregate (e.g., net domestic financing of the government or net banking system credit to the government), or - a deficit measure (e.g., the overall deficit or the primary deficit of the government), or - some combination of the above. - Guidance on when to use deficit measures: - Where a program addresses broad macroeconomic concerns, a deficit measure is more appropriate for a PC. - The overall deficit excluding grants is often a good summary guide to the impact of fiscal policy on aggregate demand and inflation. - The overall deficit including grants captures the government’s borrowing requirement and debt accumulation. - In many LICs, the near-term fiscal anchor focuses on domestic revenues and spending (excluding volatile donor-related receipts and outlays). - Countries with relatively high capacity may focus on the overall fiscal deficit. - Oil exporters may focus on non-oil balances. - Other possible program targets (typically indicative): - domestic revenue, - domestic arrears, - social and other priority spending. - Where debt sustainability is a concern, the primary fiscal balance is sometimes used as an alternative to the overall balance.2 - Data considerations: - Quality, accuracy, and timeliness of data determine the precise definition of fiscal targets and whether targets should be PCs or indicative targets. - Exceptional receipts (e.g., privatization proceeds, petroleum fund receipts): - Should normally be defined as a financing item for program purposes. - Provisions may allow some or all of these resources to be spent where appropriate. - Underlying economics should guide treatment; one-off receipts should not finance permanent expenditure increases even if treated as revenue in statistical manuals. ### Measurement approach: above-the-line vs below-the-line - PCs measuring the general stance of fiscal policy are often measured using “below-the-line” financing data because: - financing data are usually available more frequently, are more timely, and are of better quality. - Advantages of “above-the-line” targets: - better ownership and transparency because national budgets focus on revenue, expenditure, and the fiscal deficit. - Recommended monitoring practice: - Revenue and expenditure data should be monitored to establish an above-the-line fiscal deficit that can be reconciled with below-the-line financing data to reassure accuracy of the fiscal PC. ### Social and priority spending - Social and other priority spending should generally be safeguarded in Fund-supported programs in LICs. - Monitoring: - Typically monitored through an indicative floor on social and other priority spending whenever possible. - Definition of social/priority spending should be consistent with authorities’ poverty reduction and growth objectives. - If tracking is not feasible, program documentation should report measures to develop adequate tracking systems. - Staff should monitor progress in establishing tracking systems; structural benchmarks may be included if appropriate. ### Monetary targets - Monetary developments are normally monitored by a PC on net domestic assets (NDA), either of the central bank or the banking system (central bank NDA more likely in many LICs). - Definitions: - NDA may be defined as reserve money minus net international reserves (NIR) or reserve money minus net foreign assets. - Indicative targets: - May include reserve money, banking sector credit, or broad money where money or credit growth is a concern for inflation or banking system stability. - Choice between NDA and reserve money as PC depends on: - priorities and risks of the program, - the monetary regime, - importance placed on protecting/increasing net international reserves versus controlling inflation.3 - Technical requirement: - Money targets set as PCs should include an adjustor for changes in the reserve requirement, if applicable. - Exceptions: - Monetary ceilings are not required in programs with a currency board arrangement or in a monetary union, unless the member has some degree of control over credit growth. ### Targets for international reserves - International reserves are normally monitored by a floor on official central bank net international reserves (NIR). - PC definition must specify precise coverage of the monetary authority, especially where broader than central bank net foreign assets. - Composite aggregates: - If Fund disbursements are made directly to a Treasury account at the central bank (direct budget financing), use a composite central bank–Treasury aggregate for NIR and NDA. - Example implications: central bank gross reserves may increase while composite NIR remains unchanged if Fund disbursements are deposited to Treasury. - Usability criterion for reserves: - NIR should include only convertible, liquid, and unpledged (unencumbered) assets that are claims on nonresidents, net of short-term public or publicly guaranteed foreign liabilities; outstanding stock of Fund credit is netted out. - Exclude assets that are counterpart to foreign currency reserve requirement liabilities of the central bank when not usable for balance of payments purposes. - Foreign liabilities are defined as loan, deposit, swap, and forward liabilities to residents and nonresidents whose value is guaranteed in foreign currency terms (denominated or indexed). - TMU should specify if liabilities to participants in the SDR department are included. - Valuation effects: - Valuation effects from exchange rate or gold price changes should be excluded when defining NIR floors. - TMU must specify exchange rates and gold valuation to be used; constant values should be used to avoid implying forecasts. - Accounting exchange rates should be based on those prevailing at some recent, easily-checked date (e.g., the end of the previous year) and may be updated periodically during the arrangement. - Currency board and monetary union: - In a currency board, the monetary authority must ensure full foreign reserve backing for the currency board’s liabilities for program duration; the PC should specify exact coverage. - Floors on international reserves are not required for countries in a monetary union. ### External debt limits - Objective: prevent build-up of unsustainable debt while allowing adequate external financing.4 - Concessionality requirements: - A loan is normally classified as concessional if its grant element is at least 35 percent, calculated using a discount rate based on: - the 10-year average of OECD commercial interest reference rates (CIRR) for loans of maturity greater than 15 years; or - the six-month average of the OECD CIRR for loans of maturity 15 years or less. - A grant element of more than 35 percent may be required where countries have high debt vulnerabilities. - A grant element of less than 35 percent could be considered for countries with strong debt indicators or countries meeting criteria for PRGT-GRA blending. - For the most advanced LICs, concessionality requirements can be dropped. - Definitions and coverage: - Concessionality requirements apply to medium- and long-term external debt of the official sector. - Limits should also be used for short-term debt, with some exclusions (e.g., normal import financing). - In relatively closed capital accounts, residency criterion defines external debt; in more open capital accounts, the currency-denomination criterion can be used. - Coverage of the official sector is expected to be broad. - Limits for lower capacity countries:5 - Concessionality requirements apply loan by loan: - In countries with higher debt vulnerabilities, the minimum concessionality requirement should be at least 35 percent.6 Nonconcessional borrowing should be exceptional and only for critical high-return projects without concessional financing. - In countries with lower debt vulnerabilities, the minimum concessionality requirement should be 35 percent. Nonzero limits tied to specific projects, or untied nonzero limits for relatively higher capacity countries in this group, can be contemplated if they do not push the country into the higher vulnerability category. - Limits for higher capacity countries: - Concessionality requirements do not apply loan by loan: - PV limits can apply to countries with higher debt vulnerabilities and average concessionality requirements to countries with lower debt vulnerabilities. - Limits should be set as annual indicative targets (rather than PCs) for a transitional period of two years from the effective date of the decision (December 1, 2009). - If sufficient information on timing of external financing is available, annual targets can be complemented by semiannual or quarterly guideposts. - Debt limits for advanced LICs: - Concessionality requirements may be dropped altogether. - These countries are expected to be higher capacity, have per capita income above the IDA operational cutoff, a strong record of macroeconomic and public resource management, and sustained past and prospective access to nonconcessional financing. - If debt vulnerabilities remain high, nominal debt ceilings can be considered. ### Payments arrears - Where external or domestic payments arrears exist, quarterly indicative targets or performance criteria may be set for phased elimination. - Requirements: - The concept of government should be clearly defined (e.g., inclusion/exclusion of state-owned enterprises, social security, pension funds). - The method for measuring arrears should be specified. - Caveats: - Domestic arrears may present significant measurement and controllability problems that preclude use as PCs. - Judgment on whether domestic arrears limits should be PCs or indicative targets should consider commitment control, measurement systems, and data quality. ### Continuous PCs - Continuous PCs always include, inter alia, commitments related to non-introduction of exchange restrictions and multiple currency practices: - (i) imposition or intensification of restrictions on making payments and transfers for current international transactions; or - (ii) introduction or modification of multiple currency practices; - (iii) conclusion of bilateral payments agreements inconsistent with Article VIII; or - (iv) imposition or intensification of import restrictions for balance of payments reasons. - These continuous PCs are always included in the text of all Fund arrangements and, given their non-quantitative nature, are usually not listed in the PC table. - Other continuous PCs typically include non-accumulation of external payments arrears. - Where external debt ceilings are set at zero, these should be specified as continuous PCs. - Monitoring: staff should ascertain continuous compliance based on representation by the authorities. ### Adjustors: purpose, design principles, and technical application - Purpose: - Protect the program from unforeseen events typically beyond the authorities’ control. - Pre-specify policy response to deviations from program assumptions without compromising the objective and predetermined nature of PCs tied to Fund disbursements. - Adjustors are automatic (distinct from waivers, PC modifications, and program reviews). - Design principles: - Use sparingly to limit need for major policy adjustments in the face of uncertainty and volatility of key variables (e.g., export prices, foreign financing, privatization receipts, or certain policy actions such as bank recapitalization or changes in reserve requirements).7 - Be simple and clearly defined, including in the TMU and PC table. - Apply to temporary deviations; lasting or large deviations should be addressed in program reviews. - Be based on realistic projections; e.g., allow domestic bank financing to compensate for systematic overestimation of external financing only with caution. - Technical points: - By convention, adjustors apply to ceilings/floors set for the PCs rather than to actual outturns. - If several adjustors apply to the same PC, they should apply to the net cumulative sum of deviations from program assumptions for those variables. - Unless the potential shock affects money demand, an adjustor on NIR should have a symmetric adjustor (opposite sign) on NDA. - Distinguish between project and program financing. - Typical uses: - (i) Deviations from projected external program grants and lending lead to adjustment of the NIR floor, the NDA ceiling, and the net domestic financing of the government ceiling. - (ii) Deviations from projected external project lending lead to adjustment of the overall fiscal balance floor if applicable (no adjustor needed if fiscal deficit concept excludes project financing and expenditures). - (iii) Deviations from projected fiscal revenues lead to (usually partial) adjustment in the overall fiscal balance floor or net domestic financing of the government ceiling. - Apply adjustors symmetrically and apply symmetric caps where useful. - TMU requirements: - TMU should define adjustors, including variables subject to adjustment, explicit adjustment formulas, trigger events, caps, and thresholds. - The baseline projection that gives rise to potential adjustment should be included in the PC table and a footnote should indicate the adjustor mechanism. ### Staff-Monitored Programs (SMPs) and track records (beginning) - SMPs are informal agreements between national authorities and Fund staff to monitor implementation of the authorities’ economic program with the objective of establishing a track record of policy implementation. - Purpose: - SMPs can pave the way for a new Fund financial arrangement, Fund emergency assistance, or resumption of an existing arrangement that has gone off track. - Nature: - SMPs resemble other Fund-supported programs in form, but: - they are not required to meet UCT conditionality standards, - they are not endorsed by the Fund’s Executive Board. *Source: Appendix II and start of Appendix III, quantitative conditionality guidance in the provided content.* ### 2. In the LIC context, SMPs have been an important part of the Fund’s toolkit. In ### _032112 - 2. In the LIC context, SMPs have been an important part of the Fund’s toolkit. In ### Purpose and typical uses of SMPs - SMPs are used when limited institutional capacity, domestic fragility or instability, weak economic policy implementation, or absence of financing assurances raise significant doubts about the member country’s capacity and/or commitment to implement a UCT-quality program. - SMPs are used when a country’s program supported by a Fund financial arrangement has gone off track and a track record is needed to provide assurances that the authorities have the capacity and commitment to achieve the program’s objectives. - SMPs are used when a member country has overdue obligations to the Fund, and there is a reasonable prospect that the country can move toward arrears clearance and implement a UCT-quality program. ### Design and objectives of SMPs - An SMP should be consistent with its goal to build a track record; policies should be sufficiently ambitious to provide a good basis for proceeding to a Fund financial arrangement. - Staff should refrain from reaching an understanding on an SMP if a consistent policy package is not in place. - SMPs should be designed so that implementation provides assurances on the capacity and commitment of the authorities to implement a UCT-quality program. - For a PRGT-eligible member, the ultimate objective of an SMP is to help a member move to a UCT-quality program aimed at progressing toward a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - Under certain circumstances, the Board could make a finding that an SMP may count toward the track record of policy performance for moving to the decision point under the HIPC Initiative; staff must make an assessment, supported by the Board, that macroeconomic and structural reform policies under the SMP meet policy standards associated with programs supported by arrangements in the upper credit tranches or under the ECF (―SMPs of UCT-quality policies‖). ### Form and monitoring - SMPs should closely resemble a Fund-supported program in form, including specification of a quantified macroeconomic framework and structural reform agenda. - Monitoring should be through indicative targets (normally on a quarterly basis) and structural benchmarks. - Choice of indicators to monitor under an SMP should be similar to those appropriate under an eventual UCT-quality program. ### Poverty reduction and PRS consistency - SMP-supported policies should be consistent with the member’s poverty reduction and growth objectives. - Requests for an SMP should be accompanied by a statement, normally in the LOI or MEFP, of how the program advances the country’s poverty reduction and growth objectives, cross-referencing any existing PRSP where relevant. - SMPs should include safeguards on social and other priority spending, such as an indicative floor on social and other priority spending, defined by the authorities, where possible. - If a PRS document exists, SMP-supported policies should be consistent with the objectives of the PRS in the context of promoting a stable and sustainable macroeconomic environment consistent with strong and durable poverty reduction and growth. - If a PRS document does not exist, SMP documentation should outline the country’s medium-term poverty reduction and growth objectives and policies or refer to previous staff reports and update as necessary. - If a PRS document does not exist and the SMP is aimed at building a track record for an ECF arrangement or PSI, staff should alert the authorities on Definitions and Timelines for PRS Documentation requirements (Appendix V) to ensure adequate time for the PRS process. ### Choice among track record options (informal track records, SMPs, RCF) - Track records are used to provide assurances about authorities’ capacity and commitment to implement a UCT-quality program and should not be used purely for signaling purposes. - Track records are typically used to bring an existing ECF or SCF arrangement, or PSI, back on track and may also pave the way for a prospective new ECF, SCF, or PSI-supported program when doubts exist about capacity and commitment. - Prior actions differ from track records: prior actions ensure implementation of measures needed immediately to achieve program goals and may be necessary to start or continue an SMP. - Three types of track records for PRGT-eligible members: - (i) Informal track records: time-bound near-term policy actions and targets agreed informally between staff and authorities; require interdepartmental review and management clearance, typically based on a PN. - (ii) SMPs: formal track records as discussed above. - (iii) RCF-supported policies: typically involve time-bound indicative targets and structural benchmarks specified at request time for an RCF disbursement. - Use cases: - Informal track records are typically appropriate when there are reasonable near-term prospects that the authorities will implement a UCT-quality program or take near-term corrective policy actions. - SMPs are typically appropriate when (i) significant uncertainty exists about authorities’ capacity and commitment to implement (or bring back on track) a UCT-quality program in the near term (e.g., significant policy slippages, sharply deteriorated political or economic environment, absence of adequate financing assurances), and (ii) there is no urgent financing need that warrants the use of the RCF. - RCF support can help build a track record when (i) a member experiences an urgent financing need and, in case of an off-track UCT-quality program, this need was caused by a sudden exogenous shock, and (ii) there are adequate safeguards to the Fund’s resources. - Access restrictions and requirements for RCF: - Access to an RCF is not possible if the member has overdue obligations to the Fund. - RCF support requires a commitment to undergo a safeguards assessment and authorization for Fund staff to access the central bank’s most recently completed external audit reports and to hold discussions with external auditors. ### Track record period and timing - A track record period in an SMP can vary based on the member’s past track record and measures needed to establish policy implementation. - Normally, monitoring would be expected to cover a minimum of six months and two test dates, and would not be expected to extend beyond 18 months; longer durations are not precluded. - Track records for the RCF would normally cover at least six months. - Duration for informal track records is more flexible and depends on country circumstances. - Track record periods should start no earlier than the first time substantive policy discussions on near-term macroeconomic targets were held between the country team and the authorities, based on a Policy Note, cleared by management, that sets out the envisaged policies and track record period. - Track record periods should not start much later than the time staff and authorities reach understandings on the track record targets. ### HIPC Initiative and MDRI: eligibility, procedures, and conditions - The HIPC Initiative was launched in 1996, enhanced in 1999, and supplemented in 2005 by the MDRI. - To be qualified for HIPC debt relief a member’s present value (PV) of external public and publicly-guaranteed debt based on end-2004 and end-2010 data must exceed 150 percent of exports or 250 percent of revenue. The fiscal revenue threshold only applies if exports to GDP are at least 30 percent and revenue to GDP 15 percent. - Decision point requirements (to reach the decision point, where creditors commit to providing debt relief): - The country’s debt burden indicators must be above the HIPC Initiative debt sustainability thresholds based on the latest available external debt data. - A minimum six-month track record of policy performance under a Fund-supported program immediately preceding the decision point is needed. Programs that count toward qualification include those supported by ECF, SCF, or Extended Arrangements, or, on a case-by-case basis as determined by the Board, SBA, RAP, RFI and RCF. - Under the Rights Accumulation Program (RAP), a member in arrears to the Fund can earn rights conditioned on satisfactory performance under an adjustment program monitored by the Fund toward a disbursement once overdue obligations have been cleared and upon approval of a successor arrangement. Somalia and Sudan are the only two remaining countries eligible for the RAP. - An SMP can count toward the track record when the Executive Board agrees that its macroeconomic and structural policies meet the policy standard of an UCT arrangement or under the PRGT (applies where protracted arrears preclude other forms of Fund engagement). Liberia was the only country thus far to have used an SMP to reach the decision point. - A satisfactory poverty reduction strategy set out in a PRSP, I-PRSP, PRSP preparation status report or APR should be in place and must have been subject to analysis in a JSAN. The PRS document must have been issued to the Executive Board normally within the previous 12 months but in any case within the previous 18 months. The JSAN must have been issued to the Executive Board. - Interim HIPC assistance after decision point: - Interim assistance is subject to participation assurances from creditors jointly holding at least 70 percent of HIPC-eligible debt and the Fund-supported program remaining on track. - A country may receive up to 20 percent (in NPV terms) of total assistance committed for each 12-month period following the decision point and up to 60 percent of the total of the assistance committed prior to completion point (or 25 percent and 75 percent, respectively, in exceptional circumstances). - Completion point requirements: - A track record of at least six months of policy performance under an ECF, SCF, or Extended Arrangement established in the period immediately preceding the completion point. - The member has a stable macroeconomic position. - A full PRSP must have been adopted and satisfactorily implemented for at least one year preceding the completion point, evidenced by an APR issued to the Executive Board and subject to a JSAN. The APR must have been issued normally within the previous 12 months but in any case within the previous 18 months. The JSAN must also have been issued to the Executive Board. - All floating completion point triggers (the structural conditions set at the decision point) must have been implemented. - Participation assurances from creditors jointly holding at least 80 percent of HIPC-eligible debt should have been obtained. - Documentation and preparation: - Progress under the HIPC Initiative should be reflected in program documents, including status of I-PRSP/PRSP preparation or implementation and completion point triggers, possible timing and obstacles. - An HIPC debt relief analysis (HIPC DRA) based on a loan-by-loan data reconciliation is required; the HIPC DRA and preparing an HIPC document may take between 18 and 24 weeks from pre-mission preparation to Board meeting. - The HIPC DRA should not be confused with the LIC DSA, which is undertaken annually jointly by Bank and Fund staff and employs a different methodology. - Treatment of prospective debt relief: - The macro framework is expected to reflect realistic assumptions, including prospects for debt relief, while the HIPC DRA should reflect the legal situation regarding debt and demonstrate the unsustainable debt burden before debt relief. - MDRI (2005 supplement): - The MDRI provides 100 percent debt relief on eligible debt for countries that have reached, or will eventually reach, the completion point. - MDRI is provided by four IFIs—the IMF, IDA, AfDB, and IADB. - A member that is PRGT-eligible, has annual per capita income of US$380 or less on the basis of the 2004 gross national income (Atlas method) from the World Bank’s Operational Manual as updated on July 21, 2005; has debt outstanding to the Fund, including to the Fund as Trustee, as of December 31, 2004; and, in the case of a member that is HIPC eligible or potentially eligible, has reached the completion point under the HIPC Initiative, may qualify for MDRI relief. - Questions on the HIPC Initiative and the MDRI should be addressed to SPR’s Debt Policy Division. *Source: _032112 - 2. In the LIC context, SMPs have been an important part of the Fund’s toolkit. In* ### 2. This Appendix provides guidance on the changes resulting from these Board ### _032112 - 2. This Appendix provides guidance on the changes resulting from these Board ### Overview - Purpose: Guidance on changes resulting from recent Board decisions in the Fund’s approach to integrating poverty reduction objectives into LIC operations, including rules and procedures for PRS documents and implications for operations under the Fund’s concessional financing facilities (ECF, SCF, and RCF), PSI and HIPC Initiative processes. - Two categories of changes: - (i) changes to regular staff assessments on the implementation of existing PRS in both program and non-program countries; - (ii) changes to requirements for PRS documents, and in the manner in which countries’ poverty reduction efforts are to be integrated into the Fund’s financing operations under the new architecture of concessional facilities. - Note: This Appendix focuses on processes and does not address in detail the expected content of information to be provided to the Executive Board by countries obtaining financing under the new LIC facilities on their poverty reduction activities, or Board reporting required from staff on PRS implementation in connection with the newly introduced AFP for APR documents. ### Operational changes to PRS assessments - JSANs for APRs have been eliminated. - Assessments of PRS implementation will take the form of staff participation in an Annual Feedback Process (AFP) with country authorities and other stakeholders, with the outcome summarized as part of a subsequent regular staff report to the Executive Board. - JSAN and PRS requirements in connection with the enhanced HIPC Initiative are unchanged. - Staff reporting frequency: Staff should report to the Board on each country’s PRS about once a year. Such reporting should be presented in a staff report (e.g., an Article IV staff report, or a staff report for approval of a new ECF, SCF, or SCF arrangement, disbursement under the RCF or approval of a PSI, or for the completion of a program review). ### Integrating country poverty reduction efforts into lending activities under the new architecture of facilities for LICs - Objective: The ECF, SCF, RCF and the PSI are designed to assist LICs in making progress toward, or in achieving, maintaining, or restoring a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. - General requirement: Policies supported by Fund concessional financing under all facilities should be aligned with the country’s poverty reduction and growth objectives. - Specific PRS linkage guidance: - Any financing request or program review under the ECF, SCF, or RCF—and analogous PSI requests or PSI reviews—must be accompanied by a statement, normally in the LOI or MEFP, of how the program advances the country’s poverty reduction and growth objectives. - The description is expected to be more detailed at the time of the initial program request or when a new PRSP (or I-PRSP) is produced. Where a relevant PRS document exists, the LOI/MEFP description could cross-reference the PRS document. - If a relevant PRS document does not exist, the program documentation (e.g., in an attachment to the LOI or MEFP) should outline the country’s medium-term poverty reduction and growth objectives and policies; subsequent program documents should refer to and update this documentation as necessary. - While a PRS document is not required at the time of initial Board consideration of an ECF arrangement or a PSI, the second (and every subsequent) review can only be completed if a PRS document has been issued to the Board, normally within the previous 18 months, and has been subject to staff analysis, including a staff report on an initial request for an ECF arrangement or PSI or on a review. - Staff should inform authorities at an early stage about the relevant Definitions and Timelines for PRS Documentation requirements to ensure adequate time for the PRS process. - Staff are required to prepare and circulate for discussion to the Executive Board Joint Staff Advisory Note (JSANs) for PRSPs and Interim Poverty Reduction Strategy Papers (I-PRSPs) generally within four months of the transmission of a PRSP or an I-PRSP (outside the HIPC context). - For APRs, it is good practice to engage in an annual feedback process. In cases where a JSAN has not yet been prepared, the Executive Board is not prevented from making decisions governing a member’s ECF arrangement or PSI, including the completion of reviews, if the relevant preliminary staff analysis has been included in the relevant staff report or a supplement (and the JSAN, together with the PRSP, would be discussed at the next Board meeting). Board consideration cannot be on a Lapse of Time (LOT) basis. - PRS documents should normally be produced by the country authorities on a 12-month cycle and aligned with other domestic policy cycles. - Where significant weaknesses in the PRS are identified (including in the JSAN or through the AFP), program staff reports should report how these weaknesses are being addressed. Addressing identified weaknesses is expected but is not a requirement for support under any Fund facility. - Under all Fund facilities for LICs, social and other priority spending should be safeguarded and, whenever appropriate, increased. This should be monitored through explicit targets, typically an indicative floor on social or other priority spending, whenever possible. Determination of what constitutes social or other priority spending should generally be based on the authorities’ PRS, or, where that does not exist, the medium-term poverty reduction and growth objectives and policies outlined by the authorities as part of program documentation. - If tracking of social or other priority spending is not feasible, program documentation should report on measures envisaged to develop an adequate expenditure tracking system so that such spending can be monitored. ### Addressing inconsistencies between PRS and other national policy documents - Where PRS documents are not fully aligned with other national policy documents (e.g., the budget) and do not by themselves provide a satisfactory basis for a Fund-supported program: - The authorities’ description in the LOI/MEFP should address significant inconsistencies and implications for program ownership or implementation. - If inconsistencies result from differing vintages of PRS and other documents, the authorities’ description should explain timing differences and reasons for strategy modifications; the next PRS should discuss these modifications and their relation to the broader strategy. - Where PRS documents differ substantially from contemporaneous national policy documents, IMF staff teams need to evaluate whether a Fund-supported program would still be appropriate. Inconsistencies discovered during PRS implementation should be discussed with authorities as part of the AFP. - If proceeding with an ECF-supported or PSI program despite substantial inconsistencies, the ECF or PSI LOI/MEFP should explain how authorities intend to modify policy coordination procedures to ensure alignment with future PRS documents and prevent recurrence of conflicting documents. - Staff should urge authorities to improve internal coordination mechanisms; staff should provide frank advice but should not prescribe PRS content or make PRS approaches conditions for Fund approval of an ECF or PSI. ### ECF/PSI staff reports, LOIs/MEFPs, and JSAN interactions - ECF or PSI staff reports and LOIs/MEFPs should discuss how significant weaknesses in the poverty reduction strategy (including those identified in the JSAN or through the AFP) have been addressed. - In supporting an ECF loan disbursement, IMF staff and management would recommend approval in part based on the country’s PRS, taking into account the JSAN and the authorities’ commitment to remedy major weaknesses in areas under the IMF’s mandate (in particular, the macroeconomic framework). ### Definitions and timelines for PRS documentation - PRS documents: PRSPs and APRs, with forms set out in the PRGT Instrument and PSI Framework Decision and defined in the PRG-HIPC Trust Appendix Box 1. - Normal production cycle: PRS documents should normally be produced on a 12-month cycle and aligned with other domestic policy cycles. - Revised limit: The revised PRGT Instrument and the PSI Framework Decision establish a normal limit of 18 months between the time of issuance of a PRS document to the Fund Board and the Board completion of the second and subsequent reviews on a subsequent ECF or PSI operation. ### Joint Staff Advisory Notes (JSANs) - Role: JSAN is prepared jointly by Bank and Fund staffs containing analysis of strengths and weaknesses of the member’s poverty reduction strategy and identifying priority areas for strengthening during implementation. - For an interim PRSP, the JSAN should focus on the roadmap for preparing the strategy, provide advice on preparations, and consider the need for technical assistance. - Objective: Provide focused, frank, and constructive feedback; identify a limited number of priority areas in the PRS to be addressed, including in the context of existing or possible future ECF-supported programs. - Tone: JSANs should be frank but avoid normative language assessing the PRS as a whole or suggesting that the PRS meets or falls short of overall standards. - JSAN conclusions: Should end with suggested points for Executive Board discussion drawing on main text advice to highlight: - (i) priority action areas for strengthening the PRS; and - (ii) areas where (a) there are inconsistencies between the PRS and its policy framework and the analytical basis that underpins Bank- and Fund-supported programs that reflect existing analysis; or (b) areas where further analysis is needed or adjustments to the strategy are expected. - Division of responsibilities: Bank and Fund staffs should divide responsibilities in preparing the JSAN, contributing in their areas of primary institutional competencies and reaching common understanding in overlapping areas. - Exceptions: No JSAN is needed for PRSP preparation status reports and APRs (feedback provided through the AFP). Exception: a JSAN is required when a PRSP preparation status report or APR is prepared for the HIPC decision point. ### Annual Feedback Process (AFP) - Purpose: An assessment of PRS implementation based on informal consultations and dialogue with country authorities. Conclusions are summarized as part of a regular staff report to the Executive Board. - Consultations under the AFP expected to cover: - (i) performance relative to PRS benchmarks and monitoring indicators and the implementation of the PRS strategy; - (ii) the linkages between the PRS and national systems and processes (e.g., budget, monitoring, and planning); - (iii) the coming year’s policy intentions, particularly, but not exclusively, as reflected in the budget. - Coordination: AFP should be coordinated with Bank staff for comprehensive and coherent feedback; Fund and Bank staffs could provide input individually. Fund staff focus on macro-critical aspects of the PRS. - Feedback modalities: Bank and Fund staffs are not required to provide separate written feedback to the government but may choose the most conducive mechanism; Policy Consultation Notes should indicate that feedback will be provided in the context of the forthcoming mission. - Clearance and circulation: Content and modalities of feedback will not be subject to special clearance procedures. Any written comprehensive assessments of the macroeconomic situation, if provided, would be circulated to the Executive Board for information, consistent with the policy on assessment letters and statements. *Source: _032112 - 2. This Appendix provides guidance on the changes resulting from these Board* ### 19. The AFP should draw, to the extent possible, on existing in-country mechanisms, ### _032112 - 19. The AFP should draw, to the extent possible, on existing in-country mechanisms, ### AFP feedback and in-country review timing - The AFP should draw, to the extent possible, on existing in-country mechanisms, such as implementation reviews, other suitable domestic review processes, or annual reviews of budget financing groups and consultative groups/roundtables. - The timing of the process would be country specific, but feedback should ideally be given about once a year, and would normally involve the donor community. - Ideally in line with the budget calendar and in-country donor review process. - In countries with weak policy environments, or in the absence of program relationships, staff ability to provide feedback may be limited. ### PRS and the HIPC Initiative — operational link and Board timing - No change to the operational link between the PRS and the HIPC Initiative processes. - Fund staff will recommend approval under the HIPC Initiative if PRS requirements set out in the PRG-HIPC Trust Instrument are met. - For the completion point, requirements include satisfactory implementation of a full PRSP for at least a year, evidenced by an APR recently issued to the Board and analyzed in a JSAN also issued to the Board. - Executive Boards’ determinations on HIPC decision and completion point conditions related to members’ poverty reduction strategies will be made at the time of the decision and completion points rather than at the time the JSAN for the PRS document is submitted. ### Other issues — circulation to Boards - PRS documents and corresponding JSANs are issued to the Executive Board in the EBD series as soon as PRS documents are officially received. - A PRSP or I-PRSP will be issued together with the accompanying JSAN for Board discussion when feasible; issuance of the PRS document should not be held up if the JSAN is not ready. - If JSAN cannot be issued together with PRS, the JSAN should be issued to the Boards within four months of official transmission of the PRS document. - APRs are normally issued for information of the Boards. ### Other issues — Board discussion sequencing and circulation periods - Boards will discuss a PRSP or I-PRSP (and related JSAN) together with a concessional financing, PSI, or HIPC operation, or an Article IV consultation, whichever is earlier following receipt of the PRS document and JSAN, or on a standalone basis if no such operation is contemplated but an operational need exists for the World Bank. - Board consideration cannot be on a Lapse of Time (LOT) basis. - In rare cases where a full PRSP or I-PRSP is prepared by a non-PRGT eligible member or by a member for whom no PRGT lending, PSI support, or HIPC operation is expected, the PRS document and related JSAN can be issued to the Board for information rather than for discussion, provided there is no operational need for discussion at the World Bank. - Executive Board discussions at the Bank and the Fund should preferably be scheduled within five working days of each other; the institution taking an operational decision would normally have the later Board date. - The Fund’s minimum circulation period for PRS documents and JSANs is two weeks, with an additional business day required for document dissemination. - The Bank generally requires a three week circulation period and additional time for document preparation. - Standalone Board discussion of a PRSP or I-PRSP at the Fund would only be expected in the unusual circumstance that there is an operational need at the Bank but not at the Fund. - I-PRSPs should be finalized by the authorities and issued to the Boards only when there is an operational need at either the Bank (rarely) or the Fund. - APRs and PRSP preparation status reports are not scheduled for Board discussion. ### Other issues — publication and consent requirements - Publication of PRS documents and JSANs is voluntary, but presumed; a member’s consent is required for publication. - The Managing Director will not recommend approval of: - (i) an ECF arrangement or completion of a review under such arrangement, or - (ii) an HIPC decision point or completion point decision, or - (iii) a member’s request for initial approval or review of a PSI, if the member does not explicitly consent to the publication of the PRSP-related document (I-PRSP, PRSP, PRSP preparation status report, or PRSP annual progress report). - A member is expected to indicate intent to consent before the Board meeting or date of adoption of a LOT decision to which those documents relate. - If consent has not been received prior to circulation, the cover memo should indicate this using standardized wording similar to that for staff reports. - When authorities’ consent has been received, PRSPs and APRs may be published immediately after formal transmission to the Bank and the Fund and may be posted immediately after issuance to the Executive Board. - JSANs scheduled for discussion may be published only after discussion by the relevant Board(s). - Where modifications are introduced to a JSAN before publication, the JSAN cannot be posted on the Fund’s website until both the Fund’s and Bank’s Board have been formally informed of these changes. - A Chairman’s statement will be released after the Board meeting as part of a press release. - SEC’s cover memo template for an APR issued “for information” specifies intended posting: “It is intended to post this paper on the Fund’s external website after [date + five working days].” ### Appendix Box 2 — Summary of PRS-Related Conditions for Assistance under the HIPC Initiative - At the decision point: - A member should have in place a satisfactory PRS set out in an I-PRSP, PRSP preparation status report, PRSP or APR that has been issued to the Board normally within the previous 12 months but in any case within the previous 18 months, and which has been analyzed in a JSAN that has also been issued to the Board. - At the completion point: - A member should have in place a PRSP with at least one year of satisfactory implementation by the completion point. - Evidence of satisfactory implementation should be provided in an APR normally issued to the Executive Boards within the previous 12 months but in any case within the previous 18 months and analyzed in a JSAN that has also been issued to the Board. - Standalone decisions on HIPC Initiative interim assistance do not require a PRS document recently issued to the Boards. ### Appendix VI — PRGT Eligibility: policy framework overview - PRGT eligibility policy framework is set out in Eligibility to Use the Fund’s Facilities for Concessional Financing (2010) and Executive Board Decision No. 14521-(10/3), adopted January 11, 2010, as amended pursuant to proposals set out in Eligibility to Use the Fund’s Facilities for Concessional Financing (2012). - PRGT eligibility will be reviewed by the Executive Board every two years, with an earlier comprehensive review in early 2013 as agreed by the Executive Board in the last review. - Decisions regarding entry onto the PRGT-eligibility list could be adopted between reviews; graduation decisions can also be adopted in the interim for members that request graduation and meet the graduation criteria. Key elements of the framework: - 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. - Graduation criteria: - A PRGT-eligible country would graduate if it meets either or both the income or market access criteria, and does not face serious short-term vulnerabilities. - Income criterion: - 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. - Market Access criterion: - The sovereign has the capacity to access international financial markets on a durable and substantial basis, and their annual per capita GNI is above 80 percent of the IDA operational cutoff (based on the latest available qualifying data) and has not been on a declining trend during the last five years for which qualifying data is available. - Absence of short-term vulnerabilities: - Assessment requires absence of risks of a sharp decline in income, or of a loss of market access, and limited debt vulnerabilities as indicated by the most recent debt sustainability analysis. - Members with a LIC-DSA should have a risk of external debt distress that is moderate or less, and the level of domestic debt should not raise serious concerns regarding debt sustainability. - For assessment of risks of loss of market access, large spreads on recent external borrowing could indicate risks. - Small country criteria (population below 1.5 million): - Entry for small countries: considered for PRGT entry if (i) 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. - Graduation for small countries requires three criteria: - Income: 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; and (iii) is currently at least three times the IDA threshold. - Market access: sovereign has capacity to access international financial markets on a durable and substantial basis, and the member’s annual per capita GNI is above 80 percent of the IDA operational cutoff and has not been on a declining trend during the last five years. - Absence of serious short-term vulnerabilities: small countries meeting either of the above two criteria would graduate if they do not face serious short-term vulnerabilities. With respect to 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. ### Appendix Table 4 — PRGT-Eligible Countries — 2010 Per Capita GNI (US dollars) (Effective February 2012) — selected entries and headline figures - Table columns: Country | GNI per capita (US$) | Population (In millions) - Selected country entries (as presented): - Afghanistan 3301/ 30.2 - Armenia** 3,090 3.3 - Bangladesh 640 164.5 - Benin 750 9.6 - Bhutan 1,920 0.7 - Bolivia 1,790 10.4 - Burkina Faso 550 14.7 - Burundi 160 8.3 - Cambodia 760 14.3 - Cameroon 1,160 20.4 - Cape Verde* 3,160 0.5 - Central African Republic 460 4.6 - Chad 600 10.2 - Comoros 820 0.7 - Congo, Rep. 2,310 3.9 - Congo, Dem. Rep. 180 70.5 - Côte d'Ivoire 1,070 22.0 - Djibouti 1,280 2/ 0.8 - Dominica** 4,960 0.1 - Eritrea 340 5.3 - Ethiopia 380 84.8 - Gambia, The 440 1.7 - Georgia** 2,700 4.4 - Ghana** 1,240 23.7 - Grenada** 5,560 0.1 - Guinea 380 10.3 - Guinea-Bissau 540 1.6 - Guyana* 3,270 0.8 - Haiti 650 9.9 - Honduras 1,880 7.6 - Kenya 780 39.7 - Kiribati 2,010 0.1 - Kyrgyz Republic 880 5.3 - Lao PDR 1,010 6.4 - Lesotho 1,080 2.5 - Liberia 190 4.3 - Madagascar 440 21.3 - Malawi 330 15.7 - Maldives** 4,270 0.3 - Mali 600 13.4 - Mauritania 1,060 3.2 - Moldova 1,810 3.6 - Mongolia 1,890 2.8 - Mozambique 440 21.6 - Myanmar n.a. n.a. - Nepal 490 28.2 - Nicaragua 1,080 5.8 - Niger 360 14.6 - Nigeria 1,180 156.1 - Papua New Guinea 1,300 6.5 - Rwanda 540 10.0 - Samoa* 2,930 0.2 - São Tomé and Principe 1,200 0.2 - Senegal 1,050 13.1 - Sierra Leone 340 5.8 - Solomon Islands 1,030 0.5 - Somalia n.a. 9.1 - St. Lucia*** 4,970 0.2 - St. Vincent and the Grenadines** 4,850 0.1 - Sudan 1,270 40.1 - Tajikistan 780 7.6 - Tanzania 530 41.3 - Timor-Leste 2,220 1.1 - Togo 440 7.0 - Tonga* 3,380 0.1 - Uganda 490 34.0 - Uzbekistan 1,280 28.2 - Vanuatu* 2,760 0.2 - Vietnam** 1,100 2/ 88.3 - Yemen, Rep. 1,060 24.4 - Zambia 1,070 13.3 - Liberia 190 4.3 (listed earlier in table) - Memorandum Item: - South Sudan 3/ 984 n.a. - Zimbabwe 4/ 460 12.6 - Footnotes and explanatory items included verbatim in the source: - 2/ Data for 2010 are not available. Latest available data presented here is for 2009. - 3/ South Sudan is not yet a member of the Fund. Once it becomes a member, it will be PRGT-eligible. - 4/ Zimbabwe is not PRGT eligible due to its removal from the PRGT-eligibility list by a Board decision in connection with its overdue obligations to the PRGT. It does not meet the graduation criteria for PRGT eligibility and, accordingly, would be expected to become PRGT eligible if the remedial measure were lifted. - Sources: Eligibility to Use the Fund's Facilities for Concessional Financing (SM/12/14); The World Bank, World Development Indicators, July 2011. - * Maintained on the list since it satisfies the small country exception. - ** Maintained on the list due to short-term vulnerabilities. - *** Maintained on the list since income per capita in 2010 is lower than that in 2006, and therefore does not qualify for graduation on the basis of the income criterion. - 1/ Data for 2010 are not available. 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