Strengthening the Framework for Post Program Monitoring

July 22, 2016

On July 1, 2016 the Executive Board of the International Monetary Fund (IMF) discussed the IMF’s policy on Post Program Monitoring (PPM), based on a staff report Strengthening the Framework for Post Program Monitoring.

PPM provides a framework for closer engagement with members that have substantial outstanding Fund credit, and are no longer in a program relationship. It involves monitoring of members’ circumstances and policies, focusing on their capacity to repay the Fund. PPM is intended to provide an early warning of policies that could jeopardize the resources of the IMF’s General Resources Account (GRA) or Poverty Reduction and Growth Trust (PRGT).

Under the current policy, members that are no longer in a program relationship are expected to engage with the Fund on PPM if total credit outstanding exceeds 100 percent of quota. If warranted, IMF management may also initiate or extend PPM for members where total credit is below this threshold, and terminate PPM early even if credit exceeds the threshold. Two PPM discussions are expected each year, one coinciding with the Article IV consultation and the second during a short staff visit.

The share of Fund credit accounted for by members, subject to PPM has increased in recent years. As of end-2015, members accounting for over 40 percent of credit outstanding under the GRA were subject to PPM, whereas under 5 percent of PRGT credit was subject to PPM.

Executive Board Assessment

Executive Directors welcomed the opportunity to discuss proposals to improve the Fund’s framework for post-program monitoring (PPM). They considered PPM to be an important element of the Fund’s safeguards framework. Through closer engagement with members that have substantial outstanding credit to the Fund but are no longer in a program relationship, PPM enhances the Fund’s ability to detect risks to the member’s repayment capacity and thus safeguard the Fund’s resources. Directors noted that the sizeable expansion of Fund credit in recent years has made it all the more important to ensure that the PPM framework remains robust. At the same time, they recognized the challenge of striking the right balance between different—and sometimes conflicting—objectives, including between strengthening and streamlining efforts, and between flexibility and evenhanded treatment.

Against this backdrop, Directors supported moving toward a more risk‑based and focused PPM framework. They agreed that PPM reports should examine in depth the full range of risks to members’ capacity to repay, and that the analysis should be tailored to members’ specific circumstances. Directors welcomed the range of innovative techniques and indicators used in the analysis and monitoring of risks, while stressing the desirability of maintaining a clear distinction, in terms of both content and modalities, between PPM and other forms of Fund engagement, be it lending or surveillance.

Directors saw merit in establishing absolute‑size thresholds to help ensure adequate monitoring of large exposures to the Fund’s resources. They found it reasonable to calibrate such thresholds relative to the Fund’s loss‑absorption capacity, and to use as a proxy the minimum floor of precautionary balances for credit outstanding from the General Resources Account (GRA), and the reserve balance for credit outstanding from the Poverty Reduction and Growth Trust (PRGT). Directors supported, or could support, setting the absolute‑size thresholds at SDR 1.5 billion for GRA credit, and at SDR 0.38 billion for PRGT credit. Some Directors considered that a lower threshold for GRA exposures would have provided a better safeguard to Fund resources.

Directors agreed that the quota‑based threshold should be retained as a backstop. They supported, or could support, raising the threshold to 200 percent of quota, close to the point at which level‑based surcharges apply for GRA exposures. Some Directors would have preferred a lower level, noting that small and medium‑sized economies could benefit from enhanced engagement with the Fund, or should be able to opt in voluntarily.

Directors agreed that the policy should be implemented in a flexible and streamlined manner, while ensuring the strongest safeguards to Fund resources. They agreed to reduce the frequency of PPM to once in any 12‑month period, based on a mission scheduled between annual Article IV consultations, which would also help differentiate the two reports. That notwithstanding, Directors took note of the requirement that Article IV consultations, inter alia, assess balance of payments stability and risks. While a number of Directors were willing to go along with a presumption that all standalone PPM reports would be considered on a lapse‑of‑time (LOT) basis, most Directors had reservations and emphasized the importance of the Board exercising its fiduciary duty to oversee risks to the Fund’s resources. In this context, a few Directors saw value in applying the absolute‑size thresholds as a trigger for formal Board consideration of PPM reports. In light of these considerations, Directors agreed to retain the current risk‑based approach to the usage of LOT procedures, whereby it would be possible for the Board to conclude PPM consideration on an LOT basis if no major issues have arisen.

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