IMF Executive Board Discusses the Adequacy of the Fund’s Precautionary Balances

April 4, 2024

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the 2024 Review of the Adequacy of the Fund’s Precautionary Balances.[1] The review took place somewhat ahead of the standard two-year cycle, in view of the imminent attainment of the current indicative medium-term target of SDR 25 billion.

The Fund’s precautionary balances consist of the general and special reserves. They are a key element of the IMF’s multi-layered framework for managing financial risks. Precautionary balances provide a buffer to protect the Fund against potential losses resulting from credit, income, and other financial risks. For this reason, they help protect the value of reserve assets represented by member countries’ positions in the Fund and underpin the exchange of assets through which the Fund provides financial assistance to countries with balance of payments needs.

The review was based on the assessment framework established in 2010, which uses an indicative range for precautionary balances, linked to a forward-looking measure of total IMF non-concessional credit, to guide decisions on adjusting the medium-term target over time. It takes into account the macroeconomic environment, the characteristics of Fund lending, and the financial and operational risks faced by the Fund. The framework also allows for judgement in setting the target based on a broad range of factors that affect the adequacy of precautionary balances.

Executive Board Assessment[2]

Executive Directors welcomed the opportunity to review the adequacy of the Fund’s precautionary balances, following the last review in December 2022. They stressed that maintaining an adequate level of precautionary balances remains a key element of the Fund’s multilayered risk management framework to mitigate financial risks, safeguard the strength of its balance sheet, and protect the value of members’ reserve positions in the Fund.

Directors agreed that the current transparent and rules-based framework adopted in 2010 for assessing the adequacy of precautionary balances remains broadly appropriate. They recognized the important role of judgment and Board discretion in the framework. Directors highlighted that the framework’s methodology has continuously evolved to strengthen its robustness, and that the framework has led to a strong increase in the Fund’s reserves. Noting staff’s review of the developments in the capital adequacy approaches of International Financial Institutions and of the Basel regulatory approach, Directors did not see a need for major adjustments. They welcomed the methodological enhancements to the framework to allow for judgmental consideration of commitments under precautionary arrangements and the development of a model based quantitative measurement of credit risks to inform the Board’s judgement.

Directors welcomed that precautionary balances have continued to increase and are expected to reach the current medium–term target of SDR 25 billion by the end of FY2024, for the first time since the introduction of the framework. Noting the attainment of the target will be ahead of schedule, a number of Directors saw this as an opportunity to review policies related to the pace of accumulation of precautionary balances, including the surcharges policy. A number of Directors also saw merit in considering ways to utilize excess precautionary balances accumulated above the target, including to address the challenges faced by low-income countries. Directors welcomed that coverage metrics have continued to strengthen, despite Fund lending in response to multiple shocks remaining near historical peaks.

Directors concurred that while financial risks remain high, they are broadly unchanged from the last review, taking into account the strengthening of some risk mitigants. Measures of credit risk in the lending portfolio have generally increased reflecting the more challenging economic and financial landscape, and the likelihood of arrears has somewhat risen, albeit remaining at considerably low levels. Notwithstanding, credit concentration risks and near-term bunching of repurchases have eased slightly from high levels, commitments under precautionary arrangements have declined, and the capacity of the burden sharing mechanism has increased. Medium term operational income remains strong, although subject to concentration risk, and while investment risks are elevated, the medium-term outlook for investment returns has improved.

Directors broadly agreed that the current target of precautionary balances, together with other elements of the financial risk management framework and the IFRS 9 provisioning approach, provides a robust level of financial protection for the Fund’s balance sheet. Most Directors concurred with retaining the current medium-term target for precautionary balances of SDR 25 billion, with a few Directors in favor of raising the target. While noting the expected upward shift in the trajectory of Fund credit, Directors recognized that the target is expected to remain within the indicative range of the forward-looking credit measure, above its mid-point in the desk survey demand scenario, and closer to the lower bound in the adverse scenario. Notwithstanding, a few Directors were skeptical of the assumption of only a partial drawdown on precautionary arrangements under the adverse scenario.

Directors supported increasing the minimum floor for precautionary balances from SDR 15 billion to SDR 20 billion. They emphasized the need to maintain an adequate minimum level of reserves to protect against an unexpected rise in credit or deterioration in credit risks and ensure sufficient investment income. Directors agreed that higher and longer lasting credit peaks and higher and more volatile commitments, justifies a higher base level of precautionary balances. A higher floor would also help to reduce income risks, given the Fund’s reliance on lending income. Investment income from precautionary balances is an important source of income diversification, helping to stabilize Fund reserves and income during periods of lower Fund credit.

Directors called for a continued close monitoring of the adequacy of precautionary balances to ensure that the Fund remains financially strong in the context of large global uncertainty. They supported maintaining the biennial review cycle, with earlier reviews if warranted by developments that could materially affect the adequacy of precautionary balances.


[1] This press release summarizes the views of the Executive Board as expressed during the March 20, 2024, Executive Board discussion based on the paper entitled “Review of the Adequacy of the Fund’s Precautionary Balances.”

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:

IMF Communications Department


Phone: +1 202 623-7100Email: