Changes to the Fund’s Financing Assurances Policy in the Context Of Fund Upper Credit Tranche (UCT) Financing Under Exceptionally High Uncertainty

Policy Papers, March 17, 2023

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The Executive Board of the International Monetary Fund (IMF) approved changes to the Fund’s financing assurances policy.
The changes apply in situations of exceptionally high uncertainty, defined as involving exogenous shocks that are beyond the control of country authorities and the reach of their economic policies, and which generate larger than usual tail risks.
The changes could enable the design of a Fund Upper Credit Tranche (UCT) program in situations of exceptionally high uncertainty by modifying the Fund’s financing assurances policies in two specific ways.
The Fund must weigh whether it is prepared to accept the enterprise risks that such arrangements would entail when applying these changes to any specific country case.

Change 1:
- Allows official bilateral creditors to provide an upfront credible assurance about delivering debt relief and/or financing.
- The upfront assurance can include a contingent second-stage element of debt relief and/or financing that would be delivered once the exceptionally high uncertainty has been resolved.
- Purpose: to help establish that medium-term viability is being restored.
Change 2:
- Extends the use of capacity-to-repay assurances from official bilateral creditors/donors from emergency financing to a UCT arrangement context.
- Purpose: to help establish adequate safeguards.

These changes are targeted at cases of exceptionally high uncertainty driven by exogenous shocks and elevated tail risks.
The use of contingent second-stage elements links initial support to the resolution of uncertainty and the restoration of medium-term viability.
Extending capacity-to-repay assurances to UCT contexts provides an additional safeguard mechanism analogous to emergency financing practices.
Application to specific country cases requires the Fund to assess and accept associated enterprise risks.