Strengthening the Framework for Post Program Monitoring
IMF News, July 22, 2016
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- Published: July 22, 2016
Overview
- 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.
- PPM 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).
Current PPM policy and practice
- 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.
- IMF management may initiate or extend PPM for members where total credit is below this threshold, and may 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.
- As of end-2015:
- members accounting for over 40 percent of credit outstanding under the GRA were subject to PPM; and
- under 5 percent of PRGT credit was subject to PPM.
Executive Board assessment — goals and considerations
- Directors viewed PPM as an important element of the Fund’s safeguards framework, enhancing the Fund’s ability to detect risks to members’ repayment capacity and to safeguard Fund resources.
- Directors noted the sizeable expansion of Fund credit in recent years and the need to ensure the PPM framework remains robust.
- Directors emphasized the challenge of balancing different objectives, including:
- strengthening and streamlining efforts; and
- flexibility and evenhanded treatment.
- Directors supported moving toward a more risk‑based and focused PPM framework.
- Directors agreed that PPM reports should:
- examine in depth the full range of risks to members’ capacity to repay; and
- tailor the analysis to members’ specific circumstances.
- Directors welcomed innovative techniques and indicators used in risk analysis and monitoring, while stressing the need to maintain a clear distinction, in content and modalities, between PPM and other Fund engagement (lending or surveillance).
Thresholds, Board consideration, and modalities
- Directors saw merit in establishing absolute‑size thresholds to help ensure adequate monitoring of large exposures to the Fund’s resources.
- Directors found it reasonable to calibrate such thresholds relative to the Fund’s loss‑absorption capacity, using as a proxy:
- the minimum floor of precautionary balances for credit outstanding from the GRA; and
- the reserve balance for credit outstanding from the PRGT.
- Directors supported, or could support, setting the absolute‑size thresholds at:
- SDR 1.5 billion for GRA credit; and
- 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 and 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.
- On Board consideration and lapse‑of‑time (LOT) procedures:
- Directors agreed to reduce the frequency of PPM to once in any 12‑month period, based on a mission scheduled between annual Article IV consultations, to help differentiate the two reports.
- A number of Directors were willing to go along with a presumption that all standalone PPM reports would be considered on an LOT basis, but most Directors had reservations and emphasized the importance of the Board exercising its fiduciary duty to oversee risks to the Fund’s resources.
- A few Directors saw value in applying the absolute‑size thresholds as a trigger for formal Board consideration of PPM reports.
- 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.
- Directors noted that Article IV consultations, inter alia, assess balance of payments stability and risks.
Key statistics and operational points
- Two PPM discussions expected each year under the standing policy.
- Thresholds discussed:
- 100 percent of quota (current expectation to engage on PPM).
- Proposed absolute‑size thresholds: SDR 1.5 billion (GRA); SDR 0.38 billion (PRGT).
- Proposed quota‑based threshold: 200 percent of quota.
- As of end-2015:
- Over 40 percent of GRA credit outstanding was subject to PPM.
- Under 5 percent of PRGT credit outstanding was subject to PPM.
- Implementation change supported:
- Reduce frequency of PPM to once in any 12‑month period.
Press Release No. 16/354 — Strengthening the Framework for Post Program Monitoring