IMF Executive Board Discusses Proposals for Toolkit Reform, Concludes Review of the Flexible Credit Line and Precautionary and Liquidity Line

IMF News, December 19, 2017

Source details

Canonical URL

IMF Executive Board Discusses Proposals for Toolkit Reform, Concludes Review of the Flexible Credit Line and Precautionary and Liquidity Line

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: December 19, 2017

Context and process

• Press Release No. 17/507; dated December 19, 2017.
• The Executive Board discussion formed part of broader work to strengthen the Global Financial Safety Net (GFSN) and drew on three staff papers discussed on November 9, 2016; June 30, 2017; and December 6, 2017.
• Outreach and coordination included engagement with Regional Financing Arrangements (RFAs) and consideration of recent Fund instruments, including the Policy Coordination Instrument (PCI).

Main findings from the Review of the FCL and PLL

• The Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) have been effective in providing precautionary support against external risks.
• Successor FCL arrangements and associated access levels have been appropriately tailored to country circumstances.
• Refinements were introduced to the qualification framework for the FCL and the PLL to make it more transparent and predictable for actual and potential users.
• The Review found no evidence of unjustified prolonged use of the FCL, while recognizing concerns about prolonged use of high‑access precautionary arrangements.

Proposals considered and Board decisions

• Short‑term Liquidity Swap (SLS)
  • Staff proposed a new Short‑term Liquidity Swap (SLS) as a revolving credit line to provide members with very strong policies predictable and renewable liquidity support for short‑term, moderate capital flow volatility.
  • Proposed SLS design elements discussed included:
  • prequalification aligned with FCL standards,
  • revolving access capped at 145 percent of quota,
  • a 12‑month repurchase obligation,
  • year‑round qualification availability,
  • service charge and non‑refundable commitment fee.
  • The Board did not adopt the SLS proposal at this time; many Directors regretted insufficient support but noted some SLS features could inform future work.
  • Directors generally supported reviewing the SLS after two years, or sooner if aggregate outstanding credit and commitments under the SLS and FCL exceed SDR150 billion.

• Time‑Based Commitment Fee (TBCF)
  • Staff proposed a Time‑Based Commitment Fee (TBCF) to address concerns about prolonged precautionary high‑access arrangements.
  • The TBCF proposal was not adopted by the Board; a number of Directors opposed it on the basis that exit should remain state‑dependent and concern that a TBCF could reduce attractiveness of precautionary arrangements.

• PLL status and adjustments
  • Most Directors supported retaining the PLL (contrasting earlier preference by a few Directors to eliminate it).
  • The Board agreed to extend to the PLL the same core indicators and thresholds adopted for FCL qualification (as set out in Box 1 of the Board paper), without changing PLL qualification standards.
  • Guidance notes for both FCL and PLL will be revised to reflect new indicators and to improve implementation of the external economic stress index and assessment of reserve drawdown effects on access.

Key policy considerations and Director views

• GFSN adequacy and coverage
  • Directors noted the GFSN has become more multi‑layered since the global financial crisis (Fund toolkit overhaul, RFAs, standing bilateral swap arrangements).
  • Many Directors observed uneven coverage: many countries lack reliable access to BSAs or RFAs, and few use new Fund instruments on a precautionary basis.
  • Directors emphasized coordination among GFSN layers can improve and that the Fund has a central role in strengthening the GFSN.

• Prequalification and stigma
  • Directors were divided on prequalification: many saw benefits in strong transparent criteria to reduce ex‑post conditionality and stigma; others raised concerns about signaling effects and potential stigma from de‑qualification.
  • Directors emphasized maintaining separation between voluntary prequalification assessments and bilateral Article IV surveillance to preserve candid surveillance.

• Pricing, incentives, and exit expectations
  • Many Directors supported strengthening price‑based incentives to encourage exit from prolonged high‑access precautionary arrangements (some favored steepening the commitment fee structure, some favored TBCF, others opposed stronger price signals).
  • Directors stressed exit should remain state‑dependent and that staff reports for successor arrangements should be explicit about exit expectations and strategies (including a statement that access will normally decline when conditions set forth in BUFF/10/125 are in place).

• Coherence, resource implications, and safeguards
  • Directors underscored the importance of toolkit coherence and avoiding proliferation or tiering of instruments.
  • Staff expected the SLS could be accommodated within the Fund’s existing quota‑based resource envelope, though some Directors expressed concern that demand could be larger and that insurance‑type instruments might encumber the Fund’s balance sheet.
  • Directors generally supported full scoring of precautionary arrangements in calculating the Fund’s forward commitment capacity (FCC), while a few saw scope for flexibility.

Follow‑up actions

• Staff will return to the Board with two separate papers:
  • One reviewing the FCL and PLL experience, refining a liquidity instrument proposal, and discussing implications for existing facilities and Fund resources.
  • One proposing a new policy monitoring instrument (building on the Policy Support Instrument) and further considerations for the future of the PSI.
• The experience with the use of the FCL and the PLL will be reviewed in five years or more, or on an as‑needed basis; many Directors preferred the next review to occur within five years.

IMF Executive Board press release, December 19, 2017. Media Relations: PRESS OFFICER: Raphael Anspach; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.

References

• Blog: Strength in Numbers: A Safety Net to Prevent Crises in the Global Economy
• IMF Policy Advice -- A Factsheet
• Conditionality
• Press Releases
• PRESS CENTER
• Global Financial Safety Net (GFSN)
• Policy Coordination Instrument
• Regional Financing Arrangements
• Adequacy of the Global Financial Safety Net—Considerations for Fund Toolkit Reform
• Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform
• Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform—Revised Proposals
• https://www.imf.org/en/home