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| ARTICLE V, SECTION 3(a), (b), AND (C) | ||||
| Use of Fund Resources | ||||
| Credit Tranche Policies and Facilities | ||||
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The Chair’s Summing Up—Review of the Flexible Credit Line, the Short-Term Liquidity Line, and the Precautionary and Liquidity Line, and Proposals for Reform, Executive Board Meeting 23/76, October 2, 2023 Executive Directors welcomed the review of the Flexible Credit Line (FCL), Short-term Liquidity Line (SLL), and Precautionary and Liquidity Line (PLL), and the proposals for toolkit reform targeted at ensuring that these instruments remain adequate and fit for purpose. They agreed that crisis prevention is far less costly than crisis resolution, and noted that the review is an important part of the Fund’s work to facilitate crisis prevention and strengthen members’ access to the global financial safety net. Directors broadly supported the reform proposals as outlined in the staff paper. Qualification Framework Directors emphasized the importance of preserving the strong signaling power of FCL, SLL and PLL arrangements by ensuring a clear and transparent qualification framework with assessments that are guided by applicable criteria, core indicators, and thresholds, and are applied in an evenhanded manner. To this end, they welcomed that staff reports for approval of arrangements or for completion of reviews will transparently flag, if applicable, any changes in the member’s circumstances relevant to qualification—including in values for core indicators—since the most recent assessment in a staff report. Directors supported the proposal to explicitly integrate the assessment of members’ performance in AML/CFT into the effective financial sector supervision criterion, while avoiding cross-conditionality. They welcomed the clarification that, while FATF grey listing will not automatically disqualify a member, a FATF grey-listed country would be unlikely to qualify for the FCL or SLL if staff assesses that deficiencies underpinning the listing indicate that the effective financial sector supervision criterion is not met. Directors supported relying on the 2018 Governance Framework to identify governance and corruption vulnerabilities as part of the appraisal of the ability to effectively respond to shocks in the context of the assessment of a country’s institutional strength. They underscored that the implementation of the proposal should remain consistent with the focus and coverage of governance and corruption issues in Article IV consultations and that, in rare instances where the Article IV consultation has not covered pertinent governance vulnerabilities identified by the 2018 Governance Framework, staff would discuss them with the authorities as part of staff’s consideration of qualification. Directors supported the proposed recalibration of debt sustainability assessments for precautionary PLL arrangements that (i) are subject to the Exceptional Access Policy, or (ii) where shocks that may trigger a drawing are not adequately captured by the medium-term Market Access Country Sovereign Risk and Debt Sustainability Framework modules. However, a few Directors noted the potential risks of this reform and called for careful monitoring and implementation of further safeguards, if necessary. Directors agreed to amend the third setting under which debt sustainability assessments in the context of precautionary arrangements need to be informed by the drawing scenario, in addition to the baseline, to “when there are doubts about the realism of the DSA baseline,” so as not to reference internal staff processes. Adequacy of the FCL, SLL and PLL Toolkit Directors supported the proposed FCL and SLL reform package consisting of (i) lifting the requirement to articulate exit strategies for precautionary FCL arrangements when access under the FCL arrangement, in addition to any outstanding credit under prior FCL arrangements, does not exceed 200 percent of quota, (ii) increasing SLL access limit to 200 percent of quota, and (iii) explicitly allowing for concurrent use of the FCL and SLL. Subject to qualification under each instrument, and assessment of potential balance-of-payments need, these reforms could allow for combined FCL and SLL access of up to 400 percent of quota without the requirement to articulate exit strategies. While broadly supportive of the proposal, a few Directors would have preferred a lower level of combined access, and some emphasized that 400 percent of quota should be seen as neither an entitlement nor a “default” access value. A few Directors were also not convinced about lifting the articulation of exit strategies for FCLs with access up to 200 percent of quota, noting the need for countries to eventually develop adequate self-insurance. Directors agreed that exit should remain state-dependent and a few Directors called for further details when describing exit strategies in staff reports for FCL arrangements with access above 200 percent of quota. Directors agreed that the PLL continues to have an important role in the lending toolkit and agreed with the proposed increases in access limits. They agreed that both PLL and SLL access limits would be reviewed as part of the next comprehensive review of access limits or if the “review clause” is triggered. In this context, a few Directors underlined that the review of access limits should reflect the outcomes of the 16th General Review of Quotas. Directors also supported staff’s proposal to outline procedures for synchronized take-up of the SLL by multiple countries. Political Assurances and Safeguard Policies Directors welcomed the proposals to strengthen safeguards around the use of FCL, SLL and PLL arrangements. They noted the applicability of political assurances to these arrangements, and agreed to introduce Board briefings after significant economic policy changes. Directors also supported the proposal of a follow-up briefing on drawdowns of precautionary FCL/PLL arrangements. Board/Administrative Procedures and Other Financial Aspects Directors appreciated the proposals, as described in paragraphs 70–74 of the staff paper, to reduce the number of Board meetings, streamline administrative procedures, and the discussion of qualification in certain Board documents, while stressing that ensuring appropriate Board oversight would continue to be required in all cases. They also concurred with not requiring a full-fledged adverse scenario in standalone SLL staff reports, and that the capacity-to-repay analysis could be streamlined, focusing on short-term liquidity risks. Directors welcomed the introduction of the SLL into the “review clause” under which a new review of the toolkit would be triggered whenever aggregate outstanding credit and commitments under the FCL and PLL, and SLL instruments reach SDR 150 billion. On a related point, a few Directors called for an interim review before the next regular review of the three instruments. Directors took note of staff analysis of the financial aspects of Fund commitment of financing under precautionary arrangements, including on commitment fees and the scoring of the Forward Commitment Capacity, and agreed to maintain current policies. Outreach Directors welcomed the staff’s planned outreach to raise awareness of the Fund’s precautionary toolkit and communicate the benefits of the available precautionary instruments, including the precautionary Stand-By-Arrangements SU/23/141 October 4, 2023 | ||||
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