Selected Decisions and Selected Documents of the IMF, Thirty- Ninth Issue -- The Acting Chair’s Summing Up—Reform of the Policy on Public Debt Limits in Fund-Supported Programs, Executive Board Meeting 14/107, December 5, 2014

Prepared by the Legal Department of the IMF
As updated as of March 31, 2017

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Use of Fund Resources

The Acting Chair’s Summing Up— Reform of the Policy on Public Debt Limits in Fund-Supported Programs

Executive Board Meeting 14/107, December 5, 2014

Directors welcomed the opportunity to revisit the role of debt conditionality in Fund-supported programs. They noted that the proposed reforms have been informed by extensive consultations, which have contributed to significant refinements of the reform package.

Directors observed that the experience with the 2009 reform of the debt limits policy has been uneven. They noted that the sharp dichotomy between concessional and semi-concessional loans is difficult to justify on economic grounds. They emphasized that reforms to the policy should balance debt sustainability and borrowing requirements for investment and growth. They agreed that the coverage of debt limits should be unified and comprehensive, covering both concessional and nonconcessional debt. Moreover, there should be incentives for creditors to provide, and for borrowers to seek, financing on concessional terms.

Directors agreed that the use of debt conditionality in Fund-supported programs is warranted when a member faces significant debt vulnerabilities. Debt sustainability analysis should continue to play the key role in identifying debt vulnerabilities. There would be cases where the quality and coverage of fiscal statistics would warrant the use of conditionality on debt accumulation instead of, or as a complement to, conditionality on “above-the-line” fiscal measures (such as the fiscal deficit), taking care to avoid duplication of conditionality.

Directors emphasized that the broad principles that will guide the new debt limits policy should be applied in a transparent and even-handed manner. The particular form of debt conditionality adopted should reflect country-specific circumstances and program goals. Some Directors pointed to the importance of a clear description of remedial actions in case a breach of debt limits threatens to set a program off-track.

Directors supported the principle that debt conditionality policy should cover all public debt. Conditionality could take the form of a limit on total public debt accumulation, separate limits on external public debt accumulation and on domestic public debt accumulation, or targeted limits on some sub-component of aggregate public debt. A number of Directors considered that setting conditionality on the contracting rather than the disbursement of debt would tend to overstate the debt burden.


December 12, 2014

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