The Executive Board of the International Monetary Fund (IMF) on July 13 approved a temporary increase in the annual limits on overall access to resources in the General Resources Account and the Poverty Reduction and Growth Trust.
The severe impact of the COVID-19 pandemic on global economic conditions has resulted in an unprecedented number of member countries seeking financial support from the IMF.
As of July 13, 2020, 72 countries have already received financial assistance from the IMF’s emergency financing instruments since the onset of the pandemic, facilitated by the doubling of annual access limits under these facilities approved by the Executive Board on April 6. Further requests for assistance, the majority of which are likely to be met through the IMF’s regular lending instruments, are expected in the months ahead.
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IMF lending is subject to an annual limit on the access to resources that a country can obtain from its general resources and a separate annual limit on access under its concessional facilities. Many of the countries that have received financial support from the IMF since the onset of the pandemic have reached, or are approaching, the relevant annual access limits. Requests for financial assistance in excess of these annual limits trigger application of the relevant exceptional access framework, where the request is subject to tighter scrutiny and can be approved only if specified criteria are met.
Given the unique circumstances created by the pandemic, the IMF’s Executive Board approved temporary increases in these annual access limits, to remain in effect through April 6, 2021. This will allow member countries to obtain higher levels of financial support during this time period without triggering the application of the exceptional access framework. The existing limits on cumulative access are unaffected by this temporary change.
The Executive Board also approved the temporary suspension of the limit on the number of disbursements under the Rapid Credit Facility (RCF) through April 6, 2021. This allows emergency financing to the IMF’s poorest member countries to be provided more frequently over the course of a year, provided that the combined amounts of support provided under the RCF does not exceed the annual limit on access under this facility.
Executive Board Assessment
Executive Directors welcomed the opportunity to consider proposals to raise the limits on annual access to Fund resources on a temporary basis. They noted that the COVID‑19 pandemic had triggered a uniquely severe synchronized shock across the global economy and an ensuing surge in requests for financial support under the Fund’s emergency financing instruments. While access limits under these instruments had already been increased temporarily on April 6 as part of the Fund’s COVID‑19 response, Directors recognized that many countries, in seeking to contain the impact of the pandemic and to lay the basis for economic recovery, would likely need additional financial support from the Fund in the coming year.
Against this background, Directors supported increases in the annual access limits in the General Resources Account (GRA) from 145 to 245 percent of quota, and under the Poverty Reduction and Growth Trust (PRGT) from 100 percent to 150 percent of quota, on a temporary basis through April 6, 2021. They also supported a temporary increase in the exceptional annual access limit under the PRGT by 50 percent of quota to 183.33 percent of quota for the same period. While a few Directors would have preferred more moderate increases, many other Directors would have supported a larger increase in the normal annual access limit under the PRGT, in line with the increase in the limit to access to GRA resources. Directors highlighted the need to secure sufficient subsidy resources to ensure the self‑sustainability of the PRGT and looked forward to discussing possible funding options in the upcoming review of concessional financing. Directors also looked forward to the planned discussion of a policy on enhanced safeguards for high‑level access to combined GRA and PRGT resources. They took note of the clarifications as to how annual access should be calculated in applying the relevant annual access limits.
Directors agreed to suspend, on a temporary basis, the limit on the number of disbursements under the Rapid Credit Facility (RCF) within a 12‑month period through April 6, 2021. They acknowledged that, with the temporary doubling of the limit on annual access to resources under the exogenous shocks window of the RCF, the current limit on the number of disbursements unduly constrains the flexibility with which the RCF could be used to support member countries.
Given prevailing uncertainties, Directors agreed to review the decisions adopted today before the end of 2020, taking account of the initial experience with the use of the higher access limits and of the global economic outlook at that juncture.
Directors acknowledged that possible modifications to the cumulative limits on overall access to the GRA and the PRGT would be considered in a broader discussion of the Fund’s risk tolerance in the coming months. Many Directors expressed disappointment that the case for increasing these limits was not proposed for consideration in the current context, while many other Directors opposed or urged caution in considering a change that could weaken important safeguards and pose substantial risks to the Fund. Directors also recognized that these cumulative access limits do not set a ceiling on the amount of financing that a member can obtain from the Fund but rather serve as a trigger for additional scrutiny under the exceptional access framework, with the exception of hard access caps in the PRGT. Directors looked forward to an early discussion of the Fund’s precautionary balances.
Directors underscored that access limits are key elements of the Fund’s risk management framework, providing an important safeguard to Fund resources and preserving their revolving nature and catalytic role. They noted that, notwithstanding higher access limits to cover the pandemic period, judgment continues to be needed in determining the amount of access in individual arrangements, including in assessing the member’s balance of payments need, repayment capacity, and strength of adjustment efforts. Directors stressed the importance of enhanced scrutiny and additional safeguards for exceptional access cases. Although the increased access limits heighten risks to the Fund, many Directors pointed to potential risks from the failure of the Fund to provide adequate financial support to its members.
The IMF summarized the new increase in a question and answer segment.
Why has the IMF Executive Board decided to raise the limits on annual access to Fund resources on a temporary basis? What does this mean?
“Access to Fund resources” is the amount of financing that a member country requests from the IMF. There are limits to how high that amount can be on an annual basis: requests for amounts in excess of these access limits are viewed as “exceptional” and are subjected to tighter scrutiny in terms of strength of policy, sustainability of debt levels, and assessed capacity to repay.
The severe impact of the COVID-19 pandemic on global economic conditions has resulted in an unprecedented number of member countries seeking financial support from the IMF. As of July 13, 2020, 72 countries have already received financial assistance from the IMF’s emergency financing instruments since the onset of the pandemic, facilitated by the doubling of the hard limits on annual access to these facilities approved by the Executive Board on April 6. However, many of the countries that have received financial support from the IMF have reached, or are approaching, the relevant limits for annual access.
The decision to temporarily raise the limits on annual access to Fund resources will allow these countries to receive higher levels of financing within the current year while remaining within the normal access limits.
What happens if the Exceptional Access framework is triggered?
The Exceptional Access (EA) framework serves a prudential function: when a member country faces an exceptionally large balance of payments need, the Fund can lend beyond the normal access limits only under heightened scrutiny of the ability of the borrowing member country to deliver a successful economic program and later repay the Fund. In other words, the bar is higher in terms of strength of policy, sustainability of debt levels, and assessed capacity to repay.
Given the unique circumstances created by the pandemic, the large financing needs expected over the first year of the pandemic are likely to reflect the truly exceptional global conjuncture. The current annual access limits could constrain a timely response by the IMF to financing requests, by triggering additional requirements where country-specific factors are not the main driver of requests for high annual access. The Executive Board therefore approved a temporary increase of the level of annual access at which the extra scrutiny under the EA framework is required. The cumulative access limits, which trigger the EA framework based on the Fund’s total credit exposure to a member country, remain unchanged.
Given COVID and the exceptional needs, why have you not increased the cumulative access limits? Are you planning to?
Cumulative access is the total amount of credit outstanding to the IMF: IMF program requests where cumulative access is expected, at any point, to exceed a specified limit trigger implementation of the EA framework.
Raising the limits on total credit exposure to the Fund – the amount of country risk that the Fund is willing to take under normal circumstances – has wider consequences for Fund’s risk management strategy. A decision to raise these limits would need to be taken up in the context of broader discussions of the Fund’s level of risk tolerance—which the Executive Board is expected to consider in due course.
Why is there a limit on the number of disbursements under the Rapid Credit Facility (RCF) within a 12-month period?
The limit was introduced to discourage repeated use of emergency financing in response to distinct shocks within a short period, reflecting the view that the country would be better served by seeking a regular IMF-supported program in such circumstances.
In current circumstances, with the limits on annual access to the RCF having been doubled and the pandemic having created financing needs over an extended period, the “two-disbursement rule” limits the flexibility with which access to the RCF can be used over the course of the pandemic. The Executive Board therefore approved a temporary suspension of this rule.