Update on the Financing of the Fund's Concessional Assistance and Debt Relief to Low-Income Member Countries
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International Monetary Fund
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Publication Date:
04 Mar 2013
eISBN:
9781498342063
Language:
English
Keywords:
PP; SDR equivalent; loan resource; PRGT lending; totaling SDR; LIC financing package; PRGT reserve account; subsidy resource; PRGT subsidy account; PRGT resource
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This paper reviews recent developments in the status of financing for the Fund’s concessional lending and debt relief. It presents the latest data available and projections whilst taking into account the pledges made thus far in response to the Managing Director’s fund-raising requests of August 2009 and February and November 2012. Additionally, following the Executive Board’s decision in September 2012, the PRGT’s self-sustained capacity is discussed in the context of longer-term projections of the demand for concessional lending. Section II provides an overview of the Fund’s concessional lending instruments and the associated financing framework as well as the developments since the October 2012 Update. Section III reviews the sources of financing for PRGT operations and discusses developments in the PRGT framework. Section IV reviews the use of PRGT resources and assesses the Trust’s self-sustained capacity in light of the demand projections. Section V provides updates on the subsidization of emergency assistance, while Section VI presents the developments on the financing of debt relief under the HIPC, MDRI, and PCDR Trust. The paper concludes with a proposed decision completing the financing reviews of the PRG-HIPC and MDRI Trusts.

Abstract

This paper reviews recent developments in the status of financing for the Fund’s concessional lending and debt relief. It presents the latest data available and projections whilst taking into account the pledges made thus far in response to the Managing Director’s fund-raising requests of August 2009 and February and November 2012. Additionally, following the Executive Board’s decision in September 2012, the PRGT’s self-sustained capacity is discussed in the context of longer-term projections of the demand for concessional lending. Section II provides an overview of the Fund’s concessional lending instruments and the associated financing framework as well as the developments since the October 2012 Update. Section III reviews the sources of financing for PRGT operations and discusses developments in the PRGT framework. Section IV reviews the use of PRGT resources and assesses the Trust’s self-sustained capacity in light of the demand projections. Section V provides updates on the subsidization of emergency assistance, while Section VI presents the developments on the financing of debt relief under the HIPC, MDRI, and PCDR Trust. The paper concludes with a proposed decision completing the financing reviews of the PRG-HIPC and MDRI Trusts.

Introduction

1. This paper reviews recent developments in the status of financing for the Fund’s concessional lending and debt relief. It presents the latest data available and projections whilst taking into account the pledges made thus far in response to the Managing Director’s fund-raising requests of August 2009 and February and November 2012. Additionally, following the Executive Board’s decision in September 2012, the PRGT’s self-sustained capacity is discussed in the context of longer-term projections of the demand for concessional lending.1

2. The paper is organized as follows. Section II provides an overview of the Fund’s concessional lending instruments and the associated financing framework as well as the developments since the October 2012 Update. Section III reviews the sources of financing for PRGT operations and discusses developments in the PRGT framework. Section IV reviews the use of PRGT resources and assesses the Trust’s self-sustained capacity in light of the demand projections. Section V provides updates on the subsidization of emergency assistance, while Section VI presents the developments on the financing of debt relief under the HIPC, MDRI, and PCDR Trust. The paper concludes with a proposed decision completing the financing reviews of the PRG-HIPC and MDRI Trusts.2

Concessional Financing and PRGT

3. Fund facilities for concessional financing of LICs have been reviewed regularly to take account of the changing needs of these countries. Lending facilities were last reformed in 2009. Since 2010, lending by the PRGT has been conducted under three facilities depending on the nature of the country’s need and capacity: the Extended Credit Facility (ECF), the Standby Credit Facility (SCF), and the Rapid Credit Facility (RCF).

4. The concessional financing framework under the PRGT consists of three main types of accounts: Reserve Account, Loan Account(s), and Subsidy Account(s). Resources in these accounts ensure both the Trust’s lending capacity and its financial strength (Box 1).

PRGT Concessional Financing Framework

The operations of the PRGT are conducted through the Reserve Account, four Loan Accounts and four Subsidy Accounts. These accounts ensure the Trust’s financial strength, lending capacity and ability to provide concessional assistance, respectively.

uA01fig01
1/ Transfers may be made from the General Subsidy Account for subsidizing ENDA/EPCA credit on an “as needed” basis.

Loan Accounts borrow resources generally at market-related interest rates from official creditors on a pass-through basis to LICs. Besides the General Loan Account, there are also loan accounts designated to each PRGT instrument: RCF, SCF, and ECF Loan Accounts.

Subsidy Accounts are financed from bilateral contributions from members and the Fund’s own resources. The available resources are drawn by the Trustee to pay the difference between the interest paid by the PRGT borrowers and the interest due to creditors on Loan Account borrowings. The General Subsidy Account (GSA) can receive and provide subsidies for all PRGT facilities. The three Special Subsidy Accounts, namely the ECF Subsidy Account, the SCF Subsidy Account and the RCF Subsidy Account, can receive and provide subsidies for each of the relevant PRGT facilities. These Special Subsidy Accounts were established to accommodate donors’ preference for earmarking their contributions for specific facilities.

Reserve Account is designated to provide security to the PRGT creditors in the event of delay or nonpayment by PRGT borrowers (LICs). The account has also been used to meet temporary mismatches between repayments from LICs and payments to creditors and to cover the Fund’s cost of administering PRGT operations. The Reserve Account resources were primarily derived from a recycling of the profits on gold sold in 1970s. Under the self-sustaining PRGT, the income on the balance in the Reserve Account will be used to subsidize PRGT lending.

5. The LIC financing package, approved in July 2009 as part of the LIC reforms, has been critical in supporting higher PRGT lending during the crisis.3 During 2008–12, average annual lending commitments were about SDR 1.4 billion, peaking in 2009 at SDR 2.5 billion with 18 new arrangements. Average commitments during this period were significantly higher than the average PRGT commitments of SDR 0.9 billion during 1988–2007.

6. In September 2012 the Executive Board approved a distribution of the Fund’s general reserves (SDR 1.75 billion) attributed to the remaining windfall gold sales profits as part of a strategy to make the PRGT self-sustaining in the longer term.4 This strategy rests on three pillars: (i) a base annual average lending capacity of SDR 1¼ billion; (ii) contingent measures which can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period; and (iii) the expectation that all modifications to LIC facilities would be designed in a manner that is consistent with maintaining self-sustainability. This distribution will be effected only after members have provided satisfactory assurances that new amounts equivalent to at least 90 percent of the amount to be distributed will be transferred or otherwise provided to the PRGT (see Box 2).

Strategy to Make the PRGT Sustainable

The three-pillar strategy to ensure the PRGT has the resources to meet projected demand for IMF concessional lending over 2013–35, set out in Proposal to Distribute Remaining Windfall Gold Sales Profits and Strategy to Make the Poverty Reduction and Growth Trust Sustainable (September 17, 2012), is as follows:

  • A base envelope of about SDR 1¼ billion in annual lending capacity, which is expected to cover concessional lending needs over normal periods. While financing commitments can vary substantially from year-to-year, the self-sustaining PRGT can build up capacity in years with low levels of new lending commitments and draw down capacity in years with higher demand. This implies that the base envelope could cover periods where demand in individual years could be much higher as long as fluctuations average out over a number of years.

  • Contingent measures that can be put in place when average financing needs exceed the base envelope by a substantial margin for an extended period. If the Board considers that the self-sustaining capacity would decline substantially below SDR 1¼ billion, it could decide to activate a range of contingent measures including (i) reaching additional understandings on bilateral fund-raising efforts to be supported by a broad range of the membership; (ii) the suspension for a limited period of the reimbursement of the GRA for PRGT administrative expenses; and (iii) modifications of access, blending, and interest rate and eligibility policies to reduce the need for subsidy resources.

  • A principle of self-sustainability under which future modifications to LIC facilities would be expected to ensure that the demand for IMF concessional lending can be met with the resources available under the first and second pillars under a plausible range of scenarios. It was noted, in particular, that the upcoming review of PRGT eligibility and the second stage of the review of facilities should ensure that all modifications, taken together, would, over the longer term, keep demand consistent with available resources.

The estimate of a self-sustained capacity of SDR 1¼ billion is based on the projected annual returns on the balances in the four PRGT subsidy accounts—including all existing subsidy resources and those that will be added through the two gold distributions—and in the Reserve Account (RA) in the steady state. New concessional lending will initially be subsidized by using and gradually drawing down the available balances in the PRGT subsidy accounts, including the investment returns on these accounts. During this period, projected to extend over at least a decade, the balance in the RA will increase by the amount of investment returns on the RA balances. By the time the resources in the subsidy accounts have been exhausted, the size of the RA will have increased to a level such that the net earnings in the RA are equal to the subsidy needs and the projected administrative cost of the PRGT.

7. In December 2012, taking account of the ongoing global economic crisis, the Executive Board approved a two-year extension of the temporary interest waiver on PRGT loans through end-2014.5 The subsidization of the rate of charge on outstanding ENDA purchases to zero percent was also extended.6 In view of the modest additional cost, the extension of the temporary waiver was considered to be consistent with the three-pillar strategy to establish a self-sustaining PRGT, but it remains important for the integrity of the agreed financing framework that the interest rate mechanism be allowed to function as was originally envisaged, once conditions return to normal.7

8. The second stage of the review of facilities for low-income countries and the 2013 review of PRGT eligibility will be discussed by the Executive Board in April 2013.8 The proposed modifications taken together, aim to keep demand consistent with the available resources over the longer term, over a wide range of scenarios.

Sources of Financing for the PRGT

9. The 2009 LIC financing package, approved in July 2009 as part of the LIC reforms, aimed to provide enhanced financial support to LICs which had been severely affected by the global economic crisis. The financing package, which sought to increase the Fund’s concessional lending capacity to SDR 11.3 billion for the period 2009–14, required the mobilization of new loan resources of SDR 10.8 billion (including a liquidity buffer of SDR 1.8 billion to enable a voluntary encashment regime) and new subsidy resources of SDR 1.5 billion (end-2008 NPV terms).9 Most of the additional subsidies were to be financed from the Fund’s internal resources—including transfers from the PRGT Reserve Account, delaying until FY 2013 the resumption of reimbursement of the GRA for PRGT administrative costs, and use of resources linked to gold sales as a means to facilitate new subsidy resources. Bilateral subsidy contributions of SDR 200–400 million (end-2008 NPV terms) were also important to complete the financing package. The Managing Director approached a wide spectrum of the membership in 2009 to mobilize the required loan and subsidy resources, and staff continues to follow up on these requests.

10. Progress has been made in achieving the targets set for loan and subsidy resources under the 2009 financing package, which was initially planned to be in place through 2014. As of end-March 2013, pledges for new subsidy resources exceeded the lower end of the targeted range of SDR 0.2–0.4 billion. However, commitments of SDR 1 billion are still required to meet the target for loan resources. The transition from the 2009 financing framework to the self-sustained PRGT implies that the resources secured so far would be used under the new framework. Going forward, it will be important for the PRGT to have further access to loan resources provided by the membership to ensure the Trust’s lending capacity on an ongoing basis.

A. Loan Resources

11. As of end-March 2013 new loan resources of SDR 9.8 billion have been provided by fourteen members. This amount is SDR 1 billion short of the SDR 10.8 billion target set under the 2009 LIC financing package (Table 1). No new loan pledges or contributions have been made since the October 2012 Update, but the borrowing agreement with the National Bank of Belgium was concluded in November 2012. Two-thirds of the secured resources (SDR 6.2 billion) have been made available to the General Loan Account (GLA), about 31 percent to the ECF Loan Account (SDR 2.9 billion), and the remainder (SDR 0.3 billion) to the SCF and RCF Loan Accounts.

Table 1.

New Commitments of Loan Resources to the PRGT 1/

(In millions of SDRs; as of March 31, 2013)

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Germany (KfW) made a pledge of SDR 1.53 billion. As mutually acceptable lending terms could not be agreed, it is excluded from the total.

12. Lenders to the PRGT have made use of all of the elements under the new framework for mobilizing bilateral loan resources agreed in 2010.10 Loan resources have been provided through both traditional Loan Agreements and Note Purchase Agreements (NPAs), and seven members have included in their borrowing agreements participation in the encashment regime of the PRGT.11 Five of the borrowing agreements also have shorter initial maturities than in the case of traditional loan agreements.12 Eight of the new borrowing agreements, and almost 90 percent of loan resources committed so far, provide loans to the PRGT in SDRs; all these contributors also have in place voluntary SDR trading arrangements.13 Since the start of the sales of SDRs under these arrangements in June 2011, drawings amounting to SDR 1,270 million have been made under the new SDR borrowing agreements, and sales of SDRs related to these drawings amounted to SDR 989 million. These sales were conducted through the voluntary SDR trading arrangements.

13. Uncommitted PRGT loan resources amounted to SDR 6.8 billion at end-December 2012. The bulk of these resources were in the GLA, amounting to SDR 6.1 billion. Resources available in the Special Loan Account (SLA) for the ECF amounted to SDR 0.7 billion, while resources in the SLA for the SCF have been fully committed.14,15

B. Subsidy Resources

14. Total balances in the PRGT Subsidy Accounts at end-December 2012 amounted to SDR 1.8 billion. Additionally, SDR 0.2 billion is assumed to be available from PRG-HIPC Trust.16 Subsidy resources from earlier fund-raising efforts amount to SDR 1.3 billion. This amount includes all contributions pledged during the 2005 ESF fund-raising exercise, including those that are still expected to be received (Table 2). However, it excludes SDR 25.9 million pledged during earlier fund-raising that donors have not yet provided (Table 3).

Table 2.

ESF Subsidy Contributions

(In millions of currency units; end-December 2012)

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To be generated from the concessional loan as an implicit subsidy.

Reflecting net investment income (in end-2005 NPV terms) to be generated from deposit/investment agreements.

Table 3.

PRG-HIPC Trust – Pending Contributions

(In millions of SDRs “as needed”; March 31, 2013)

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Remaining balances.

15. Pledges of bilateral subsidy resources under the 2009 LIC financing package for the PRGT stand slightly above the target range of SDR 0.2–0.4 billion (end-2008 NPV terms). As of end-March 2013, a total of twenty-six members have committed SDR 0.214 billion in additional subsidies (Table 4). Staff continues to seek additional bilateral loan and subsidy resources which will help make the self-sustained PRGT more robust over a wide range of demand scenarios.

Table 4.

New Subsidy Commitments to the PRGT

(In millions of currency units; as of March 31, 2013)

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Reflecting net investment income (in end-2008 NPV terms) to be generated from investment agreements.

Initial pledge of SDR 9.5 million has been changed to SDR 10.33 million to be paid in 8 tranches by January 2018.

A pledge of SDR 16,709,643 is to be received following expiry of existing investment agreement with the PRGT on 12/31/2021; estimated as SDR 11 million in end 2008 NPV terms at the time when the pledge was made.

Calculated using the exchange rates as of March 31, 2013.

16. An important element of the 2009 LIC financing package linked to use of windfall gold sales profits has been achieved, augmenting the PRGT’s total subsidy resources. The partial distribution of SDR 0.7 billion of the Fund’s general reserves attributed to the windfall gold sales profits became effective on October 12, 2012, with SDR 632.46 million having been pledged to the PRGT. To date, a total of 140 members have pledged 91.20 percent of the distribution. As of end-March 2013, 115 members have made contributions or transferred their share of the distribution to the PRGT’s subsidy accounts, totaling SDR 521.95 million. This amounts to 81.76 percent of the pledges and 74.56 percent of the SDR 0.7 billion distribution. Additional contributions linked to this distribution are still expected from members (Appendix Table 8).

Appendix Table 8.

Distribution of the General Reserve Associated to Gold Windfall Profits of SDR 700 Million1

(As of March 31, 2013)

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Quota as of October 12, 2012. The precise amount distributed to members was based on the quota shares in effect on the day the distribution was effected.

Assurances for new subsidy contributions of at least SDR 630 million were required before the distribution was effected. The distribution became effective on October 12, 2012 and was implemented on October 23, 2012.

Botswana, Bulgaria, Burundi, Malawi, Maldives, and Slovak Republic pledged 90 percent of their share of the proposed distribution; Belgium pledged 75 percent; Croatia, Lesotho, Montenegro, and Slovenia pledged 50 percent.

Member's actual contribution differs from initial pledge on account of foreign exchange rates on value date of payment.

17. The Executive Board decision of September 2012 to distribute amounts in the general reserve attributable to the remaining windfall gold sales profits of SDR 1.75 billion was a key element of a strategy to ensure the longer-term sustainability of the PRGT (see Box 2). Once the ongoing resource mobilization exercises are completed successfully, the PRGT will have sufficient capacity to accommodate annual lending of about SDR 1 ¼ billion on average from 2013 onwards. This capacity would be based on the resources and pledges received under the 2009 financing package as well as the new pledges for PRGT subsidy resources of at least SDR 1.575 billion (90 percent of the distribution) resulting from the distribution of resources linked to the remaining windfall gold sales profits.

18. Significant progress has been made in obtaining the necessary assurances to make the second distribution of reserves linked to the remaining windfall gold sales profits effective. As of end-March 2013, 90 countries representing 74.06 percent of the distribution have pledged to transfer or otherwise contribute their share of the distribution to PRGT subsidies. Once adequate pledges have been received, and the distribution effected, these resources would increase the self-sustained capacity of the PRGT from about SDR 0.93 billion to about SDR 1.27 billion annually from 2013 onwards.

Table 5.

PRGT Subsidy Pledges Based on the Partial Distribution of the General Reserve Associated to Remaining Gold Windfall Profits1 (As of March 31, 2013)2

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Pledges based on the partial distribution of SDR 1.75 billion of the general reserve attributed to remaining windfall profits from the recent gold sales. Pledges may be subject to domestic processes to enable members to make PRGT subsidy contributions.

Responses were initially requested by January 31, 2013.

Partial contribution.

C. Reserve Account

19. The PRGT Reserve Account continues to provide adequate security to PRGT lenders and note purchasers. The Account was originally financed by reflows of Trust Fund and Structural Adjustment Facility repayments, as well as investment returns on balances held in the Account. The PRGT can tap these resources temporarily to meet its obligations in the event of a delayed payment by a borrower to any loan account of the Trust. The balance in the Reserve Account amounted to SDR 3.96 billion at end-December 2012, representing a substantial multiple of the projected PRGT repayments falling due over the next twelve months and about 71 percent of total PRGT obligations (Appendix Table 4). It is expected that the Reserve Account will continue to provide a loan coverage ratio of about 40 percent in the medium term, in line with the historical average.

Appendix Table 4.

PRGT Reserve Account Coverage

(In millions of SDRs; end-period)

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The decline in total PRGT credit outstanding by about 40 percent from 2005 reflects early repayments arising from the delivery of HIPC and MDRI debt relief.

Demand for PRGT Concessional Lending

20. From January 2010 through end-December 2012, total commitments under the ECF, including augmentations, amounted to SDR 3.31 billion, while commitments under the SCF and RCF amounted to SDR 0.36 billion and SDR 0.20 million, respectively.17 Average commitments during 1988–2012 were SDR 0.99 billion annually. With the onset of the global crisis, the amount and number of new PRGT commitments reached their highest level in 2009 with 18 new arrangements totaling SDR 2.5 billion.

21. Commitments under new PRGT arrangements amounted to SDR 1.5 billion in 2012, significantly above the SDR 1.2 billion committed annually in 2010 and 2011. Total commitments under the ECF in 2012, including augmentations under existing arrangements, amounted to SDR 1.1 billion, while commitments under the SCF and RCF amounted to SDR 0.3 billion and SDR 0.1 billion, respectively. Commitments comprised ten ECF arrangements and three augmentations of access under the ECF, two SCF arrangements, and two RCF disbursements. The ECF arrangement for Bangladesh that was approved in April 2012 constitutes a substantial share of these commitments (Table 6 and Figure 1). Demand over the next two years is projected to ease, and commitments in 2013 and 2014 are expected to be around SDR 1 billion, compared with average annual commitments of SDR 1.4 billion during 2008–12. This level of commitments would be consistent with the PRGT’s average annual self-sustained capacity when the second distribution of reserves attributable to windfall gold sales profits is effected.

Table 6.

New PRGT Commitments to LICs in 2012

(In millions of SDRs, as of end-December 2012)

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Figure 1.
Figure 1.

PRGT Commitments to LICs, 1988–2012

(actual as of end-December 2012)

Citation: Policy Papers 2013, 012; 10.5089/9781498342063.007.A001

22. Updated staff projections indicate that longer-term demand for the Fund’s concessional lending could be about SDR 1.2–2.1 billion annually up to 2035.18 This represents an increase over the baseline projections of SDR 1.1–1.9 billion at the time of the remaining gold sales windfall distribution decision in September 2012. If the proposals on moderate expansion of blending rules and entry of new PRGT-eligible members as put forward in the recent Review of Facilities for Low-Income Countries and in Eligibility to Use the Fund’s Facilities for Concessional Financing respectively are adopted, the demand projections over the next two decades would be revised downwards to SDR 1.1–1.7 billion (Table 7). In the context of the recently approved framework for concessional lending on a self-sustained basis, this level of demand compares to the PRGT’s basic annual capacity to support concessional lending of SDR 1¼ billion.

Table 7.

Projected Demand for PRGT Resources under Alternative Scenarios

(In billions of SDRs)

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The low-case scenario assumes that about 30 percent of PRGT-eligible countries would resort to Fund financing in any given year, while the high-case scenario assumes that some 50 percent of LICs request some form of Fund financial support in any given year.

Based on 50 percent reduction in access norms and limits (in percent of quota) when the quota increase under the Fourteenth General Review of Quota goes in to effect (assumed to occur in 2013), followed by increases in access in nominal SDR terms of 24.2 percent at three-year intervals, starting in 2016. The update to the baseline also reflects other methodological refinements, such as (i) applying the vulnerability criterion to the graduation and blending assumption; and (ii) aligning the graduation assumptions with the two-year PRGT graduation cycle.

Assumes that, for PRGT-eligible countries that are presumed to blend, half of access to Fund resources is from the PRGT.

Assumes that PRGT-eligible countries are presumed to blend when their GNI capita exceeds 80 percent of the prevailing IDA operational threshold and that, for those countries, half of access to Fund resources is from the PRGT.

23. The framework for self-sustained lending under the PRGT is robust under a number of demand scenarios. The framework can accommodate demand at a higher level than the estimated self-sustained long-term capacity for a period of time as indicated below (Table 8). However, estimates of self-sustained capacity would be significantly affected if demand were to remain elevated for extended periods, or exceeded the estimated self-sustained lending capacity by significant margins. Under these circumstances, new subsidy resources or other contingent measures considered consistent with the three-pillar strategy would have to be sought to bring the Trust back to a self-sustained lending capacity of SDR 1¼ billion.

Table 8.

Self-sustainable PRGT Capacity under Elevated Demand Scenarios 1/

(In billions of SDRs)

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Tested for elevated demand during first years of PRGT self-sustainable operations (3,5,7 years) with resulting annual capacity following thereafter.

Amount of additional subsidies needed after the time of elevated demand (for 3,5,7 years) to return to SDR 1.25 billion annual capacity.

SDR 1.43 billion reflects average commitments during 2008–12.

Subsidization of Emergency Assistance

24. The EPCA/ENDA Administered Subsidy Account is being maintained on an interim basis for the subsidization of EPCA/ENDA credits outstanding on January 7, 2010. Once these outstanding credits are fully repaid (expected by April 2013), the EPCA/ENDA Administered Subsidy Account will be terminated. Contributors will be encouraged at that time to transfer any balances in the account to the PRGT General Subsidy Account (GSA), or one of the special subsidy accounts of the PRGT (Appendix Table 5).

Appendix Table 5.

Subsidy Contributions for Emergency Assistance

(In millions; as of end-December 2012)

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The SDR equivalent is the actual SDR amount received using the exchange rate on the value date; all contributions have been fully received.

Reflecting investment income to be generated on a deposit agreement, effective May 2006.

To subsidize the rate of charge on purchases by Sri Lanka and Maldives under ENDA following the 2004 Tsunami.

Existing contribution, previously earmarked for ENDA.

Existing contribution, previously earmarked for EPCA.

25. Available resources in the EPCA/ENDA Administered Subsidy Account are estimated to be sufficient to subsidize the remaining EPCA/ENDA credits. At end-December 2012, two PRGT-eligible members had outstanding ENDA credits (Bangladesh and Dominica) amounting to SDR 33.6 million. There were no PRGT-eligible members with outstanding EPCA credits. At end-December 2012, available subsidy resources amounted to SDR 10.7 million. It is estimated that these resources are likely to be sufficient to subsidize the outstanding credits, including for the additional interest relief through April 2013. In the event that subsidy resources in the EPCA/ENDA subsidy account were depleted, the PRGT Instrument would allow for the subsidization of outstanding credits from the PRGT GSA.

Financing of Debt Relief

26. As of end-December 2012, the Fund had provided a total of SDR 5.2 billion of debt relief to eligible countries. This includes HIPC debt relief of SDR 2.6 billion to 36 countries, MDRI debt relief of SDR 2.3 billion to 30 countries, “beyond-HIPC” debt relief to Liberia, and PCDR debt relief to Haiti (Appendix Tables 6 and 7). In December 2012, Comoros became the 35th country to reach the completion point under the HIPC Initiative. There now remains one decision point country (Chad), which at end-December 2012 had received HIPC interim assistance of about SDR 9 million from the Fund. No debt relief has been provided through the PCDR Trust since the last update, and the balance in the PCDR Trust was SDR 0.1 billion at end-December 2012.

Appendix Table 6.

Implementation of the HIPC Initiative

(In millions of SDRs; end-December 2012)

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Includes the commitment made in NPV terms plus interest earned on that commitment.

At the time of its decision point, Afghanistan did not have any outstanding eligible debt.

Includes commitment under the original HIPC Initiative.

Côte d’Ivoire reached its decision point under the original HIPC Initiative in 1998, but did not reach its completion point under the original HIPC Initiative. Debt relief of SDR 17 million, committed to Côte d’Ivoire under the original HIPC Initiative, was therefore not delivered.

Appendix Table 7.

Debt Relief Following Implementation of the MDRI

(In millions of SDRs; end-December 2012)

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Amount outstanding at the completion point (net of repayments between January 1, 2005 to the completion point date).

Balances available at the time of MDRI debt relief.

Afghanistan, Comoros, Haiti, and Togo did not have MDRI-eligible credit and did not receive MDRI debt relief. Côte d’Ivoire and Guinea had fully repaid MDRI-eligible debt by completion point date.

Non-HIPCs but qualified for MDRI debt relief with a per capita income below the US$380 threshold.

Liberia received “MDRI-like” (beyond-HIPC) debt relief at end-June 2010, which was financed from the Liberia Administered Account. Its eligible credit outstanding corresponds to the amount of arrears clearance to the IMF in March 2008.

Including Liberia's beyond HIPC debt-relief.

A. Remaining HIPCs

27. The Fund’s cost of debt relief for the remaining HIPCs (excluding the protracted arrears cases) is estimated at SDR 0.01 billion (end-December 2012 NPV terms, Table 9).19 This estimate excludes the arrears cases and is based on assumptions regarding the timing of HIPC completion point and the future path of interest rates, all of which are subject to uncertainty. Moreover, the estimate does not take into account potential needs for topping-up assistance.

Table 9.

Financing of Debt Relief to the Remaining HIPCs

(In billions of SDRs; end-December 2012 NPV terms)

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Since the HIPC sub-account is depleted, resources of SDR 0.01 billion are expected to be drawn from the PRG-HIPC sub-account to meet the estimated cost of the remaining HIPCs.

28. Available resources in the PRG-HIPC and MDRI Trusts are estimated to be sufficient to cover debt relief for the remaining eligible countries (excluding the protracted arrears cases). Since the HIPC sub-account of the PRG-HIPC Trust is depleted, resources of about SDR 0.01 billion from the PRG-HIPC sub-account are expected to be used to cover the projected HIPC needs. The two MDRI Trusts are expected to have surpluses totaling about SDR 0.05 billion (Table 9).

B. Pending Contributions to Liberia’s Debt Relief

29. Following Liberia’s reaching the HIPC completion point, there remain a number of countries that have yet to finalize their pledged contributions to the Fund’s debt relief for Liberia. Since the last update, no further contributions have been received from the remaining countries who had pledged to contribute. Pledged contributions totaling SDR 17.7 million (March 2008 NPV terms) from eight members are yet to be received (Table 10). It remains important that these contributions be disbursed as soon as possible to replenish the PRG-HIPC Trust.

Table 10.

Pending Disbursements to Finance Debt Reliefto Liberia as of end-March 2013

(In millions of SDRs; in March 14, 2008 NPV terms)

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30. The SCA-1/Deferred Charges Administered Account holds a balance from one member (Brazil). The Executive Board approved a decision to delay the termination date of the account to March 13, 2014, to allow completion of the procedures that would enable the disbursement of the pledged contribution for financing Liberia’s debt relief.20 It is expected that this amount would by that time be transferred to the PRG-HIPC Trust, which financed the shortfall in members’ contributions relative to their commitments for the financing of Liberia’s debt relief.

C. Protracted Arrears Cases

31. Providing debt relief to Somalia and Sudan would require substantial additional resources. At end-December 2012, the total amount of overdue financial obligations of these two countries to the IMF amounted to SDR 1.2 billion.21 As the cost to the Fund for providing debt relief to these countries was not included in the original costing estimates for the HIPC Initiative, additional financing would need to be secured when these members are ready to clear their arrears and embark on the HIPC Initiative and possible “beyond-HIPC” debt relief. 22,23,24 The approach developed for Liberia’s debt relief, including the financing modalities, could provide a useful framework for Somalia and Sudan at the appropriate time.

32. Additional resources could potentially be required to provide debt relief to Zimbabwe, if it is assessed to be eligible. Zimbabwe is currently neither PRGT-eligible nor included in the list of “ring-fenced” countries that could benefit from the HIPC Initiative. However, if Zimbabwe’s PRGT-eligibility is restored following clearance of its arrears to the PRGT (SDR 82.4 million at end-March 2013), an assessment of Zimbabwe’s eligibility for the HIPC Initiative would need to be made based on the relevant criteria, including whether the NPV of its external debt at end-2004 and end-2010 exceeded the HIPC thresholds. Additional resources may be needed to cover any such HIPC and “beyond-HIPC” debt relief for Zimbabwe.

Appendix Table 1.

Summary of Bilateral Commitments to the PRGF-ESF and PRG-HIPC Trusts

(In millions of SDRs; as of end-December, 2012)

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Less than SDR 5,000.

These are contributions originally pledged for the PRGF-ESF Trust which are now available for the PRGT. Excludes the G-8 commitment of SDR 100 million in end-2005 NPV terms, new ESF subsidy contributions, and any subsidy contribution made in the context of the LIC reform of 2009.

Estimated values of total contributions include forthcoming contributions that are not yet received. The term “as needed” refers to the nominal sum of concessional assistance taking into account the profile of subsidy needs associated with PRGF lending and the provision of HIPC assistance, respectively.

Including new borrowing agreement in support of 2009 reform of LIC facilities.

Including a borrowing agreement in support of the establishment of the ESF.

Appendix Table 2.

PRGT—Borrowing Agreements

(In millions of SDRs; as of end-December, 2012)

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Including additional loan commitments for interim PRGF operations.

Committed to the General Loan Account of the PRGT.

Committed to the ECF Loan Account of the PRGT.

Before April 17, 1998, known as Caisse Française de Développement.

The loan commitment, which became effective on August 20, 2009, was made in the context of establishment of the ESF.

In late 1999, the Bank of Italy replaced the Ufficio Italiano dei Cambi as lender to the PRGF Trust.

On October 1, 1999, the Export-Import Bank of Japan merged with the Overseas Economic Cooperation Fund and became the Japan Bank for International Cooperation.

Committed to the SCF Loan Account and RCF Loan Account of the PRGT in equal proportion.

The loan commitment is for the SDR equivalent of US$50 million.

The original loan commitment of the Bank of Spain was SDR 220 million; however, only SDR 216.4 million was drawn and disbursed by the expiration date for drawings.

The full loan commitment of SDR 200 million was drawn in January 1989; this amount was fully disbursed to borrowers by March 1994.

On August 26, 1998, the SFD indicated that it did not intend to make further loans in association with the PRGF.

Any mismatch of outstanding resources between the amount owed by PRGF borrowers and the amount owed to PRGF lenders arises because of mismatches in timing between drawdowns from lenders to the Trust and disbursements of PRGF loans to borrowers.

Appendix Table 3.

PRGT—Subsidy Agreements 1/

(In millions of SDRs; as of end-December 2012)

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Subsidy contributions to the PRG Trust result from the difference between the investment income on contributions and the below market rate of interest paid to contributors.

As a result of renaming of the PRG Trust and its subsidy accounts in January 2010, the name of subsidy account shown represents the current name of the account for deposits/investments that have not yet expired, and the old name of the account for deposits/investments that have been repaid.

Equivalent of US$10 million (at the exchange rate of June 29, 1994).

The Fund made early repayments to Botswana, Malaysia, and Singapore on March 1, 2004.

Interest rate paid was equivalent to the return on investment by the Fund on this deposit (net of any costs), less 2.0 percent per annum. If the interest rate obtained was less than 2.0 per annum, the deposit bore zero interest. The investment was extended in 2004 for another 10 years to benefit HIPC Trust.

All the deposits were repaid together at the end of sixteen years after the date of the first deposit.

Interest rate paid is 0.1 percent per annum until a subsidy contribution of SDR 1.2 million (end-2008 NPV) is reached. No interest will be paid if net investment earnings are lower than 0.1 percent per annum.

Including (i) a new investment of SDR 38.2 million; and (ii) a rollover of two investments of SDR 49.8 million and SDR 27.9 million and of the deposit of SDR 16.7 million from the PRG-HIPC Trust upon their maturities in 2011, 2011-14, and 2018, respectively.

The investment coincides with the repayment of each of the first nine (out of ten) semiannual instalments of a drawing of the PRGT loan of SDR 67 million from the Government of Spain (the Instituto de Crédito Oficial). The agreement expiredin November 2012.

Equivalent of US$5 million (at the exchange rate of May 11, 1994).

Interest rate paid is equivalent to the return on this investment by the Fund (net of any costs), less 2.6 percent per annum. If the interest rate obtained by the Fund is 2.6 percent per annum or less, the investment shall bear zero interest.

1

A “self-sustained” PRGT would rely solely on resources in the Trust to generate the required resources to subsidize commitments, while loan resources would continue to be provided by members.

2

The decisions adopting both the PRG-HIPC Trust and MDRI Trust Instruments require that the Executive Board conducts semi-annual reviews of the financing of these Trusts (Decision No. 11436-(97/10), February 4, 1997, as amended; and Decision No. 13588-(05/99) MDRI, adopted November 23, 2005, and effective on January 5, 2006). A decision to complete the current semi-annual reviews is proposed in Section VI. Starting in 2002, staff has updated the Board regularly on the mobilization of resources for the subsidization of emergency assistance.

3

Additional background information and details of the financing package were provided in Financing the Fund’s Concessional Lending to Low-Income Countries—Further Considerations.

6

The last remaining repurchases on ENDA credits are due on April 4, 2013; there are no outstanding EPCA credits.

7

Absent the waiver, the applicable interest rate for 2013 and 2014 would have been zero percent for all ECF and RCF loans, and 0.25 percent for SCF loans. Outstanding ESF loans and subsidized ENDA credits would carry an interest rate of 0.25 percent.

9

Under the encashment regime, the PRGT provides participating lenders/note purchasers with the right to request early repayment of outstanding claims in case of balance of payments need. Participating lenders/note purchasers agree that drawings under their borrowing arrangements with the PRGT could be made to fund early repayment of other participating lenders that face a balance of payments need. The Fund repays the requesting lender by drawing down resources committed to the PRGT by other participating lenders, by means of a liquidity buffer of 20 percent of outstanding loans from participating contributors.

10

See Decision No. 14593-(10/41), adopted April 21, 2010.

11

Participants of the encashment regime are: China, France, Italy, Japan, Korea, Saudi Arabia, and the United Kingdom.

12

In all these cases, the Fund, at its sole discretion, can extend the maturities for additional periods up to the maturity dates for the corresponding loan disbursements under the facility of the PRGT.

13

Borrowing agreements that will provide resources in SDRs are with the following creditors: the Bank of Spain, Banque de France, the People’s Bank of China, the Bank of Korea, the Government of Japan, the Government of the United Kingdom, the Bank of Italy, and the Saudi Arabian Monetary Agency.

14

The PRGT Instrument provides that resources of the SLAs will be drawn first for disbursements under the respective facilities, and resources in the GLA will be used for a facility only when resources in the relevant SLA are exhausted. In addition, staff will manage disbursements under borrowing agreements of contributors participating in the encashment regime in a manner that preserves a sufficient liquidity buffer for the encashment regime to be operational.

15

The SLA for the RCF was fully depleted in April 2012.

16

The PRG-HIPC Trust was established in 1997 with a dual purpose: (i) to provide assistance to LICs by making grants and/or loans for purposes of reducing their external debt burden to sustainable levels, and (b) to subsidize the interest rate on interim ECF operations to PRGT-eligible members. As of end-December 2012, the PRG-HIPC Trust balance was SDR 0.24 billion.

17

In view of the closure of the Exogenous Shocks Facility (ESF) Subsidy Account in May 2010 after resources in that account were depleted, resources in the ECF Subsidy Account are available to meet the subsidy requirements of outstanding ESF loans. See IMF Reforms Financial Facilities for Low-Income Countries (the Framework became effective on January 7, 2010); and A New Architecture of Facilities for Low-Income Countries (6/26/09).

18

These revised projections are discussed in Review of Facilities for Low-Income Countries (3/15/13).

19

Cost estimates at end-December 2012 include Chad and Eritrea, but exclude Somalia and Sudan. Nepal, which was confirmed as HIPC-eligible at the November 2011 ring-fencing exercise but has decided not to avail itself of debt relief under the HIPC Initiative, is excluded from this cost estimate. This estimate does not include Zimbabwe, which is currently not HIPC-eligible, but could become eligible for HIPC debt relief, if it is judged to meet the relevant criteria.

20

This account, which became effective on March 14, 2008, was an interim vehicle to temporarily hold the refunds of the distribution of a portion of the SCA-1 balances and the deferred charges adjustment in the context of the Fund’s debt relief for Liberia, pending instructions from members as to the disposition of the resources.

21

Following the secession of South Sudan from Sudan on July 9, 2011, all the overdue obligations to the Fund remain a liability of Sudan, which is the continuing state.

22

In the context of the MDRI in 2005, the G-8 committed that donors would provide the resources required for full debt relief at the completion point for the three protracted arrears cases (Liberia, Somalia, and Sudan).

23

Neither Somalia, nor Sudan, is eligible for debt relief under the MDRI, as there would be no MDRI-eligible debt following the clearance of their arrears. It is possible, however, that they could be considered for “beyond HIPC” debt relief, as was done in the case of Liberia.

24

Following the secession on July 9, 2011, Sudan and South Sudan reached a tentative agreement on public external debt, which would leave all the debt with Sudan contingent on Sudan reaching the decision point under the HIPC Initiative within two years. If the zero option proves unworkable, Sudan’s external liabilities would be apportioned between Sudan and South Sudan under a yet to be agreed formula.

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Cover Policy Papers
Update on the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member Countries
Author:
International Monetary Fund
Volume/Issue:
Volume 2013: Issue 012
Publisher:
International Monetary Fund
ISBN:
9781498342063
ISSN:
2663-3493
Pages:
35
DOI:
https://doi.org/10.5089/9781498342063.007
Figure 1.

PRGT Commitments to LICs, 1988–2012

(actual as of end-December 2012)