Q and A on IMF Bilateral Borrowing Agreements
Last Updated: October 13, 2017
- Question 1. Why does the IMF need bilateral loans again despite the recently enacted doubling of the quota?
- Question 2. How much less firepower would you have if the 2012 bilateral agreements were not renewed?
- Question 3. What is the total amount you are aiming for?
- Question 4. How much more firepower will you have after the bilateral agreements have been renewed? Are you satisfied with the recent increase in your lending capacity via the agreements?
- Question 5. How many countries have already committed and for how much? Are you looking to expand your pool of creditors?
- Question 6. Under what circumstances can the IMF use those bilateral loans?
- Question 7. What are the modalities for the bilateral arrangements to be activated? What does the new voting structure refer to?
Q1. Why does the IMF need bilateral loans again despite the recently enacted doubling of the quota?
While quota resources on aggregate doubled in early 2016 as the 14th Review quota increases became effective, borrowed resources under the New Arrangements to Borrow (NAB) were concurrently rolled back. As a result, there was a change in the composition of the Fund resources (from NAB to quotas) but no substantive change in the Fund’s overall resource envelope. In the meantime, the Fund’s 2012 bilateral borrowing agreements started to expire in mid-October 2016, and in absence of these borrowed resources, the Fund’s lending capacity would have sharply fallen, undermining the confidence that the Fund would continue to be able to address the needs of our membership. With this backdrop, the Executive Board agreed on August 29, 2016 on a new framework to maintain temporary access to bilateral borrowing. In doing so, the Board, while reiterating that the Fund is and must remain a quota-based institution, recognized that securing continued access to temporary bilateral borrowing under the 2016 borrowing agreements was the most practical near-term option to maintain the Fund’s overall lending capacity amid elevated uncertainty and risks in the global economy.
Q2. How much less firepower would you have if the 2012 bilateral agreements were not renewed?
The 2012 Bilateral Borrowing Agreements represented close to a third of the Fund’s overall lending capacity. These agreements, totaling SDR 282 billion or US$393 billion at exchange rates prevailing on September 30, 2016, had a maximum term of four-years and began to expire in October 2016. As the term of individual agreements started expiring, the resources available under bilateral borrowing would be lost.
Q3. What is the total amount you are aiming for?
With the 2016 borrowing agreements, we are aiming at broadly maintaining the access to bilateral borrowed resources provided under the 2012 agreements while also bringing in new participants to provide confidence that the Fund has available resources to address the needs of the membership. The G20 leaders support this objective of preserving the IMF’s current lending capacity and the new borrowing framework approved in August 2016 by the Executive Board has been key in helping achieve this objective.
Q4. How much more firepower will you have after the bilateral agreements have been renewed? Are you satisfied with the recent increase in your lending capacity via the agreements?
We are very pleased with the outcome of the new round of bilateral borrowing. The commitments we received amount to about SDR 319 billion or US$ 450 billion (at exchange rates of October 12, 2017), and surpassed the amount received under the 2012 Borrowing Agreements mostly due to the participation of new creditors. These commitments will preserve the Fund’s lending capacity of about US$1 trillion, which is crucial for the Fund to be able to continue to effectively carry out its mission.
Q5. How many countries have already committed and for how much? Are you looking to expand your pool of creditors?
40 members of the Fund, including 5 new creditors, have committed a total of about SDR 319 billion (US$ 450 billion at exchange rates of October 12, 2017) in bilateral borrowed resources with an initial term to end-2019, extendable for a further year through end-2020 with creditors’ consents. Under these commitments, 33 borrowing agreements for a total of SDR 289 billion are now effective. Further details will be made available in due course.
Q6. Under what circumstances can the IMF use those bilateral loans?
These resources are being made available to meet the potential financing needs of all IMF members if risks to the global economy materialize. Thus, such loans will be drawn only if they are needed as a third line of defense after resources from quotas and the New Arrangements to Borrow are substantially used. Under the new framework approved by the Board, any activation of the Fund’s bilateral borrowing agreements also requires ex-ante approval from creditors representing 85 percent of the total credit amount committed under 2016 bilateral borrowing agreements. It is worth noting that the 2012 and the 2016 bilateral agreements have not been activated or drawn but have played a critical role in providing assurance to members and markets that the IMF has adequate resources to meet potential needs.
Q7. What are the modalities for the bilateral arrangements to be activated? What does the new voting structure refer to?
The bilateral resources are a third line of defense after quota and NAB resources have been substantially depleted. With this in mind, the Executive Board in late August 2016 approved maintaining access to new bilateral borrowing under a new framework (the 2016 Borrowing Agreements) that builds closely on the modalities of the 2012 borrowing framework, and includes a requirement that creditors representing 85 percent of the total credit amount committed under the new agreements vote in favor of activation.