The quota system

Each member of the IMF is assigned a quota, based broadly on its relative size in the world economy, which determines its maximum contribution to the IMF’s financial resources. Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely accepted foreign currencies (such as the U.S. dollar, euro, yen, or pound sterling) or Special Drawing Rights (SDRs). The remaining three-quarters is paid in the country’s own currency.

Quotas are reviewed at least every five years. The 1998 quota review led to a 45 percent increase in IMF quotas. The reviews concluded in January 2003 and January 2008 resulted in no change in quotas. Initial ad hoc quota increases of 1.8 percent were agreed in 2006 as the first step in a two-year program of quota and voice reforms. Further ad hoc quota increases were approved by the Board of Governors on April 28, 2008, which will raise quotas by an additional 9.55 percent (with an overall increase under the reform of 11.5 percent).

Gold holdings

The Fund’s gold holdings amount to about 103.4 million ounces, making the Fund the third largest official holder of gold in the world. However, the IMF’s Articles of Agreement strictly limit its use. If approved by an 85 percent majority of voting power of member countries, the IMF may sell gold or may accept gold as payment by member countries but it is prohibited from buying gold or engaging in other gold transactions.

The IMF’s membership has recently approved the sale of a limited portion (403 metric tons) of the Fund’s gold. The receipts from gold sales will help finance an endowment as part of the Fund’s new income model to put the Fund’s finances on a sound long-term footing. Receipts from gold sales will also help meet the subsidy needs associated with IMF’s concessional lending to low-income countries.

The IMF’s lending capacity

The IMF can use its quota-funded holdings of currencies of financially strong economies to finance lending. The IMF’s Executive Board selects these currencies every three months. Most are issued by industrial countries, but the list also has included currencies of lower income countries such as Botswana, China, and India. The IMF’s holdings of these currencies, together with its own SDR holdings, make up its own usable resources. If needed, the IMF can temporarily supplement these resources by borrowing (see below).

The amount the IMF has readily available for new (non-concessional) lending is indicated by its one-year forward commitment capacity. This is determined by its usable resources (including unused amounts under loan and note purchase agreements), plus projected loan repayments over the subsequent twelve months, less the resources that have already been committed under existing lending arrangements, less a prudential balance.

Borrowing arrangements

The IMF maintains two standing multilateral borrowing arrangements—the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB)—with a total borrowing capacity of SDR 34 billion (about $54 billion). If the IMF believes that its forward commitment capacity might fall short of its member countries’ needs—for example, in the event of a major financial crisis—it can activate these arrangements. Their renewal was approved in 2007 for another five years starting in 2008.

In April 2009, the G-20 Leaders and the International Monetary and Financial Committee agreed to increase the resources available to the IMF through immediate financing from members by $250 billion, and to subsequently expand the NAB by up to $500 billion and make it more flexible. During the course of 2009, the IMF has signed a number of bilateral loan agreements and a note purchase agreement with China to temporarily bolster its capacity to support member countries. These supplementary resources will help ensure that the Fund can continue to provide timely and effective balance of payments assistance to its members during the current global economic crisis. A list of bilateral loan and note purchase agreements is available here. Discussions to expand the NAB and make it more flexible are also underway.

IMF concessional lending and debt relief

The IMF provides two primary types of financial assistance to low-income countries: low-interest loans under the Poverty Reduction and Growth Facility (PRGF), and the Exogenous Shocks Facility (ESF), and debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). These resources come from member contributions and the IMF itself, rather than from the quota subscriptions. They are administered under the PRGF ESF, PRGF-HIPC, MDRI-I and MDRI-II Trusts, for which the IMF acts as Trustee.

The PRGF ESF Trust was established to provide lending in support of PRGF and ESF arrangements and to subsidize the market rate of interest down to the concessional interest rate of 0.5 percent per annum. Loan resources of about $26 billion have been committed by 17 contributors to the Trust, while a larger number of IMF member countries have made subsidy contributions.

The PRGF-HIPC Trust was established to provide debt relief under the HIPC Initiative and to subsidize PRGF lending. The resources available to the Trust consist of grants and deposits pledged from 93 member countries and contributions from the IMF itself. The bulk of the IMF’s contribution comes from off-market gold transactions made during 1999–2000.

In July 2009, the IMF’s Executive Board approved far-reaching reforms of the concessional facilities, in which a new Poverty Reduction and Growth Trust (PRGT) would replace the current PRGF-ESF Trust. As part of the reform package, the Board also agreed to provide exceptional interest relief on its concessional loans to all low-income countries, with zero interest payments through end-2011, to help them cope with the crisis. These reforms will become effective when all current lenders and bilateral subsidy contributors to the PRGF-ESF Trust have consented to the reforms.

It is expected that these reforms will boost the resources available to low-income countries to $17 billion through 2014, including about $8 billion over the next two years. To meet the new financing commitments, additional loan resources of SDR 9 billion ($14 billion) and new subsidy resources of SDR 1.5 billion ($2.3 billion, end-2008 net present value terms) will need to be mobilized. It is envisaged that, as in the past, the required additional loan resources will be mobilized through bilateral contributions. Most of the needed subsidy resources will, however, come from the IMF’s internal resources—including use of resources linked to the envisaged gold sales, with additional bilateral contributions of SDR 0.4 billion ($0.6 billion) being sought to complete the financing package.

The MDRI-I and MDRI-II Trusts were established in early 2006 to provide debt relief under the MDRI. Financed from the IMF’s own resources of SDR 1.5 billion in the Special Disbursement Account (SDA), the MDRI-I Trust is to provide debt relief to countries (both HIPCs and non-HIPCs) with per capita incomes at or below $380 a year (on the basis of 2004 gross national income). The MDRI-II Trust is to provide debt relief to HIPCs with per capita incomes above $380 a year, with financing from bilateral resources of SDR 1.12 billion transferred from the PRGF-ESF Trust.

In addition to the above, there is a separate administered account financed by a group of member countries for interest subsidies on IMF emergency assistance to PRGF-eligible countries in post-conflict or natural disaster situations.