Financing IMF Transactions Periodic Report

October 1, 2014 – December 31, 2014

IMF credit is extended to its members in both currencies and SDRs. Credit extended in currencies is financed from the quota resources made available to the IMF by members, and essentially involves a transfer of currencies from creditor members to borrowing members. These transfers reduce the available quota resources from creditors and increase their positions with the IMF by the same amount. Members receive a market-related return on their creditor positions with the IMF.

When extending credit in SDRs, the IMF transfers reserve assets directly to borrowing members by drawing on the IMF's own holdings of SDRs in the General Resources Account. The SDRs are placed in the SDR accounts of borrowing members with the IMF; the member can either maintain or exchange for currencies. The amount of SDRs available for these transactions is generally limited, because the IMF normally seeks to maintain part of its usable resources in the form of SDRs—its most liquid asset.

By the same token, the repayment and servicing of IMF credit results in the receipt of both currencies and SDRs from borrowing members. In this case, the SDRs received by the IMF are added to its holdings in the General Resources Account, while the currencies are passed on to IMF creditor members, reducing their creditor positions with the IMF.

The members that participate in the financing of IMF transactions in currencies are selected by the Executive Board. The selection is based on each member's financial capacity, and takes into account key macroeconomic and financial indicators (see box).

The amounts transferred and received by these members are managed to ensure that their creditor positions in the IMF remain broadly even in relation to their quota, the key measure of each member's rights and obligations in the IMF. This is achieved in the framework of an indicative periodic Financial Transactions Plan (FTP).¹

The outcome of the FTP is published on a lagged basis. The table below presents the outcome for this plan period.

How are Members Selected to Finance IMF Transactions?

The selection of members to finance IMF transactions is based on principles set out in the IMF Articles of Agreement. Members are selected based on a periodic assessment by the Executive Board of their balance of payments and reserve position. Specific indicators of external strength are used to maintain a reasonable degree of consistency among members, but the assessment of a member's balance of payments and reserve position is ultimately a matter of judgment. The IMF does not therefore rely on automatic indicators or define rigidly the notion of a sufficiently strong external position; the circumstances of members, including their need to hold international reserve assets, differ considerably.

All relevant factors and data are considered in the assessment of a member's balance of payments and reserve position, including developments in exchange and financial markets and the adequacy of the member's international reserve assets. Particular emphasis is placed on recent and prospective current account balances, external competitiveness, and external debt indicators, especially those offering insights into the member's exposure to short-term liquidity strains. Thus, members may be selected to participate in the financing of IMF transactions even though there may be some elements of weakness in their overall balance of payments and reserve position.

Two broader considerations underlying the financial structure of the IMF have guided the Executive Board in coming to conclusions about a member's external strength for the purpose of participation in IMF financing.

The IMF draws on a wide range of members—large and small, advanced, developing, and transition—for its financial activities, reflecting first and foremost the cooperative nature of the institution. Broad participation of members in the financing of IMF transactions also serves to maximize the liquidity of the IMF's quota resources.
The participation of a member in the extension of IMF credit generally entails a change in the composition of the creditor member's international reserve assets. IMF transactions normally involve a reduction in the currency holdings of a creditor member, which is fully offset by an increase in its creditor position in the IMF. This position forms part of the member's international reserve assets because it represents a liquid claim on the IMF, earning a market-related return, which can be drawn on demand in the event of balance of payments need.

Column 1 indicates the members that participated in the financing of IMF transactions.

Column 2 shows the IMF quota for each of these members, which is the absolute limit of each member's obligation to make resources available to the IMF for its financial transactions.

Column 3 shows for each participating member the available quota resources at the beginning of the FTP period. The difference between the amounts in columns 2 and 3 reflect the past net contributions of each member to the financing of IMF transactions.

Column 4 indicates the amount of currencies transferred during the FTP period by each member to finance the extension of IMF credit 'purchases' (of other members' currencies) ² and other transfers such as interest on creditor positions and other payments to members, and administrative expenses incurred by the IMF at its headquarters and offices around the world. The bulk of administrative payments are made in U.S. dollars. Depending on the number and size of IMF transactions, not all creditor members may participate in transactions in any FTP period.

Column 5 presents data on the amount of currencies repaid to each member, primarily as a result of the repayment of IMF credits by borrowing members. Interest on credit extended by the IMF (charges) is paid in SDRs not currencies. Some currencies are nevertheless typically received in the General Resources Account from members that acquire the necessary SDRs from the IMF with which to pay interest on their outstanding IMF credit. In order to help move toward balanced creditor positions relative to quota (column 7), receipts are not channeled to members with a low ratio in column 7.

Column 6 shows the available quota resources at the end of the period for each member participating in the financing of IMF transactions. When combined with the IMF's SDR holdings (shown in the penultimate row of the table), these resources comprise the IMF's usable resources, a key element in the assessment of the institution's liquidity position.

Column 7 (a) shows members' reserve tranche position (RTP) in the Fund which includes their cumulative contributions under the FTP to the financing of IMF credit and other transfers and column 7(b) shows this position as a percentage of the members’ quota. Members that are relative newcomers to the FTP thus tend to have creditor positions that are lower than average.

¹Before March 2000, the financial transactions plan was called the operational budget.
²See Article V, Operations and Transactions of the Fund, of the Articles of Agreement.