Wednesday 27 August 2014

Loans

Types of Lending Facilities

The Fund facilities fall within two categories. The first of these covers facilities associated with the Fund’s purview in the area of assisting eligible members in financing their overall balance of payments deficits. As noted earlier, the provision of such facilities involves consultations and agreement on necessary economic adjustments within the macroeconomic framework of the concerned country. The Fund initiated this category since the inception of its lending activity in 1978. The second category of facilities, which was introduced in 1997, includes loans devised to back reforms that are sectoral in their nature. Loans in this category currently focus on supporting the endeavors of eligible borrowing members in the reform of their financial and banking sectors currently to be complemented in the forthcoming period to support reform of the fiscal sector as well.

 

The four types of loans under the first category vary in size, term, and maturity according to the nature and causes of the balance of payments disequilibria. The Automatic Loan is extended to assist in financing the overall deficit in the balance of payments in an amount not exceeding 75 percent of the member country’s subscription in the Fund’s capital paid in convertible currencies. The loan has a maturity of three years and is not conditional on the implementation of an economic reform program. If, however, the country has conditional loans outstanding, then the Automatic Loan would be subjected to terms applied to the outstanding loans, and its amount would be considered an extension to the limit of the conditional loans outstanding.

 

The Ordinary Loan is extended to an eligible member country when its financing needs exceed 75 percent of its paid subscription in convertible currencies, provided it has already withdrawn its reserve tranche from similar regional and international organizations. Generally, this loan is extended up to 100 percent of the member country’s paid subscription in convertible currencies and could be supplemented with the Automatic Loan to reach a maximum of 175 percent. To benefit from this loan, the borrowing member country must agree with the Fund on a stabilization program, covering a period of not less than a year, to reduce balance of payments deficits. The loan is disbursed in installments set by the Fund and the borrowing country, conditional on the successful implementation of policies and measures agreed upon. Each disbursement is repaid within five years in four equal half-yearly installments following a grace period of three and a half years.

 

The Extended Loan is provided to an eligible member country with a sizeable and chronic deficit in its balance of payments resulting from structural imbalances in the economy. In addition to withdrawing its reserve tranche from similar regional and international organizations, a member country is required to agree with the Fund on a structural adjustment program covering a period of no less than two years. The maximum size of this loan is equivalent to 175 percent of a member country’s paid subscription in convertible currencies. It can, however, be supplemented by an Automatic Loan, thereby reaching up to 250 percent of the member country’s paid subscription. The loan is disbursed in installments subject to the successful implementation of policies and measures agreed upon. Each disbursement is repaid within seven years in four equal half-yearly installments following a grace period of forty-two months.

 

The fourth type of loan is the Compensatory Loan, extended to assist a member country experiencing an unanticipated balance of payments deficit resulting from a shortfall in export earnings of goods and services and/or an increase in the value of agricultural imports due to a poor harvest. This loan’s limit is equivalent to 50 percent of a member’s paid subscription in convertible currencies, has a maturity of three years and is repayable in four half-yearly installments following a grace period of 18 months.
 
The second category of loans falls under the Structural Adjustment Facility (SAF). Its introduction, in 1998, was in response to the changing needs, demands and priorities of  the member countries. The aim of this facility is to support structural reforms at the sectoral level, currently limited to the financial sector, in order to further improve the utilization of resources and consolidate the economic stabilization achieved by some member countries. In light of the increasing importance of financial sector reform, this loan has received broad acceptance as evidenced by the growing interest of member countries in it.

 

To benefit from the SAF, a member country is required to have achieved some progress in macroeconomic stabilization and to agree on the implementation of a financial sector reform program monitored by the Fund. The limit of this loan was initially set at 75 percent of a member country’s paid subscription in the Fund’s capital in convertible currencies. However, in view of the interest in this loan, the Board of Governors agreed, in April 2001, to increase its limit up to 175 percent of a member country’s paid subscription. Furthermore, to facilitate its use, the Board of Executive Directors agreed, in March 2001, to change the loan terms. Accordingly, each disbursement is now considered a loan to be repaid in four years, instead of repaying the total value of the loan in four years from the date of the first disbursement. Finally, the SAF is considered complementary to other loans and, as such, a member country benefiting from it keeps the right of availing itself to other loans in accordance with the guidelines of the lending policy.

 

The overall ceiling of the Fund’s resources available to a member country is currently equivalent to 425 percent of its subscription to the Fund’s capital paid in convertible currencies. Furthermore, a member country may benefit from an additional 50 percent of its paid subscription if it becomes eligible for a Compensatory Loan, thereby bringing the maximum overall ceiling to 475 percent of its paid subscription.

Loan Commitments

 

The total value of loan commitments, which equals the value of outstanding loans plus the undisbursed installments of approved loans, reached approximately AAD 280 million at the end of 2004, compared to AAD 277 million at the end of 2003. The total value of loans commitments in 2004 represents 87.8 percent of the Fund’s paid capital in convertible currencies, compared to 86.8 percent in 2003.

 

As of end of 2004, the number of loans extended by the Fund reached 131 loans benefiting some fourteen member countries. The total value of the loans amounted to about AAD 1,037.2 million, or the equivalent of US $ 4.8 billion. Appendix (A-1) shows the distribution of those loans by years and member countries.

 

The majority of loans provided by the Fund consisted of Automatic Loans, representing around 28.4 percent of the total value of loans followed by Extended Loans and Structural Adjustment Facilities with 27.8 and 17.9 percent respectively.