Types of Lending Facilities
The Fund offers a range of loans and facilities on concessional terms for different maturities. The provision of such facilities involves extensive consultations with country authorities concerned to reach agreement on appropriate policies and actions for economic reform. The Fund loans and facilities are of two main categories.
The first category of AMF facilities aims at addressing balance of payment imbalances of borrowing member countries. They are associated with mainly macroeconomic reforms which are agreed upon between the Fund and a borrowing country. The Fund initiated this type of facilities since the inception of its lending activity in 1978. The second type was introduced later on and is meant to support sectors and areas that are within the area of Fund’s mandate. This type of loans and facilities was introduced to reflect the Fund’s keenness to respond to economic developments and changing priorities and needs of member countries. With the track record of stabilization and macroeconomic reform policies in Arab countries have been increasingly interested in recent years in adopting structural reforms with a view to improve resource use efficiency to achieve higher, sustainable growth.
The loans and facilities currently offered by the AMF to help address overall balance of payment deficit of member countries include four types of loans that vary in size, terms and maturity, based on the nature and causes of balance of payments disequilibria in eligible member countries:
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 with a grace period of 18 months, and is not conditional on the implementation of an economic reform program provided that the concerned member has no conditional loan outstanding (ordinary and/or extended loan). If, however, the country has ordinary or extended loans outstanding at the time it applies for an automatic loan, and the country has already implemented such a reform program, the AMF, based on an assessment of causes of overall balance of payment deficit, whether the requested loan would be considered an automatic loan, or be tied to ordinary or extended loans, in which case 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. Generally, this loan is extended up to 100 percent of the member country’s paid subscription in convertible currencies and could be supplemented with an 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. The policies and measures included in such a program would aim at restoring fiscal equilibrium with a view to reducing balance of payments deficit. The Fund follows up on the implementation of the program. As it is the case with all other conditional loans, the satisfactory implementation of the policies and measures agreed upon is a condition to the disbursement of the loan’s tranches. Each disbursement is repaid within five years from its date of withdrawal and with a grace period of 30 months.
The Extended Loan is provided to an eligible member country with a chronic deficit in its balance of payments resulting from structural imbalances in its economy. The member country is required to agree with the Fund on a structural adjustment program covering a period of not less than two years. The maximum amount of this loan is normally equivalent to 175 percent of the 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. Each disbursement is repaid within seven years from its date of withdrawal.
The Compensatory Loan is 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 a sharp increase in the value of agricultural imports due to a poor harvest. This loan’s limit is equivalent to 100 percent of the member’s paid subscription in convertible currencies, and it has a maturity of three years and a grace period of 18 months. The borrowing country must be experiencing a transitory fall in exports or a transitory increase in food imports.
The second category of loans and facilities that are available to support a number of sectors of an economy currently includes the Structural Adjustment Facility (SAF) for the financial and banking sector, for government finance sector and for trade reform, Oil Facility and Short Term Liquidity Facility:
The Structural Adjustment Facility was introduced in 1998, with focus initially laid on supporting reforms by borrowing member countries in the financial and banking sector. Following the broad acceptance this facility has received from member countries, thereby becoming the cornerstone of the Fund’s lending activities, it was expanded in 2005 to cover support to fiscal reforms. In tandem with the evolution of financing needs of member countries, the Fund in 2009 separated these two strands of this facility to enable eligible member countries to have access to more financing under both strands. The Board of Governor agreed to split the Structural Adjustment Facility into 2 categories of facilities, one for the financial and banking sector and the other for public finance, each with a maximum limit of 175 percent of the borrowing member country’s paid subscription in convertible currencies.
To benefit from the Structural Adjustment Facility, a member country is required to have achieved some progress in macroeconomic stabilization and to agree on the implementation of a reform program monitored by the Fund. The Fund has initially determined the ceiling for the SAF to be 75 percent of the member country’s paid subscription in convertible currencies, but later in April 2001, in light of member countries’ interest in the facility, the Fund’s Board of Governors increased the limit up to 175 percent. It may be noted that, to add more flexibility to this facility, the AMF Executive Directors in 2001 agreed that repayment modality under this facility be amended so that each tranche is to be repaid in four years from the date of disbursement instead of the member country having to repay the entire loan in four years from the date of the release of first tranche.
The Trade Reform Facility was established by the AMF Board of Governors in 2007. It aims at assisting member countries to meet finance costs associated with the implementation of trade reforms, thus encouraging them to adopt necessary reforms to facilitate their access to financing from international markets so as to consolidate growth and create productive job opportunities. This facility is extended up to 175 percent of the member’s paid subscription in convertible currencies, provided the borrowing member country agrees with the Fund on a structural reform program that will be monitored by the Fund. Maturity, repayments and disbursements applicable to this facility are the same as those of the SAF in both financial and banking and fiscal sectors.
The Oil Facility was approved by the Board of Governors in April 2007 as a temporary lending mechanism to remain active for five years. This facility went into effect in December 2008. This facility is meant to support member countries affected by the transitory rise in oil and gas imports, with ensuing deterioration in balance of payments position. The oil facility is extended to eligible countries up to 200 percent of a member country’s paid subscription in convertible currencies. There are two cases for lending under this facility. First, for eligible members with a balance of payments deficit resulting from higher oil and gas prices, the Fund extends a financing of up to 100 percent of the paid up subscription in convertible currencies. This takes the form of a separate loan with only simple and quick procedure. The financing in this case does not require the agreement on a reform program, but only requires consulting with the authorities to confirm the incidence of deficit and to discuss policies adopted to contain such a deficit.
The second case is where an eligible member under this facility wishes to have access to the full amount of the same, i.e., 200 percent of the paid up subscription in convertible currencies. To benefit from the full amount of the facility, the eligible member must agree with the Fund on a reform program that is supported by one of the Fund’s ordinary facilities dedicated to support reform programs, including SAF and other facilities dedicated to finance sectoral structural reforms mentioned above, depending on prevailing conditions and current needs. Access to Fund resources in this case will be subject to the same terms and conditions applicable to a loan or a facility to be agreed upon with a member country. Thus, resources available under the Oil Facility would be additional resources to the resources under the loan that supports an existing and ongoing reform program. This reflects the Fund’s interest in encouraging members affected by the rise of oil prices to implement the required reforms in order to reduce the exposure of their economies to external shocks.
The Short Term Liquidity Facility was approved by the Fund’s Board of Governors in 2009. It aims at assisting member countries with a track record of structural and economic reforms that face temporary liquidity shortage due to unfavorable developments in global financial markets. The facility is extended promptly and without any prior agreement on a reform program with the eligible borrowing member country. The short term liquidity facility is extended with a maximum limit of 100 percent of the member’s paid up subscription in convertible currencies. The disbursement of the facility could be carried out in one or more tranches as requested by the borrowing members. Each payment is settled after six months of disbursement, with possible extension of maturity up to, i.e., eighteen months.