Reserve Target Raised By IMF Due To Enhanced Risks Of Its Credit Exposure

Due to a sharp increase in financial risks since 2018, the International Monetary Fund (IMF) said that the medium term target for the fund’s precautionary reserves has been agreed to be raised by its Executive Board.

The IMF said in a statement that following a regular biannual review conducted at the end of October, the target to Special Drawing Rights 25 billion, or around $36 billion, was increased by the fund’s 24 executive directors from its earlier target of SDR 20 billion, or $29 billion.

SDRs are the IMF’s own unit of currency.

This latest decision after the review in October took a few months to come because the fund wanted to take time to make an assessment of the impact of the Covid-19 pandemic and it shows that the credit exposure and related risk of the IMF had increased since it last conducted a review in 2018 and the situation had been compounded by the health crisis.

“Credit outstanding has nearly doubled, including a surge in emergency financing without conditionality, and commitments under precautionary arrangements are higher than at the last review,” the IMF said in its statement.

There was greater concentration of credit while scheduled repurchases had also grown and were more munched, the IMF said. It is also likely that this fiscal year and next, the current target for precautionary balances of SDR 20 billion was also likely to drop below the indicative range.

The minimum floor for precautionary balances was agreed to be held by the directors because of these developments which include general and special reserves as well as a special contingent account. It was held at SDR 15 billion while the IMF raised the medium term target to SDR 25 billion. At the same time, the fund will continue to closely and carefully monitor the situation.

Demands for an even higher target was made by some of the directors, the IMF noted, but did not identify the directors. An agreement to make a reassessment of the situation prior to the next regular review in 2022 was also made by the directors.

Currently there was no factor that warranted acceleration of the pace of reserve accumulation, the directors agreed even though an urge to consider the options to do so was also made by a few directors, the UMF said.

IMF’s risk exposure is also helped to be limited by program design, conditionality, lending policies, and the fund’s preferred creditor status, the executive board also noted, said the fund in its statement.

(Adapted from USNews.com)



Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability

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