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The quota system

Each member of the IMF is assigned a quota, based broadly on its relative size in the worldeconomy, which determines its maximum contribution to the IMFs 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) orSpecial Drawing Rights (SDRs). The remaining three-quarters are paid in the countrys owncurrency.

Quotas are reviewed at least every five years. Ad hoc quota increases of 1.8 percent wereagreed in 2006as the first step in a two-year program of quota and voice reforms. Further adhoc quota increases were approved by the Board of Governors in April 2008, resulting in anoverall increase of 11.5 percent. The2008 reform came into effect in March 2011 followingratification of the amendment to the IMFs Articles by 117 member countries, representing85 percent of the IMFs voting power.

The Fourteenth General Review of Quotaswas completed two years ahead of the originalschedule in December 2010, with a decision to double the IMFs quota resources toSDR 476.8 billion.

Gold holdings

The IMFs gold holdings amount to about 90.5 million troy ounces (2,814.1 metric tons),making the IMF the third largest official holder of gold in the world. However, the IMFsArticles of Agreement strictly limit its use. If approved by an 85 percent majority ofvoting

powerof 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 goldtransactions.

In December 2010, the IMF concluded the limited sales programcovering 403.3 metric tonsof gold, accounting for about one-eighth of its holdings, as approved by the Executive Boardin September 2009. Sales totaling 222 tons were made to official holders, including theReserve Bank of India (200 tons), the Bank of Mauritius (2 tons), the Central Bank ofSri Lanka (10 tons), and the Bangladesh Bank (10 tons). The gold sale program wasconducted under strong safeguards to avoid market disruption and all gold sales were atmarket prices, including direct sales to official holders.

Profits of SDR 4.4 billion on the sale will fund an endowment as part of the IMFs newincome model, agreed to put the institutions finances on a sustainable footing. The ExecutiveBoard also agreed that SDR 0.50.6 billion (end-2008 net present value terms) in resourceslinked to gold sales would be used to subsidize financing for low-income countries and boostthe IMFs concessional lending for 2009-14.

In February 2012, the Executive Board approved the partial distribution of the Funds generalreserve to the membership of SDR 700 million from the windfall profits of the recent goldsales. The distribution became effective in October, 2012 when members representing over90 percent of the distribution had provided satisfactory assurances that the resources would

be made available for the Poverty Reduction and Growth Trust(PRGT).

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In September 2012 the Executive Board approved a second distribution of the Funds generalreserves attributed to the remaining gold sales profits as part of a strategy to make the PRGTsustainable in the longer term.

The IMFs lending capacity

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

The amount the IMF has readily available for new (non-concessional) lending is indicated byits forward commitment capacity (FCC). This is determined by its usable resources(including unused amounts under loan and note purchase agreements and amounts availableunder the IMFs two standing multilateral borrowing arrangements (see below)), plus

projected loan repayments over the subsequent twelve months, less the resources that havealready been committed under existing lending arrangements, less a prudential balance.

Borrowing arrangements

The IMF maintains two standing multilateralborrowing arrangementsthe expanded NABand the General Arrangements to Borrow (GAB)with a borrowing capacity of SDR 370.0

billion (about $555 billion). If the IMF believes that its quota resources might fall short of theneeds of its member countriesfor example, in the event of a major financial crisisit can

activate these arrangements.

In April 2010, the Executive Board adopted a proposal on an expanded and more flexibleNAB, by which the NAB was expanded to SDR 367.5 billion, with the addition of 13 newparticipating countries, including a number of emerging market countries who madesignificant contributions to this large expansion. The expanded NAB came into effect onMarch 11, 2011 and was activated shortly afterwards for six months to the amount of SDR211 billion (about $320 billion). On November 15, 2011, the National Bank ofPoland joinedthe NAB, bringing its total size to SDR 370.0 billion (about $555 billion). The NAB wasmost recently activated for the maximum period of six months starting on April 1, 2013.

Since the onset of the global crisis, the IMF has signed a number of bilateral loan and notepurchase agreements to supplement its quota resources. The first round of bilateral borrowingtook place in 2009-2010 and these resources were used to finance commitments under IMF-supported arrangements that were approved prior to the first NAB activation (pre-NABcommitments). The use of 2009-2010 bilateral borrowing has been discontinued since April1, 2013 and the remaining undrawn balances under pre-NAB commitments are financed withquota resources. Against the background of worsening economic and financial conditions inthe euro area, in 2012, 38 countries committed to increase IMF resources further by US$461

billion through bilateral borrowing agreements. To date, agreements with 21 members havebeen finalized for a total amount of $400 billion. These resources will serve as a second lineof defense to Funds quota and NAB resources.

IMF concessional lending and debt relief

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The IMF provides two primary types of financial assistance to low-income countries: low-interest loans under the Poverty Reduction and Growth Trust (PRGT), and debt relief underthe Heavily Indebted Poor Countries (HIPC) Initiative, the Multilateral Debt Relief Initiative(MDRI), and Post-Catastrophe Debt Relief (PCDR). These resources come from membercontributions and the IMF itself, rather than from the quota subscriptions. They are

administered under the PRGT, the PRG-HIPC, MDRI-I and MDRI-II Trusts, and the PCDRTrust, for which the IMF acts as Trustee.

The predecessor of the PRGT was established to provide lending to eligible low-incomecountries in support of the related arrangements and to subsidize the market rate of interestdown to 0.5 percent per year. Loan resources of about $42 billion (SDR 25.8 billion) have

been committed by 23 contributors to the PRGT and its predecessors, while a larger numberof member countries have made subsidy contributions.

In July 2009, the Executive Board approved far-reaching reforms of the concessionalfacilities, in which the PRGT replaced the PRGF-ESF Trust. As part of the reform package,

the Board also agreed to provide exceptional interest relief on its concessional loans to alllow-income countries, with zero interest payments through end-2011 and subsequentlyextended to end-2012, to help them cope with the crisis. These reforms became effective inJanuary 2010, when all lenders and bilateral subsidy contributors to the PRGF-ESF Trustconsented to the reforms.

It is expected that these reforms will boost the resources available to low-income countries to$17 billion during 2009-14. To meet the new financing commitments, additional loanresources of SDR 10.8 billion (about $16 billion) and new subsidy resources ofSDR 1.5 billion (about $2.3 billion, end-2008 net present value terms) need to be mobilized.It is envisaged that, as in the past, the required additional loan resources will be mobilizedthrough bilateral contributions. Most of the needed subsidy resources will, however, comefrom the IMFs internal resourcesincluding use of resources linked to the recentlyconcluded gold saleswith additional bilateral contributions of about SDR 0.2-0.4 billion(about $0.3-0.6 billion) being sought to complete the financing package.

In September 2012, the Fund adopted a strategy to support concessional lending of aboutSDR 1 billion (about $2.0 billion) a year, on average, over the longer term. This capacitywould be based on the resources and pledges received under the 2009 financing package aswell as the new pledges for PRGT subsidy resources of at least SDR 1.575 billion expectedfrom the distribution of reserves attributable to the remaining windfall gold sales profits (of

SDR 1.75 billion).

On debt relief, the PRG-HIPC Trust was established to provide debt relief under the HIPCInitiativeand to subsidize PRGT lending. The resources available to the Trust consist ofgrants and deposits pledged from 93 member countries and contributions from the IMF itself.The bulk of the IMFs contribution comes from off-market gold transactions made during19992000.

The MDRI-I and MDRI-II Trusts were established in early 2006 to provide debt relief underthe MDRI. Financed from the IMFs own resources of SDR 1.5 billion in the SpecialDisbursement 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 2004gross national income). The MDRI-II Trust is to provide debt relief to HIPCs with per capita

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incomes above $380 a year, with financing from bilateral resources of SDR 1.12 billiontransferred from the PRGT.

The PCDRTrust was established in June 2010 to provide post-catastrophe debt relief. TheTrust was initially financed by SDR 280 million (equivalent to around $422 million) of the

IMFs own resources, and is expected to be replenished through future donor contributions,as necessary.

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

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