Washington, DC: The IMF Executive Board approved on September 30 a new, temporary Food Shock Window (FSW) under its emergency financing instruments (Rapid Credit Facility-RCF/Rapid Financing Instrument-RFI).
A combination of climate shocks and the pandemic has disrupted food production and distribution, driving up the cost of feeding people and families. Russia's invasion of Ukraine has pushed the price of food and fertilizers even higher and exacerbated the shortages in food supplies-hurting food importers and some exporters alike.
The Food Shock Window will provide, for a period of a year, a new channel for emergency Fund financing to member countries that have urgent balance of payment needs due to acute food insecurity, a sharp increase in their food import bill, or a shock to their cereal exports. Access will be consistent with the actual balance of payments needs, and capped at 50 percent of quota, and will be additional to the current annual access limits under the RCF/RFI. The cumulative access limits under the RFI regular window and the RCF exogenous shock window, currently at 150 percent of quota, will be increased to 175 percent of quota for members that will borrow through the FSW. A review is planned by the end of June 2023.
The Executive Board also amended the policy for Staff-Monitored Programs (SMPs), to allow for Program Monitoring with Board involvement (PMB). The Executive Board's role will be limited to assessing the robustness of the member's policies to meet the program's objectives and to monitoring program implementation, including of policies aiming to facilitate the transition to an upper credit tranche (UCT) quality IMF-supported program. Countries considering an SMP would be encouraged to request a PMB if they are the subject of an ongoing concerted international effort by creditors or donors to provide substantial new financing or debt relief, or have significant outstanding Fund credit under emergency financing instruments. The PMB will be reviewed before the end of September 2023.
Executive Board Assessment [1]
Executive Directors welcomed the opportunity to discuss staff's proposals (i) to create a new temporary window under the Fund's emergency financing instruments to address the urgent balance of payments (BOP) needs related to food shock that was exacerbated by Russia's war in Ukraine, and (ii) to amend the policy on Staff Monitored Programs (SMP) to introduce an SMP with Board involvement (PMB) that will allow the Executive Board to opine under narrowly tailored circumstances on a member's program approved by management. They broadly endorsed both proposals.
Directors shared the staff's assessment that the ongoing global food shock has caused hardship and amplified the acute food insecurity in many countries. While noting that the first-best option to address BOP pressures would generally involve an Upper Credit Tranche (UCT) quality program, they agreed that this may not be feasible in some cases or not necessary in others.
Against this background, Directors welcomed the proposal to establish a new temporary food shock window (FSW) under the Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF) to provide additional, low access emergency financing to qualifying members experiencing urgent BOP needs related to the global food shock. Access under this window will be consistent with the member's actual BOP need, capped at 50 percent of a member's quota, and available during a 12-month period. This access will be fully additional to the current annual access limits under the RFI and RCF and will increase the cumulative access limit under the regular window of the RFI and the exogenous shocks window of the RCF to 175 percent of quota. Directors also looked forward to strengthening coordination with specialized international organizations to address food insecurity.
Directors broadly supported the proposed qualification criteria that circumscribe access to the FSW to countries experiencing an urgent BOP need associated with acute food insecurity, increased costs of cereal and fertilizer imports, or cereal exports shortfalls. At the same time, a few Directors considered that other spillovers from the war would have warranted extending the qualification criteria for the new window. Directors looked forward to continued staff work to ensure that the Fund's lending toolkit responds to members' needs under current challenging circumstances.
Directors noted that as is the case for all Fund lending, including emergency financing, access under the FSW will be subject to debt sustainability and adequate capacity to repay requirements. Given concern that some countries may not be able to access the FSW, Directors encouraged staff to work with countries in need to help address the challenges they are facing in meeting those requirements. Member countries accessing the FSW would also be expected to commit to measures ensuring transparency and accountability in the spending of emergency resources, tailored to the specific circumstances of each country.
Directors noted that the FSW will raise PRGT lending in the short term-including through additional voluntary SDR channeling-and will also require further subsidy resources. They emphasized the urgent need for timely bilateral pledges of loan and subsidy resources under the ongoing first stage of the PRGT fundraising. Directors looked forward to the Annual Review of the Adequacy of PRGT Resources scheduled for Spring 2023 as an opportunity to consider contingency measures as needed, and possible steps to accelerate or expand fundraising, to accommodate the additional lending.
Directors underscored that members would be encouraged to transition to UCT-quality programs as soon as appropriate and feasible to support structural reforms to address underlying vulnerabilities and larger financing needs. In this context, they noted that concurrent use of the FSW with an SMP or, in certain cases, with a PMB, could be considered to build or re-build a track record towards a Fund arrangement that supports a UCT-quality program.
Directors also supported the proposal to amend the SMP policy to allow for limited Executive Board involvement to opine on whether the policies under the PMB are robust to meet the program's objectives and to monitor its implementation. Directors agreed that the use of the PMB would be only available to those members who (1) seek to build or rebuild a track record for a Fund arrangement that supports a UCT-quality program, and (2) would benefit from limited Executive Board involvement because of either (i) an ongoing concerted international effort by creditors or donors to provide substantial new financing or debt relief in support of the member's policy program, or (ii) significant outstanding Fund credit under emergency financing instruments at the time new emergency financing is received. While a PMB would be strongly encouraged for these members, as a form of technical assistance it would maintain a voluntary nature. As with the FSW, Directors underscored that members would be encouraged to transition to UCT-quality programs as soon as appropriate and feasible.
Directors emphasized that clear communication is critical to convey the nature of the PMB and the limited role of the Executive Board's involvement. The PMB is approved by management and monitored by staff. The Board's involvement will be limited to, in a summing up, (1) at the time of management approval, opining on the robustness of the member's policy program to meet the stated objectives of the PMB and achieve the purpose of building or rebuilding a track record toward a UCT-quality program, and (2) in the context of reviews, indicating whether it agrees with staff that the member is on track to achieve these objectives. Directors underscored that this does not amount to Executive Board endorsement of the program, which is done only if the program meets the UCT-quality standard.
Directors welcomed the proposal to review the impact of the FSW by end-June 2023, in parallel with the Board consideration of the exit strategy for temporary modifications to the Fund's access limits in response to the COVID-19 Pandemic. They also agreed with staff on a review of the PMB policy no later than end-September 2023.
[1] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing ups can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
