Policy Reform Proposals To Promote The Fund’s Capacity To Support Countries Undertaking Debt Restructuring

POLICY REFORM PROPOSALS TO PROMOTE THEFUND’S CAPACITY TO SUPPORT COUNTRIESUNDERTAKING DEBT RESTRUCTURING IMF staff regularly produces papers proposing new IMF policies, exploring options forreform, or reviewing existing IMF policies and operations. The following documents havebeen released and are included in this package: •APress Releasesummarizing the views of the Executive Board as expressed during itsApril 9, 2024 consideration of the staff report.•TheStaff Report, prepared by IMF staff and completed on March 15, 2024 for theExecutive Board’s consideration on April 9, 2024. [The documents listed below have been or will be separately released.] The IMF’s transparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Electronic copies of IMF Policy Papersare available to the public fromhttp://www.imf.org/external/pp/ppindex.aspx International Monetary FundWashington, D.C. IMF Executive Board Endorses Reforms to Promote the IMF’sCapacity to Support Countries Undertaking DebtRestructurings FOR IMMEDIATE RELEASE Washington, DC–April 9, 2024:The Executive Board of the International Monetary Fund(IMF) endorsed today the recommendations of the IMF staff paper“Policy Reform Proposalsto Promote the Fund’s Capacity to Support Countries Undertaking Debt Restructurings.”Thereforms are designed to ensure a more agile approach to IMF support to countriesundertaking debt restructuring while maintaining adequate safeguards for IMF financing andreinforcing the existing architecture for debt resolution. A number of recent IMF-supported programs involving debt restructurings experiencedsignificant delays from the time Staff Level Agreement was reached until the time thenecessary official creditor assurances were provided to allow the approval of IMF financing. There has been a marked improvement lately and cases are moving forward more quickly,with substantial progress in collaboration among official bilateral creditors. For example, whileit took Chad 11 months to move from a Staff-Level Agreement with the IMF staff to secure thecreditor assurances needed for approval of IMF financing; it took Zambia 9 months to reachthis milestone, Sri Lanka 6 months, and Ghana 5 months. But more progress is needed. The staff paper draws lessons from this experience and proposes a set of reforms in fiveareas, which should ensure a smoother and speedier process in the future: (i) clarifying when and how to apply additional safeguards under IMF’s financing into officialarrears policy, which should help avoid delays at this stage; (ii) strengthening the effectiveness and broadening the applicability of financing assurancesreviews when there is an ongoing debt restructuring, to better encourage adequate progresswith the restructuring; (iii) establishing a more robust and agile approach for deriving financing assurances fromofficial bilateral creditors (based on supporting and observing their processes) with the aim toestablish these assurances more rapidly; (iv) adjusting the IMF’s Approval-in-Principle procedures so that they can be used to provide amodality for IMF engagement with the member until financing assurances are established forIMF financing; and (v) clarifying how the IMF can provide support to members facing arrears to official creditorswhen they also face an emergency situation, like a natural disaster. The reforms are designed to support the existing architecture for debt resolution, preservingand complementing what works well while addressing time gaps that can be created by IMFrequirements and enhancing information flows. The reforms recognize different official creditorprocesses and provide a robust framework to support their participation in restructurings on terms consistent with restoring debt sustainability. The reforms are also consistent withdifferent sequencing of official and private restructurings (although this choice remains withthe debtor and creditors). For the IMF, the reforms are overall expected to promote more agileengagement while maintaining adequate safeguards. Executive Board Assessment1 1.Directors welcomed the opportunity to consider reforms to promote the Fund’scapacity to support countries undertaking debt restructurings. Directors agreed that,notwithstanding substantial progress in recent cases, the Fund’s ability to assist members inresolving their balance of payments problems may still be constrained. Directors, therefore,appreciated the opportunity to consider certain policy reforms to better reflect the currentcontext. Directors agreed that the proposals endorsed today are accurately reflected in theExecutive Board understandings in Supplement 3 of SM/24/65 to be issued shortly. Strands 1, 2 and 3 under the LIOA 2.Directors agreed that the Lending Into Official Arrears (LIOA) policy remains broadlyappropriate and that the current guidance on application