IMF shuts inefficient $24b refinancing window

• Only South Africa made list of NAB option from region
The International Monetary Fund (IMF) has resolved to close down its own refinancing platform- General Arrangements to Borrow (GAB), worth $24 billion.

The decision, which would be effective at the end of the current term- December 25, 2018, was reached by the contributors of the fund on realizing that the usefulness of the initiative has not only diminished, but now limited, especially as IMF’s overall lending capacity now stands at about $1 trillion.

Established in 1962, under a standing borrowing arrangement between the IMF and a group of 11 members and central banks, the members said the resources used as a backstop against systemic shocks has declined substantially over the years.

GAB enables the IMF to borrow specified amounts of currencies from 11 advanced countries or their central banks, under certain circumstances, but now may only be activated when a proposal to use NAB is rejected by participants.

Meanwhile, the size of the GAB, which has remained unchanged since 1983 and fallen sharply relative to quotas, is now overtaken by New Arrangements to Borrow (NAB).

Similarly, only South Africa made the list of participating members of the expanded and flexible NAB arrangements from the continent, while Greece and Ireland are the newest participants.

“The GAB has also not been activated in almost 20 years and the modalities of borrowing under the GAB are less flexible than those under the NAB. Furthermore, the GAB does not add to the Fund’s total lending capacity, which remains strong.

“In light of these considerations, the GAB decision was not renewed by the IMF’s Executive Board by December 25, 2017, the deadline for its renewal,” IMF said.

Through NAB, the IMF’s main backstop for quota resources, a number of member countries and institutions stand ready to lend additional resources to the IMF.

Under the new arrangements called NAB, IMF and 38 member countries and institutions, including several emerging market countries, will raise funds when IMF needs to supplement its quota resources for lending purposes.

The NAB deal that was just renewed in November 2017 for another five years, came on concerns that substantially more resources might be needed to respond to future financial crises.

Already, through the incorporation of IMF’s financing need into the expanded and more flexible NAB arrangements, Group of Twenty industrialised and emerging market economies agreed to increase funds to IMF by up to $500 billion since 2009, which far outweighs that of GAB.

By 2011 when NAB was amended, the resources available to the IMF increased to about $580 billion.