The Executive Board of the International Monetary Fund (IMF) approved an amendment to the Extended Fund Facility (EFF) to allow extended arrangements to be approved for up to a maximum of four years from the current three years. "Until now, the policy allowed approval for up to three years only with the possibility of subsequently extending the arrangement to up to four years," according to the executive board meeting which opined that reforms have enabled the fund to better respond to the wide-ranging needs of member countries by, among other things, establishing new and more tailored facilities, increasing access limits, clarifying exceptional access criteria, streamlining conditionality, and reforming charges — including by strengthening price incentives via commitment fees — while maintaining adequate fund safeguards.
The EFF, which was established in 1974, to address balance of payments difficulties of members with imbalances arising from serious structural impediments in production and trade, requiring a prolonged period of adjustment and major policy shifts to restore the member’s balance of payments — will determine whether approval of a four-year arrangement is appropriate from the outset would be predicated on, inter alia, the existence of a balance of payments need beyond the three-year period, the prolonged nature of the adjustment required to restore macroeconomic stability, and the presence of adequate assurances about the member’s ability and willingness to implement deep and sustained structural reforms. Consistent with the spirit of the reforms of the IMF lending toolkit since 2009, which have injected substantial flexibility and allowed better tailoring to countries’ varying circumstances and needs, the use of the EFF over time has broadened from low- and middle-income countries with prolonged balance of payments needs to more developed countries facing larger financing needs, such as those that have arisen in the Euro area crisis. Allowing approval of extended arrangements of up to four years from the outset would make the EFF more flexible and help better support adjustment in the context of longer-term balance of payments needs.
While prolonged balance of payments needs would normally continue to be addressed with extended arrangements of up to three years, approvals of extended arrangements of up to four years would be appropriate in some cases, including if a balance of payments need beyond a three-year period exists, the necessary economic adjustment is of prolonged nature and is envisaged from the outset to take longer than three years, and adequate assurances exist that the member is able and willing to implement deep structural reforms.
Purchases under extended arrangements would be expected to be evenly phased, consistent with normal fund practice. Implications of this change to the EFF for the design of blended EFF-PRGT financing will be considered in the upcoming review of low-income-countries facilities. A member that contemplates making a request for an extended arrangement should consult the managing director before making a request under this decision. A request by a member for an extended arrangement in order to deal with a problem of the kind referred to in this decision will be met.