CORRECTED: 42514 REVIEW OF THE
FUND’S INCOME POSITION FOR FY 2014 AND FY 2015-2016
20 INTERNATIONAL MONETARY FUND
25. The adjusted market comparator suggests that the cost of Fund credit at the current
margin of 100 basis points is somewhat below long-term credit market costs Table 3. Emerging market spreads eased somewhat from their most recent peaks in 2012, but are on a slight
upward trend see Figure 4. In the most recent five-year period ending in February 2014, the lowest quartile of the EMBI adjusted for the term premium was about 68 basis points higher than the
current margin. This differential is only modestly wider than the spread of about 50 basis points seen over the previous decade and thus does not suggest that the cost of Fund credit is too low
relative to long-term market conditions. Two other factors also support this conclusion. Most Fund borrowers are supported by high access programs, which are subject to surcharges that raise the
overall cost of their borrowing from the Fund.
27
In addition it should be noted that the basic rate of charge is also unusually low at present given the historically low SDR rate, and some reversal of this
cyclical development is to be expected.
Figure 4. EMBIG Spreads: Total Composite and Bottom Quartile in basis points
27
For example, based on projected income from surcharges and projected credit outstanding, average surcharge rates are estimated to add about 200 basis points to the cost of Fund credit in FY 2015 and FY 2016, respectively. At
end-March 2014, about 90 percent of total credit outstanding was subject to surcharges. In addition, service charges are levied at 50 basis points on each disbursement.
100 200
300 400
500 600
700 800
900
100 200
300 400
500 600
700 800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Composite EMBIG 5-year rolling average
Composite EMBIG, lowest quartile 5-year rolling average, lowest quartile
Basic Margin
INTERNATIONAL MONETARY FUND 21
26. Based on the foregoing analysis, including the cross-check on alignment with
long-term market conditions, staff proposes that the margin for the rate of charge be set at 100 basis points for FY 20
15‒2016 proposed Decision No. 8. At this level, the margin will cover
intermediation costs, generate a substantial contribution to reserves, and is not significantly out of line with long-term market conditions. As mentioned earlier, since the margin is also expected to
cover part of the Fund’s non-intermediation costs in the next two financial years, the proposed decision is based on the exceptional circumstances clause of the Rule I-64.
27. Key factors that affect the FY 20
