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Thursday, 13 August 2020

IMF's annual operational income projected at $1.9 bln, $2.4 bln in FY2020, FY2021

Positive net income will allow the IMF to accumulate precautionary balances amid the coronavirus crisis

Doaa A.Moneim , Saturday 25 Jul 2020
IMF
File Photo: International Monetary Fund (IMF) logo (Photo: Reuters)
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The International Monetary Fund's (IMF) operational income for FY2021 and FY2022 is expected to remain strong, with projections pointing to annual net income of $1.9 billion and $2.4 billion respectively, according to the IMF Executive Board's review of the fund’s income for FY 2020, FY2021 and FY2022.

Continued positive projected net income will allow the IMF to continue to accumulate precautionary balances amid the coronavirus crisis and the uncertainty situation it imposes, the IMF added.

Yet, these projections are subject to a high degree of uncertainty related to the scale of new lending associated with the COVID-19 economic fallout, alongside the timing and amounts of disbursements under approved arrangements included in the projections, the IMF said.

It added that there are additional key uncertainties related to actuarial assumptions such as the discount rate, and the performance of the fund’s investment and retirement plan asset portfolios in the wake of the pandemic.

Based on what the IMF announced, the fund’s net operational income of about $1.9 billion, which is mainly comprising income from lending and investments, remained strong for FY 2020 and the robust income from lending reflects the ongoing elevated use of fund credit.

An unrealised pension-related adjustment in FY 2020, stemming mainly from the actuarial remeasurement of staff retirement plan assets and liabilities, as required by the accounting standard IAS 19,1 is expected to offset the fund’s net operational income, substantially contributing to a net loss of around $1.6 billion in 2020.

The net loss will reduce the IMF’s precautionary balances, which are projected to amount to $22.6 billion at the end of FY 2020, according to the IMF’s review.

Meanwhile, the IMF’s Executive Board adopted other decisions that have put pressure on the fund’s finances, which included decisions to transfer income from the Fixed-Income Subaccount of the Fund’s Investment Account (IA) to the General Resources Account (GRA) and to reimburse costs to the GRA, according to the IMF.

It added that projections of the fund’s income are currently subject to larger than normal uncertainties because of the COVID-19 crunch, including uncertainties related to the discount rate used to measure the fund’s retirement plan obligations and asset returns that can have a large impact on the actual outcome, given the heightened volatility in financial markets in the wake of the pandemic.

“The FY2020 annual financial statements will update for the impact of changes in key assumptions made at the time of the April projections. The IMF’s basic lending rate for member countries’ use of IMF credit is the SDR interest rate plus a fixed margin. The board sets the margin for a period of two financial years, in line with the principle that the margin should be stable and predictable. In April 2020, the Executive Board agreed to maintain the margin for the rate of charge unchanged at 100 basis points (one percent) for FY 2021 and FY 2022,” stated the report.

Amid the crisis, the IMF has disbursed a total of $13.548 billion from April to May as emergency finances for 12 countries in the region.

Given that the IMF approved, in May and July, Egypt’s two requests to obtain new loans, the IMF has handed over a one-time tranche loan worth $2.4 billion under the rapid finance instrument (RFI) and a first tranche of the stand-by agreement, one-year loan worth $2 billion, out of $5.2 billion, while the remainder amount will be disbursed over two reviews, which are scheduled to take place in December and June.

 

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