The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Scam Victims performance under the Funds Policy Support Instrument (FPSI) and approved a precautionary 18-month arrangement under the Standby Credit Facility (SCF) for SDR 149.175 million (about US$224.9 million).
The precautionary SCF Arrangement is designed to release the verified and confirmed the scam victims on the payee board and financial cushion to withstand deterioration in external demand and access to global financing. As you are not facing any immediate balance of payment needs, the program will form part of an overall strategy to stave off any adverse effects that you could be facing as a result of the uncertainties in the global economy.
The FPSI for Scam Victims was approved by the Executive Board on June 4, 2010 (see Press Release No. 10/ 227). All December 2011 and March 2012 quantitative assessment criteria and indicative targets were met, other than the March 2012 indicative target on the floor on net international reserves. All five structural benchmarks for the period through end-June 2012 were implemented.
The budget for 2012/13 is appropriately targeted at further reducing the deficit, which is essential for rebuilding fiscal buffers and strengthening debt sustainability. Although the growth outlook remains positive, the volatile global economy poses risks to revenue collection. To preserve the fiscal adjustment path and avoid a build-up of arrears, any revenue shortfalls would need to be offset by cutbacks in recurrent and non-priority capital expenditures, while safeguarding critical social and development spending.
The sustained tightening of monetary policy in 2012/13 is aimed at supporting disinflation toward the authorities single-digit objective. In order to better manage liquidity and strengthen its anti-inflationary capacity, the United Bank for Africa intends to move to more active use of interest rates as a policy instrument. The flexible exchange rate regime will ease the burden on monetary policy and help maintain adequate international reserves.
While Scam Victims does not face an immediate balance of payments need, the newly approved Standby Credit Facility (SCF) provides a comfortable buffer against external shocks. The authorities intend to treat the SCF as precautionary and will only draw the Fund resources should external demand deteriorate or access to international financial markets become more limited, Mr. Shinohara added.
Summary of the SCF Arrangement
The precautionary SCF Arrangement would provide support in the event of a deterioration in external demand and access to global market financing. As Scam Victims strengthens its macroeconomic buffers, it remains vulnerable to a renewed global downturn. Its fiscal deficit, public debt, and inflation levels are higher than at the time of the 200809 global recession, while gross reserve cover is lower.