Short-term Liquidity Line (SLL)
May 18, 2022
The Short-term Liquidity Line (SLL) is designed to be a liquidity backstop for members with very strong policy frameworks and fundamentals, who face potential, moderate, short-term liquidity needs because of external shocks that generate balance of payment difficulties.
The SLL was established by the IMF in Spring 2020 as part of its COVID-19 response, amid heightened global uncertainty and growing demand for liquidity at the onset of the pandemic. This liquidity backstop complements the IMF’s lending toolkit and other elements of the global financial safety net. It aims to minimize the risk of shocks evolving into deeper crises and spilling over to other countries.
Liquidity backstop
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The SLL is designed for potential, moderate, short-term balance of payment needs related to capital account pressures that could arise from external developments (rather than “home-grown” shocks). Access is capped at 145 percent of quota (normal annual access limit).
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Individual SLL arrangements are approved for a period of 12 months. Successor arrangements could be approved for as long as a member country continues to qualify and has a special balance of payments need.
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The SLL has revolving access, which enables repeated (partial or full) purchases and repurchases within and across SLL arrangements. Repurchases would reconstitute the member’s right to purchase up to the maximum access approved.
Low cost, especially when used on a precautionary basis
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The SLL has a special fee structure, which includes a non-refundable commitment fee of 8 basis points (bps) and a service charge of 21 bps.
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The SLL is cheaper than the Flexible Credit Line (FCL) at the same access level when used on a purely precautionary basis.
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If a member draws on the SLL, the normal charges and level-based surcharges apply. If the member draws the arrangement twice (repeated use is envisaged given the nature of the shock that the SLL is designed to address), costs are comparable to the cost of the FCL at similar access levels.
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There would be also cost savings relative to reserves, and likely benefits from lower yields on public debt given the positive signal on policy strength.
More innovative features to meet countries’ needs
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The SLL requires no ex-post conditionality (similar to the FCL) and no reviews.
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The Board approves the extension of an offer. The offer is contingent on the authorities’ “acceptance” with a signed written communication within two weeks.
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Sole signatory of the Central Bank in the written communication is possible, if certain requirements are met. Since balance of payments needs are expected to be limited in scale and require only a fine-tuning of policies, the Central Bank is typically the agency in control of relevant policy levers (such as exchange rate adjustments, foreign exchange intervention, and/or interest rate changes).
For members with very strong policies and fundamentals
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The SLL is for members with very strong fundamentals and policy frameworks, with the same qualification criteria as the FCL. The core qualification assessment is whether the member (a) has very strong economic fundamentals and institutional policy frameworks; (b) is implementing—and has a sustained track record of implementing—very strong policies; and (c) remains committed to maintaining such policies in the future. (For details, see FCL - Operational Guidance Note ).
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Having the same qualification criteria as the FCL facilitates the transition from the FCL to the SLL, if the special balance of payment need requirement is met (and vice-versa, if needed and warranted). (See Table 1 for a comparison of the SLL and the FCL, and the key features of the SLL. For details refer to Adequacy of the Global Financial Safety Net--Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform and IMF COVID-19 Response—A New Short-Term Liquidity Line to Enhance the Adequacy of the Global Financial Safety Net).
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Table 1. Comparison of the Key Features of the SLL and FCL
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SLL |
FCL |
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Facility |
Special facility |
Credit tranches |
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Objective |
Provide “swap-like” liquidity support to very strong members for special BOP needs |
Allow very strong members to deal with any type of BOP needs |
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BOP need |
Potential, moderate, short-term BOP difficulties reflected in pressure on the capital account and the member’s reserves resulting from volatility in international capital markets |
Any |
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Qualification |
Based on an assessment of:
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Repurchase period |
12 months |
3¼–5 years |
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Access |
Up to 145 percent of quota; revolving access |
No access limit |
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Duration of arrangement |
12 months |
1 or 2 years |
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Charges and fees |
A special fee structure would apply:
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The usual charges and fees that apply under the credit tranches:
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Activation |
Board approves the “extension of an offer,” and the arrangement enters into effect upon the Fund confirming receipt of the signed written communication from the member, including the acceptance of the offer and policy commitments; no prior informal Board meeting required |
Upon Board approval of the request for the arrangement; prior informal Board meeting required |
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Signatory |
Given the more limited anticipated adjustment (if needed), sole central bank signatory of the written communication possible in certain cases |
Both the central bank and the government generally sign the written communication given the broad nature of BOP needs that can be addressed under the FCL |
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Ex-post |
None |
None |
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Reviews |
None |
Annual review to assess qualification for two-year arrangements |
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Successor arrangements |
No restrictions, upon Board assessment of continued qualification and existence of special potential BoP need |
Exit expected as external risks decline |