Exceptional Financing &Debt Reorganisation

Course on Balance of Payments and International Investment Position Manual

(BPM6)

IMF-PFTACNadi

November 22-December 1, 2010

BP22

Introduction

Exceptional financing transactions (Appendix 1) and Debt reorganisation and related transactions (Appendix 2)

Explore various issues, treatment and accounting of exceptional financing

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Managing the external sector/exchange rate

Economic managers Face a range of issues and have a variety of tools

Managing the economy’s settings Will impact on exchange rate and reserves, While managing exchange and reserves will impact on

domestic economy. Exchange rate regime

Free float, dirty float, fixed exchange rate, exchange controls

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Managing the external sector/exchange rate Cont.

Reserves management Reserve assets IMF credit and loans Exceptional financing

Arrears of principal and interest BOP borrowing Debt forgiveness Inter-government transfers Debt restructuring

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Analytical measurement of BOP

Analytical v neutral approach to BOP presentation

How to compile Need to identify those transactions (and some non

transactions) that will be placed ‘below-the-line’

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Exceptional financing transactions

Transfers Debt forgiveness and other intergovernmental transfers

(including from international organizations)

Direct or other equity investment Debt or equity swaps involving debt reduction

Borrowing Bond issues for balance of payments support by the

government or central bank, or by other sectors of the economy and induced by the authorities, usually through some form of exchange rate or interest subsidy

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Exceptional financing transactions Cont.

Debt rescheduling or refinancing Debt prepayment and buybacks Accumulation and repayment of arrears

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Debt reorganization or restructuring

Four main types Debt forgiveness

The reduction, or the extinguishing of, a debt obligation by the creditor via a contractual arrangement with the debtor

Debt rescheduling or refinancing (or debt exchange) A change in the terms and conditions of the amount

owed, which may result, or not, in a reduction in burden in present value terms

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Debt reorganization or restructuring Cont.

Four main types Cont.

Exchanging debt –something of economic value Debt conversion The creditor exchanges the debt claim

for something of economic value, other than another debt claim, on the same debtor debt-for-equity swaps, debt-for-real-estate swaps, debt-for-

development swaps, and debt-for-nature swaps

Debt prepayment (or debt buybacks for cash)

Debt assumption and debt payments on behalf of others when a third party is also involved

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Accounting entries

For existing loans forgiven or rescheduled we focus on Payments falling due in current period

Interest, interest accrued in previous periods, principal

Payments in arrears Interest, Principal

Payments not yet due in current period Principal

Subsequent commitments For some swaps

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Types of transactions

A1 – G (Appendix 1) Transfers

Debt forgiveness Other intergovernment grants

Debt/equity swaps Direct swaps Indirect swaps

Exchange of a fixed-payment liability denominated in foreign currency for a deposit liability denominated in domestic currency

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Types of transactions Cont.

Borrowing for BOP purposes Debt scheduling refinancing

Debt rescheduling Loan/bond swap

Debt prepayment and buyback Accumulation/repayments of arreas

Accumulation of arrears Repayment of arrears

Debt for development swap04/18/23 13