EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 18 December 2020  
on a bilateral borrowing agreement between the Central Bank  of Malta and  
the International Monetary Fund  
(CON/20 20/34) 
 
Introduction and legal basis  
On 4 December 2020 the European Central Bank (ECB) received a request from the Central Bank of 
Malta (CBM) for an opinion on two draft laws concerning a bilateral borrowing agreement with the 
International Monetary Fund (IMF) ( hereinafter the ‘draft law s’)1. 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC2, as 
the draft law s relate to the CBM . In accordance with the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law s 
1.1 In March 2020, the IMF Executive Board approved a new round of bilateral borrowing to 
supplement the more permanent quota resources. Such borrowing will help maintain the IMF’s 
overall lending capacity and thus preserve the IMF ’s ability to support its members, especially in 
the current environment of global challenges arising from the COVID -19 pandemic. Subsequently , 
in April 2020,  the IMF’s Managing Director sought Malta’s participation in this new round of the 
2020 Bilateral Borrowing Agreements, and Malta agreed to participate.  
1.2 By virtue of the draft laws, Malta will enter into a bilateral borrowing agreement whereby  CBM will 
initially lend to the IMF a special drawings rights (SDR) -denominated amount up to the equivalent 
of EUR 260 000 000. This credit will be automatically reduced to EUR 112 000 000 once the IMF ’s 
primary source for temporary resources, namely, the New Arrangements to Borrow (NAB), is 
doubled. Malta does not participate in the NAB.  The term of this agreement will  end on 
31 December 2023,  and it is provided that the IMF  may extend the term for one further year 
through 31 December 2024 by a decision of the Executive Board of the IMF and with the consent 
of the CBM, taking into account the IMF ’s overall liquidity situation and actual and prospective 
                                                 
1 A draft l egal act entitled Malta Membership of the International Monetary Fund (2020 Borrowing Agreement) Order 
and a draft b ill to amend the Malta Membership of the International Monetary Fund Act, Chapter 209 of the Laws of 
Malta.  
2 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
ECB -PUBLIC  
2 borrowing requirements.  The ECB understands that Malta’s participation in a  bilateral loan 
agreement will result in an SDR -denominated claim of the CBM against the IMF.  
1.3 The legal basis for the bilateral borrowing agreement is  Article VII, Section 1(i), of the IMF ’s Articles 
of Agreement , which authorises the IMF to propose borrowing from its members if it deems such 
action appropriate to replenish its holdings.  
 
2. Monetary financing prohibition  
2.1 Article 123(1) of the Treaty prohibits the national central banks from granting  overdraft facilities or 
any other type of credit facility to public authorities and bodies of the Member States . The monetary 
financing prohibition is however subject to certain exemptions laid down in Council Regulation (EC) 
No 3603/933. In particular, Ar ticle 7 of Regulation (EC) No 3603/93 provides that the financing by 
national central banks of obligations falling upon the public sector vis- à-vis the IMF is not regarded 
as a credit facility within the meaning of Article 123(1)  of the Treaty. Recital 14 of Regulation (EC) 
No 3603/93 clarifies the rationale behind this exemption, stating that it is appropriate to authorise 
the financing by the central banks of obligations falling upon the public sector vis -à-vis the IMF 
because such financing ‘results in f oreign claims which have all the characteristics of reserve 
assets’. Therefore, the exemption in Article 7 of Regulation (EC) No 3603/93 must be interpreted in 
line with this rationale4. 
2.2 Reserve assets are defined as those external assets that are readily available to and controlled by 
monetary authorities for meeting balance of payments financing needs, for interventions in 
exchange markets to affect the currency exchange rate, and for other related purposes, such as 
maintaining confidence in the currency and the economy, and serving as a basis for foreign 
borrowing5. Under this definition, reserve assets must be foreign currency assets and, except in the 
case of gold bullion, must be claims on non- residents6.  
2.3 The ECB notes that u nder the Malt a Membership of the International Monetary Fund Act7 it is the 
function of the CBM to (1) pay the amounts from time to time payable to the IMF  on Malta’s 
account, (2) perform all of Malta’s rights, obligations and functions ensuing from Mal ta’s 
participation in the Special Drawing Account, and (3) issue  to the IMF  non-interest bearing and 
non-negotiable notes or other obligations as provided for by the IMF’s Articles of  Agreement.  
2.4 The ECB considers that the financing by the CBM of Malta’s ob ligations  under the bilateral 
borrowing agreement with the IMF, as set out in the draft laws, falls within the exemption of 
Article  7 of Regulation (EC) No 3603/93 because this financing results in SDR denominated- claims  
 
 
                                                 
3  Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1).  
4  See e.g. Opinions CON/2020/27 and CON/2017/4. All ECB Opinions are available on EUR -Lex.  
5  See International Monetary Fund, Balance of Payments and International Investment Position Manual (Sixth ed., 
2009), paragraph 6.64.  
6  See paragraph 2.2 of Opinion CON/2020/27 and paragraph 3.2 of Opinion CON/2017/4.  
7  Chapter 209 of the Laws of Malta 
ECB -PUBLIC  
3 of the CBM against the IMF that have all the characteristics of reserve assets. Therefore, the draft 
laws are compatible with the monetary financing prohibition.     
 
This opinion will b e published on EUR -Lex.  
 
 
Done at Frankfurt am Main, 18 December 2020.  
 
[signed]  
 
The President of the ECB  
Christine  LAGARDE