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/2020/34)
Date: 2020-12-18
Institutions: European Central Bank
Subjects: legal basis

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/2020/34) 

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 laws’)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/EC 2, as 

the  draft  laws  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 laws 

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 

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2 

A draft legal act entitled Malta Membership of the International Monetary Fund (2020 Borrowing Agreement) Order 
and a draft bill to amend the Malta Membership of the International Monetary Fund Act, Chapter 209 of the Laws of 
Malta. 
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 

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 3603/93 3. In particular, Article 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  foreign  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-residents 6.  

2.3  The ECB notes that under the Malta 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  Malta’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  obligations  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  

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6  
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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). 
See e.g. Opinions CON/2020/27 and CON/2017/4. All ECB Opinions are available on EUR-Lex.  

See  International  Monetary  Fund,  Balance  of  Payments  and  International  Investment  Position  Manual  (Sixth  ed., 
2009), paragraph 6.64. 
See paragraph 2.2 of Opinion CON/2020/27 and paragraph 3.2 of Opinion CON/2017/4. 

Chapter 209 of the Laws of Malta 

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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.    

ECB-PUBLIC 

This opinion will be published on EUR-Lex.  

Done at Frankfurt am Main, 18 December 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

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