Opinion of the European Central Bank of 28 December 2020 on NCB participation in International Monetary Fund borrowing arrangements (CON/2020/37)
Date: 2020-12-28
Institutions: European Central Bank
Subjects: foreign-exchange reserves, institutional activity

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 28 December 2020 

on NCB participation in International Monetary Fund borrowing arrangements 

(CON/2020/37) 

Introduction and legal basis 

On 18 December 2020, the European Central Bank (ECB) received a request from the Italian Ministry of 

Economic  Affairs  and  Finance  for  an  opinion  on  draft  legislative  provisions  (hereinafter  the  ‘draft 

legislative provisions’) included in the Italian Law on the budget for the year 2021 and for the multi-year 

period  2021-23  (hereinafter  the  ‘2021  Law  on  the  budget’).  The  2021  Law  on  the  budget  must  be 

approved by the end of December 2020. 

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/EC1, as 

the  draft  legislative  provisions  relate  to  the  Banca  d’Italia.  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 legislative provisions 

1.1  Background context  

The  draft  legislative  provisions  aim  at  amending  existing  borrowing  arrangements  between  Italy 

and the International Monetary Fund (IMF). In particular, the draft legislative provisions concern the 

New  Arrangements  to  Borrow  (NAB),  the  Bilateral  Borrowing  Agreement  (BBA),  and  the 

contribution of Italy to the Poverty Reduction and Growth Trust (PRGT). In relation to the NAB and 

the BBA, the draft legislative provisions aim at aligning the Italian legal framework with the outcome 

of  the  negotiations  between  the  IMF  and  its  creditor  member  countries.  In  particular,  following  a 

negotiation of participating member countries under the IMF 15th General Review of Quotas – in 

an effort to review quotas and to increase the IMF’s capacity through this main source of financing 

– and the unsuccessful support for such quota increase, the IMF’s Executive Board approved, on 
16 January 2020, a doubling of the NAB2 and, on 31 March 2020, a framework for a new round of 
BBAs3.  The  provision  of  bilateral  lending  by  IMF  member  countries  through  BBA  schemes 

constitutes  a  third  line  of  defence,  after  quotas  and  the  NAB,  to  supplement  IMF  resources.  The 

new  arrangements  under  the  NAB  and  BBAs  are  expected  to  take  effect  on  1  January  2021, 

subject to timely approvals by creditor member countries and their institutions. The renegotiation of 

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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). 

 
 
 
 
                                                 
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the NAB, BBA and PRGT borrowing arrangements are also considered to be critical steps in order 
to ensure that the IMF can support its membership through the global pandemic4. 

1.2  Extension of the Banca d’Italia’s participation in the New Arrangements to Borrow  

The draft legislative provisions authorise the Banca d’Italia to extend the term of the NAB scheme, 

due  to  expire  on  16  November  2022,  until  31  December  2025  and  to  increase  the  maximum 

amount  of  the  disbursable  loan,  from  6,898.52  million  special  drawing  rights  (SDR)  to  13,797.04 
million SDR5.  

1.3  Authorisation for the Banca d’Italia to renew Italy’s BBA with the IMF  

The  draft  legislative  provisions  authorise  the  Banca  d’Italia  to  renew  the  BBA  currently  in  place 

between Italy and the IMF for the previously committed maximum amount of EUR 23,480 million. 

The  term  of  the  BBA,  initially  due  to  expire  on  31  December  2020,  is  to  be  extended  to 

31 December 2023, further extendable to 31 December 2024. On entry into force of the renewed 

NAB,  the  amount  of  the  BBA  will  be  automatically  reduced  to  EUR  10,115  million.  While  the 

maximum  amount  of  the  disbursable  loan  is  expressed  in  EUR,  the  disbursements  are 
denominated in SDR6.  

1.4  New contribution to the Poverty Reduction and Growth Trust 

The draft legislative provisions authorise the Banca d’Italia to enter into a new loan agreement to 

the  IMF’s  PRGT,  for  an  amount  of  1  billion  SDR.  The  new  loan  agreement  is  in  addition  to  the 
existing PRGT loan of 400 million SDR7.  

1.5  Provision of a State guarantee and identification of financial resources 

The draft legislative provisions further provide for a State guarantee to the Banca d’Italia in respect 

of the reimbursement of principal and interest due on the NAB, BBA and PRGT loans. The State 
guarantee also covers any exchange risk related to the execution of the NAB and BBA loans8. 

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See the IMF’s press release No 20/10, available on the IMF’s website at www.imf.org. 
See the IMF’s press release No 20/123, available on the IMF’s website at www.imf.org. 
Ibid.; as regards the PRGT, see the IMF’s Questions and Answers on its response to COVID-19, available on the 
IMF’s  website  at  www.imf.org:  ‘The  IMF  is  currently  seeking  additional  donor  support  to  expand  its  PRGT 
concessional lending for low-income countries.’ 
Currently, the NAB arrangements between Italy and the IMF are regulated by Article 2(13) and (15) of the Decree 
Law on the extension of deadlines and on urgent measures in the field of taxation, of 29 December 2010, No 225, 
converted by the Law of 26 February 2011, No 10, and by Article 16(6-bis) to (6-quinquies) of the Decree Law on the 
extension of deadlines, of 30 December 2016, No 244, converted by the Law of 27 February 2017, No 19. 
The legal basis for the Banca d’Italia to negotiate a bilateral loan agreement with the IMF is found in Article 25(2) of 
the Decree Law of 29 December 2011, No 216, converted into the Law of 24 February 2012, No 14, subsequently 
modified by the Decree Law of 30 December 2016, No 244, converted into the Law of 27 February 2017, No 19. See 
Opinions CON/2012/20 and CON/2017/4. All ECB opinions are available on EUR-Lex. 
Currently, Italy’s participation in the PRGT is regulated by Article 16(6-sexies) of the Decree Law on the extension of 
deadlines,  of  30  December  2016,  No  244,  converted  by  the  Law  of  27  February  2017,  No  19.  See  Opinions 
CON/2011/10 and CON/2017/4. 
The  draft  legislative  provisions  identify  the  sources  of  financing  to  cover  the  State  guarantee  by  confirming  the 
allocation of previously approved sources of financing: resources are provided under Article 13(6-ter) of the Decree 
Law  on  the  extension  of  deadlines,  of  30  December  2016,  No  244,  converted  by  the  Law  of  27  February  2017, 
No 19,  and  under  Article  25(6)  of  the  Decree  Law  of  29  December  2011,  No  216,  converted  by  the  Law  of 
24 February 2012, No 14. 

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2. 

Monetary financing prohibition 

2.1  Article  123(1)  of  the  Treaty  prohibits  the  national  central  banks  (NCBs)  from  granting  overdraft 

facilities or any other type of credit facility to public  authorities and bodies of the Member  States. 

This  prohibition  is  however  subject  to  certain  exemptions  contained  in  Council  Regulation  (EC) 
No 3603/939. In particular, Article 7 of Regulation (EC) No 3603/93 provides that the financing by 

NCBs  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  of  the  Treaty.  The  fourteenth  recital  of  Regulation  (EC) 

No 3603/93 clarifies the rationale behind this exemption, stating that it is appropriate to authorise 

the  financing  by  the  NCBs  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 rationale10. 

2.2  Reserve  assets  have  been  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  borrowing.  Under  this  definition,  reserve  assets  must  be  foreign  currency  assets  and, 
other than gold bullion, must be claims on non-residents11.  

2.3  The  ECB  considers  that  the  Banca  d’Italia’s  transfer  of  Italy’s  additional  contribution  to  the  IMF’s 

PRGT and renewal of loans under the NAB and BBA schemes with the IMF, as set out in the draft 

legislative provisions, falls within the exemption of Article 7 of Regulation (EC) No 3603/93 because 

this  financing  results  in  foreign  currency  (SDR)-denominated  claims  of  the  Banca  d’Italia  against 

non-resident  persons  (the  IMF  and  an  IMF-administered  trust)  that  have  all  the  characteristics  of 
reserve assets12.  

3. 

Financial independence 

3.1  From the perspective of the financial independence required of an NCB in the European System of 

Central Banks (ESCB) under Article 130 of the Treaty, pursuant to which Member States may not 

put their NCBs in a position where they have insufficient financial resources to carry out their ESCB 
or Eurosystem-related tasks13, the ECB welcomes the guarantee to be provided by the State under 

the  draft  legislative  provisions  with  respect  to  the  reimbursement  of  principal  and  interest  on  the 

Banca  d’Italia’s  loans  which,  in  relation  to  the  execution  of  the  NAB  and  BBA  schemes,  will  also 

cover any exchange rate risk on such loans provided by the Banca d’Italia. 

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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). 

Consistent with this interpretation, see Opinions CON/2005/29, CON/2013/16 and CON/2017/4. With regard to the 
issue of NCBs’ financing of IMF quota increases, see Opinions CON/2011/97 and CON/2012/65.  
See  International  Monetary  Fund,  Balance  of  Payments  and  International  Investment  Position  Manual  (sixth  edn., 
2009), Chapter 8, Section F, pp. 111-18. 
See also Opinions CON/2017/4, CON/2020/27, CON/2020/32 and CON/2020/34.  

ECB Convergence Report 2020, para. 2.2.3. 

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This opinion will be published on EUR-Lex. 

Done at Frankfurt am Main, 28 December 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

ECB-PUBLIC 

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