Opinion of the European Central Bank of 12 June 2024 on the increase of Lithuania’s quota in the International Monetary Fund (CON/2024/20)

OPINION OF THE EUROPEAN CENTRAL BANK of 12 June 2024 on the increase of Lithuania’s quota in the International Monetary Fund (CON/2024/20) Introduction and legal basis

On 29 May 2024 the European Central Bank (ECB) received a request from the Lithuanian Ministry of Finance for an opinion on the draft law on the increase of Lithuania’s quota in the International Monetary Fund (IMF) (hereinafter the ‘draft law’). 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 Article 2(1), third indent, of Council Decision 98/415/EC , as the draft law relates to Lietuvos bankas. 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

1.1 The purpose of the draft law is to increase Lithuania’s quota in the IMF. On 15 December 2023, the IMF Board of Governors finalised the Sixteenth General Review of Quotas and agreed to a 50 % increase in quotas while maintaining the existing relative quota shares. The quotas are expected to increase by 238.6 billion Special Drawing Rights (SDR) to SDR 715.7 billion. The Board of Governors’ resolution also states that the IMF’s lending capacity should be maintained and its dependence on borrowed funds reduced. This is to be achieved by reducing the New Arrangements to Borrow (NAB) and phasing out bilateral borrowing agreements. The IMF member countries have until 15 November 2024 to agree to a corresponding increase in their quotas. This increase comes into force only when (1) IMF member countries that together hold no less than 85 % of the previous quota funds have agreed to the increase and (2) the participants under the NAB agree to a reduction in the NAB. 1.2 The draft law incorporates the IMF quota increase into Lithuanian law. In particular, the draft law provides that the Lithuanian Parliament approves the increase of Lithuania’s quota in the IMF from SDR 441.6 million to SDR 662.4 million. The draft law requires Lietuvos bankas to fulfil Lithuania’s financial obligations related to the increase of Lithuania’s quota in the IMF by SDR 220.8 million, by using the financial assets of Lietuvos bankas. The ECB understands that, in accordance with the Law on the membership of Lithuania in the IMF , Lietuvos bankas has been since 2018 a fiscal

agency of the IMF that executes the IMF’s quota-related financial operations on behalf of Lithuania, and holds the rights and obligations relating to the performance of the functions of a fiscal agency of the IMF. In addition, the SDRs allocated to Lithuania by the IMF are part of the official foreign reserves of Lietuvos bankas, which are managed, used and disposed of in accordance with the procedure established by the Law on Lietuvos bankas .

2. Monetary financing prohibition

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. Article 1 of Council Regulation (EC) No 3603/93 defines ‘any other type of credit facility’, inter alia, as ‘any financing of the public sector’s obligations vis-à-vis third parties’. However, 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(1) of the Treaty. The fourteenth recital of Regulation (EC) No 3603/93 sets out 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 ‘claims which have all the characteristics of reserve assets’. Therefore, the exemption set out in Article 7 of Regulation (EC) No 3603/93 should be interpreted in line with that rationale. As the financing by Lietuvos bankas of the proposed increase in Lithuania’s IMF quota would result in claims which have all the characteristics of reserve assets, the draft law complies with the monetary financing prohibition .

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 12 June 2024.

[signed]

The President of the ECB

Christine LAGARDE