The Executive Board of the International Monetary Fund (IMF) concluded the 2026 Review of the Adequacy of the Fund’s Precautionary Balances.[1] This review took place on the standard two-year cycle, following the 2024 Review. An interim assessment of precautionary balances was conducted within the Review of the Fund’s Income Position for FY2025 and FY2026, concluded in April 2025.
The Fund’s precautionary balances—which consist of general and special reserves—are a key element of the IMF’s multilayered framework for managing financial risks. Precautionary balances provide a buffer to protect the Fund against potential losses resulting from credit, income, and other financial risks. As such, they help protect the value of reserve assets represented by member countries’ positions in the Fund and underpin the exchange of assets through which the Fund provides financial assistance to countries with balance of payments needs.
The review was based on the assessment framework established in 2010 and reaffirmed in 2024, which uses an indicative range for precautionary balances, linked to a forward-looking measure of total IMF non-concessional credit, to guide decisions on adjusting the medium-term target over time. It takes into account the macroeconomic environment, the characteristics of Fund lending, and other financial risks faced by the Fund. The framework also allows for judgement in setting the target based on a broad range of factors that affect the adequacy of precautionary balances.
Executive Board Assessment[2]
Executive Directors welcomed the review of the adequacy of the Fund’s precautionary balances, following the last review in March 2024 and the interim update in April 2025 within the Review of the Fund’s Income Position for FY2025 and FY2026 (2025 Update). They emphasized that maintaining an adequate level of precautionary balances remains a key element of the Fund’s multilayered risk management framework to mitigate financial risks, safeguard the strength of the Fund’s balance sheet, and protect the value of members’ reserve positions in the Fund. Given the current heightened global uncertainty, Directors underscored the importance of continued vigilance and close monitoring of risks, as well as updating the Board as needed.
Directors welcomed the continued increase in precautionary balances since reaching the SDR 25 billion medium-term target at the end of FY2024. They generally agreed that the overall balance of risks and risk mitigants to the Fund remain broadly unchanged, stressing that the composition of risks has evolved, with credit risks having edged up, reflecting higher exposure to and greater concentration toward the largest borrowers. Among mitigating factors, Directors observed that precautionary balances have continued to grow broadly as expected in the 2025 Update, with rising coverage of credit outstanding, total commitments, and upcoming obligations.
Directors noted that precautionary balances are expected to remain above the target, including assuming additional distributions to the Interim Placement Administered Account (IPAA) in coming years. They observed that medium-term net operational income remains strong, but subject to concentration risk, while the medium-term outlook for investment returns remains reasonably positive, notwithstanding elevated investment risks.
Directors broadly agreed that the current target of precautionary balances, together with other elements of the Fund’s financial risk management framework and the IFRS 9 provisioning framework, continue to provide a robust level of financial protection for the Fund’s balance sheet and creditor claims. Most Directors supported retaining the current medium-term target for precautionary balances at SDR 25 billion, while a few Directors favored raising the target. Directors generally agreed to retain the current floor for precautionary balances at SDR 20 billion, noting that it provides an important safeguard against shocks and helps ensure the Fund retains sufficient buffers.
Directors noted that the current medium-term target remains within the indicative range and above its midpoint in the most plausible lending demand scenarios, and that precautionary balances are projected to remain above the current target over the medium term under all scenarios. Directors cautioned that the Fund’s income and precautionary balances projections are subject to heightened uncertainty including from financial market volatility and intensifying downside risks to global growth stemming in particular from geopolitical developments in the Middle East. They emphasized that this environment calls for continued vigilance and close monitoring of income developments and the adequacy of precautionary balances to ensure that the Fund remains financially strong. Looking ahead, while agreeing that the current rules-based adequacy framework remains broadly appropriate, a few Directors saw merit in considering further refinements to better capture evolving risks and enhance its robustness. More generally, a few Directors considered that the timely implementation of the 16th General Review of Quotas could further strengthen the Fund’s resource base. Recognizing the uncertain environment, in the event that precautionary balances rise well above the target, a few Directors saw merit in considering an early review of charges and the surcharge policy in due course.
Directors supported maintaining the biennial review cycle, with an interim update, as well as earlier reviews should developments materially affect the adequacy assessment—such as significant deviations of Fund lending from staff projections or material increases in credit or other financial risks.
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