WASHINGTON
The International Monetary Fund (IMF) has approved a number of policy reforms and a funding package that aim to support the recovery of low income countries (LICs) from the Covid-19 pandemic.
The new measures boost access to concessional financing by 45 percent and remove limitations on access for the poorest countries. This will allow them to receive full support from the IMF when their economic programmes “are assessed to warrant exceptional levels of assistance”.
“These higher access limits will allow provision of more concessional support to countries with large balance of payments needs that are implementing strong economic programmes to restore inclusive growth, while maintaining sustainable debt positions,” the IMF said.
The Washington lender’s board also approved a two-stage funding strategy to cover the cost of pandemic-related concessional lending and support the sustainability of the Poverty Reduction and Growth Trust.
The IMF provided financial assistance to 53 of 69 eligible low-income countries in 2020 and in the first half of this year. About $14 billion has been provided as zero percent interest rate loans from the PRGT. The fund provided debt service relief to 29 of its poorest and most vulnerable member states. Low-income countries, which include Somalia and Sudan, received $1.7bn in total debt relief from the IMF.
Interest rates on PRGT loans will remain at zero through July 2023, allowing low-income countries to obtain financial assistance on more favourable terms than market rates or borrowing from the fund’s General Resources Account.
Fund lending to LICs increased to more than six times the annual average of the past decade because of the pandemic, which disrupted global trade, led to lockdowns, job losses, a halt to air travel and an increase in poverty levels. Lending to LICs is expected to remain elevated for several years, the fund said, as countries seek additional funding to respond to and recover from the pandemic.
The IMF’s newly approved two-stage funding strategy aims to secure about $4bn in subsidy resources that will finance zero-interest lending from the PRGT. About $0.7bn of this will be drawn from the fund’s internal resources. This will be combined with voluntary subsidy contributions of $3.3bn from the lender’s economically stronger members.
The IMF will look to raise about $18bn in new PRGT loan resources from the trust lenders that will be made available as loans to LICs.
The second stage (2024–25), would seek a lasting solution to the financing of the fund’s concessional lending model, informed by an updated assessment of likely demand for fund financing from LICs, the IMF said.
“Donors will have flexibility about how and when they deliver their subsidy contributions, which could be pledged upfront and disbursed over time,” the lender said.
