On July 23, 2009 the IMF’s Executive Board approved far-reaching reforms of the Fund’s concessional lending facilities for low-income countries (LICs). These reforms created a new architecture of facilities that is more flexible and tailored to the increasing diversity of LICs and their needs. As part of the reform package, the Board also approved a new concessional financing framework, and transformed the PRGF-ESF Trust to the new Poverty Reduction and Growth Trust (PRGT). These reforms became effective on January 7, 2010, when all current lenders and subsidy contributors to the PRGF-ESF Trust provided their consent.

New architecture

Key elements of the new LIC facilities architecture include:

• Three new concessional facilities, consolidating the Fund’s concessional lending—the Extended Credit Facility (ECF) to provide flexible medium-term support; the Standby Credit Facility (SCF) for addressing short-term and precautionary needs; and the Rapid Credit Facility (RCF) to provide emergency support.
• A new interest rate structure linking the concessional interest rates paid on PRGT lending to the SDR interest rate and regular reviews. Additionally, exceptional interest relief was approved for all LICs—zero percent interest on all concessional loans through end December 2011 and subsidization of the rate of charge to zero percent for subsidized EPCA/ENDA through end-January 2012. The exceptional interest relief was subsequently extended until end-2014.
• Increased flexibility of the concessional financing framework. General Loan Account (GLA) and a General Subsidy Account (GSA) were established to receive and provide financing for all PRGT facilities and special loan and subsidy accounts were established, to accommodate donors’ preference for earmarking their contributions for specific facilities. These function alongside the existing Reserve Account to provide security to lenders for all outstanding PRGT loans. The ESF Subsidy Account was maintained on a temporary basis for subsidizing existing ESF credit at the time of the LIC facilities reforms, and subsequently closed in May 2010 after its resources were depleted (Figure 1):

Demand projections

The global financial crisis has had a severe impact on LICs, with many facing a significant deterioration in their external positions. Additionally, G20 leaders in April 2009 called for a doubling of the Fund’s concessional lending capacity and providing US$6 billion (SDR 4 billion) additional concessional financing over the next two to three years. Against this backdrop, at the time of the LIC facilities reform, total projected demand for PRGT loans over the period 2009–2014 amounted to SDR 11.3 billion (about US$17 billion). Those projections took into account the doubling of access limits approved by the Executive Board in April 2009, and the implications of the new facilities architecture.

New financing package

A financing package of loan and subsidy resources to boost the Fund’s concessional lending to SDR 11.3 billion through 2014 was also approved. Taking into account the available loan resources, the package envisaged new loan contributions of SDR 9 billion to meet projected demand. Following the Board’s endorsement in March 2010 of a voluntary encashment regime that would require a liquidity buffer of 20 percent of outstanding loans, the target for the mobilization of new loan resources was consequently raised to SDR 10.8 billion. The encashment regime would enable outstanding PRGT loans to be readily repayable to lenders participating in the encashment regime in case of balance of payments need.

Resources needed to fully subsidize the projected lending were estimated at SDR 2.5 billion (end-2008 NPV terms), or US$4.7 billion in cash terms (Table 1). This would cover the projected lending of SDR 11.3 billion over the medium term, as well as the estimated cost of the temporary interest relief. Taking into account the subsidy resources available at the time of the LIC facilities reform, additional subsidy resources of about SDR 1.5 billion (US$2.8 billion in cash terms) would need to be mobilized. The following sources were envisaged:

• New Bilateral Contributions. In light of the critical role that bilateral subsidy contributions have played in past fund-raising exercises, the Executive Board agreed that such contributions should remain an important part of the new financing package. Recognizing the budget constraints facing many countries, the Board agreed to target additional bilateral subsidy contributions of SDR 0.2–0.4 billion (end-2008 NPV terms).
• Delaying PRGT Reimbursement to the GRA. For a period of three years starting in FY 2010, an amount equivalent to the expenses of operating the PRGT would be transferred from the PRGT Reserve Account to the new General Subsidy Account instead of the IMF’s General Resources Account (GRA). As a key element of the IMF’s new income model, the Executive Board had decided to resume the long-standing practice of reimbursement of the GRA for the cost of administering the PRGT. Based on the projections at that time, delaying PRGT reimbursement to the GRA and the transfer of an equivalent amount to the PRGT’s General Subsidy Account was expected to generate subsidy resources of about SDR 0.15–0.2 billion.
• Use of PRGT Reserve Account Resources. A transfer of SDR 0.62 billion (end-2008 NPV terms) of the resources in the PRGT Reserve Account was agreed. Staff’s analysis indicated that transferring this amount would leave sufficient resources in the PRGT Reserve Account to ensure its annual self-sustained subsidization capacity of about SDR 0.7 billion after 2014–15.
• Use of Resources Linked to Gold Sales. The Executive Board endorsed that resources linked to gold sales would be used to generate subsidies of SDR 0.5-0.6 billion (end-2008 NPV terms). It was agreed that, in the first instance, this strategy would involve the use of windfall profits arising from gold sales at an average price above US$850 per ounce. This strategy would allow the corpus of the gold sales proceeds, and thus the Fund’s ability to implement the new income model, to be preserved.

Mobilizing resources

Most of the targeted loan resources under the 2009 financing package have now been secured, but additional pledges of about SDR 1 billion are still needed to reach the agreed target. As of March 31, 2013, fourteen members have provided SDR 9.8 billion in new loan resources, compared to the target of SDR 10.8 billion (Tables 2 and 3).
Additional subsidies resources of SDR 214.1 million have so far been committed by twenty-six members, exceeding the lower end of the bilateral subsidy fundraising target range of SDR 200–400 million (end-2008 NPV terms) (Table 4). Pledges of additional bilateral subsidy resources remain necessary to complete the agreed financing package.

In February 2012, the Executive Board approved the partial distribution of the IMF’s general reserve to the membership of SDR 700 million attributed to part of the windfall profits from the recent gold sales. The distribution, a part of the 2009 LIC financing package aimed at securing adequate resources for the PRGT, became effective in October 2012 when members representing over 90 percent of the distribution (SDR 632.5 million) provided satisfactory assurances regarding the availability of new PRGT subsidy contributions.

In its discussion on September 28, 2012 the Executive Board approved a distribution of the Fund’s general reserves attributed to the remaining gold sales profits as part of a strategy to make the PRGT sustainable in the longer term. This strategy is expected to be robust under a wide range of demand scenarios—for the short, medium, and long term—and rests on three pillars: (i) a base envelope of about SDR 1¼ billion in annual average lending capacity financed from investment returns on PRGT resources; (ii) contingent measures—including bilateral fundraising efforts, suspension of reimbursement of the GRA for PRGT administrative expenses, and modifications of access, blending, interest rate, and eligibility policies to reduce the need for subsidy resources—that can be activated when average financing needs exceed the base envelope by a substantial margin for an extended period; and (iii) the expectation that future modifications to LIC facilities would be designed in a manner that is consistent with maintaining the self-sustainability. In this context, the Board approved the distribution to the membership of SDR 1.75 billion from the general reserve attributable to the will be effected only after members have provided satisfactory assurances that new amounts equivalent to at least 90 percent of the amount to be distributed will be transferred or otherwise provided to the PRGT.

PRGT operations

The PRGT has been fully operational since the effectiveness of the LIC reforms in January 2010. Lending commitments to LICs have been approved under all three PRGT facilities. As of end-2012, new commitments (including augmentations) under the ECF amounted to SDR 3.3 billion, and commitments under the SCF and the RCF amounted to SDR 0.4 billion and SDR 0.2 billion respectively. Loan and subsidy resources have been made available for all the loan and subsidy accounts of the PRGT. In light of the closure of the ESF Subsidy Account in May 2010, the resources in the ECF Subsidy Account are available to meet the subsidy needs of the existing ESF loans.

New concessional lending to LICs in 2009, at SDR 2.5 billion (US$3.8 billion) was broadly in line with projections. However, reflecting partly the recovery of many LICs after the global financial crisis, demand for financing in 2010 and 2011 moderated to SDR 1.2 billion each year. New commitments picked up in 2012 amounted to SDR 1.5 billion but are projected to be about SDR 1 billion each year in 2013 and 2014.

If the ongoing resource mobilization exercises are completed successfully, the PRGT will have sufficient capacity to accommodate annual lending of about SDR 1¼ billion on average from 2013 onwards. This capacity would be based on the resources and pledges received under the 2009 financing package as well as the new pledges for PRGT subsidy resources of at least SDR 1.575 billion (90 percent of the distribution) expected from the distribution of the remaining windfall gold sales profits.