In 2009, the IMF upgraded its support for low-income countries, reflecting the changing nature of economic conditions in these countries and their increased vulnerabilities due to the effects of the global economic crisis. It has overhauled its lending instruments, especially to address more directly countries’ needs for short-term and emergency support. Concessional lending commitments were about $11 billion in the period 2009–14. Zero interest applies to all concessional lending through end-2016. The Fund has adopted a strategy to support concessional lending of about $2 billion a year over the longer term, financed in part by contributions linked to the distribution of gold sales profits.
Signs of success
Many low-income countries (LICs) have made great strides toward macroeconomic stability. In the 1990s, the vast majority of low-income countries faced long-standing economic problems that required radical, long-term policy changes often accompanied by debt relief or cancellation. Now, however, many of these economies are becoming more open and integrated into the global economy. Many LICs are joining international capital markets, attracting foreign investment, and nurturing their own private financial sectors.
Changes in lending instruments
To make its financial support more flexible and tailored to the diversity of low-income countries, the IMF has established a Poverty Reduction and Growth Trust, which has three lending windows, all under highly concessional terms. These windows, which became effective in January 2010 and further refined in April 2013 to improve the tailoring and flexibility of Fund support, are the following:
The Extended Credit Facility (ECF):
- Provides sustained engagement over the medium to long term, in case of protracted balance of payments problems;
- Offers more flexibility than before on program extensions, the timing of structural reforms, and formal poverty reduction strategy document requirements.
The Standby Credit Facility (SCF):
- Provides flexible support to low-income countries with short-term financing and adjustment needs caused by domestic or external shocks, or policy slippages;
- Targets countries that do not face protracted balance of payments problems but may need help from time to time;
- Can also be used on a precautionary basis to provide insurance.
The Rapid Credit Facility(RCF):
- Provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs, and offers successive drawings for countries in post-conflict or other fragile situations;
- Provides flexible assistance without program-based conditionality when use of the other two facilities is either not necessary (because of the limited nature of needs) or not possible (because of institutional or capacity constraints faced by a borrower).
All these facilities provide financing suitable to the diverse needs of LICs and on concessional terms. LICs are receiving exceptional forgiveness through end-2016 on all interest payments due to the IMF under its concessional lending instruments.
For policy advice and signaling, countries can request non-financial assistance under the Policy Support Instrument (PSI), which
- Supports low-income countries that have macroeconomic stability and thus do not need IMF financial assistance;
- Can provide accelerated access to the SCF in case of subsequent financial needs.
In response to the increasing financial needs of low-income countries during the global financial crisis, IMF concessional lending commitments increased significantly from $1.2 billion in 2008 to $3.8 billion in 2009, and an annual average of $1.4 billion during 2010–14.
In addition, more than $18 billion of the $250 billion allocation of IMF Special Drawing Rights (SDRs) went to low-income countries. These countries can benefit by either counting the SDRs as extra assets in their reserves, or selling their SDRs for hard currency to meet balance of payments needs.
In 2010, the IMF also established a Post-Catastrophe Debt Relief Trust (PCDR), which allows the IMF to join international debt relief efforts for very poor countries that are hit by the most catastrophic of natural disasters. In July 2010, this allowed the IMF to eliminate Haiti’s entire outstanding debt to the IMF following the devastating earthquake.
In September 2012, the Executive Board approved a partial distribution of the Fund’s general reserves attributed to 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 (about $2 billion) in annual lending capacity; (ii) contingent measures—including bilateral fundraising efforts and suspension for a limited period of time of reimbursement of the IMF’s General Resources Account for PRGT administrative expenses—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 all modifications to LIC facilities would be designed in a manner consistent with maintaining self-sustainability.
In February 2015, the IMF transformed the PCDR Trust into the Catastrophe Containment and Relief (CCR) Trust. The new trust allows the Fund to join international debt relief efforts when poor countries are hit by the most catastrophic of natural disasters and to assist poor countries battling with public health disasters—such as epidemics of infectious diseases—with grants for debt service relief. Three Ebola-afflicted countries (Guinea, Liberia, and Sierra Leone) requested assistance from this new trust, totaling about US$100 million in February-March 2015.