## Letter dated May 27, 2020 — IMF response to legislators on debt relief for low-income countries ## Source details **Canonical URL:** [Letter dated May 27, 2020 — IMF response to legislators on debt relief for low-income countries](https://www.imf.org/-/media/files/news/others/md-letter-to-legislators-may-2020.pdf) ## Other formats - [Markdown version](/-/media/files/news/others/md-letter-to-legislators-may-2020.pdf.md) - [Structured JSON version](/-/media/files/news/others/md-letter-to-legislators-may-2020.pdf.json) --- ### Overview and context - The letter, dated May 27, 2020, is a response from the IMF to Representative Ilhan Omar, Senator Bernard Sanders, and other legislators regarding requests for additional debt relief and financial assistance for low-income countries affected by the COVID-19 pandemic. - The IMF emphasizes close coordination with the World Bank and notes joint discussion of the legislators' proposals with World Bank President Malpass. ### IMF actions and recent measures - The IMF has ramped up financing on concessional terms and, together with the World Bank, called for the temporary suspension of debt service to official bilateral creditors for IDA countries; the G20 heeded that call on April 15. - The IMF has provided initial debt relief to 27 of its poorest and most vulnerable members in the form of grants that pay for debt service owed to the IMF. - The IMF has adjusted lending policies to provide emergency financing faster and in greater volumes than ever before. - The IMF has disbursed emergency loans for 59 countries since mid-March and expects to disburse to about 20 additional countries within the next four weeks. - The IMF has raised US$472 million for the Catastrophe Containment and Relief Trust (CCRT) since end-March. ### Rationale against wholesale cancellation of IFI claims - The IMF and World Bank charters preclude simply canceling their claims or writing off debt; instead, mobilization of donor contributions is possible through mechanisms such as trust funds. - Two key reasons the IMF advises against wholesale cancellation of IFI claims on International Development Association (IDA) countries: - The 75 IDA countries are diverse, including impoverished nations, geographically remote small island states, and about two dozen economies that are rapidly developing and seek to preserve creditworthiness. - Wholesale cancellation would undermine development gains for countries that have attained creditworthiness and are seeking continued access to affordable finance; it would also place the burden squarely on taxpayers rather than enabling fairer burden-sharing. ### IMF strategy to support IDA countries during the pandemic - The IMF’s strategy focuses on two objectives: - First objective: Ensure IDA countries have access to enough external financing on affordable terms to fight the health and economic consequences of COVID-19. - Mechanisms include IMF lending and support for initiatives such as the G20 debt service suspension. - Second objective: Support IDA countries in pursuing debt relief on an as-needed basis. - This approach focuses on countries whose debts are unsustainable, rather than the entire IDA group. - It envisages debt relief by official bilateral creditors and the private sector, enabling IFIs to continue providing balance of payments support and stable, low-cost developmental finance. - The IMF emphasizes that private sector participation is likely essential to unlock deeper debt relief from advanced countries and to achieve fairer burden-sharing. ### Use of Special Drawing Rights (SDRs) and other financing options - The IMF is exploring an SDR allocation or transfers of existing SDRs; however, the IMF membership has not coalesced around an initial proposal for a new general allocation of SDRs (an 85 percent majority of the total voting power is required). - The IMF is exploring options to better use the approximately $250 billion of existing SDRs, including: - Wealthier countries donating or lending their SDRs to low-income countries. - Using SDRs to boost the Loan Accounts of the Poverty Reduction and Growth Trust to enhance concessional lending capacity for low-income members. - The IMF notes ongoing needs to complete financing even the limited debt relief it hopes to provide over the next few years and calls for replenishment of funds needed for concessional lending. ### Policy implications and appeals to legislators - The IMF calls for broad coalition support from legislators across the political spectrum to achieve successful debt relief for the world’s poorest countries. - Key policy messages and recommendations: - Mobilize financial contributions from advanced-country donors to support repayment of IMF and World Bank claims on IDA countries through trust funds (e.g., CCRT). - Support approaches that target debt relief to countries with unsustainable debt levels rather than blanket cancellation for all IDA countries. - Encourage and facilitate private sector participation in restructurings to ensure fairer burden-sharing and to unlock deeper official creditor support. - Consider transfers or lending of existing SDRs and replenishment of concessional funds to expand concessional lending capacity for low-income members. --- _Source: https://www.imf.org/-/media/files/news/others/md-letter-to-legislators-may-2020.pdf_