## pp080118-2018-review-of-facilities-for-low-income-countries ## Source details **Canonical URL:** [pp080118-2018-review-of-facilities-for-low-income-countries](https://www.imf.org/-/media/files/publications/pp/2018/pp080118-2018-review-of-facilities-for-low-income-countries.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2018/pp080118-2018-review-of-facilities-for-low-income-countries.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2018/pp080118-2018-review-of-facilities-for-low-income-countries.pdf.json) --- ### EXECUTIVE SUMMARY — Evolving demand and context - Strong demand for financing from low-income countries (LICs). - Drivers of rising financing needs and vulnerabilities: - Commodity price shocks and loose fiscal policies have contributed to rising debt levels and financing needs. - Several developing states, especially smaller ones, are increasingly vulnerable to large natural disasters. - Many LICs less dependent on commodity exports have enjoyed robust growth with more contained vulnerabilities. - Debt and market developments: - Close to half of all LICs are now assessed to be at high risk of experiencing debt distress or already in distress. - Around a third of LICs have accessed international bond markets over the past decade. - Institutional context and timing: - Review complements ongoing Review of Conditionality and Design of Fund-Supported Programs and implementation of upgraded Debt Sustainability Framework for LICs effective from July 2018. - PRGT reserve account "stood at the equivalent of 60 percent of outstanding credit as of end-2017." ### ASSESSMENT OF THE LIC TOOLKIT — Structure and evolution - Staff view: structure broadly appropriate but could be updated to address evolving needs while safeguarding PRGT resources. - Core architecture (2009): - Extended Credit Facility (ECF) — protracted BoP needs. - Standby Credit Facility (SCF) — short-term needs / precautionary. - Rapid Credit Facility (RCF) — emergency finance without ex post policy conditionality. - Policy Support Instrument (PSI) — non-financial policy support. - Access levels history: - Access limits doubled in 2009. - Further 50 percent across-the-board increase instituted in 2015. - Access levels in SDR terms for some better-off LICs declined somewhat when the 14th quota review became effective in early 2016. ### MAIN THEMES FOR REFINEMENT - Two broad themes: 1. Update access policies and financing terms while maintaining adequate safeguards for PRGT resources. 2. Explore facility aspects requiring additional flexibility to support diverse borrowers (precautionary support, natural disasters, fragile situations). ### UPDATING ACCESS POLICIES AND FINANCING TERMS — Findings and options - Adapt access levels to growing financing needs: - Room to adapt access levels; generalized increase in access norms and limits would offset erosion relative to projected financing need. - Size of feasible increase limited by need to preserve PRGT self-sustaining nature. - Case for easing exceptional access criteria for LICs with strong policies and high financing needs, subject to heightened scrutiny. - Safeguards against credit risk: - Higher access should be accompanied by robust program design, phasing of disbursements, and careful assessment of capacity to repay. - Option: keep the normal cumulative access limit unchanged (225 percent of quota), implying higher scrutiny for applicants seeking higher access under exceptional access framework. - Review of PRGT interest rate mechanism: - Merit in reviewing PRGT interest rate mechanism to ensure adequate degree of concessionality in low global interest rates. - Could involve alignment of interest rate schedules across the ECF and SCF. ### MORE FLEXIBILITY — Precautionary support, natural disasters, fragile situations - Enhanced precautionary and policy support: - Greater flexibility in usage of the SCF argued for as LICs’ global linkages rise. - Options: increase the two-year SCF limit to three years; eliminate sub-limits on access under precautionary SCFs. - Preserve the PSI while potentially aligning review modalities with the PCI. - Support after large natural disasters: - Past support focused on ex post assistance and limited CCRT debt relief. - Options examined: - Propose higher access limits under the RCF. - Expand circumstances for CCRT debt relief (CCRT significantly underfunded). - Establish mechanism to provide financing from an administered account or trust fund to meet debt service to the Fund immediately after a shock. - Better tailored support for fragile states: - IEO (2018) called for adapting toolkit to provide more sustained support for fragile states; preference for grants rather than IMF loans where appropriate. - Options: clarify flexibility of ECF and RCF use; increase RCF regular window limits; introduce short-term ECF; make ECF arrangement period flexible between three and five years. ### REVIEW APPROACH AND NEXT STEPS - Two-step approach: - This paper: stock of experience and identification of innovations with main options summarized. - Second paper: staff to prepare specific proposals based on Executive Directors' feedback. - Complementary workstreams: - Conditionality/design review and new debt sustainability framework for LICs. - Trade-offs: - Balance members’ needs with safeguards; access policies (phasing, limits, norms) are important safeguards. - PRGT’s self-sustaining lending framework is a binding constraint on reforms. *Prepared by the Strategy, Policy, and Review Department; and Finance Department. Approved June 18, 2018.* --- ### BOX 2 — Rising Debt Vulnerabilities and Increasing Financial Risks to the PRGT - Debt vulnerabilities in LICs: - Some 44 percent of LICs faced significant debt-related challenges at end-2017, up from 25 percent in 2013. - Liabilities to the Fund remain contained in most cases (below 4 percent of GDP), except in a handful of countries with large Fund quotas relative to GDP. - Rising financial risks to the PRGT: - New commitments averaged SDR 1½ billion during 2015–17. - Share of PRGT credit outstanding to countries at high risk of, or in, debt distress reached 30 percent at end-2017. - PRGT credit to countries with high debt vulnerabilities amounted to 52 percent of the PRGT reserve account balance, up 10 percentage points from a 2009 peak. - Default by a single medium-to-large PRGT borrower at high risk of/in debt distress would reduce PRGT’s self-sustained lending capacity by some SDR 15––68 million. - PRGT credit size and evolution: - Total Credit outstanding: 2009 = SDR 5 billion; 2017 = SDR 6.5 billion. - Near-term outlook and risks: - Demand for concessional resources expected to moderate somewhat in 2018, but financial risks to the PRGT may increase further even without a change in access limits policy. - Cross-cutting notes: - Lending to non-PRGT-eligible countries with high debt burdens creates credit risk for the GRA. - Reserve account provides ultimate backstop for the PRGT in event of arrears or liquidity strains. --- ### PROGRAM DURATION, ACCESS, AND BLENDING — Usage statistics and patterns - ECF program duration and demand: - ECF typically minimum three-year duration; one country (Madagascar, 2016) requested an initial duration exceeding minimum (40 months). - Program extensions common; only Malawi and Liberia extended ECF-supported programs to maximum duration of five years. - Overall lending commitments to PRGT-eligible countries (2010–17): - Averaged SDR 1.4 billion per year. - Ranged between SDR 2.4 billion in 2016 and SDR 0.1 billion in 2013. - Annual commitments from the PRGT alone averaged SDR 1.1 billion over 2010–17. - Disbursements to LICs averaged SDR 0.9 billion per annum during 2010–17, of which SDR 0.8 billion came from the PRGT. - More than half of GRA resources made available to LICs were for precautionary support. - Blending policy and trends: - 2015 funding mix adjusted from 1:1 to 1:2 (PRGT:GRA) to offset generalized access increase. - Countries presumed to blend if per capita income exceeds IDA operational cutoff or exceeds 80 percent of cutoff with market access; countries at high risk of debt distress are not expected to blend. - Some 12 blended arrangements or outright disbursements approved since 2010. - Share of blended arrangements doubled between 2010–13 and 2014–17 to nearly one-fifth. - Since end-2015, three blended arrangements approved, accounting for over 40 percent of all Fund resources provided to LICs (PRGT and GRA); about two-thirds of blended funding came from the GRA. - 33 members meet either the income or market access criteria for blending; presumed blenders fell from 25 in 2015 to 15 in 2017. - Implication: increasing debt vulnerabilities suggest fewer countries will be presumed to blend, affecting PRGT resources in future requests; two large LICs recently received purely concessional financing rather than a blend due to debt vulnerabilities. ### Catalytic effect of Fund support - ODA trends and association with Fund support: - ODA flows rose from US$ 41 billion (2000–09 average) to US$ 61 billion (2010–16 average). - Median LIC ODA declined from 7.2 to 5.5 percent of GDP over same period. - Median LIC with a Fund facility received about 3 percent of GDP more in non-Fund concessional financing than median LIC without a facility. - Event-study: ODA flows picked up in year of first Fund disbursement and further increased the following year; magnitude varies across country groups. - Catalytic impact larger for fragile states and commodity exporters, smaller for small states. - Examples: Sierra Leone (2014–15 Ebola) and Malawi (2012 ECF and subsequent events) illustrate catalytic dynamics. ### Poverty Reduction Strategies and documentation (EDD) - EDD can be existing national development plan or newly prepared PRS. - Since 2015 reforms: - 17 countries produced EDDs, mostly linked to ECF programs. - Two-thirds were existing national PRSs; one-third newly prepared. - Staff and World Bank found most EDDs covered core standards; some lacked detail or had ambitious targets. - Country authorities and mission chiefs generally viewed PRS/EDD requirements as broadly appropriate; a few mission chiefs found requirements too onerous for small or fragile states. --- ### USE AND LESSONS FROM CONCESSIONAL FACILITIES (paras 27–29) - Coverage and persistence: - Three-quarters of LICs received support from facilities during 2010–17. - One-quarter of LICs had financial arrangements during at least six of the past eight years. - One half of LICs used the ECF at least once; ECF favored for financial support. - SCF usage: - Predominantly for precautionary support; used less than originally envisaged. - RCF usage: - Used for urgent financing needs—natural disasters, fragility, post-conflict; often once-off or a step toward ECF. - Access trends: - Access rising in recent years in SDR terms and relative to norms; some programs approached limits. - Since November 2016, access under most new ECF arrangements has been above the norm. - Small island economies sometimes approached cumulative access limit under RCF following natural disasters. - Assessment conclusion: - Concessional facilities structure broadly appropriate; no obvious need for new instrument. - Stakeholder concerns: adequacy of access, limits on precautionary support, toolkit fit for fragile and disaster-prone countries, interest rate structure, EDD implementation. - Scope exists to update access policies and refine facility aspects while maintaining safeguards. --- ### ACCESS POLICIES — Principles, current settings, projections, and options - Access decision framework: case-by-case using BoP need, program strength, capacity to repay informed by DSA, Fund credit outstanding, past use. - Current PRGT limits and norms: - Normal cumulative limit under the PRGT: 225 percent of quota. - Exceptional access cap under the PRGT: 300 percent of quota. - Observations and projections: - Over next five years, GDP and trade volumes for LICs projected to grow on average by around 8–9 percent annually in nominal US$ terms. - Gross financing needs expected to increase by 12 percent annually. - Effective access limits and norms will continue to erode to next review (2023). - End-2020 projection (based on arrangements through end-2017): - PRGT credit outstanding projected to exceed 112.5 percent of quota for eight countries. - PRGT credit outstanding projected to exceed 150 percent of quota for three countries. - One country will approach normal limit of 225 percent of quota. - PRGT financial sustainability: - PRGT’s sustainable average annual lending capacity currently estimated at SDR 1.31 billion, close to target capacity of SDR 1¼ billion. - Assessment assumes periodic upward adjustments in access limits and norms in SDR terms, broadly offset by graduation of higher-income countries. - Moderate generalized increase in access levels (e.g., by 25–35 percent) can be accommodated within three-pillar self-sustaining PRGT framework. - Options for changing access policies: - Generalized across-the-board increase in access levels (as in July 2015). - Revisit exceptional access criteria to allow above-normal access for strong programs deemed to restore debt sustainability, with procedural safeguards and enhanced scrutiny. - Alternative safeguard: keep normal cumulative access limit unchanged while raising other norms and limits so access in excess of 225 percent of quota requires exceptional access criteria. - Safeguards and ongoing work: - Emphasize robust program design, careful phasing of disbursements, rigorous capacity-to-repay assessment. - Parallel work: 2018 Review of Conditionality and Design; implementation of new Debt Sustainability Framework for LICs (IMF, 2018a). --- ### FINANCING TERMS AND BLENDING POLICIES - Grant element and concessionality: - Average grant element in PRGT loans currently estimated to be below 30 percent, compared with traditional benchmark of 35 percent. - PRGT interest rate mechanism: - ECF and SCF interest rates expected to remain at zero through 2018; RCF interest rate set permanently at zero. - Mechanism increases SCF rate by 25 basis points compared to ECF when SDR rate exceeds 0.75 percent, with further quarter-point when SDR rate exceeds 2.0 percent. - Design objectives: preserve scarce concessional resources, tailor financing terms to LICs' needs, limit fluctuations in concessionality and subsidy costs. - Proposal: - Consider aligning SCF interest rate with ECF interest rate schedule so first adjustment occurs when SDR rate exceeds 2 percent. - Resource impact: likely modest additional demands on subsidy resources; requires detailed assessment with other reforms. - Blending policy: - Purpose: target scarce concessional PRGT resources to poorest LICs and LICs at high risk of debt distress. - Finding: exemption for relatively higher-income LICs at high risk of debt distress led to decline in presumed blenders; high-risk countries obtain full PRGT access instead of 1:2 PRGT-GRA mix. - Options: remove exemption or introduce additional income thresholds (e.g., 150 percent or 125 percent of IDA cutoff) to target subsidies; staff analysis indicates limited savings from some thresholds. - Trade-offs: enhances resource envelope for poorer LICs but increases average cost of Fund resources for high-debt-vulnerability countries and could call for faster adjustment. --- ### INTEREST RATE MECHANISM, PRECAUTIONARY SUPPORT, AND PSI - Interest rate mechanism finding: - Concessionality of SCF remains lower than previously envisaged given low interest environment; aligning SCF to ECF delays adjustments until SDR rate > 2 percent. - Precautionary support and SCF adjustments proposed: - Increase maximum SCF duration to three years (align with SBA). - Abolish precautionary SCF access sub-limits (current at approval: 56.25 percent of quota; average annual: 37.5 percent of quota). - Rationale: enhance insurance function, facilitate blending, avoid abrupt declines in accumulated access rights. - Demand/resource implications uncertain: could increase PRGT loan demand but not necessarily absorb more subsidy resources over long term. - PSI and PCI: - Maintain PSI for time being, potentially streamlining modalities in line with PCI (flexible review schedule, review-based conditionality) while preserving pre-qualification criteria and UCT standard for review completion. --- ### SUPPORT FOR LICs VULNERABLE TO NATURAL DISASTERS - Risk profile: - Large disasters (damage > 20 percent of GDP): 6 percent of disasters in LICs and 25 percent of those in small developing states exceed this threshold (1950–2014 data); 0.4 percent in more developed economies. - Fund tools: - RCF emergency assistance: - RCF annual access limits: regular window 18.75 percent of quota; exogenous shocks window 37.5 percent; large natural disasters window up to 60 percent of quota. - Since 2010, small states accounted for around 60 percent of emergency assistance requests. - Program support via ECF augmentations or precautionary SCF accumulation. - Debt relief (CCRT / PCR window): - CCRT provides debt flow relief on Fund debt service for two years post-disaster and debt stock relief only as part of concerted international effort. - Catastrophic disaster definition: directly affect at least a third of population and destroy more than a quarter of productive capacity or cause damage exceeding 100 percent of GDP. - CCRT eligibility limited to poorest LICs; CCRT funding about SDR 145 million and some SDR 200 million below required target under current policies. - Staff proposals and options: - Raise RCF cumulative and annual limits in line with increases to ECF norms/limits. - Consider setting regular window annual limit equal to exogenous shocks window with safeguards on individual disbursements and frequency. - Expand CCRT eligibility (options: additional income threshold for microstates; allow all PRGT-eligible countries; lower disaster threshold), but expansion constrained by CCRT funding shortfall and donor consent requirements. - Short-term relief options to cover immediate debt service: - Establish donor-funded administered account to cover Fund debt service immediately after prespecified disaster events. - Expand CCRT to include such financing (would require re-purposing Trust and donors' consent). - Ex ante resilience building: strengthen planning capacity, calibrate financing strategies (including insurance), targeted infrastructure investment; collaboration with World Bank underway. --- ### SUPPORT FOR LICs IN FRAGILE SITUATIONS - Scope and usage: - Over half of PRGT-eligible countries assessed as fragile; nearly half have some Fund financial support in any year. - Fund financing modest relative to total needs but plays catalytic and policy support role. - Instruments and strategy: - RCF or ECF typically used; repeated RCFs with SMP encouraged to build track record toward ECF. - IEO recommendations: reduce gap between RCF (limited access/non-UCT) and ECF (higher access/UCT) — options include raising RCF annual access, introducing short UCT bridge arrangement, extending repayment periods (staff sees current maximum maturity of 10 years as appropriate). - Staff recommendations: - Reaffirm using repeated RCFs with SMPs and enhanced guidance. - Increase annual and cumulative RCF access limits in line with general expansion of access limits. - Consider setting regular window annual access equal to exogenous shocks window with safeguards. - Financial support for fragile countries lacking capacity should ideally be grants, though significant Fund disbursements may be warranted in some circumstances. --- ### FLEXIBILITY OF THE ECF IN FRAGILE AND POST-CONFLICT SITUATIONS - Use ECF flexibility to focus on immediate stabilization, capacity-building, and "quick wins." - Program design: detailed first-year policies; medium-term objectives specified broadly and adapted as circumstances evolve. - Short-term ECF arrangements (12–18 months) could act as bridge to regular ECF in high-uncertainty contexts (post-conflict, uncontrolled inflation), but: - Modifying ECF length would be a significant structural change and could blur distinction between SCF and ECF. - Any short-term ECF would need to be ring-fenced and likely require consent of PRGT contributors. - Longer-term programs (five to six years) may be appropriate for fundamental reforms (e.g., tax system upgrades); repeated three-year ECFs wrapped in longer-term strategy may be preferable in presence of instability. - Links to poverty reduction (EDD): - Strengthen EDD process and provide targeted technical assistance; allow flexibility on timing for countries with weak capacity. - Proposal to standardize EDD across PRGT arrangements: "An EDD is expected to be produced in all cases where the Fund-supported program has a term of at least two years," with early completion normally by 1st review but exceptions for capacity constraints. --- ### NUMERIC LIMITS, NORMS, AND KEY STATISTICS (selected) - PRGT and access capacity: - PRGT permanent lending capacity estimate: SDR 1.31 billion annually. - PRGT target capacity: SDR 1¼ billion. - Demand averaged SDR 1.3 billion per year on commitment basis over past ten years. - Disbursements averaged SDR 0.9 billion per year over past ten years. - PRGT credit outstanding: - 2009 = SDR 5 billion. - 2017 = SDR 6.5 billion. - Recent commitments and disbursements (2010–17): - Commitments averaged SDR 1.4 billion per year; peak SDR 2.4 billion in 2016; trough SDR 0.1 billion in 2013. - Annual PRGT commitments averaged SDR 1.1 billion; disbursements to LICs averaged SDR 0.9 billion per annum, of which SDR 0.8 billion from PRGT. - Access limits and norms (key figures): - Normal cumulative PRGT limit: 225 percent of quota. - Exceptional cumulative PRGT cap: 300 percent of quota. - RCF cumulative limit: 75 (percent of quota). - Annual access limits: - All PRGT facilities-normal: 75 (percent of quota). - All PRGT facilities-exceptional: 100 (percent of quota). - SCF (precautionary) — average annual: 37.5 (percent of quota). - SCF (precautionary), at approval: 56.25 (percent of quota). - RCF (regular window): 18.75 (percent of quota). - RCF (exogenous shocks window): 37.5 (percent of quota). - RCF (large natural disasters window): 60 (percent of quota). - Norms (3-year ECF): - High access: 90 (percent of quota). - Low access: 56.25 (percent of quota). - Triggers for procedural safeguards: - Total access in any 24-month period—for DSA update: 60 (percent of quota). - Total access in any 36-month period—for an informal Board Meeting in advance of new PRGT request: 135 (percent of quota). - Grant element: - Average grant element in PRGT loans currently estimated to be below 30 percent (benchmark 35 percent). --- ### ISSUES FOR DISCUSSION (key questions posed to Directors) - Architecture and instrument use: - Do Directors agree basic architecture remains broadly appropriate and ECF remains cornerstone? - Do Directors agree SCF is valuable and RCF meets emergency needs without excessive PRGT risk? - Access policies: - Do Directors support generalized increase in access limits/norms compatible with PRGT self-sustaining financing? - Do Directors see merit in revisiting exceptional access policy for strong programs with high financing needs, subject to scrutiny? - Do Directors support keeping the normal cumulative limit unchanged as a credit risk containment tool? - Blending and financing terms: - Do Directors support aligning SCF interest rate to ECF schedule? - Do Directors favor reconsidering exemption from blending requirements for higher-income LICs at high risk of debt distress? - SCF adjustments: - Support for aligning maximum SCF length with SBA (three years) and eliminating precautionary sub-limits? - Align EDD requirements for arrangements under SCF, ECF, PSI in excess of two years? - Natural disasters and CCRT: - Do Directors agree RCF access limits should be raised in line with other access limits? - Preferences on adjustments to CCRT eligibility and access, contingent on additional fundraising? - Merit in exploring mechanism to provide financing from a trust fund or administered account to meet Fund debt service after large disasters? - Fragile situations: - Support for relying on repeated RCFs with SMPs? - Merit in increasing annual RCF regular window access by more than other limits with safeguards? - Merit in modifying ECF length policy to allow short-term ring-fenced ECF or flexible ECF term between three and five years? *2018 REVIEW OF FACILITIES FOR LICS — excerpt* *Source: pp080118-2018-review-of-facilities-for-low-income-countries* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Evolving demand and context - The Fund is facing strong demand for financing from low-income countries (LICs). - Drivers of rising financing needs and vulnerabilities: - Commodity price shocks and loose fiscal policies have contributed to rising debt levels and financing needs in many countries. - Several developing states, especially smaller ones, are increasingly vulnerable to large natural disasters. - At the same time, many LICs less dependent on commodity exports have enjoyed robust growth in recent years, with more contained vulnerabilities. - Debt and market developments: - Close to half of all LICs are now assessed to be at high risk of experiencing debt distress or already in distress. - Around a third of LICs have accessed international bond markets over the past decade. - Institutional context and timing: - The current review complements an ongoing Review of Conditionality and Design of Fund-Supported Programs, and the implementation of an upgraded Debt Sustainability Framework for LICs that will come into effect from July 2018. - The PRGT reserve account "stood at the equivalent of 60 percent of outstanding credit as of end-2017." ### Assessment of the LIC toolkit - Staff view: the structure of LIC facilities is broadly appropriate but could be updated and refined to address evolving needs while safeguarding PRGT resources. - Core architecture established in 2009: - Extended Credit Facility (ECF) for protracted balance of payments (BoP) needs. - Standby Credit Facility (SCF) for short-term needs. - Rapid Credit Facility (RCF) for emergency finance without ex post policy conditionality. - Policy Support Instrument (PSI) for non-financial policy support. - Evolution of access levels: - Access limits were doubled in 2009. - A further 50 percent across-the-board increase was instituted in 2015. - Note: Access levels in SDR terms for some better-off LICs later declined somewhat when the 14th quota review became effective in early 2016. ### Main themes for refinement identified by consultations and staff review - Two broad themes emerged: 1. The need to update access policies and financing terms, while maintaining adequate safeguards for PRGT resources. 2. The need to explore aspects of the facilities that require additional flexibility to support a very diverse set of potential borrowers. ### Updating access policies and financing terms (findings and options) - Adapt access levels to growing financing needs: - There is room to adapt access levels to growing financing needs of LICs; a generalized increase in access norms and limits would offset the gradual erosion of these limits/norms relative to measures of projected financing need over time. - The size of any feasible increase is limited by the need to preserve the self-sustaining nature of the PRGT. - There is a case for easing criteria for exceptional access to ensure LICs with strong policies and high financing needs can be adequately supported, subject to heightened scrutiny (especially where debt levels are high). - Safeguards against credit risk: - Higher access should be accompanied by strong safeguards given rising debt vulnerabilities. - Key safeguards include robust program design, phasing of disbursements, and careful assessment of capacity to repay the Fund. - Parallel work on program design and better identification of debt vulnerabilities is underway or being rolled out. - One option to contain credit risk: keep the normal cumulative access limit unchanged, implying applicants for higher access would face higher scrutiny and the policy standards of the (modified) exceptional access framework. - Review of PRGT interest rate mechanism: - Merit in reviewing the PRGT’s interest rate mechanism to ensure an adequate degree of concessionality in the context of low global interest rates. - This could involve alignment of interest rate schedules across the ECF and SCF. ### More flexibility for precautionary support, natural disasters, and fragile situations - Enhanced precautionary and policy support: - LICs’ rising global linkages argue for greater flexibility in usage of the SCF, the only precautionary facility in the LIC toolkit. - Options include increasing the two-year limit on SCF length and eliminating the sub-limits on access under precautionary SCFs. - The paper examines preserving the PSI while potentially aligning review modalities with the recently-introduced Policy Coordination Instrument (PCI). - Support in the wake of large natural disasters: - Fund support to date has focused on ex post financial assistance and, in rare cases, debt relief under the Catastrophe Containment and Relief Trust (CCRT). - Options examined include: - Proposing higher access limits under the RCF. - Expanding circumstances under which debt relief can be provided via the CCRT, which remains significantly underfunded. - Establishing a mechanism to provide countries with financing from an administered account or trust fund to meet debt service to the Fund immediately after a shock. - Better tailored support for fragile states: - The IEO (2018) called for adapting the toolkit to provide more sustained support for fragile states, while recognizing that countries typically should be assisted via grants rather than IMF loans. - Options considered include: - Clarifying flexibility of ECF and RCF use. - Increasing the relatively low limits on RCF financing via the “regular window.” - Introducing a short-term ECF arrangement. - Making the length of the ECF arrangement period flexible between three and five years. ### Review approach and next steps - The Review is taking a two-step approach: - This first paper takes stock of experience with the LIC facilities and identifies areas for innovations and refinements, with main options summarized in a final section. - Based on feedback from Executive Directors, staff will prepare a second paper with specific proposals. - Complementary workstreams: - Key policies relating to conditionality and program design are being assessed in parallel in the ongoing Review of Conditionality. - A new debt sustainability framework for LICs will help strengthen analysis of debt vulnerabilities in designing new programs. - Trade-offs emphasized: - Balancing members’ needs with safeguard considerations involves trade-offs; access policies (phasing, limits, norms) play an important safeguards role by limiting concessional resources to any single member. - The PRGT’s self-sustaining lending framework is a binding constraint on reforms. *Prepared by the Strategy, Policy, and Review Department; and Finance Department. Approved June 18, 2018.* ### Box 2. Rising Debt Vulnerabilities and Increasing Financial Risks to the PRGT ### Box 2. Rising Debt Vulnerabilities and Increasing Financial Risks to the PRGT ### Debt vulnerabilities in LICs - Some 44 percent of LICs faced significant debt-related challenges at end-2017, up from 25 percent in 2013. - Downside risks to this assessment: - Fiscal adjustment and growth projections may fail to materialize, boosting debt burdens. - Significant gaps in public debt data in many countries may be concealing accumulation of liabilities outside the current debt measurement framework. - Liabilities to the Fund remain contained in most cases (below 4 percent of GDP), except in a handful of countries with large Fund quotas relative to GDP. ### Rising financial risks to the PRGT - Demand for PRGT resources has been elevated in recent years, with new commitments averaging SDR 1½ billion during 2015–17. - The share of PRGT credit outstanding to countries at high risk of, or in, debt distress reached 30 percent at end-2017. - PRGT credit to countries with high debt vulnerabilities amounted to 52 percent of the PRGT reserve account balance, up 10 percentage points from a 2009 peak. - Default on obligations to the PRGT by a single medium-to-large PRGT borrower at high risk of/in debt distress would reduce the PRGT’s self-sustained lending capacity by some SDR 15––68 million. - The concentration of PRGT credit across all borrowers has remained broadly unchanged in recent years. ### PRGT credit size and evolution - Total Credit outstanding: - 2009 = SDR 5 billion - 2017 = SDR 6.5 billion ### Near-term outlook and risks - Though demand for concessional resources is expected to moderate somewhat in 2018, financial risks to the PRGT may well increase further— - even without a change in access limits policy, - with potentially large program requests in the pipeline, and - with fewer PRGT-eligible members presumed to use blended PRGT/GRA financing due to heightened debt vulnerabilities. ### Cross-cutting notes - Similarly, lending to non-PRGT-eligible countries with high debt burdens creates credit risk for the GRA. - The reserve account provides the ultimate backstop for the PRGT in the event of arrears or liquidity strains. *Source: pp080118-2018-review-of-facilities-for-low-income-countries - Box 2. Rising Debt Vulnerabilities and Increasing Financial Risks to the PRGT* ### 17. Despite growing economic challenges—and the scope under the current toolkit for ### 17. Despite growing economic challenges—and the scope under the current toolkit for ### Program duration and demand for longer engagements - ECF programs typically have a minimum three-year duration; only one country (Madagascar, 2016) requested an ECF with an initial duration exceeding the minimum (40 months). - Program extensions are common; only two countries (Malawi and Liberia) have extended their ECF-supported programs to the maximum duration of five years. - The prevalence of consecutive three-year programs reflects: - PRGT provisions that ECFs should normally have a three-year duration; - factors limiting demand for longer-term arrangements, including government time horizons, constrained planning capacity, and uncertainties about the longer-term outlook. ### Access and Demand - Overall lending commitments to PRGT-eligible countries during 2010–17: - averaged SDR 1.4 billion per year; - ranged between a peak of SDR 2.4 billion in 2016 and a trough of SDR 0.1 billion in 2013. - Annual commitments from the PRGT alone averaged SDR 1.1 billion over 2010–17; the remainder came from the GRA through blended arrangements. - Disbursements to LICs averaged SDR 0.9 billion per annum during 2010–17, of which SDR 0.8 billion came from the PRGT. - More than half of the GRA resources made available to LICs were for precautionary support. - The 2015 increase in access norms and limits: - created space for higher concessional support and insurance to countries across diverse circumstances (e.g., those hit by the 2014 commodity price shock and those facing increased security threats); - led to increased average annual access in ECFs and SCFs since mid-2015. - Access patterns: - Access has been above the norm in several recent ECF arrangements and in a few cases has approached applicable access limits. - Between 2010 and early 2013, half of all ECF arrangements received access at the norm. - From 2013 until November 2016, about one-third of ECF arrangements were at the norm, with greater variation around the norm. - Since November 2016, access under most new ECF arrangements has been above the norm. - Small island economies have, in some cases, approached the cumulative access limit under the RCF (but not for concessional financing under other facilities) following natural disasters. - Clarification: access norms are intended as indicative guidance and are neither ceilings nor floors. ### Use of Blending - Blending policy aims to target scarce concessional resources to the poorest and most vulnerable LICs; presumed blenders are expected to receive a mix of PRGT and GRA resources rather than full concessional financing. - Blending policy changes and criteria: - In 2015 the funding mix in blended programs was adjusted from a 1:1 ratio to 1:2 to offset the impact of the generalized access increase. - Countries are presumed to blend if per capita income exceeds the prevailing IDA operational cutoff, or if per capita income exceeds 80 percent of this threshold and the country has sustained past and prospective market access. - Countries meeting income or market access thresholds but that are at high risk of debt distress or in debt distress are not expected to blend and may receive purely concessional financing. - Trends in blending: - Some 12 blended arrangements or outright disbursements have been approved since 2010, roughly equally split between the ECF, SCF and RCF. - The share of blended arrangements in the number of overall arrangements (or outright disbursements) doubled between 2010–13 and 2014–17 to nearly one-fifth. - Since end-2015, three blended arrangements have been approved, accounting for over 40 percent of all Fund resources provided to LICs (PRGT and GRA); about two-thirds of the blended funding came from the GRA. - Prospective and presumed blenders: - 33 members meet either the income or market access criteria for blending. - The number of presumed blenders fell from 25 in 2015 to 15 in 2017 (returning to 2010 levels). - In terms of quota, presumed blenders now account for one-third of PRGT-eligible countries, down from nearly half in 2015. - Implication: increasing debt vulnerabilities suggest that, under current policies, fewer countries will be presumed to blend going forward, which could noticeably affect PRGT resources in future financing requests. Two large LICs recently received purely concessional financing rather than a blend due to debt vulnerabilities. ### Catalytic effect of Fund support - The Fund’s concessional financing is intended to catalyze additional donor/MDB support for LIC borrowers, especially where financing needs are elevated and PRGT resources are scarce. - Empirical and analytical findings: - Past literature indicates Fund programs addressing policy or exogenous shocks have a significant catalytic impact on the size and modalities of ODA, particularly for LICs experiencing substantial macroeconomic imbalances or large shocks. - Staff analysis indicates the Fund continues to play an important catalytic role, though the magnitude varies markedly with country circumstances. - ODA trends and the Fund’s association: - ODA flows rose in nominal terms from an average of US$ 41 billion in 2000–09 to US$ 61 billion in 2010–16. - For the median LIC, ODA declined from 7.2 to 5.5 percent of GDP over the same period. - The median LIC with a Fund facility received about 3 percent of GDP more in non-Fund concessional financing than the median LIC without a facility. - Event-study evidence indicates ODA flows picked up in the year of the first Fund disbursement and further increased in the following year, with large variation in the magnitude of the effect across country groups. - The catalytic impact is larger for fragile states and commodity exporters, and smaller for small states. - Examples of catalytic dynamics: - Post-disaster and post-conflict donor conferences have used Fund support as a coordination signal; Fund financing can be small relative to overall aid pledged but still help firm up pledges. - Sierra Leone received exceptionally high donor support during the 2014–15 Ebola crisis in the context of Fund support; donor financing subsided subsequently and the Fund’s share was higher in the new 2017 ECF. - Malawi’s 2012 ECF request initially signaled donors to restart/increase support, though donor budget support was suspended after the late-2013 “cashgate” scandal and resumed with a lag after program adjustment; subsequent weather-related shocks in 2015–16 saw ECF augmentation catalyze significant donor support. - Fund program engagement has also helped catalyze donor support and facilitate market access for countries seeking precautionary support (e.g., Honduras and Kenya). ### Poverty Reduction Strategies and documentation - PRGT financial support is linked to poverty reduction strategies; in 2015 the documentation process was substantially simplified to reduce burdens while maintaining assessed quality. - The Economic Development Document (EDD) (required for ECF and PSI support) can be: - an existing national development plan or strategy document, or - a newly prepared document on the country’s poverty reduction strategy (PRS). - Since the 2015 reforms: - 17 countries have produced EDDs, mostly linked to ECF-supported programs. - Two-thirds of these EDDs were existing national poverty reduction strategies; one-third were newly prepared. - Staff analysis and World Bank assessments found most EDDs covered core standards required, though some lacked detail on policy advice or had unduly ambitious targets. - Country authorities and mission chiefs generally viewed PRS/EDD requirements as broadly appropriate; a few mission chiefs felt requirements remained too onerous for small or fragile states. *Italic: Source — 2018 Review of Facilities for LICs (excerpts provided in content unit).* ### 27. The Fund’s concessional facilities have been extensively used by LICs and have ### pp080118-2018-review-of-facilities-for-low-income-countries - 27. The Fund’s concessional facilities have been extensively used by LICs and have ### Use and lessons from concessional facilities (paragraph 27) - Three-quarters of LICs have received support via at least one of the facilities during 2010–17, underscoring strong demand from LICs for Fund policy and financial support. - One-quarter of LICs have had financial arrangements (SCF/ECF) during at least six of the past eight years, underscoring the central role of continued Fund support in these cases, both for policy and financial support, as well as to catalyze donor support. - One half of LICs have used the ECF at least once; the ECF is viewed as the favored instrument for countries seeking financial support. - The SCF has been used predominantly as a vehicle for obtaining precautionary support from the Fund, either directly or indirectly (as the financing “arm” of the PSI should adverse circumstances materialize); initial concerns that the SCF might prove more attractive than the ECF did not materialize and the SCF has been used less than originally envisaged. - The RCF has been used to meet urgent financing needs in a range of circumstances, including natural disasters, fragility, or post-conflict situations—typically as a once-off form of support in natural disasters and as a first step toward sustained Fund financial support via the ECF in post-conflict cases; the RCF also provided flexibility when disbursements under an existing arrangement were held up. - Access levels under financial arrangements have been rising in recent years, both in SDR terms and relative to norms, with high access programs linked to sharp commodity price declines (as in Chad) or to financing challenges in frontier markets (as in Ghana). - Blended arrangements have played a significant role in meeting financing needs while containing demand for concessional resources, but are likely to become less common under existing rules as rising debt vulnerabilities reduce the number of countries presumed to blend. ### Assessment of current structure and scope for refinement (paragraphs 28–29) - The structure of the concessional facilities remains broadly appropriate: - ECF: main vehicle for sustained financial and policy support to LICs with protracted BoP problems. - SCF: provides precautionary support. - RCF: used for emergency low-access financing in a range of circumstances. - PSI: effective policy support and signaling instrument for a small group of countries without current financing needs; viability over time may be tested given the introduction of the PCI. - No obvious need for a new instrument. - Stakeholder consultations highlighted concerns with: - i) adequacy of access to concessional resources; - ii) limits on provision of precautionary financial support; - iii) toolkit fit for fragile states and countries vulnerable to natural disasters; - iv) interest rate structure across concessional facilities; - v) implementation of the EDD policy. - Scope exists for updating access policies and refining facility aspects to better respond to LICs’ evolving needs while maintaining safeguards for Fund resources. ### Access policies — principles, current settings, and proposed reforms (paragraphs 30–39) - Access decision framework: - Determined case-by-case using standard criteria including BoP need, program strength, capacity to repay, informed by debt sustainability analysis, Fund credit outstanding, and record of past use (IMF, 2016e). - PRGT access depends on annual and cumulative access limits, access norms, exceptional access rules, and blending policies. - Current PRGT limits and norms: - Normal cumulative limit under the PRGT: 225 percent of quota. - Exceptional access cap under the PRGT: 300 percent of quota. - Observations on trends and projections: - Over the next five years, GDP and trade volumes for LICs are projected to grow on average by around 8–9 percent annually in nominal US$ terms. - Gross financing needs are expected to increase by 12 percent annually. - Effective access limits and norms will continue to erode to the next facilities review (2023). - End-2020 projection based on arrangements approved through end-2017: - PRGT credit outstanding is projected to exceed 112.5 percent of quota (half of the cumulative limit) for eight countries. - PRGT credit outstanding is projected to exceed 150 percent of quota (two-third of the cumulative limit) for three countries. - One country will approach the normal limit of 225 percent of quota. - For such members, access to concessional financing could be constrained for successor arrangements or in the event of shocks leading to augmentation requests. - PRGT financial sustainability and capacity: - PRGT’s sustainable average annual lending capacity is currently estimated at SDR 1.31 billion, close to the target capacity of SDR 1¼ billion (IMF, 2018c). - The assessment assumes periodic upward adjustments in access limits and norms (in SDR terms), broadly offset by eventual graduation of higher-income countries from PRGT eligibility. - A moderate generalized increase in access levels (e.g., by 25–35 percent) can be accommodated within the three-pillar self-sustaining PRGT framework, with exact amounts dependent on further analysis. - Options for changing access policies: - Consider a generalized across-the-board increase in access levels (as done in July 2015) to partly offset erosion of access limits and norms relative to metrics like gross financing needs, external trade, and dollar GDP. - Revisit exceptional access criteria so countries with strong policies and very high financing needs can be adequately supported: - Possible changes include making exceptional access available for all comparatively strong programs that are deemed to restore debt sustainability, with or without a debt restructuring operation. - Expand eligibility beyond poorer LICs without sustained past and prospective market access to include all countries that do not yet meet market access or income criteria for presumed blending, or more widely to include all countries that are not presumed to blend. - Preserve procedural safeguards and enhanced scrutiny; exceptional PRGT access already requires an early informal Board meeting prior to formal consideration and could be accompanied by an assessment of the risk the program poses to PRGT finances. - Alternative safeguard: keep the cumulative normal access limit unchanged while raising all other norms and limits; countries seeking access in excess of the current normal cumulative access limit of 225 percent of quota would need to meet exceptional access policy requirements and higher scrutiny. - Safeguards against credit risk and concentration: - Primary safeguards: robust program design, careful phasing of disbursements, rigorous assessment of capacity to repay. - Ongoing work: 2018 Review of Conditionality and Design of Fund-Supported Programs; implementation of the new Debt Sustainability Framework for LICs (IMF, 2018a) to sharpen debt vulnerability analysis. - Staff will consider options to enhance procedural safeguards in cases of high debt vulnerabilities and potentially elevated credit risk. ### Financing terms and blending policies (paragraphs 40–41) - Concessionality and grant element: - The average grant element in PRGT loans is currently estimated to be below 30 percent, compared with a traditional benchmark of 35 percent. - PRGT interest rate mechanism and current settings: - Under the PRGT interest rate mechanism, interest rates for the ECF and SCF are expected to remain at zero through 2018. - The RCF interest rate is set permanently at zero. - As global interest rates rise, the mechanism will increase the SCF rate by 25 basis points compared to the ECF rate (starting when the SDR rate exceeds 0.75 percent), and both rates would increase by another quarter point once the SDR rate exceeds 2.0 percent. - Design objectives of the mechanism include: (i) preserving scarce concessional resources; (ii) tailoring financing terms to LICs’ needs and capacity; and (iii) limiting fluctuations in concessionality and subsidy costs (IMF, 2009c). - Rationale for SCF/ECF rate differentials: - SCF tailored for short-term adjustment and financing needs with sustainability achieved over the life of the program; SCF users generally have stronger macroeconomic positions and somewhat higher capacity to service debt than ECF users. - SCF carries somewhat higher interest rate and shorter maturity and grace periods, reducing its concessionality compared to the ECF. *Source: 2018 REVIEW OF FACILITIES FOR LICS, INTERNATIONAL MONETARY FUND (excerpts provided).* ### 42. There is scope for revisiting the parameters of the PRGT interest rate mechanism to ### 42. There is scope for revisiting the parameters of the PRGT interest rate mechanism to ### Interest rate mechanism and concessionality - Finding: The concessionality of the SCF remains lower than previously envisaged given the low interest environment. - Proposal: Consider aligning the SCF interest rate with that of the ECF. - Implication: The first adjustment in the interest rate on both SCF and the ECF would not occur until the SDR rate exceeds 2 percent. - Resource impact: Such a change is likely to create only modest additional demands on subsidy resources, although a detailed assessment is needed in conjunction with other reform proposals, including possible changes to the SCF and to blending policy. ### Blending policies - Purpose: Blending policy targets scarce concessional PRGT resources to (i) the poorest LICs (below the IDA operational cutoff for per capita income) and (ii) LICs at high risk of debt distress. - Finding: The second criterion has led to a decline in the number of PRGT-eligible countries presumed to be blenders; the group of countries at high risk of debt distress that would otherwise be presumed to blend represents about one-sixth of the aggregate LIC quota base. - Consequence: These high-risk countries obtain full access to PRGT resources instead of the 1:2 PRGT-GRA funding mix expected of presumed blenders. - Options for reform: - Remove the exemption from the blending presumption for relatively higher-income LICs at high risk of debt distress to further target concessional resources to the poorest LICs. - Introduce additional income thresholds (above the IDA operational cut-off) above which debt vulnerabilities would not provide an exemption from blending. Staff analysis indicates this would not necessarily generate significant savings. - Example thresholds and impacts from staff analysis: - Establishing a threshold at 150 percent of the IDA cutoff would affect some 14 countries, predominantly small states. - Lowering the threshold to 125 percent would only add one large country. - Trade-offs: - Benefits: Enhances longer-term resource envelope for poorer LICs. - Costs: Increases (via blending) the average cost of Fund resources for countries with high debt vulnerabilities and could call for faster adjustment in these countries given the tighter requirements of GRA policies. ### Precautionary and policy support for LICs - Context: Persistently high global risks and volatility increase LICs’ demand for contingent financing and policy support to limit costly self-insurance. - Structural change: As LICs’ linkages to international markets deepen, macroeconomic management challenges resemble those of emerging market economies, increasing exposure to global risks and volatility and the need for state-contingent Fund financing. - Instruments and suitability: - SCF: A genuine precautionary instrument for countries facing potential short-term BoP needs that can resolve imbalances during the arrangement. Under a precautionary SCF, drawing rights gradually accumulate and are available upon request. - Low-access ECF: For countries with protracted BoP problems but minimal present or prospective needs; can be augmented if needs increase. - Precautionary SBA: Available under the GRA; more flexible than concessional instruments but with less attractive financing terms. - Finding: A country exposed to shocks likely to result in urgent financing needs (e.g., volatile portfolio flows) is normally best served by a precautionary SCF. - Proposed changes to increase SCF flexibility: - Increase the maximum duration of the SCF to three years. - Rationale: Currently precautionary SCF arrangements cannot be longer than two years; three-year precautionary SBAs are available under the GRA. Aligning durations would increase flexibility and facilitate blending by avoiding abrupt declines in accumulated access rights when SCF expires earlier than concurrent SBA. - Note: Increasing maximum duration of the SCF would require modifications to the PRGT Instrument; staff sees this as consistent with the purpose of the SCF. - Abolish access sub-limits for precautionary SCFs. - Current rule: For precautionary SCF arrangements at approval, annual access is limited to 56.25 percent of quota, while average annual access (total access divided by the length of the arrangement in years) cannot exceed 37.5 percent of quota. - Rationale: These sub-limits were introduced to discourage tying up PRGT loan resources for contingent financing; with increased integration into global capital markets, some LICs may potentially face larger BoP needs and would benefit from higher and more front-loaded access, enhancing the SCF’s insurance function. - Demand and resource implications: - Increasing SCF flexibility could increase PRGT demand for loan resources, but not necessarily absorb more subsidy resources over the longer term. - The net impact on demand for subsidy resources is difficult to predict: precautionary arrangements increase the likelihood of disbursements if shocks occur, but catalytic donor effects and improved policies under arrangements could reduce future disbursements. - Effect on ECF usage: Proposed changes would not lead to a significant change in usage of the ECF because most LICs face protracted BoP problems and would not qualify for SCF support. All but one of the SCFs approved to date were precautionary or concurrent to PSIs. ### Policy Support: PSI and PCI - Finding: The PSI has been a popular instrument with several African LICs, enabling those with strong institutions and broadly stable macroeconomic positions to signal commitment to strong policies and secure donor support. - New instrument: The PCI, a non-financial instrument available to all Fund members, can also signal commitment to UCT policies without a financing arrangement and has greater flexibility on timing of reviews and does not require formal waivers when quantitative targets are missed. - Staff view: Maintain the PSI for the time being, potentially streamlining some modalities in line with the PCI. - Rationale: PSI has served several countries well; two PSIs remain in place. Streamlining could enhance attractiveness without eroding instrument integrity. Pre-qualification criteria, including a proven track record of policy implementation, would remain a key distinguishing feature. - If the absence of a need for Fund financing proves a more important distinguishing feature, streamlining non-financial instruments around the PCI could be re-considered with more experience. - Suggested PSI modality streamlining in line with the PCI: - Adopt a more flexible review schedule to overcome operational challenges and provide a limited time buffer around reviews while maintaining regular updates on program performance. - Use review-based conditionality: preserve the UCT standard and Executive Board judgment on review completion, but monitor whether policies are on track to meet program objectives rather than emphasizing small deviations from specific targets. Staff would continue to assess whether deviations undermine achievement of program objectives. ### Support for LICs vulnerable to natural disasters - Risk profile: - Natural disasters are a significant and likely growing tail risk for many LICs due to climate change. - Large disasters (damage exceeding 20 percent of GDP): 6 percent of disasters in LICs and 25 percent of those in small developing states breach this threshold, compared with 0.4 percent in more developed economies (1950–2014 data). - Small states are particularly vulnerable due to weak institutions, capacity constraints, and constrained access to financing. - Fund tools for disaster assistance: - Emergency assistance via the RCF: - The RCF provides speedy but limited financial assistance without requiring a UCT program. - Exogenous shocks window: the annual access limit at 37.5 percent of quota is somewhat higher than average annual access under an ECF at the high-access norm (30 percent of quota) and significantly higher than the low-access norm (18.75 percent of quota). - Large natural disaster window: annual access can be up to 60 percent of quota if disaster damage exceeds 20 percent of GDP. - RCF timelines: As part of RCF requests, staff prepares an updated post-disaster macroeconomic framework to help catalyze donor support; in most cases, RCFs are approved within four months of a natural disaster. - Since 2010, small states have accounted for around 60 percent of emergency assistance requests. - Program support: - Countries can request medium-term arrangements such as an ECF to support adjustment and reconstruction; existing arrangements can be augmented if a natural disaster exacerbates BoP needs. - As an ex ante measure, countries can request precautionary support under an SCF and gradually accumulate access rights exercisable if a disaster strikes. - Since 2010, about half of the Fund’s financial support to LICs in response to natural disasters has been provided via augmentations of existing arrangements; small states have relied almost exclusively on the RCF. - Operational note: In exceptional circumstances, the Fund can use a trust fund to provide relief on debt payments falling due to the Fund. Steps to promote ex ante resilience building in vulnerable countries are being covered in a separate work-stream. *2018 REVIEW OF FACILITIES FOR LICs — Extracted content* ### 56. In exceptional circumstances, the Fund can also join in debt relief efforts after major ### pp080118-2018-review-of-facilities-for-low-income-countries - 56. In exceptional circumstances, the Fund can also join in debt relief efforts after major ### Debt relief after catastrophic disasters (CCRT / PCR window) - The Fund can provide debt flow and stock relief through the Post-Catastrophe Relief (PCR) window of the Castastrophe Containment and Relief Trust (CCRT) when countries are hit by catastrophic disasters. - Eligibility is limited to the poorest and most vulnerable LICs. - Catastrophic disasters are defined as those that (i) directly affect at least a third of the population; and (ii) destroy more than a quarter of the country’s productive capacity or cause damage exceeding 100 percent of GDP. - The CCRT can provide: - debt flow relief on debt service falling due to the Fund in the two years following the disaster; and - debt stock relief—including full repayment or clearance of eligible debt owed to the Fund—only as part of a concerted international debt relief effort. ### Raising RCF access limits (findings and staff proposal) - Finding: The cumulative RCF access limit caps the availability of emergency concessional financing; countries prone to natural disasters can quickly reach this limit following a single large disaster or repeated disasters. - Example: Dominica’s repeated tapping of emergency assistance brought RCF credit outstanding close to its limit after the late 2017 hurricane. - Example: Vanuatu (2015) suffered cyclone damage estimated at around 60 percent of GDP and requested Fund support under an RCF/RFI blend amounting to 100 percent of quota (50:50 PRGT-GRA mix); with RFI access now counting towards the RCF access limit and disbursements at 72 percent of current quota, Vanuatu has almost reached the cumulative access limit of RCF credit. - Staff access proposal: - The cumulative RCF access limit, as well as the annual sub-limits under the exogenous shocks and large natural disaster windows, would increase by the same proportion as the annual access limits/norms for the ECF (see paragraph 35). - Safeguard considerations and moral hazard: - Absence of ex post conditionality has raised moral hazard concerns (referred to as “facilities shopping”). - Fund policy has been to ensure that access under the RCF is significantly less than under a UCT facility (e.g., the cumulative sub-limit on RCF support is currently one-third of the normal cumulative access limit to PRGT resources). - As of end-April 2018, Dominica’s cumulative access from the PRGT stood at 76 percent of quota, still well below the cumulative limit of 225 percent of quota. - Suggested operational adjustments: - Increase the cumulative limit on RCF drawings by the same proportion as the increase in annual access limits/norms for the ECF. - Increase the annual access limit under the “regular window” of the RCF by the same proportion as the cumulative limit on RCF drawings. - Consider setting the annual access limit under the regular window equal to the limit for the exogenous shocks window, with safeguards: - an individual disbursement should not exceed half the (new) annual access limit; and - annual access should not exceed one-half of the annual access limit on more than one occasion. ### Widening access to the CCRT (options considered and funding constraints) - Context: Dominica was not eligible for CCRT debt relief in late 2017 because its income per capita exceeded applicable income thresholds. - Options explored (emerged in stakeholder consultations): - Introducing an additional income threshold for microstates. - Note: Microstates are PRGT-eligible if per capita income is less than five times the IDA cutoff but CCRT-eligible only if per capita income is less than twice the IDA cutoff. - Based on natural disasters during the last two decades, no additional disaster would have qualified for CCRT funding if the income criterion for micro-state eligibility had been aligned with the current PRGT income criterion. - Allowing access to all PRGT-eligible countries. - Current CCRT eligibility is limited to poorest LICs: those with per capita income less than the IDA cutoff (twice the cut-off in the case of small states). - During 2000–2017, only three disasters caused damage exceeding 100 percent of GDP: Grenada in 2004, Haiti in 2010, and Dominica in 2017. - Making debt relief under the CCRT available to all PRGT-eligible countries (at current disaster cost thresholds) over this period would have added only two disasters in microstates to the qualifying disasters (since Haiti was provided with debt relief via the precursor of the CCRT—the PCDR). - Taking current Fund credit outstanding as a plausible estimate for the likely stock of debt at the time of a disaster, possible debt relief would at most have amounted to SDR 37 million for Grenada and Dominica. - Lowering the disaster threshold. - Under current CCRT eligibility, the disaster threshold would need to be lowered to 30 percent of GDP for any disaster during the last two decades, beyond Haiti in 2010, to qualify: it would cover Nepal’s earthquake in 2015. - Based on Nepal’s current Fund credit outstanding, the cost of potential debt relief could be up to SDR 61 million. - If, at the same time, an additional income threshold was introduced for microstates, Samoa’s disaster in 2012 would also have qualified (potential debt relief up to SDR 12 million); Tonga’s 2001 disaster would be very close (with 29 percent of GDP damage) and Tonga has no credit outstanding. - Funding constraint: - The CCRT currently has funds of only about SDR 145 million, and is some SDR 200 million below the required target under current policies because of both the initial funding shortfall and because limits on debt flow relief were not halved relative to quota following the 14th Quota Review. - Adoption of changes would require additional fundraising; modifications affecting the purpose of the CCRT would require the consent of contributors. - Risk management: - Combining substantive changes in eligibility with reductions in the disaster threshold would likely result in markedly higher demands on the already underfunded CCRT. - Absent an elastic supply of donor support over time, an expansion of eligibility would eventually squeeze support made available to current CCRT-eligible countries, including under the pandemics window. - Consideration could be given to making the effectiveness of any such changes conditional upon the achievement of a new fundraising target. ### Short-term relief on debt service (bridging the gap to emergency financing) - Timing and interim needs: - RCF financial support can be provided very rapidly, but RCF requests generally take three–six months to disburse; in the interim a country could incur technical arrears to creditors and face reputational costs if a large payment to the Fund is due. - State-contingent features in PRGT lending (e.g., hurricane clauses): - Introducing automatic rescheduling of debt service to the Fund for natural disasters would pose serious challenges: - The concessional financing framework under the PRGT instrument prohibits the rescheduling of debt service; significant reforms would be needed to change this. - Given pass-through of PRGT loan resources to eligible borrowers, a change would have to be financed either by amending all PRGT loan agreements with donors or through interim payments from the PRGT reserve account—either could adversely affect future PRGT loan mobilization. - Introducing state-contingent features could weaken the Fund’s preferred creditor status and trigger calls for postponing debt service in other situations (including the GRA). - Alternative options to cover immediate debt service: - Establish a donor-funded administered account to cover the debt service to the Fund in the immediate aftermath of a prespecified disaster event. - Expand the CCRT to include a window to provide such financing, with use to be authorized by a Board decision (rather than specification of ex ante triggers); this would require re-purposing the Trust and consent of donors. - Such provisions could have a catalytic effect by encouraging other creditors to consider standstills. - Legal aspects and fundraising needs of these options require further assessment when options are fleshed out. ### Ex ante financial assistance and resilience-building - Staff is considering how best to help members build resilience ex ante for countries that experience frequent natural disasters. - Preparedness measures can reduce human and economic costs and include: - strengthening planning capacity; - calibrating financing strategies (including insurance); and - developing targeted infrastructure investment. - These measures require expertise outside the Fund’s competence and close collaboration with other institutions; work is underway with the World Bank to explore how best to support resilience building in the context of Fund engagement. ### Supporting LICs in fragile situations (engagement, instruments, and proposed adjustments) - Scope and usage: - Over half of all PRGT-eligible countries are assessed to be fragile, and in any given year nearly half of them have had some form of Fund financial support in place. - Many fragile countries have had prolonged engagement with the Fund, often with interruptions as programs go off track. - Role of Fund financing: - Fund financing for fragile states is typically modest compared with overall financing needs, but Fund engagement plays an important policy support and catalytic role. - Presence of an IMF arrangement helped catalyze substantial additional support from multilateral institutions and bilateral donors. - Typical instruments: - Fund financing for fragile states is typically provided through either the RCF or an ECF-supported arrangement. - The RCF is used when countries are not able to implement an economic program with policies that meet UCT standards; the limit on annual access via the regular window of the RCF (18¾ percent of quota) is modest. - The Fund’s strategy envisages repeated use of the RCF (ideally coupled with a Staff-Monitored Program (SMP) to build a track-record) if substantial time is needed to build capacity and political support to move to an ECF. - Stakeholder concerns and IEO recommendations: - Stakeholders welcomed extensive engagement but flagged the scale of Fund financing and the length of arrangements as issues. - The IEO (2018) found the greatest reform need is to reduce the gap between the limited access/non-UCT policies/once-off nature of the RCF and the higher access/UCT policies/three-year framework of the ECF. - IEO suggested options: - raising the annual access limit under the RCF (perhaps divided into two disbursements a year); and - introducing a short UCT arrangement as a bridge to an eventual ECF arrangement. - IEO also suggested extending repayment periods under concessional facilities; staff sees current maximum maturity of Fund instruments (10 years in the RCF, ECF, and EFF) as appropriate. - Staff view and recommendations: - Reaffirm the strategy of using repeated RCFs in conjunction with SMPs for countries needing time to build capacity to implement UCT-quality policies, accompanied by enhanced guidance on implementation. - Increase annual and cumulative access limits under the RCF in line with the general expansion of access limits proposed above. - Specific recommendations reiterated: - Increase the cumulative limit on RCF drawings by the same proportion as the increase in annual access limits/norms for the ECF. - Increase the annual access limit under the “regular window” of the RCF by the same proportion as the cumulative limit on RCF drawings. - Consider setting the annual access limit under the regular window equal to the limit for the exogenous shocks window, with safeguards on individual disbursements and repeated high annual access. - Financial support for fragile countries that do not have capacity to implement coherent economic programs should ideally be provided in the form of outright grants, though there may be circumstances where significant Fund disbursements are warranted. *2018 REVIEW OF FACILITIES FOR LICS — INTERNATIONAL MONETARY FUND* ### 71. In fragile states emerging from conflict and/or facing large uncertainties, staff sees ### pp080118-2018-review-of-facilities-for-low-income-countries - 71. In fragile states emerging from conflict and/or facing large uncertainties, staff sees ### Flexibility of the ECF in fragile and post-conflict situations - Staff sees merit in using the flexibility inherent in the ECF to focus on immediate objectives—essential stabilization and capacity-building measures, “quick wins” to build public support, priority actions to maintain social stability. - Program design approach: - Policies for the first year of the program would be spelt out in detail. - Medium-term program objectives would be specified in broad terms, with the understanding they would be adapted flexibly to evolving circumstances. - As uncertainty declines, a more concrete medium-term reform agenda could be fleshed out, drawing on lessons learned. - The need for an explicit poverty reduction strategy could be deferred until there is sufficient state capacity to flesh out a country-owned strategy (see paragraphs 76–77). ### Short-term arrangements versus three-year ECF - Rationale for short-term arrangements: - In situations of very high uncertainty and socio-political instability, a short-term-focused program may better match policy-makers’ time horizons and deliver immediate priorities while ensuring country ownership. - A short-term arrangement (e.g., covering 12–18 months) could act as a bridge towards a regular ECF as medium-term uncertainty declines. - Circumstances where short-term arrangements may be preferable: - Post-conflict or near-conflict situations where a properly designed short-term arrangement can deliver very large payoffs relative to the costs of falling into conflict. - Situations of uncontrolled inflation where a tightly focused stabilization program that succeeds would be an essential step toward sustainability. - Caveat: countries with adequate capacity and political will may prefer a short-term UCT quality arrangement over a longer-term program in these special circumstances. ### Risks and institutional implications of a short-term ECF - Modifying the allowable length of the ECF to include arrangements of 12–18 months would represent a significant structural change in the architecture of LIC facilities. - Historical/architectural considerations: - The ECF (and predecessors) provides medium-term support to countries with protracted BoP problems. - The 2009 architecture reform delineated UCT-quality facilities (SCF and ECF) by the length of the BoP need—“short term” versus “protracted”—and preserved the presumption that protracted BoP problems are best addressed via a three-year or longer program. - Risks of a short-term ECF: - Potential overlap between the SCF and the ECF where the delineation between short-term and protracted BoP needs is not clear-cut. - Could encourage countries with protracted needs to seek shorter-term financing in “bad times,” eschewing a medium-term program in cyclical upswing (“good times”) when buffers need rebuilding and deeper reforms should be undertaken. - Mitigation: Any short-term ECF would need to be clearly ring-fenced to ensure use only in special circumstances. ### Governance, contributors, and fundraising implications - Introducing a shorter-term ECF is a significant change likely requiring the consent of contributors to the PRGT. - It would require consideration of the impact on potential future fundraising efforts; whether such a change could garner necessary broad support remains to be determined. ### Longer-term programs for very weak institutional capacity - Some stakeholders argue that in fragile states with very weak institutional capacity, achieving sustained macroeconomic improvement may require more time than the three-year ECF period. - Example: building a national tax system (policies and administration) to produce a transformative increase in domestic revenue mobilization typically involves an extended multi-year reform program. - Proposal: - A longer-term program (say, five to six years) could be appropriate where the central focus is fundamental upgrading of the tax system. - Where the challenge is overcoming consistently sluggish growth and weak institutions (rather than political and social instability), a longer-term program may make sense. - With significant instability, repeated three-year ECFs, wrapped within a longer-term strategy (such as a five-year plan), would likely be more sensible. - Note (footnote): In cases without capacity to implement a three-year UCT-quality program, repeated RCF support can be used as a bridge. A short-term ECF would in these circumstances provide higher levels of Fund financing and a stronger signal to donors, with protections through ex-post conditionality. The presumption remains that the bulk of external official financing in fragile states should take the form of grants and highly concessional loans, rather than Fund financing. ### Links from PRGT support to poverty reduction (EDD and program links) - Routes to strengthen links between PRGT-supported programs and poverty reduction: - Strengthen the EDD process, providing more support to countries with weak capacity. This includes close work with the World Bank and other donors on capacity building and technical assistance to strengthen strategy documents, while avoiding undercutting national ownership. - Allow greater flexibility on the timing of EDDs for countries with weak capacity, backed by targeted technical assistance. - Draw more on World Bank work—e.g., Systematic Country Diagnostics (SCDs) and Country Partnership Frameworks (CPFs)—to inform PRGT program design. - Standardization proposal: - A case for standardizing the use of the EDD across PRGT arrangements (SCF, ECF, PSI). A simple unified approach: “An EDD is expected to be produced in all cases where the Fund-supported program has a term of at least two years.” - An EDD should be in place early on, normally by the time of the 1st review—but exceptions could be made where capacity to produce an EDD is scarce and better deployed to other ends (e.g., a country emerging from conflict). ### Issues for discussion (key questions posed to Directors) - Lessons from Experience: - Do Directors agree that the basic architecture of LIC facilities remains broadly appropriate and effective in tailoring Fund support to diverse LIC needs? - Do Directors agree that the ECF remains the cornerstone of the LIC facilities architecture and has been effective in delivering support for protracted BoP problems? - Do Directors agree that the SCF is a valuable component, used primarily for precautionary support rather than as a disbursing arrangement? - Do Directors agree that the RCF has effectively met emergency financing needs without undermining demand for Fund arrangements or creating excessive financial risks to the PRGT? - Access Policies: - Staff sees scope for increasing access limits and norms to meet growing financing needs of LICs, subject to preserving PRGT self-sustainability. - Staff sees merit in revisiting the exceptional access policy to allow countries with comparatively strong programs and very high financing needs to receive necessary support, subject to safeguards (particularly where debt levels are elevated). - Discussion questions include: - Do Directors agree with a generalized increase in access limits and norms compatible with PRGT self-sustaining financing? - Do Directors see merit in revisiting exceptional access policy to allow above-normal access for strong programs, subject to heightened scrutiny? - Do Directors support keeping unchanged the normal cumulative limit on access to PRGT resources as a tool to contain credit risk? - Blending Policies and Financing Terms: - Staff sees merit in revisiting the PRGT interest rate policy to align the SCF interest rate to the ECF interest schedule to enhance concessionality. - Given scarce PRGT resources and increasing debt levels among comparatively higher-income LICs, there is a case for reconsidering blending policy to better target subsidy resources to the poorest countries. - Discussion questions: - Do Directors support aligning the SCF interest rate to the ECF interest rate schedule? - Do Directors favor reconsidering the exemption from blending requirements for countries that meet income and/or market access criteria for blending when their risk of debt distress is (re-)classified as “high”? - Adjustments to the SCF: - Staff sees merit in loosening constraints on providing precautionary and short-term financial support under the SCF as advanced LICs become more integrated into global markets. - Proposed easing of constraints: - Aligning the maximum length of the SCF with that of the SBA (three years); - Eliminating the sub-limits on access for precautionary arrangements; - Aligning EDD requirements for arrangements under the SCF, ECF, PSI in excess of two years. - Adjustments to the PSI: - Given its track record, staff considers retaining the PSI, separately from the newly established PCI, as a policy support instrument specific to LICs. - Possible modifications: introduce a more flexible review schedule and review-based conditionality, as in the PCI. - Support for countries hit by natural disasters: - Staff sees merit in raising RCF access limits in line with other access limits and norms, and intensifying efforts to help vulnerable countries build ex ante resilience. - Notes that the CCRT is not adequately funded and expanding its scope would require additional donor funds. - Points to options for establishing a mechanism to provide short-term financing to cover debt service falling due after major disasters, bridging time needed to disburse emergency financing (including under the RCF). - Discussion questions include: - Do Directors agree that RCF access limits should be raised in line with other access limits to help address urgent financing needs after natural disasters? - Do Directors favor particular adjustments to eligibility and access criteria for the CCRT, including expanding eligibility to all PRGT-eligible small and micro-states, contingent on additional fundraising? - Do Directors see merit in exploring a discretionary or automatic mechanism to provide financing from a trust fund or administered account to meet debt service falling due to the Fund after large natural disasters? - Support for countries in fragile situations: - Staff sees merit in reaffirming the role of repeated RCF use in providing policy support to countries needing more time to build capacity for a UCT-quality arrangement while raising the regular annual RCF limit in line with other access limits. - Also a case for enhancing flexibility of Fund financial support by a proportionally larger increase in the annual limit, with additional safeguards on use. - Staff sees merit in making full use of the flexibility of the ECF to focus on short-term priorities in heightened uncertainty and socio-political fragility. - The IEO proposal to introduce a shorter-term arrangement within the ECF could have benefits in certain situations, especially post conflict, but also drawbacks; it would require substantial changes in LIC facilities design and likely PRGT contributor support. - Discussion questions include: - Do Directors support relying on repeated RCFs, together with SMPs, to assist countries not yet able to implement UCT-policies? - Do Directors see merit in increasing the annual access limit to the regular window of the RCF by proportionally more than other access limits? - Do Directors see merit in modifying the current ECF length policy to: - Allow a short-term ECF arrangement, ring-fenced for countries with protracted BoP problems where uncertainties are elevated, such as post-conflict situations? - Allow the term of a regular ECF to be flexible between three and five years, depending on country circumstances such as reform priorities? *2018 REVIEW OF FACILITIES FOR LOW-INCOME COUNTRIES — excerpt* ### 1. The Role of Demand Volatility in Assessing the Adequate Size of the PRGT __________ 8 ### 1. The Role of Demand Volatility in Assessing the Adequate Size of the PRGT __________ 8 ### Key observations on demand volatility and PRGT capacity - Demand for concessional resources is historically volatile, especially on a commitment basis, because disbursements under new arrangements are generally tranched over several years. - Fund resources are managed on a commitment basis to ensure the Fund can always fulfill resource obligations; PRGT resources are ring-fenced once committed (even on a precautionary basis). - On a commitment basis, demand has averaged SDR 1.3 billion per year over the past ten years, very close to the nominal target under the three-pillar strategy of about SDR 1¼ billion. - Disbursements have averaged some SDR 0.9 billion per year over the same period, reflecting programs that went off track and undisbursed amounts under precautionary SCF arrangements. - Year-to-year volatility and ex-post differences between commitments and disbursements can affect assessments of long-term demand and long-term lending capacity, but these effects are manageable under the three-pillar self-sustaining framework. ### PRGT self-sustaining financing framework and capacity assessment - The PRGT’s self-sustaining financing framework seeks to accommodate new concessional lending at an average annual level of SDR 1¼ billion in perpetuity without regular grant contributions from the Fund’s membership. - The framework’s adequacy is assessed annually from two analytical perspectives: - i. Update of the estimate of the PRGT’s permanent annual lending capacity and stress-testing it against potential shocks. - ii. Update of long-term demand projections under different scenarios to derive a range of plausible average annual concessional lending needs. - Using a cash-flow model, the permanent lending capacity is derived as the level where current and future subsidy resources cover current and future subsidy needs given lending at that level. Available subsidy resources depend on initial balances of the PRGT Subsidy and Reserve Accounts, investment returns, and reimbursement to the GRA for administrative expenses. Subsidy needs depend on PRGT credit outstanding over time and the subsidy element determined by the spread between interest rates paid to PRGT loan providers and concessional rates set for PRGT loans. - Staff’s most recent assessment finds the three-pillar PRGT’s self-sustaining financing framework remains intact. The PRGT’s permanent lending capacity is estimated at SDR 1.31 billion annually, slightly above the target of SDR 1¼ billion, and robust to a range of near-term demand shocks. - Longer-term demand is projected to average between SDR 1.0 and 1.7 billion annually over the next ten years under a range of plausible scenarios, broadly consistent with the self-sustaining PRGT financing framework. - If demand estimates shift clearly above (or below) the PRGT lending capacity, it would indicate current policies (including those governing eligibility, blending, access, and financing terms) are not sustainable (or are overly restrictive) over the longer term and would need review, possibly alongside contingency measures envisaged under the three-pillar strategy. ### Demand modeling assumptions and scenarios - Demand projections for the next 20 years are derived from a demand model that estimates annual concessional resource commitments based on historical averages and parameters for program size in line with existing policies on access norms and limits. - Key assumptions in the long-term PRGT demand model: - Frequency of program requests: two benchmark scenarios based on historical minimum and maximum demand and assumptions on future demand shifts between facilities. - Low-case scenario assumes about 30 percent of PRGT-eligible countries resort to Fund financing in any given year. - High-case scenario assumes 55 percent of LICs request some form of Fund financial support in any given year. - Assumed average access level follows existing access policies, factoring in an assumed periodic general increase in access levels/limits across facilities that broadly match projected GDP developments and financing needs; these increases are currently assumed to occur every three years. - PRGT-eligibility and blending: projections based on income per capita, market access and debt vulnerability criteria in the short term, and only on an income per capita criterion in the longer term. ### Interaction of volatility with the three-pillar strategy and contingent measures - The three-pillar strategy adopted in 2012 seeks to ensure self-sustained lending capacity comprising: - (i) a base envelope of SDR 1¼ billion in permanent annual average lending capacity; - (ii) contingent measures that can be invoked if average financing needs exceed the base envelope by a substantial margin for an extended period; and - (iii) a principle of self-sustainability under which modifications of PRGT lending policies should ensure demand is met with available resources. - Contingent measures include: - reaching additional understanding on bilateral fund-raising efforts among a broad range of the membership; - the suspension for a limited period of the 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. - A sustained spike in commitments would decrease the estimate of long-term capacity, but the effect would be significant only in the event of prolonged very high demand; the three-pillar framework foresees contingent measures to remain close to the capacity target of SDR 1¼ billion. - Savings in subsidy resources resulting from near-term disbursements being lower than projected near-term commitments would generally have only marginal effects on long-term capacity. *Source: 2018 REVIEW OF FACILITIES FOR LICS — Box 1 and associated sections on PRGT capacity and demand volatility (June 18, 2018).* ### 23. The role of norms in access decisions. The norm as a concept has evolved and is generally ### 23. The role of norms in access decisions ### Role and interpretation of norms - Norms represent a measure of “average expected access.” - Norms provide a focal point for assessing appropriate access—particularly when data is poor—but individual access decisions should be determined case-by-case based on: - balance of payments (BoP) needs, - program strength, - outstanding use of Fund credit and record of past use, - capacity to repay the Fund informed by debt sustainability analysis (IMF, 2016b). - Norms represent neither a floor nor a ceiling or entitlement for specific arrangements; access levels are expected to exhibit some variation around the norm in practice (IMF, 2016a). ### PRGT’s self-sustained capacity - The PRGT’s self-sustained framework requires that average annual lending capacity is sufficient to meet projected total demand over the long term, assessed at the norm on average. - The framework is robust to shocks where average financing needs exceed the baseline demand by a substantial margin for several years. - Base envelope and contingent measures: - base envelope: SDR 1¼ billion in annual lending capacity, - three-pillar framework foresees contingent measures when demand exceeds the base envelope by a substantial margin for a sustained period, - principle: any modifications to PRGT facilities should be designed to maintain financial self-sustainability. ### Relation to access limits and norms application - Repeated access at, or below, the norm can enable continuous use of concessional financing without reaching the normal cumulative access limit. - Application of high/low/no norms by outstanding credit bands: - “High-access” norms apply if credit outstanding is below one-third of the cumulative PRGT access limit (75 percent of quota). - “Low-access” norms apply if credit outstanding is between above one-third and below two-thirds of the cumulative limit (75 and 150 percent of quota, respectively). - No norms apply when credit outstanding exceeds two-thirds of the cumulative access limit (150 percent of quota). ### Toolkit of PRGT facilities (overview and key terms) - The current toolkit reflects reforms undertaken in 2009 and includes three concessional facilities (ECF, SCF, RCF) and nonfinancial instruments (PSI and SMP). - ECF (extended credit facility) - Purpose: financial assistance to countries with protracted BoP problems; supports programs toward stable macroeconomic positions consistent with poverty reduction and growth. - Eligibility: protracted BoP problem (resolution expected to extend over the medium or longer term). - Duration and repeated use: initial duration of 3-4 years, extendable to 5 years; consecutive ECF arrangements may be approved; precautionary use not envisaged. - Concessional terms: zero interest rate at least through end-2018 (thereafter governed by PRGT interest rate setting mechanism), grace period of 5½ years, final maturity of 10 years. - SCF (standby credit facility) - Purpose: assistance to LICs with broadly sustainable macroeconomic positions facing episodic, short-term financing and adjustment needs, including shocks. - Eligibility: immediate or potential BoP need normally resolved within 2 years. - Duration and repeated use: can range from 12–24 months; use normally limited to 2½ out of any 5 years; extensions and consecutive arrangements may be approved subject to these limits. - Precautionary arrangements: access can be treated as precautionary if potential but not immediate BoP need; precautionary SCF arrangements do not count toward the 2½ out of any 5 years’ time limit and thus have no limits on successive precautionary arrangements provided they remain precautionary. - Concessional terms: zero interest rate at least through end-2018 (thereafter governed by PRGT interest rate mechanism), grace period of 4 years, final maturity of 8 years. - Availability fee: 0.15 percent per annum on undrawn amounts available for drawing during each six-month period. - RCF (rapid credit facility) - Purpose: low-access, rapid, concessional assistance with limited conditionality to LICs facing an urgent BoP need (including shocks, natural disasters, fragility). - Eligibility: urgent BoP need where a full-fledged program is not necessary or not feasible. - Duration and repeated use: outright loan disbursement; often one-off disbursements; repeated use possible within any three-year period if BoP need is exogenous or country has established a track record of adequate policies; maximum of two disbursements in any 12-month period. - Repeated use guidance: for countries seeking repeated RCF disbursements to build a track record (e.g., fragile states), concurrent use of an SMP is encouraged; repeated use may facilitate transition to an ECF. - Concessional terms: zero interest rate, grace period of 5½ years, final maturity of 10 years. - PSI (Policy Support Instrument) - Purpose: non-financial instrument for LICs that do not want or need Fund financial assistance to secure Fund advice and endorsement of policies. - Eligibility: countries with no current or prospective BoP need requiring significant macroeconomic policy adjustment and with institutions of sufficient quality. - Duration and repeated use: initial duration of 1-4 years, extendable to a maximum of 5 years; successive PSIs may be requested as long as the country continues to qualify. - Use with financial instruments: cannot be used concurrently with the ECF; can be used with an RCF or SCF, or with a precautionary SCF. - SMP (staff-monitored program) - Purpose: informal agreements between Fund staff and authorities to monitor program implementation and build a track record for future arrangements. - Eligibility: available to all Fund members. - Duration and repeated use: normally expected to cover a minimum of 6 months and not to exceed 18 months (longer durations not precluded); repeated use possible. - Use with financial instruments: can be used concurrently with the RCF. ### PRGT access policy and exceptional access - Access determination: case-by-case taking into account BoP need, program strength, outstanding Fund credit and record of past use, and capacity to repay informed by debt sustainability analysis; access norms are a starting point for discussion of appropriate access level. - Exceptional access criteria (access above normal limits) require: - (i) an exceptionally large BoP need that cannot be met within the normal limits; - (ii) a comparatively strong adjustment program and ability to repay the Fund; - (iii) no sustained past and prospective access to capital markets, and income at or below the prevailing IDA operational cutoff. - Exceptional access hard caps: - 100 percent of quota annually, - 300 percent of quota on a cumulative basis, net of scheduled repayments, across all concessional facilities. - Procedural safeguards for exceptional access: - require a new DSA and an early informal Board meeting, which is expected to reference the impact on the Fund’s concessional resources; - for requests with large absolute impact on concessional resources, an early notice to the Board is expected. ### Blending of PRGT and GRA resources - Presumption to blend (PRGT:GRA in ratio 1:2) applies when both conditions are met: - the country’s per capita income level is above the prevailing IDA operational cutoff or the country’s per capita income level exceeds 80 percent of the IDA operational threshold and the country has sustained past and prospective market access; and - the country is not assessed to be at high risk of debt distress or in debt distress. - Countries not meeting these conditions are expected to meet financing needs from PRGT resources; if financing needs exceed PRGT access limits, additional financing can be met with GRA resources. - In all cases, access needs are determined by factors listed under access determination and informed by debt sustainability analysis. ### Interest rate mechanism - In October 2016, the Executive Board approved a modification of the PRGT interest rate mechanism and set interest rates to zero on all PRGT concessional loans for at least the next two years through end-December 2018. - The interest rate for the RCF was set permanently to zero in July 2015. - The Fund reviews concessional interest rates every two years, with the next review expected to take place before end-2018. ### Key numeric limits, norms, and safeguards (from Table 1) - Cumulative access limits: - All PRGT facilities-normal: 225 - All PRGT facilities-exceptional: 300 - RCF: 75 - RCF (exogenous shocks window): 75 - RCF (large natural disasters window): 75 - RFI: 75 - RFI (large natural disasters window): 75 - Annual access limits: - All PRGT-facilities-normal: 75 - All PRGT-facilities-exceptional: 100 - SCF (precautionary) – average annual: 37.5 - SCF (precautionary), at approval: 56.25 - RCF: 18.75 - RCF (exogenous shocks window): 37.5 - RCF (large natural disasters window): 60 - RFI: 37.5 - RFI (large natural disasters window): 60 - Norms: - 3-year ECF – High access: 90 - 3-year ECF – Low access: 56.25 - 18-month SCF – High access: 90 - 18-month SCF – Low access: 56.25 - Blending proportion for presumed blenders (PRGT:GRA): 1:2 with concessional access capped at the applicable norm (all GRA thereafter). - Triggers for procedural safeguards on high access requests: - Total access in any 24-month period—for DSA (update): 60 - Total access in any 36-month period—for an informal Board Meeting in advance of new PRGT request: 135 *Source: 2018 Review of Facilities for LICs — pp080118-2018-review-of-facilities-for-low-income-countries* --- _Source: https://www.imf.org/-/media/files/publications/pp/2018/pp080118-2018-review-of-facilities-for-low-income-countries.pdf_