## POVERTY REDUCTION AND GROWTH TRUST—REVIEW OF INTEREST RATE STRUCTURE—POSTPONEMENT

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**Canonical URL:** [POVERTY REDUCTION AND GROWTH TRUST—REVIEW OF INTEREST RATE STRUCTURE—POSTPONEMENT](https://www.imf.org/-/media/files/publications/pp/2019/ppea2019021.pdf)

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### Background and Context
- The Executive Board last reviewed the interest rate structure for the Fund’s concessional facilities on October 3, 2016.
- The 2016 review concluded a strong case for maintaining zero interest rates on Fund concessional credit given the global economic juncture at that time.
- Amendments adopted in 2016 established a new threshold: both the Extended Credit Facility (ECF) and the Standby Credit Facility (SCF) interest rates would be set at zero when the 12-month average SDR rate was less than or equal to 0.75 percent.
- Application of the revised mechanism set the ECF and SCF interest rates to zero for the period 2017–18.
- Interest rate charges on outstanding legacy balances under the Exogenous Shocks Facility (ESF), which are not determined via the interest rate mechanism, were waived for the period 2017–18.
- Since 2015, the Rapid Credit Facility (RCF) financing interest rate was set at zero percent on a permanent basis to enhance support for PRGT-eligible countries in fragile situations and those hit by natural disasters.

### Proposal to Postpone Review and Maintain Zero Rates
- Staff proposes to postpone the deadline for the next PRGT interest rate review by six months because the second stage of the Low-Income Countries (LIC) Facilities Review is now envisaged to be discussed by the Executive Board in March 2019.
- Staff proposes that the Board consider the PRGT interest rate review together with the LIC Facilities Review as a package.
- In line with this proposal, staff recommends:
  - Extending the PRGT interest rate review deadline from "December 31, 2018" to "June 30, 2019."
  - Continuing to apply the zero percent per annum interest rates set by Decision No. 16060 (16/91), adopted October 3, 2016, to the outstanding balance of PRGT loans under the ECF and SCF through June 30, 2019.
  - Extending the waiver of interest rate charges on outstanding legacy balances under the ESF by six months.

### Financial and Quantitative Implications
- Applying the current interest rate mechanism using the average SDR interest rate in the last 12 months would set:
  - the ECF interest rate at zero percent, and
  - the SCF interest rate at 0.25 percent.
- Estimated effect for the six-month period ending June 2019 if zero rates were not continued:
  - An estimated SDR 0.33 million in interest payments to the PRGT on SCF credit for the six-month period ending June 2019.
  - Without further ESF interest waiver, the interest payments due to the PRGT would be estimated at SDR 0.13 million on ESF credit outstanding.

### Proposed Decision (for Executive Board adoption)
- Amend the Instrument to Establish the Poverty Reduction and Growth Trust (PRGT Instrument), annexed to Decision No. 8759-(87/176) ESAF, adopted December 18, 1987, as amended, as follows:
  - In Section II, paragraph 4(b) replace the words "December 31, 2018" with the words "June 30, 2019."
  - In Section II, paragraph 4(c) replace the words "through December 31, 2018" with the words "through June 30, 2019."
- In light of the amendment above, the interest rate on the outstanding balance of Trust loans under the Extended Credit Facility (“ECF”) and the Stand-By Credit Facility (“SCF”) set under Decision No. 16060-(16/91), adopted October 3, 2016 shall continue to be charged at a rate of zero percent per annum through June 30, 2019.

*Prepared by the Finance Department and the Strategy, Policy, and Review Department (in consultation with the Legal Department); November 27, 2018. International Monetary Fund.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2019/ppea2019021.pdf_