## 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/2023/english/ppea2023024.pdf)

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### Context
- The IMF’s Executive Board last reviewed the interest rate structure of the Poverty Reduction and Growth Trust (PRGT) on July 14, 2021.
- The PRGT interest rate mechanism, adopted in 2009 and modified in 2019, links interest on credit outstanding under the Extended Credit Facility (ECF) and Standby Credit Facility (SCF) to the average SDR interest rate (SDRi) over the most recently observed 12-month period.
- The average SDRi currently exceeds 2 percent.
- The Rapid Credit Facility (RCF) interest rate was permanently set at zero percent in 2015 and is not subject to review under the interest rate mechanism.
- Under the 2021 Board decision, interest rates on loans provided through the ECF and the SCF would remain at zero until the next biennial review due by end-July 2023.

### Proposal to Postpone the Review
- Staff proposes postponing the PRGT interest rate-structure review due by end-July 2023 until the 2024/25 Review of the Fund’s Concessional Facilities and Financing, but no later than end-July 2025 (implemented as modifying the deadline to July 31, 2025).
- As a result of the proposed postponement, the interest rates on all PRGT credit would be kept at zero until the completion of the next review.
- The proposed deferral reflects:
  - The difficult environment and high uncertainty facing low-income countries (LICs), including high financing needs and reduced policy buffers owing to multiple shocks (the pandemic and the adverse spillovers from Russia’s war in Ukraine).
  - The desirability of considering all policies regarding LIC facilities at once, including interest rates, within the comprehensive 2024/25 review which will assess long-term lending envelope and options to sustainably support PRGT lending.

### Financial Impact and Mechanics
- Application of the current interest rate mechanism at the time of review would result in an upward adjustment of the interest rates for the ECF and the SCF from zero to 25 basis points, unless the Board decided otherwise.
- Staff noted the modest financial impact of a deferral on the PRGT, with the forgone interest income on existing and scheduled credit amounting to about SDR 20–30 million over 12 months.
- Many Executive Directors (representing a majority of the total voting power) favored deferring the next review until the 2024/25 comprehensive PRGT review, though some Directors preferred completing the review in July 2023 as stipulated by the PRGT Instrument.

### Technical Work and Next Steps Ahead of the 2024/25 Review
- Staff will conduct technical work on the full range of options to put the PRGT on a sustainable footing, including work on the interest rate structure as requested by the Board.
- Technical work to be undertaken ahead of the 2023 Annual Meetings includes a preliminary analysis comprising illustrative examples of potential changes to the PRGT interest rate structure, for instance:
  - A dual interest rate mechanism along with commensurate possible modifications to blending policies as discussed in 2021.
  - A tiered interest rate structure.
- Staff will provide a preliminary assessment of the pros and cons of such examples for contributing to putting the PRGT on a sustainable footing.
- Potential options on the PRGT interest rate structure will be further developed and assessed as part of the 2024/25 comprehensive PRGT review.

### Proposed Decision (for Executive Board adoption)
- Amend the PRGT Instrument (annexed to Decision No. 8759-(87/176) ESAF) by replacing in Section II, paragraph 4(b) the words “July 31, 2023” with the words “July 31, 2025”.
- As a consequence, the current zero percent interest rates set out in Section IV, paragraph 4(a) of the PRGT Instrument would remain valid until the completion of the next review.

*IMF staff report, completed May 26, 2023.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023024.pdf_