IMF Concessional Financing Support for Low-income Countries

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Q1. What has the IMF done to help low-income countries during the coronavirus pandemic?

• The IMF has acted with unprecedented speed and scale to support low-income countries during the pandemic. The Fund provided financial support to 53 of 69 eligible low-income countries in 2020 and in the first half of 2021, with about US$14 billion disbursed as zero percent interest rate loans from the Poverty Reduction and Growth Trust.
• Most of this support was through the Fund’s emergency financing instruments—the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI)—which provide immediate, one-time disbursements to countries facing urgent balance of payments needs. The Fund was able to respond to a record number of requests for financial assistance through a series of temporary access limit increases to the RCF and RFI, and temporary increases in the Poverty Reduction and Growth Trust (PRGT) overall access limits.
• In addition, 29 of the Fund’s poorest and most vulnerable countries received debt service relief through the Catastrophe Containment and Relief Trust (CCRT). To date, the CCRT delivered grant-based relief totaling US$739 million for debt repayments falling due to the IMF between April 2020 and October 2021. This relief provided additional breathing room for these countries to spend on pandemic related priorities.
• Independently from the pandemic, the IMF also approved substantial debt relief to Somalia and Sudan under the Highly Indebted Poor Countries (HIPC) initiative. Both countries cleared their arrears to the IMF and the World Bank, allowing them to resume financial engagement, and reached the HIPC Decision Point in March 2020 and June 2021, respectively. The total debt relief from the IMF to these two countries will amount to US$1.7 billion (including interim assistance).

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Q2. Why are the reforms to the Poverty Reduction and Growth Trust (PRGT) important and how will they benefit low-income countries?

• The Fund provides concessional financial support through the PRGT, which is tailored to the diverse needs of low-income countries.
• The demand from LICs for IMF financial support is expected to remain high over the next few years, including from countries that have already received substantial emergency support since the onset of the pandemic. The reforms approved on July 14, 2021 ease the constraints on providing concessional (zero interest) financing to LICs, enabling the Fund to provide higher levels of such support to LICs that seek to implement strong economic programs to recover from the pandemic and set the stage for inclusive and sustainable growth.

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Q3. What exactly are the approved reforms?

The Fund passed several key reforms to the PRGT on July 14, 2021:

• First, low-income countries will have increased access to concessional financing. Normal access limits on PRGT resources have been raised by 45 percent—from 300 percent of quota to 435 percent of quota. At the same time, the hard limit on access by the poorest countries has been eliminated, allowing them to receive all support from the IMF through the concessional PRGT when their economic programs are assessed to warrant exceptional levels of assistance.
• Second, interest rates on PRGT loans will remain at zero, at least through July 2023. This allows low-income countries to obtain financial assistance on more favorable terms than borrowing at market rates or borrowing from the Fund’s General Resources Account (GRA).
• Third, the scope of the reforms include (i) a simpler and more robust framework to support better-off low-income countries to access blended financing, i.e., borrowing from both concessional PRGT resources as well as from the Fund’s non-concessional GRA and (ii) stronger safeguards to help protect sustainability of public debt in borrowing countries.

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Q4. What is the planned scaling up of the PRGT and how will it be financed?

• Low-income countries’ financing needs are expected to remain high over the next few years. While the Fund’s financial support is intended to cover only part of a country’s financing gap resulting from balance of payments needs, it also plays an important role in catalyzing grants and highly concessional loans from other development partners. The onset of the coronavirus pandemic led to a surge in lending, with IMF lending commitments to low-income countries growing to over six times the annual average of the past decade.
• The unprecedented volume of concessional lending to low-income countries since the onset of the pandemic and the expected high demand over the next few years far exceeds what had been anticipated prior to the crisis. This has created a sizable resource gap in the PRGT.
• The Fund’s Executive Board approved a two-stage funding strategy to cover the costs of pandemic-related lending and ensure the financial sustainability of the PRGT. In the first stage, the IMF will seek to secure about US$4 billion in subsidy resources needed to finance zero-interest lending from the PRGT. About US$0.7 billion of this will be drawn from internal Fund resources. This will be combined with voluntary subsidy contributions totaling US$3.3 billion from the Fund’s economically stronger members.
• In addition, the Fund will seek to mobilize about US$18 billion in new PRGT loan resources from PRGT lenders. These resources are borrowed from the lenders to the PRGT and lent on to low-income countries.
• In the second stage--planned for 2024-25--the Fund will seek a longer-term solution to its concessional financing model, including possible use of Fund internal resources. This will be informed by an updated assessment of demand from low-income country members for Fund financing. In the meantime, the evolution of demand and PRGT resources will be monitored carefully and contingency measures to address potential resource shortfalls will be taken if necessary.

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Q5. What are the options for member countries who would like to contribute financially to strengthen PRGT finances?

• Development partners have a key role to play in assisting low-income countries during these difficult times. The Fund is approaching economically stronger member countries in a broad burden-shared fundraising effort to secure subsidy contributions of about US$3.3 billion and new loan resources of about US$18 billion to finance the cost of pandemic-related concessional lending.
• Donors will have flexibility about how and when they deliver their subsidy contributions which could be pledged upfront and disbursed over time. Options for donors include pledging budgetary grants, investment agreements that will generate returns to be used for subsidization resources, donating interest earned on their SDR holdings, and providing PRGT loans at below market rates.