IMF Support for Low-Income Countries

September 24, 2019

The IMF provides broad support to low-income countries (LICs) through surveillance and capacity-building activities, as well as concessional financial support to help them achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth. Concessional support through the Poverty Reduction and Growth Trust (PRGT) is currently interest free.

How does the IMF support LICs?

Surveillance activities involve the continuous monitoring of members’ economic and financial policies. Discussions with country authorities focus on how their economic policies affect stability and explore desirable policy adjustments. Capacity-building activities focus largely on how LICs can boost domestic revenues, manage public finances and monetary policy, regulate the financial system, and develop statistical systems to help them implement sound policies and good practices, as well as progress toward the United Nations’ Sustainable Development Goals.

Which IMF instruments can be used to provide support to LICs?

 All IMF members have access to the General Resources Account on non-concessional terms, but the IMF also provides concessional financial support through the (PRGT), which is better tailored to the diversity and needs of LICs. Poverty reduction strategies that detail policies to promote growth and reduce poverty are essential to IMF-supported programs in LICs. The PRGT has these three concessional lending windows:

  • Extended Credit Facility (ECF): Sustained medium- to long-term engagement in case of protracted balance of payments problems

  • Standby Credit Facility (SCF): Financing for LICs with actual or potential short-term balance of payments and adjustment needs caused by domestic or external shocks or policy slippages—can also be used on a precautionary basis during times of increased risk and uncertainty

  • Rapid Credit Facility (RCF): Rapid financial support as a single up-front payout for low-income countries facing urgent balance of payments needs—possible repeated disbursements over a (limited) period in case of recurring or ongoing balance of payments needs.

     

    For policy advice and signaling, countries may request nonfinancial assistance under the Policy Support Instrument (PSI), which helps LICs that are in a broadly stable macroeconomic position and thus not in need of IMF financial assistance. The PSI can expedite access to the SCF in case financial need arises.

Poverty Reduction Strategies

Poverty reduction and growth strategies are used in IMF-supported programs to (1) link proposed program policies with the member’s poverty reduction and growth objectives, (2) preserve national ownership of the poverty reduction strategy process, and (3) provide flexibility in scope and coverage to reflect particular country circumstances. These documents are required for completion of reviews under IMF-supported programs under the ECF, and also those under the SCF and PSI with an initial duration of more than two years.. Reaching the Heavily Indebted Poor Country decision or completion points also requires meeting Poverty Reduction Strategy requirements. IMF work on poverty reduction issues draws heavily on World Bank expertise and advice. 

 

What are the lending terms?

All lending facilities (ECF, RCF, SCF) are concessional. These facilities have different maturities and grace periods and  are currently interest free. In 2015, the interest rate on RCF financing was set permanently at zero to further enhance support for PRGT-eligible countries in fragile situations and those hit by natural disasters. Financing under the ECF and SCF carries a zero interest rate at least through June 2021, with a grace period of 5½ years and 4 years, respectively, and a final maturity of 10 years and 8 years, respectively. The Fund reviews the level of interest rates for concessional facilities under the PRGT every two years based on the PRGT interest rate mechanism, with the next review expected to be completed no later than end-June 2021.  

How is the PRGT funded?

Funds for PRGT lending are obtained through bilateral loan agreements at market interest rates. Subsidy resources make up the difference between the market rates received by lenders and the concessional rates paid by LIC borrowers. The PRGT is designed to be financially self-sustaining over the long term. It can support annual average lending of about SDR 1¼ billion (about $1.7 billion), which broadly equals the funds committed to LICs in 2009–18 on average.

Is additional support available for LICs hit by large natural disasters?

In February 2015, the IMF repurposed the Post-Catastrophe Debt Relief Trust, through which the IMF joined international debt relief efforts for very poor countries hit by the most catastrophic of natural disasters, into the Catastrophe Containment and Relief Trust. Under the new trust the IMF can join international debt relief efforts for poor countries hit by the most catastrophic of natural disasters and assist those battling public health disasters—such as infectious diseases epidemics—with grants for debt service relief. Three Ebola-afflicted countries (Guinea, Liberia, Sierra Leone) received such assistance, totaling about $100 million in February and March 2015. Further, annual and cumulative access limits under the RCF are higher for cases of large natural disasters (with assessed damages of 20 percent of GDP or more) than for other RCF lending.