Why IMF Lending Continues to Adapt

IMF Blog, October 9, 2023

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The world confronts "the weakest medium-term growth outlook in three decades" amid high debt levels, fragmented trade, and the prospect of higher-for-longer interest rates.
Countries face uncertainty from shocks related to the pandemic, war in Ukraine, climate change, and digitalization.
Many low-income countries are increasingly vulnerable due to tighter financial conditions, limited policy room, and dwindling buffers.
High debt burdens and a sharp increase in debt servicing costs—exceeding 40 percent of revenues in several highly indebted countries—constrain social spending and growth-enhancing investment, adversely affecting debt sustainability and social stability.
Vulnerable countries face a funding squeeze, heightened food insecurity, and slower convergence toward higher living standards.

The Fund has provided emergency financing and temporarily increased access limits for Fund arrangements.
The IMF approved precautionary financing arrangements and established a Short-term Liquidity Line as a backstop for members with very strong fundamentals.
A Food Shock Window was introduced in September 2022 to help countries facing urgent balance of payments needs related to food insecurity.
Since the pandemic, the IMF has deployed $1 trillion in global liquidity and reserves through its lending and the 2021 allocation of $650 billion in special drawing rights, or SDRs.
The IMF provided around $320 billion in financing to 96 countries.
Interest-free financing to low-income countries under the Poverty Reduction and Growth Trust increased five-fold to reach 56 low-income countries.
Economically stronger members channeled SDRs to more vulnerable countries, generating around $100 billion in new financing through IMF trusts such as the PRGT and the Resilience and Sustainability Trust (RST).

The IMF has lending commitments with 94 countries for about $287 billion, or SDR 218 billion. This includes:
- Precautionary facilities for seven emerging market economies for $93 billion
- Lending commitments for 35 emerging market economies for $134 billion
- Interest-free lending of $23.5 billion for 45 low-income countries
- $30.5 billion of outstanding credit on emergency financing for 77 countries
- Long-term loans of about $6 billion to 11 emerging market economies under the RST’s Resilience and Sustainability Facility
Around 40 more countries have requested or expressed interest in an RSF arrangement.

The IMF continuously assesses and improves its lending toolkit to address current and future challenges.
Precautionary instruments recently reviewed include the Flexible Credit Line, the Short-Term Liquidity Line, and the Precautionary and Liquidity Line; reforms aim to improve agility, capacity, and signaling power.
Access limits increased for some instruments; concurrent use will allow users to address different balance-of-payments needs.
For the first time, users of the Flexible Credit Line will not need to articulate a strategy for exit from relatively lower levels of access.
The non-financial Policy Coordination Instrument was reformed to improve flexibility and signaling power and to help catalyze external financial support from official and private sources.
Work on helping countries in or near debt distress continues, with additional debt policy reforms under consideration, including creditor cooperation and financing assurances, and support for members undergoing debt restructurings in extraordinary circumstances.
The IMF co-chairs the Global Sovereign Debt Roundtable to bring borrowing countries together with both official and non-official creditors.
Forthcoming reviews of conditionality and recommendations from the Independent Evaluation Office on exceptional access will inform strengthening of support and help unlock other funding sources.

Support vulnerable countries through policy advice, capacity development, and lending while recognizing limited fiscal space and politically costly reforms.
Align financing and adjustment to build credibility: avoid front-loaded financing with backloaded adjustment that undermines program credibility and completion of program reviews.
To help countries undertake and sustain adjustment, prioritize reforms and financing that pay off sooner in terms of growth.
Where debt concerns are acute, pursue debt restructuring and more grant financing as needed.
Deepen collaboration with the World Bank and other multilateral institutions to calibrate and sequence structural reforms under their core areas of work.

Ensure the IMF has the resources to effectively exercise its lending function.
Successful completion of the ongoing 16th General Review of Quotas is essential to secure the Fund’s general resources.
Close remaining fundraising gaps for the PRGT and RST to ensure lending to vulnerable countries can continue in adequate volume and on favorable terms.

IMF Blog post by Ceyla Pazarbasioglu, October 9, 2023.