Questions and Answers: The IMF's response to COVID-19
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Overview and objectives
- The IMF responded to the coronavirus crisis with “unprecedented speed and magnitude of financial assistance to member countries,” focusing on protecting the most vulnerable and setting the stage for inclusive and sustainable recovery.
- Last Updated: April 8, 2021.
- IMF support comprises policy advice, financial support, capacity development, and debt relief for the poorest.
- The Fund’s actions are focused on emergency financing; grants for debt relief; calls for bilateral debt relief and an SDR allocation; enhancing liquidity; adjusting existing lending arrangements; policy advice; and capacity development.
Emergency financing and lending capacity
- The IMF has temporarily doubled access to its emergency facilities—the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI—to meet increased demand from member countries).
- Emergency financing approved by the IMF’s Executive Board to date: 80 countries (record speed); with other lending arrangements the total number of countries approved is 85.
- The IMF has supported 86 countries with over $110 billion since the beginning of the COVID-19 crisis.
- Emergency financing has been provided to 81 countries drawing on the GRA and PRGT.
- Emergency financing can be disbursed up to 100 percent of a country’s quota in the IMF without additional conditionality after program approval.
- New Flexible Credit Lines approved since the start of the crisis total over $51 billion for Colombia, Chile, and Peru.
- The IMF has lent about $3 billion to Morocco through the Precautionary and Liquidity Line.
- In January 2021, the IMF approved a new $2.7 billion Precautionary and Liquidity Line for Panama.
- The IMF’s total lending commitments stand at over $285 billion with more than one third approved since late March 2020.
- The IMF stands ready to fully deploy its lending capacity of about $1 trillion to help member countries weather the crisis.
- The IMF’s overall lending capacity is about US$1 trillion; resource and governance reforms including a doubling of the New Arrangements to Borrow (NAB) and new Bilateral Borrowing Agreements (BBAs) are being implemented through 2023.
Grants, debt relief initiatives, and debt-treatment frameworks
- The Catastrophe Containment and Relief Trust (CCRT) extended debt service relief to 29 of the poorest and most vulnerable member countries for eligible IMF debt falling due between April 2020 and mid-October 2021.
- The CCRT provided upfront grants for three tranches covering eligible debt falling due to the IMF during one and a half years ending mid-October 2021; an additional tranche to extend relief through April 2022 would be provided subject to further donor contributions.
- The IMF has expanded the RCF (zero interest concessional emergency lending) access limits to respond to Low Income Countries’ urgent needs.
- The IMF is approaching bilateral lenders and donors to augment the PRGT’s resources; the PRGT’s annual lending envelope is SDR 1.25 billion.
- The IMF and the World Bank called on bilateral creditors to suspend debt service payments from the poorest countries on March 25, 2020.
- The G20 agreed to suspend repayment of official bilateral credit from the poorest countries on April 15, 2020 (Debt Service Suspension Initiative, DSSI), extended until end-2021 and covering 73 low- and lower middle-income countries that request suspension.
- In April 2021 the IMFC called on the IMF to make a comprehensive proposal on a new SDR general allocation of US$650 billion and to explore voluntary post-allocation channeling of SDRs to support members’ recovery efforts.
- The Common Framework for Debt Treatments aims to address sovereign debt burdens with broad creditor participation and comparable terms from other creditors; in early 2021 Chad, Ethiopia, and Zambia became the first countries to request treatment under the Common Framework.
- Historical note: The IMF delivered MDRI debt relief of SDR 2.3 billion to 30 qualifying countries; MDRI trust accounts have been unwound and no outstanding IMF debt is eligible for MDRI relief.
Policy advice, surveillance, and capacity development
- The IMF provides policy recommendations to overcome the crisis, protect the most vulnerable, and set the stage for recovery; it monitors developments globally, regionally, and at country levels.
- The IMF is providing real-time policy advice and capacity development to over 160 countries on issues including cash management, financial supervision, cybersecurity, and economic governance.
- IMF technical support includes helping tax administrations and budget offices restore operations and strengthen support to businesses and individuals while maintaining safeguards and accountability.
- The IMF has made online courses available with extended registration and completion timelines and launched a Learning Channel on YouTube with short on-demand microlearning videos.
- The IMF launched a Policy Actions tracker to provide updates on fiscal, monetary, and financial policy actions taken by countries.
Transparency, safeguards, and governance in emergency financing
- The IMF will monitor implementation of policy commitments tied to emergency lending, including re-orientation of spending toward crisis-mitigation efforts.
- Commitments to enhance transparency and accountability may include:
- undertaking and publishing online an independent ex-post audit of crisis-mitigation spending;
- publishing procurement documentation for crisis-mitigation spending online, including names of companies awarded contracts, their beneficial owners, and validation of delivery.
- All countries receiving emergency financing must commit to undertaking a “Safeguards Assessment” of the central bank’s governance, reporting, and controls; assessments are conducted after disbursement but before approval of subsequent financing under multi-year arrangements.
- Governance and anti-corruption measures are to be included in multi-year arrangements where applicable, consistent with the 2018 Framework for Enhanced Fund Engagement on Governance.
- Country commitments in transparency and accountability are noted in the IMF’s COVID-19 Financial Assistance and Debt Service Relief Tracker.
Fiscal and monetary support, macroeconomic impacts, and financial stability
- The April 2021 Fiscal Monitor estimates that global fiscal support reached nearly $16 trillion.
- In 2021, many governments in advanced economies are implementing sizable spending and revenue measures equal to 6 percent of GDP, on average.
- Average overall deficits as a share of GDP in 2020:
- 11.7 percent for advanced economies;
- 9.8 percent for emerging market economies;
- 5.5 percent for low-income developing countries.
- Central banks’ balance sheet expansion by some countries amounted to about $10 trillion.
- About half of central banks in emerging markets and lower income countries have cut policy rates.
- Central banks provided additional liquidity, enhanced U.S. dollar liquidity via swap lines in some cases, and launched broad-based asset purchase programs, including purchases of riskier assets such as corporate bonds, acting as “buyers of last resort” to contain credit-cost pressures and maintain credit flows.
Resources, lending modalities, and eligibility
- IMF finance is drawn from:
- General Resources Account (GRA), consisting of IMF quota and borrowed resources and available to all members;
- Poverty Reduction and Growth Trust (PRGT), which borrows from IMF members and on-lends to low income countries on concessional terms.
- The PRGT’s annual lending envelope is SDR 1.25 billion and is separate from the accounts of the IMF.
- The IMF evaluates financing based on balance of payments need, strength of economic program, past use of IMF resources, repayment capacity, and other available financing sources.
- Precautionary financing and credit lines remain available for countries with no current balance of payments need but potential future needs (e.g., Flexible Credit Line (FCL) and Precautionary and Liquidity Line).
- The IMF is working to raise additional resources to expand concessional lending to low income countries and is discussing further options to support LICs.
Climate, conditionality, and medium-term recovery
- In the immediate crisis-containment phase, scope to implement green recovery plans may be limited; as countries move to recovery, green recovery plans may be reflected in IMF-supported programs where structural reforms are critical for macroeconomic developments.
- Possible reforms include public investment in climate-smart technologies or adaptation (e.g., irrigation), drafting a medium-term climate plan, or financing additional climate spending with green bonds.
- Conditionality is not predetermined; a reform is included only if deemed critical to achieving program goals, monitoring implementation, or needed to implement IMF Articles of Agreement or policies. Program design and conditionality are tailored to country circumstances and facility provisions.
- IMF research indicates that gradually removing fuel subsidies could result in up to 4 percent of global GDP in additional resources over the medium term.
- The IMFC in April 2021 stressed the IMF’s role in guiding members on macroeconomic and financial implications of climate change. IMF commitments include:
- integrating climate in Article IV consultations (adaptation focus in highly vulnerable countries; mitigation analysis including carbon pricing for large emitters);
- including climate-related financial stability risks in financial sector surveillance (standardized disclosure, stress tests, supervisory framework assessments);
- scaling up climate in capacity development for finance ministries and central banks;
- mainstreaming climate indicators in macroeconomic data, and launching a Climate Change Indicators Dashboard.
Content in this bundle
- External Sector Report
- Chapter 2. Executive Summary. IMF Fiscal Monitor, October 2020
- Chapter 3: Mitigating Climate Change—Growth- and Distribution-Friendly Strategies
References