Stepping Up to Meet Low-Income Countries’ Pandemic Recovery Needs

IMF Blog, July 26, 2021

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The pandemic caused output growth to stop or reverse, living standards to decline, poverty to increase, and threatened a decade of solid progress in low-income countries.
Financial assistance to 50 low-income countries reached $13 billion in 2020 compared to an average of $2 billion a year pre-pandemic: a more than sixfold increase.
The IMF provided $739 million in grant-based debt service relief to 29 of its poorest and most vulnerable members.
Three-quarters of the new lending came from the Poverty Reduction and Growth Trust (PRGT) — the IMF’s vehicle for zero-interest loans to low-income countries.
Most PRGT assistance was in the form of emergency disbursements with limited conditionality focused on ensuring transparent use of the resources to address pandemic-related needs.
IMF assistance was crucial for many low-income countries that entered the pandemic with limited financial means to support lives and livelihoods.

Increased access to concessional financing for all low-income countries: Limits on normal access to PRGT resources have been raised by 45 percent.
Uncapped access to concessional financing for the poorest countries: Access will no longer be subject to maximum levels for poorer countries with strong economic programs that meet the criteria for obtaining above-normal access levels.
Retention of zero interest rates for all PRGT facilities: Interest rates on all PRGT loans, reviewed every two years, will be kept at zero until July 2023.
Reinforced safeguards to protect low-income countries from over-indebtedness: IMF program design will pay added attention to the debt levels of countries at risk.

Total IMF lending to low-income countries is projected to reach around $48 billion during the pandemic and its immediate aftermath.
PRGT credit outstanding could peak at $32 billion in 2025-26 (chart, black line).
There are significant uncertainties around the timing and strength of economic recovery, and the possible demand for Fund concessional support (blue shaded area).
IMF loans will meet only a fraction of the external financing needs of low-income countries; bilateral donors and multilateral development agencies must also step up through bilateral aid and support for the IMF’s fund-raising efforts.
To maintain sustainable levels of debt, much financing will need to come through grants and highly concessional lending.

Stage 1:
- Mobilize a further $18 billion in PRGT loan resources.
- Mobilize $3.3 billion in new bilateral contributions for subsidy resources to allow continued lending through the PRGT at zero interest rates.
- Donors will be offered various, flexible mechanisms for providing subsidy resources.
- Use of IMF internal resources of about $0.7 billion will complement donor contributions.
Stage 2 (in 2024/25):
- By 2024/25—by which time current economic uncertainties are expected to have receded—the IMF will decide on the size of the PRGT and associated funding mechanisms for the long term.
- Use of existing and new SDRs is expected to facilitate the funding effort.

The IMF has increased access to financing and set a long-term vision for concessional lending while reinforcing safeguards against over-indebtedness.
Donor participation is critical: the IMF has opened the door for donors to play their part through subsidy contributions and support for concessional lending.
The sums required are large, but the alternative—inaction—would exact a far larger human and economic cost.

Source: Stepping Up to Meet Low-Income Countries’ Pandemic Recovery Needs — IMFBlog, July 26, 2021