IMF Concessional Financing through the ESAF
The IMF has provided financial assistance on concessional terms to low-income member countries since the mid-1970s, first through the Trust Fund, and then through the Structural Adjustment Facility (SAF) and the Enhanced Structural Adjustment Facility (ESAF). The ESAF was replaced by the Poverty Reduction and Growth Facility (PRGF) in November 1999.
The IMF has sought to respond to the balance of payments difficulties confronting many of the world's poorest countries by providing concessional financing. From the mid-1970s, such assistance was made available through the Trust Fund. Beginning in March 1986, concessional financing was provided through the Structural Adjustment Facility (SAF), and then through the Enhanced Structural Adjustment Facility (ESAF) beginning in December 1987. In December 1993, the ESAF was enlarged and extended. In September 1996, the ESAF was made a permanent (rather than a temporary) facility, and the centerpiece of the IMF's strategy to help low-income countries. In addition, the IMF's participation in the initiative to lower the debt of the heavily indebted poor countries (HIPCs) was initially linked to special, more concessional ESAF operations.
Under the Trust Fund, SDR 3.0 billion (about $3.8 billion) was disbursed between 1977 and 1981. During the SAF's operation, between March 1986 and December 1995, SDR 1.8 billion (about $2.4 billion) was disbursed. Between December 1987 and November 1999, SDR 7.6 billion (about $10.7 billion) was disbursed under 90 ESAF arrangements to 52 countries. Altogether, 56 low-income countries benefited from the IMF's concessional assistance under the SAF and ESAF, affecting nearly one billion people, at least half of whom survived on less than $1 a day.
How the ESAF Operated
Eligibility was based principally on a country's per capita income and eligibility under the International Development Association (IDA), the World Bank's concessional window. A total of 80 low-income member countries were eligible for ESAF assistance.
An eligible country could borrow up to a maximum of 140 percent of its IMF quota under a three-year arrangement, although this limit could be increased under exceptional circumstances to a maximum of 185 percent of quota. Loans under the ESAF carried an annual interest rate of 0.5 percent, with repayments made semiannually, beginning 5½ years and ending 10 years after the disbursement.
ESAF operations were financed mainly through contributions from a broad cross-section of IMF member countries in the form of loans and grants to the ESAF Trust, which was administered by the IMF. Contributions committed to the Loan Account of this Trust, which held loan resources from ESAF creditors for onlending to ESAF-eligible members, totaled SDR 10.0 billion (about $14.0 billion), of which SDR 7.3 billion ($10.1 billion) had been drawn as of November 22, 1999.
Why the PRGF replaced the ESAF
In 1999, the Poverty Reduction Strategy Paper (PRSP) was introduced as a participatory, country-led mechanism to more sharply focus countries' poverty reduction efforts. It was intended that the PRSP approach would bring about substantive changes in the way countries' economic plans were formulated. These changes would include policies that are more clearly focused on growth and poverty reduction, a full integration between the poverty reduction and macroeconomic elements of the program, and greater degrees of participation by civil society and national ownership, which in turn would lead to more consistent policy implementation.
Agencies providing external assistance needed to change the way in which their programs supported the efforts of national authorities. To mark the change in content and process for IMF concessional support, the Poverty Reduction and Growth Facility (PRGF) was introduced in November 1999 as the key instrument for the Fund to support member countries in implementing the PRSP approach. The Fund's support would become more narrowly focused on the institution's core areas of expertise, but at the same time more consistent with the broad approach to poverty reduction and with enhanced country ownership.
More information on the PRGF is available at /external/np/exr/facts/prgf.htm.